Investors were clearly on edge yesterday as the historically worst month for the market struck the bulls on the first trading day.
After an initial pop, it was straight downhill from there with no chance for a late day turnaround lurking in the wings. Everyone has been talking about the “bad” September and now that it’s here, we’ll have to see how it turns out. It’s only one trading day, and that does not indicate that a major trend reversal is at hand.
Our Trend Tracking Indexes (TTIs) retreated but remained comfortably above their trend lines and in bullish territory:
Domestic TTI: +5.57%
International TTI: +11.81%
Hedge TTI: +2.20%
Financials were the weakest sector and even relatively strong August auto sales could not reverse downward momentum. Of course, it’s the best kept secret that auto sales only showed strength because of the cash for clunkers stimulation gimmick.
It’s too early to tell if some sense of economic reality is finally setting in, or if this sell-off turns out to be short-lived with the bulls taking over the helm again.
In the end, what really matters is that you have a plan in place to deal with whatever scenario the markets throw at you. Not having such a strategy could be dangerous to your financial health.
Comments 8
Ulli,
I just saw an interesting piece in Kiplingers Personal Finance magazine, October 2009, pg. 42. Columnist Jeremy Siegel, professor at the Wharton School of Business and author of Stocks For The Long Run and The Future For Investors, makes the case for the current and future bull market.
To paraphrase him, nothing has ever held the U.S. economy down for long, Wall St. is right in that there will be a recovery in the economy in 2010 and beyond. Earnings will be up considerably in 2010. And there is a ton of money on the sidelines in money market funds earning close to 0%.
I'll leave it up to you as to whether or not you want to post the entire column.
Ulli,
I liked what Chucky said, but anyone can find a case for a bull or bear market written by someone any day of the week year after year. Just look at how many financial analysts were calling the bottom from mid-2000 all the way down and how many did the same during the crash of 2008-2009 so far. We usually find what we want to see, which usually stems from wishful thinking.
Ulli,
It seems that Joe Sixpack as my friend calls the common investor, has tightened his/her belt due to loss of income fear of losing their job or already have lost it. Since the retailers have had to mark their merchandise prices down to entice buyers, just maybe the stock prices will have to be marked down as well get the money to come in from the sidelines.
It's true that there are so many conflicting opinions as to whether the markets will rise or fall. There are good cases to be made on either side. It seems to me that, up until now, the big money is betting on this bull.
It's like the debate over health care, or the former Bush/Cheney bashers vs. the new Obama bashers. So much partisanship. Opnions are like well…….let's say belly buttons, as I know so many children follow this blog.
I think that's why I like trend following. You can ignore the opinions and react only to what the market is actually doing. That is, if you can stick to your strategy and not let your emotions rule you. I can't, LOL. I sold out Thursday. I hate a directionless market and it makes me nervous. I'll probably buy back in on any slight correction. Maybe I'll buy back in next week no matter what. I admit that I was in in June and sold out early July on a slight correction, only to get back in in early August. I don't seem to have the stomach for even a small (5%) loss. Subsequently, if I get down 3-4%, I usually pull the plug.
Am I hopeless?
Its fairly obvious that Wall St has decoupled from Main St. Wall St became commercial banks and stood in line to get all kinds of gov benevolence to keep them out of bankruptcy as the alternative getting it from Buffet like GS did cost them dearly. Actually they still are getting unlimited funds from the FED at almost no cost of .05% and loaning it out at whatever for a tidy profit that coupled by the billions in fees they are raking in unwinding AIG and other failed firms as well as the gov payouts thru AIG to GS of 12 billion. No wonder The Street is making record profits. On the other hand this same group is bad mouthing every activity by the gov not directed to fill their coffers.
Disconnection Wall St is making record profits wile a large part of the nation is becoming paupers. Will this ever show up in the 70% consuerism. Beats me!!! I am sure Wall St can always devise and outmauver Main St to make obcene profits. The trick is to follow that trend right down to the point that Amer$ca is a third tier country. Whether the recovery is V or W or U or L depends where you happen to be on that road to the brass ring. I think more and more of us unfortunately will become part of the L recovery.
To follow the trend one must blindly follow that chart and leave reality aside when one enters Oz or Wonderland and try not to make sense of the deeper trend. The surface profit and chart is sufficient to extract profits. I sadly cant seem to make that distinction for one.
What I found strange (although not really, anymore) about today, Friday, September 4th's, market was that yesterday, after the market was closed, I believe, the government announced that unemployment has risen to 9.8 percent. This was an unexpected increase. Yet today's market ignored that news and right away, about 10 a.m., took off and the Russell 2000 rose 1.4%, the S&P; 500 rose 1.3%, and the NASDAQ rose 1.8%. I know we hear all the blah, blah, blah about unemployment being a lagging indicator, but if people don't have jobs, they don't have money to stimulate the economy to stimulate the companies that are in the stock market, it seems to me.
However, this continues to prove to me that news, nowadays, means very little to investors in the market. I invest in options, so movement is of utmost importance to me. To predict movement, whether options or stocks, I think the best way is to use technical analysis. Using the technicals, like the Bollinger Bands and Parabolic SAR, I can see how Ulli was absolutely correct to get his clients out of the market in June of 2008. What I can't see is why other money managers didn't do the same thing. The handwriting, on the wall, was clear.
Right now, it seems to me the handwriting is not clear, so I think Ulli's stop loss is the only way to go, whether it be with options, like I use, or with other investments like stocks. And I think stop loss is the only way to go no matter what the technicals seem to say; technicals can be wrong, or we can read them wrongly. Otherwise, without having stop loss, just one bad day can give you a "really bad hair day." And even I, as a man, want to keep my hair and don't like those kind of "bad hair" days.
Been trying to weigh the opinions this past week. Information overload, as usual. Various stories/columns on MSN.com, both bullish and bearish. Interesting facts:
1. 70% of the TARP money has been repaid by the banks, at a profit to the govt.
2. 80-90% of the approved stimulus money has not even been disbursed yet. This money is predominantly the money for road and bridge construction, tax cuts for the poor and very middle class, and increased tuition write offs.
3. Head economist from Morgan Stanley (I believe that's where he was from) predicts the stimulus money that's in the pipeline will create 2 million jobs by the end of 2010.
Hasn't it always been said that the market leads the economic rebound by about six months?
The phrase "the maket climbs a wall of worry" has never been so true.
The why do I feel so worried? LOL.
Buffett was right, as usual, be greedy when others are fearful, and fearful when others are greedy. The easy money is the first 30-40% made off the very bottom. I'm not saying anyone can predict the bottom, as it is all hindsight. But the next time they say we are on the verge of economic collapse, the credit markets are frozen, a couple of big banks will fail, and the new president is a manchurian candidate, a Kenyan citizen AND a socialst, I'm all in. That's the type of news you need to get rich.
Ulli,
People can only hide from going broke so long until all their many credit cards are maxed out, their home equity loan, 2nd mortgage, and personal loans all jump up and bite them. Then what happens next. I believe it is hidden, but will surface soon especially with the job loss and hours being cut back and one or both spouses being unemployed with a high debt budget being dependant of both working.