What will stop the carnage?
The long Fourth of July weekend will help. No one wants to be exposed either long or short over a four-day market holiday. I expect to see squaring of positions and declining volumes over the next two days as U.S. traders get ready for the weekend.
An oversold bounce next week is likely. The Standard & Poor’s 500 has dropped almost 200 points—18%–from the April 23 high at 1217 to today’s close at 1031. That’s a lot of plummeting in a very short period. That’s usually good for a bounce or two.
The beginning of earnings season on July 12. Earnings from individual companies could take some of the attention away from disheartening macroeconomic news. If worry about macroeconomic growth is what’s driving stocks lower, then a decent earnings report or two would help to convince at least some investors that not every company is headed into the dumpster.
European bank stress tests around July 16. If most of the Euro Zone banks pass the test, it will relieve the pressure on the entire sector. The problem right now is that everybody is worried about every bank. (For some good news on Stress Test Lite see my post https://jubakpicks.com/2010/06/30/deja-whew-european-banks-dont-look-quite-so-troubled-this-morning/ )
The successful IPO of the Agricultural Bank of China and the follow on stock offering from Banco do Brasil, the biggest bank by assets in Latin America, within the next two weeks would demonstrate that banks—well, some banks—can raise money in the capital markets.
Unfortunately, I don’t think these events add up to enough to turn the trend upward for more than a few weeks. Looking out further, I think this down turn—certainly now a correction and heading for worse—has further to run over the next two to three months.
It’s going to take real evidence that economic growth isn’t collapsing in developed economies and seriously slowing in the developing world to turn the trend around.
mhebert69 – yeah, right — did you read Jim’s recent article about job creation?
Tom, this market has been trading on technicals — computer-driven trading based on broad market inflection points. The fundamental stories for individual stocks are too clouded by global uncertainty to be usable, at this point, in stock market analysis. But, one can still trade on technicals, as many here have advocated over the past few months. 100% cash — why not if you’re gambler and esp in the interim — find entry prices for stocks you want to own and wait for the turn-around to buy.
yx – get over yourself
bobisgreen,
Wait until next week. That will be prime short buying time. 😉
javos,
You are correct. I decided against doing any buying for exactly the reasons you stated.
I went mostly cash the end of April. Since then I’ve picked up a few low-liquidity, small cap stocks that are significantly undervalued. For the most part when people dump and run, they do it in the large cap everyday names. Often these little guys can just hide in the corner and watch the carnage in the middle of the room. Of the money I have in the market, almost half of it is in leveraged negatively correlated ETFs. I gave up trying to pick individual stocks to short a long time ago. So far it’s working out fine. On down days I’ve almost always been up about half the percentage the market indices are down. On up days I’m usually up a little bit. Since the beginning of May (which I mark as about the beginning of this latest drop), I’m up 0.9% (plus the minuscule amount of interest I’ve gotten on the roughly 80% cash position), which I consider just fine considering what the market has done since then.
For what it’s worth; whatever floats your boat, and whatever non-committal other remarks you’d like to add. I’m thinking I might drop TZA (3x negative Russ) tomorrow and step back to it’s smaller brother TWM (2x negative Roth) tomorrow, or maybe go larger cap with SDS (2x negative S&P). TZA has done spectacularly this week, but I’m getting a little nervous holding it longer. That’ll just be a kind of take-some-of-the-money-and-run action.
What the heck, I just sold it — I’ll look at a replacement short later today or tomorrow.
U. S. economy news may be light next week, but God only knows what may transpire in D.C., Europe, China, Iran, etc.
NEVER, NEVER think you can pick a stock or ETF and relax. This is a VERY impenetrable, VERY volatile world economy and market. Use trailing stops! And don’t get greedy!
Another day, another anti-Obama screed posted to what is ostensibly an investing website. By the way, speaking of “anti-wealth”, how about a system that has us paying over one-sixth of our GDP in health care costs–that’s 50% more than the next highest country. Now that’s anti-wealth.
javos, Christopher, mhebert69:
ALL well said!
bsdgv:
Maybe I should be included in that group too. Regular readers may have noticed that I have been very critical about the direction the country is going in the last few months. (I posted several very long comments about real estate, job creation and law suits, etc.) I got criticized by a few for saying that. Some even responded with mudslinging. Sorry for this self-congratulatory.
Bounce, baby, bounce! Time to take a little profit (or minimize losses) and pull a page from Ed’s book…let’s see what was that favorite ETF of his??? come on, you ole bear where are you?
bsdgv,
The funny thing is that nearly any economic theory that’s espoused, be it Keynesian or Austrian or somewhere in between, all pretty much say the same thing: Our governments and central banks (both U.S. and EU) are all doing the WRONG things.
You and I may not agree on politics, but we both can plainly see that the politicians of the world don’t have our best interests at heart. To put it bluntly, we’re screwed. The markets just reflect this.
