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Market Outlook: Crash On The Sidelines

Mar. 04, 2021 5:40 PM ETDIA, IEF, IWM, NVDA, QQQ, SPY, SPYG, SPYV, TLT, ZM, LQD208 Comments


  • The popular theory is that there is tons of cash sitting on the sidelines.
  • The reality is a bit different.
  • We also go over the crash happening on the sidelines, away from the main view.
  • I do much more than just articles at Conservative Income Portfolio: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

There is a popular theme going around. One that suggests there is plenty of "cash on the sidelines". That has given investors the hope that markets can remain buoyant forever. In the article today, we go over quickly as to why it is a fallacy. We also show you a picture of a "crash on the sidelines".

Cash On The Sidelines

Investors today get bombarded with a lot of different headlines. None, perhaps gets more attention than this fallacy that we have record amounts of cash sitting and just waiting to get in to the markets. The common pictures shown for supporting such thesis often include a picture depicting the sorry returns being earned in bond markets. Trillions for example are earning negative returns in bond markets.

Source: LPL

Surely, they will move into the stock market?

There are two issues with this logic. The first is that if that $16 trillion wanted to sell their bonds and move to the stock market, well, somebody needs to buy that $16 trillion of bonds. Their exit requires a sale and a purchase transaction and at the end of that there will still be the same amount (assuming price remains unchanged) of bonds. Not only do these bonds yielding low returns need to exist, they actually continue to expand as governments issue record amounts of debt. By that logic the "cash on the sidelines" will continue growing every single day, regardless of what happens in the stock market.

To show you how often people lose sight of this simple logic, we are going to show you that you can always find phrases alluding to "cash on the sidelines" right before major bear markets.

"The percentage of cash on the sidelines as a percentage of market value is the highest it's ever been," said

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This article was written by

Trapping Value profile picture
Trapping Value is a team of analysts with over 40 years of combined experience generating options income while also focusing on capital preservation. They run the investing group Conservative Income Portfolio in partnership with Preferred Stock Trader. The investing group features two income-generating portfolios and a bond ladder. Trapping Value provides Covered Calls, and Preferred Stock Trader covers Fixed Income. The Covered Calls Portfolio is designed to provide lower volatility income investing with a focus on capital preservation. The fixed income portfolio focuses on buying securities with high income potential and heavy undervaluation relative to comparatives. Learn more.

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Comments (208)

diversification is the key, as always
@henry133 , It is one of the keys. There are others.
@kimbillro Diversification smoothes out the bumps. But can also keep your gains below the market returns.

Diversification is most important for new investors picking companies. As you develop a competency in picking companies to trade or invest in ( some never do ), concentrated positions make more sense to outperform the market.

Not advocating either way, just my observation
@JakerTrade , Conservation of capital is probably the most important principal. If ya ain't got any money left ya can't play no more!
alchemist11 profile picture
Another alarmist woooo hoooo. Sell everything, get out, and let the big boys make a profit!
Trapping Value profile picture
@alchemist11 Not everything. Only stuff that trades on the big exchanges silly.
@Trapping Value , That includes FAANG, Tesla, and tech. It's a bloodbath.
It’s not only Market leaders that are rolling over, entire sectors are now in a downtrend. Take a look at all of the biotech and healthcare ETFs, they’re all rolling over now. Many Pharmaceutical and Biotech names are declining. This only happens when Whales exit their positions—leaving the little guys as the bag holders.

The wildcard here is the impact of the 1.7 trillion dollar package. It could reverse and go positive again, but... then again... Watching yields (10/5) for now.
@motionstream AAPL broke daily trend with Divergence leading up to it on daily charts. Has 200 day support to bounce off,,

AAPL weekly charts have same divergence, but trend hasn't broken yet. If that breaks - AAPL would find 110 is the next support level.

That would ding the index S&P 500 a little.
@JakerTrade — You might find this article interesting. It was written in 2019 about Apple’s overvaluation at that moment.


Of particular interest, scroll down to the bottom of the article and read the last couple of paragraphs and look at the chart there.

From Northman Trader: “Since 2007 $AAPL has poked hard above its quarterly Bollinger band, four times prior to this occasion. In each case it ended up producing a move to the quarterly 15 MA. That’s a four in four track record. The quarterly 15MA is currently at $167 and is rising and will be higher in 2020, but that’s the appointment $AAPL has based on history.

