Beautiful whipsaw by Mr. Market, a close cousin of Mr. Toad
in the sense both love to surprise and to spring traps.
This is good action.
It serves to shake out recent buyers, both those who bought yesterday
and those who bought the day before.
In my opinion, there's a decent chance we close green today.
If I were Joe Namath, I'd go out on a limb and guarantee a
green close.
(a) Today's rally was driven less by institutional demand (low volume), and more by panic (under-exposed short-term traders + squeezed shorts).
ReplyDelete(b) As mentioned previously, the most violent rallies occur in bear markets. A three-day rally of +7% in EEM (emerging markets) fits the profile.
(c) Whether it's the beginning of a bear, or a return to the bull - we're almost certain to retest Monday's lows.
Trading is based on probabilities. Right now, I'm more interested in capital preservation than capital gains.
As of today's close, I'm back in the green-> +0.5% versus -2.9% for the world index, or +3.4% ahead of my benchmark.
The cross-currents on Friday included a disappointing earnings report from AAPL (Apple), the jobs report (good, but increases the odds of a rate hike in December), and confusion re progress on trade talks with China.
ReplyDeleteI decided to ignore the news, and watch the close. In my opinion, fund managers were distributing stocks to buyers who had missed the preceding three-day rally. Friday was probably not a good day to buy.
Let's revisit last Monday. I sold into an accelerated downdraft near the close, only to reopen positions at higher prices on Tuesday. Was that smart? It was damned smart! No one has a crystal ball, and given the brutal selling/precarious condition of markets in the final hour on Monday - the odds of a major gap down (let's say -7% to -10%) the following morning were high. I'm not willing to bet my money under those conditions - I will walk away (which is what I did). When the risk dissipated on Tuesday, note that I immediately bought back in.
The October declines in the FANG complex were constructive in my opinion, and if I were a younger guy would consider opening positions in FB (Facebook), AMZN (Amazon), NFLX (Netflix) and GOOG (Alphabet) at current levels.
ReplyDeleteInstead, I'm an older guy with a bias toward capital preservation, and will settle instead for reopening positions in VEIEX (emerging marekts) and VTWSX (world index) at the close.
My 'read' on crowd expectations are that Democrats will regain the House on Tuesday, which will cause the markets to sell off. (Being contrarians, we will trade against the expectation that markets will sell off...irrespective of election results.) The crowd also expects the SPX to retest 2603. (A retest is indeed likely, but will probably occur only when no longer 'expected.')