Random Thoughts-Market Update
I’ve been amazed at the number of new bulls coming out of the woodwork recently as the market approached its recent highs. Yes, it worked its way higher but it did so without much vigor. When a market drifts higher, it only takes a few big down days to eradicate weeks of gains. And, that’s exactly what just happened. The slide over the last few days puts the indices back to where they were in late March/early April. Longer-term the net net change doesn’t look so good either. The Ps (S&P 500) and Quack (Nasdaq) are less than they were back in late 2014. The broad based Rusty (IWM) is less than it was in late 2013.
All of the indices, especially the Rusty, have overhead supply to deal with. See recent Market In A Minute videos, Week In Charts, and columns for a lot more on this.
A “bull market” means that the market is making forward progress. I know, duh, but how can you be bullish if the market isn’t making forward progress?
I don’t try to outsmart markets. What is, is. I follow. That’s what a trend follower does. And, in order to follow a trend you must first have a trend to follow. Draw your arrows going back a couple of years. If this is a new bull market then shouldn’t the market be trading higher than it was? Shouldn’t it be able to plow through the overhead supply and make new highs?
The sector action isn’t looking so hot. Those areas that did manage to make it to new highs have come right back in. Other areas that have been in longer-term downtrends have turned back down. Rather than re-invent the wheel, watch the aforementioned videos.
So What Do We Do?
Big Dave, you seem bearish. Well, it’s dangerous to label yourself because you end up painting yourself into a corner. I’m pretty much " go with the flow." Like Salt n’ Peppa pushing it, as a trend follower, that’s what you do. That’s how I got the nickname Trend Following Moron. For now, it doesn’t look so hot-any idiot (or moron) can see that-but let’s see what today and the next day brings. I’m not a raging bear. I’m just being cautious. In fact, at the present time, we do not have any shorts in the open portfolio. When the time comes, we will. And, judging from current conditions, we might not have to wait that long. Right now it’s a market of stocks and not a stock market. You can’t blindly buy anything. Proper stock selection is key. I know it’s cliché’ but you really have to pick the best and leave the rest in this market. Sometimes, this means sitting on your hands—something I wish someone would have told me was okay to do 20-something years ago. Remember, the hard part is not knowing what to do. The hard part is you.
May the trend be with you!
Dave Landry