The Scariest Part of Yesterday's Trading: No Panic Selling

Readers of my site might have the impression that I am anti-Cramer. Nothing can be farther from truth. I started investing in 1998 because I learned from 2 sources: Motley Fool and Jim Cramer. His "Real Money: Sane Investing In Insane World" is literally my investing bible. I agree with Jim in most cases. The reason why some of my articles are critical of him and almost no articles praise him is simple: when I agree with Jim, I usually have nothing to say.

The Dow Jones closed at yesterday at the November 20 bottom. The S&P is not far away. Jim raised alarm the only way he knows how; instead of running his usual Mad Money show, he gathered CNBC people to try to analyze what's going on. I don't want to repeat what was said, because transcripts and reruns are available from several sources.

But one fact was underscored by both Jim and Bob Pisani: There was no panic selling. Volume was somewhat elevated, but not 50-100% higher than average which is usual for panic. Bob Pisani said that market picture was like there are no buyers around. That's the scariest thing about yesterday's trading. Panic selling usually creates a bottom, at least a local bottom. Like it did on November 20. Yesterday's picture was completely different. It doesn't look like a bottom, it looks like we have a long ride down.

We are in Great Depression 2.0. Fundamentals are awful already. Technicals of this market just became equally awful. Where is the bottom? S&P 600? Or even lower?

I know that we can't get the real bottom until the fact of Great Depression 2.0 is accepted by majority. But discipline requires that I buy at least something during a big drop. So I bought a small position in Evergreen Income Advantage Fund (EAD). I have a feeling that corporate bonds are way too underpriced now and want to build some position in them, and EAD looks like good fund to do that.


Full disclosure: At the time of publication author had a long position in EAD. Positions can change any time.

Comments

[je:]

Talk about buying a pig in a poke. It doesn't look like there is anything rated above a "B" rating in EAD so how do you know what you have bought?

I know you should hedge your risk but until they start selling "stupidity insurance" how do you invest in something like this?

Feb 18 08:25 AM

[Ant:]

Cramer had the day off, he wasn't doing a show originally. He drove in at the last minute.
I agree, there's plenty of room to fall more. And I thought it was a good idea to have a Special Report on a huge down day, with no panic selling. That tells a lot about the condition of things right now.
Best bet right now is look at the Fundies, buy Secular, be careful!

Feb 18 08:59 AM

[mrresponsible:]

I guess I write here without a lot of knowledge for this kind of fund (EAD), I think I will keep my cash in a money market, the yield looks good but the price seems too risky in this kind of market. If you are a contrarian, isn't it the time to be purchasing high quality stocks gradually in good sectors such for the long term. Maybe one has to read the current pricing of risk but I would be more comfortable in FFRHX.

I appreciate your comment on the character of yesterday's market. I think the best financial advice I have ever read and I read about 120 blogs/week - back in the early 2002, Buffet was quoted as saying stocks are cheap when their P.E. ratios are 8 or below - not there yet but one can never call the bottom exactly. The market action yesterday can be interpreted as predicting a healthy future for stocks.

Feb 18 09:12 AM

[kelm:]

We went through this in the fall with Pisani standing on the floor of the exchange and talking in his amazed, boyish way that "there was no panic just an absence of buyers". Wait for it. There will be panic soon enough.

Feb 18 10:03 AM

[sr9web:]

The lack of buying is in fact a lack of selling. Investors are getting sick of selling out for peanuts. Bottoms form when small $$ won't sell anymore. If there's now low priced shares to buy, those wanting in will have to pay more.

Feb 19 01:19 AM

[Jason Rines...:]

Before buying, interested in seeing the Q1 2009 earnings reports and the different creating accounting of CFO's, company specific. That variance or lack thereof in combination with cash reserves and management teams should provide us some guidance. I like the Rx companies for Health, pipelines for Energy, Apollo and CEC for Higher Ed. Tech should also see an interesting lift in infrastructure but I will wait until summer to review that potential opportunity. My strategy is 5 year buy and hold but profit taking potential during this reinflation attempt.

Feb 23 06:25 PM