No Good Reason to Buy

Let me explain how I view the markets. I try and chunk down the information (charts, sentiment, indicators) into small bits and try to give it some structure in relation to the bigger picture and then trade my plan around that structure. For example, we’ve been in a downtrend for all of February, and as the market declines it reaches a point or crossroads if you will, where the market must decide its new direction. It can reverse course or fall further turning into a much longer decline (which is what is happening currently).

As the market continues to fall, investors begin to guess where the market is going to reverse and begin buying stock in hopes of catching a bottom. Many times when the market falls below an imaginary line that you’ve predetermined, where it must suffer a significant one day loss (flush out), before it can move higher. I continue to feel that we are in one of those stages right now where market sentiment has to reach a certain frenzied level and flush out those holding on, before we can move higher. In my opinion, that is why every rally has been sold this past week, as there is no confidence that an upmove can be sustained and no strength behind the buying.

There really is no good reason to get long when the markets are dropping like they have been. We couldn’t even manage to hold yesterday's gains on the heels of Monday's big sell off. Going long yesterday was like trying to short the markets in the late 90s and we all know how that would have turned out. The chances of timing it perfectly and being able to hold through short term pain is unlikely. John Maynard Keynes said ”the market can remain irrational longer than you can remain solvent” and that is an excellent point to always keep in mind when trying to pick tops and bottoms.

The biggest reason to go long right now is that we are so oversold that we’re bound to bounce. True, but a very hard strategy to consistently win at. Until I see a clear edge in being long which will coincide with extremes in my indicators, I’ll likely remain short, or possibly move to cash if I get caught in a strong rally. One thing that will help me sit through a rally is that I’ve been covering shorts and taking profit on the way down.

Comments

[investor88:]

Agree with Jeff no good reason to buy. Can trade as he has been doing.

Mar 04 08:59 AM

[bobbobwhite:]

Most sensible position I have read here in a long time. Gives me hope that all writers here are not just paid shills who merely write pollyanna articles urging you to keep your money in loser mutual funds so their sponsor's large management fees will not be harmed by any good sense you may awake with some morning.

No reason to go long on anything but ultrashort ETN's. Check DTO and DEE, for example, compared with almost anything long(except for bubble boy AIPC. A pasta maker up 500% in a year? Huh?)

Mar 04 10:47 AM

[bobbobwhite:]

Absolutely. The market will give you clear signs when it is time to buy. Who cares about the first 10% pop up? Leave that initial money to the ultimate risk takers and gain much more security by waiting to confirm that a market turn is a true cycle turn up and not just another sucker rally. May take years for that to happen. In the meantime, check out the short ETN's. They are all I hold now, and all long 2008 losses previous to ETN buys on 10/3/08 have been recovered, and then some.


On Mar 04 11:31 AM ED K wrote:

> Your article is sound Investor advice,Thanks.
>
> .I recently heard a new voice jump on board the buy side analyst
> train, his name was Barrock and he said"We should be buying stocks
> right now".I decided not to take his advice,do you think I made the
> right decision??????

Mar 04 11:45 AM

[Aristophanes:]

Roubini said he is in cash. Good enough for me. Good article and graphs. Thanks.

Mar 04 01:28 PM

[drbob66:]

FLR is up 9% today. JOYG up 13%. AAPL up 4%. PFE up 6%.

Yeah, no good reason to buy.

Nice call.

Mar 04 03:00 PM

[donzelion:]

I keep putting in pieces, particularly in dividend payers and bond ETFs, since a smidgeon of dividends makes waiting a little less painful. I'm a dollar cost averager at heart.

But the story I see circulating about "missing the big bounce" is fairly hard to take seriously. I suppose yes, technology makes it possible for the S&P 500 to leap up 25% in one day, so if you miss that big day, you'll be relatively far behind all the long-term buy'n'holders out there who sweated through each downturn (for a bit). But then again, you'd have missed the 20% downturn due to a sell-stop, and would come out ahead of the folks who sweated through the whole collapse.

Mar 04 03:01 PM

[bunkerbuilder:]

I think we are living quarter to quarter, within the US, after the hit we took in 4q 08. If gdp turns, or at least decelerates significantly this year, it will turn into a 'raging bull' market. The dollar will look better, as even now, it looks good. europe will lag the us by 2-3 years on its recovery further driving the dollar and the market. oil will be low until the world catches up.

that's the rosy scenario.

the reality is that consumer confidence, in a country where 70% of the gdp comes from services, is going to have its skull bashed in by the stock market and unemployment numbers.

the line in the sand?
1q gdp...2q gdp...3qgdp...

we do have to hit bottom, but this is going to become a depression in slow motion. rather than a rapid shakeout, the fall is merely extended. We are going to keep going down, bit by bit, using all available credit to slow our rate of decent. Its a nice move, but when we go to climb out, we will have exhausted or ability to fund a recovery.

gdp will keep going down, until people are willing to tighten their belts. Kinda grateful that it isn't happening at once, kinda sad because it means we won't be back to 2007 level gdp for 8 or more years.

Mar 05 12:13 AM

[kelm:]

Yes. US markets are fundamentally impaired and if there is not clear evidence to buy then don't. Very sane...and rare on SA these days.

Mar 05 10:50 AM

[henarl:]

Just nibble - don't gorge.

Mar 05 12:48 PM

[Mad Hedge F...:]

I sympathize with you totally. We’re going to 6,000 in the Dow, then maybe 4,000. So argues Louise Yamada, one of the most respected long term technical analysts on Wall Street. The targets for the S&P 500 are 600 and 400. Let me reprint a comment I made on January 27, when the Dow was at 8,250, some 1,500 points, or 22% higher. “There is a hulking great 800 pound gorilla sitting on the floor of the New York Stock Exchange right now. Past stock market crashes in the thirties and the seventies produced market price earnings multiples of seven. Today it is 11. Does this mean that the Dow has one last 40% down leg left in it before we bottom out? That would take us to a 5,500 Dow, or a 570 S&P 500. Maybe the old PE benchmarks have been rendered meaningless by zero interest rates. Maybe so many single digit stock prices and trough earnings are skewing the numbers. Or, maybe nothing makes any difference anymore, and everything is just driven by the sentiments of attention deprived traders on steroids. But if I am right, look for a few more weeks of Obamaphoria supported stock prices, followed by a long, frightening plunge in the down elevator.” Looks like investors found the gorilla.

Mar 05 01:15 PM

[Jeff Pierce:]

Being caught on ultra quick reverals like today is what you as a trader are trying to avoid. Many of those stocks are suffering big down days today and unless you were quick to take profits you could be stuck in losing positions as well. Respect this market and realize it must suffer a big down day (10+ percent) to cleanse itself before any significant rally can be had.


On Mar 04 03:00 PM drbob66 wrote:

> FLR is up 9% today. JOYG up 13%. AAPL up 4%. PFE up 6%.
>
> Yeah, no good reason to buy.
>
> Nice call.

Mar 05 02:03 PM

[a. palmer jr.:]

I'm not buying anything for awhile. Like the author said, no reason.

Mar 05 11:10 PM

[User 372593:]

Who's gonna be in the Final Four?

Mar 09 12:57 PM