What this chart also shows is that these quarterly pokes above the Bollinger band can take 2-3 quarters, in 2012 it was 4 quarters. Given the earlier chart history it suggests $AAPL can see a sizable pullback in Q1, then race off to make new highs still, but then face the technical judgement of history.”

I don't use Bollinger bands, but looking at the 2012 Reference, AAPL had the exact same divergent ( MACD / RSI ) setup on daily charts as are shown in today's chart.

Timewise in the move both have broken Trend - and hovering above 200 day MA

2012 Oct 24th
is about equal to
2021 Friday March 3rd
in the move technically.

Both Daily divergent move were about 9 months leading to break to downside. Oct 17 2012 --- Feb 22 2021

In 2012, AAPL sold from 20 - 12.50 in this time period.

No guarantee it will have a similar conclusion but definitely interesting and worth keeping an eye on. I'm planning to stay on the sideline this week mostly to see how it plays out, but anticipating another week or selling in Nasdaq

Thanks for the reference article!
Mojo Kielbasa profile picture
The market is a casino now full of manipulators, youthful idiots and walking contradictions. So skip over all the emmotion mind, drop fundamentals on everyone’s head and join the club. Sell off everything now to assist market decline. Take your profits and add fear to the market. Buy a nice car or boat (especially one that’s not electric). Then, jump back in. Pump in some greed and repeat the process.

This is the Apocalypse. The 4 horsemen (Fraudster, Liar, Scammer, Thief) are here. So buy them a drink and help add to the Tribulation. You’re a human, created in the image of a God who loves to slaughter his creations according to biblical references. So it’s your ego-nature.

Of course, you could transcend this reality if you wanted to pierce the veil of Maya, see the veracity of the truth and jump on the boat to Avalon. You just need to decide if you are the Creator or just fundamentalist Broker.
Pyraminsider profile picture
@Mojo Kielbasa
So its sheep sheep sheep sheep till we see the first camel?

I was talking to my broker last Tuesday and he was in some secret insider dark place and couldn't give details. Or maybe it was just him having a bad day.

Verifiable news about margin abuse or an actual cash shortage would clear thinks up. Unfortunately all I can do is search the links for whatever this big negative news break might be.
@Pyraminsider , Not much difference between a sheep and a camel. Camel's just have longer legs.
Gokou profile picture
05 Mar. 2021
So is there cash or no
Trapping Value profile picture
@Gokou Yes definitely one of the two.
People have to remember fiscal transfers inflate the general market. It also reduces personal debt. I suspect consumers will be heavily deleveraged by the end of 2021 via the Biden transfers. So this feeds the financial system. Most countries can't do this, but the good ole US of A can. Unlike 2009, US citizens now realize the US has a huge credit card. Now comes the East Asia attempt to break Oceania's empire into just America.
Trapping Value profile picture
@Donny McNeil Yes I agree there but that is offset by horrendous valuations and a messed up indebted corp sector.
The end is near. Massive asteroid passing very close to Earth on 3/21. Sell everything. Get out now.
Trapping Value profile picture
@Phil Dumfee Is it a Hailee's Comet Phil?
@Trapping Value , Whether it is a 6 mile in diameter asteroid like the one that wiped out the dinosaurs 66 million years ago or even a bigger comet doesn't matter. Sell everything 6 days early so it will clear to cash in 5 days. On the 6th day withdraw your cash, hide it under your mattress, and wait for the comet or asteroid to touch down.
It now seems likely that Bitcoin will absorb some of the money currently in negative yielding bonds.
soleprop profile picture
You are a funny man! So investors who had headed for the relative safety of government bonds will suddenly move their assets to purely-speculative belly-button-lint crypto to have it participate in the bitcoin blunder? Hardly likely, that's a totally different mindset.
@SatoshiWeenSatan Gold will be the winner. Bitcoin is likely headed to Zero from these levels.
@gold_seeker , What about silver?
There also seems to be a popular theme going around that the sky is falling. I don't know what it is, we get a couple of down days and suddenly it's the coming of Ragnarök.
@Wilbodave - well, when you see repo rate on USTs go to historical negative extremes, that is a sure sign of unique stress in the plumbing. Only time repo rate got more negative than yesterday was at height of Covid crush around March 13 2020
@clrodrick Shhhhhhhhhh