At this point in time, please allow me to give some credit to EdMcGon and a few other people (including myself) for foreseeing the overall direction of the economy, hence the markets. Did we get lucky? Or, just like a broken watch, do we tell the time twice daily very precisely? I don’t think so. Thank you EdMcGon et al and please forgive me for being self-congratulatory.
Jim,
I could not agree more! Both McClellan indicators (short and intermediate) are moving towards oversold. By Friday, the short McClellan will definitely be there (assuming the market continues it’s downward trend).
The VIX is also a little high. Unless something significant happens, and we still have all the usual suspects out there, there could be a short squeeze in the near future.
For all you gamblers out there, I may go bull for a week, or less. I will pick up a few broad market ETFs, then sell them next week. The other thing Jim didn’t mention is that it’s a fairly light week for economic news next week, making the market’s shock potential less significant. The only thing I’d be concerned about is the Fed’s money supply report next Thursday, but that will be released after the market has closed.
This is NOT a “get rich” play. This is a “pick up a percent or two in a week” play. Don’t bet the house and the dog on this.
Jim:
Quick question. In the stocks you recommend, do you invest the same dollar amount or purchase the same number of shares?
I don’t believe anyone would be so foolish or arrogant to believe one can “time the market” closely. As “Mhebert” says however, one can minimize losses. Using trailing stops can help mitigate “becoming married” to a stock or ETF. Remember this maxim: “Discipline over conviction”, which means sell when a position moves against you regardless how convinced you are that it’s a good position. A corollary is “don’t fight the tape.” There are a LOT of good companies out there that will lose you money simply because the market has moved against you. Stay alive to invest another day.
Christopher,
Government should NOT be in the business of creating jobs, but have the leadership to create a pro business, pro capitalist atmosphere and laws to support it where business and innovation can thrive. The economy should be first and foremost in this Presidents mind. NOT healthcare, NOT cap and trade, NOT bank punishment. He is a Socialist, spread the wealth baby!
Forget the markets. Buy companies that make money. Money is always going somewhere. I’m betting LVS and WYNN know how to make money. “Belly up to the bar”.
Tom, to reinforce the previous responses, check out Jim’s report card at http://www.cxoadvisory.com/individual-gurus/jim-jubak/
mhebert69,
That would suppose that Obama or any government official knows how to create jobs other then government or welfare or jobs paid directly from other people’s money (tax payers). I haven’t seen such a person. Interesting enough I’m thinking the better way to create jobs is instead to ask the questions like what infrastructure is lacking or out of date that helps/hurts businesses (opposed to just giving out money that will be wasted on useless projects) . What rules cause companies to would encourage businesses to keep jobs here and grow? What research can we fund to give the US a leg up on the other countries?
Tom,
As you can see with the few answers here timing the markets is a very contested idea. I use to be in the boat that you can’t time it at all, but the more I see I do believe that you can at least stay out of the worst of it. That is of course just my opinion.
Tom, there are a number of metrics that help one know when market risk is rising. One example is the SP500 closing below its 200-day moving average at the end of a month. Not fool-proof, but a warning. Another is to watch the price of a number of large-cap stocks (GE, CSCO, INTC, XOM, etc.) relative to its 200-day moving average. If any one crosses below, then consider taking profits. If a stock’s 50-day moving average crosses below its 200-day moving average, sell.
Other than metrics, read widely (Jim Jubak, John Hussman, Jeff Saut, Todd Harrison, etc.) for a sense of where the market is. They often draw from the smartest investment advisors in the world.
Finally, consider putting more of your investments in emerging markets…China, Brazil, etc.
Hope this helps.
Sooner or later Mr. Obama better figure out its about Jobs, Jobs, Jobs and NOT free healthcare and entitlements programs that are anti-capitalist, anti-business, anti-wealth. But maybe, he doesnt really care about those things.
Werent we supposed to have a summer rally til mid july?? Seems like the cards are changing on a daily basis. Really, its all a guess at this point. Place your bets.
Time for double dutch jumping with the dragon! Easier than an inside straight or laying down pocket aces after a 10, jack, queen flop.
Tom,
I think the hardest thing for people to do is to realize being out of the market isn’t a bad thing, even with almost 0% interest rates. When you see some too good to be true opportunities, then you can pounce on them with your cash.
Identify a couple of timing signals to mitigate the worse of the declines and even if they cause you to miss some of the increases it will aid your comfort and reduce your stress.
Tom,
Because there are very few people who can time the market, and almost noone who can do so consistently over a significant period of time.
Anyone who gets out now has already taken a significant loss – and the same was true 2 weeks ago, or a month ago – and is likely to make matters worse by waiting too long to get back in, or getting back in too soon.
You might ask: If Mr. Jubak’s long-term pessimism is correct, shouldn’t we just get out and stay out, which would solve the problem of getting back in at the wrong time?
If Mr. Jubak were sure that he is correct in his long-term pessimism, and if he knew something else one could do with one’s money which would protect one from possible inflation and certain taxes, I imagine he’d agree.
Good luck.
C.
Why are we in the market at all with this prognosis? Should we be 100% cash?