Everything is fine. Just bye the dip

@JakerTrade , Some day it won't work and then what?
Sergi Medina profile picture
I dunno, I'm just buying the dip on good opportunities.
I disagree with the entire predicate of the article. I watch business channels often throughout the day and nowhere have I heard about lofty amounts of cash on the sidelines. Conversely, I have heard several pundits warning of a top and frothiness caused by greed induced speculation, recommending that investors build a cash position to take advantage of the inevitable downturn in the market, whether a correction or a crash.
What I have heard regarding “cash on the sidelines” pertains to pent up consumer demand and the expected demand side shock that could cause an inflationary spike due to diminished supply surplus triggered by the pandemic.
What I haven’t heard is any real substantive discussion of the inflationary pressure caused by energy price increases on the economy. All I hear is the issue of the Fed and rate adjustments.
@Joe jet ski
I think the Euphoria end that may or may not signal the top of market - was GME - AMC and the Reddit mobs,

The prior year with Davey Day trade and the unwavering bounce from covid lows. the cycle was complet when he was on CNBC pitching his new ETF ( BUZZ ).

@JakerTrade , Davey Day? I think you mean Davey Crockett.
Shucker81 profile picture
Every correction during the last 3 years has been about 3 weeks, give or take. Next week will be crucial...
@Shucker81 Good point - if we stick to retracement and continue up.

The deeper selloffs took much longer. Looking like we're going to close the week on 20 w MA support level.

I concur.
@JakerTrade , One day the Big Cahuna will strike that will be a 2-3 year bear market.
If A uses his "cash on the sidelines" and "puts it in the market" by buying a stock from B, then B now has "cash on the sidelines". The transaction hasn't changed the cash in the system at all, it just changed who holds it.
@Bacon Slicer I'm not sure you understand how all of this works, bud.
I guess that you would need to follow M1 or M2 to see the change of cash on the sidelines. Some of M2 is in bond so then bond yields would change if everyone sold.
@PreCambrian , M1 and M2 have been soaring!
@kimbillro Is helicopter money on the sidelines or in the air?
@PreCambrian , I'm sorry @PreCambrian but I'm still stuck in the Permian-Triassic extinction event that wiped out 97% of all life 251 million years ago!
terryongarland profile picture
The distortions of the markets by the pandemic are throwing everything a curveball.
Uncharted waters..historical charts etc..how are they relevant today ?
No one on the planet has seen this set of circumstances..we are all guessing is the only conclusion one can make. Uncertainty is not a friend for investors.
@terryongarland , The rubber band is getting stretched and will one day snap back.
Simpllly profile picture
Agreed! Today's investors are indeed bombarded with headlines.

Many are dire, others seductive, all compelling.
@gherzog , Many are dire? Yes, Dire Wolves.
Bitcoin is a scam. Bitcoin is taking TSLA to $99.
Trapping Value profile picture
@Phil Dumfee But do two scams make a right?
@Phil Dumfee LOL. Says everyone who does not understand it. I recommend doing a little more research maybe. BTC may replace bonds one day. It's already the fastest asset ever to reach a $1T market cap. Must be nothin'...
@SatoshiWeenSatan It is certainly not obvious why you think BTC is an "asset" when it is simply fabricated by any joker running a sufficiently powerful computer for a while. Which they bought with real money. You might think that this is somehow like the US (or UK, or any other government) printing money, but it is not. There is no "full faith of the government" behind it, and even that "full faith" sometimes fails with actual governments. Without any government entity backing it up, when (not if) bitcoin crashes completely, there will be no place to exchange the worthless bitcoin for something useful, no matter how much you theoretically might hold. Of course, those with bitcoin are anxious to have the "value" rise to high levels (of DOLLARS) and then get some idiot to buy it from them, in exchange for some REAL money. If BTC were not priced in dollars, nobody would be interested in seeing the value rise, because then it would just "be." It always amazes me how bitcoin enthusiasts don't see the logical closed-loop of nonsense to which they ascribe.
KCI Research Ltd. profile picture
Nice article. Specifically I liked the quotes about cash on the sidelines in 1999 and 2008. Additionally, the price action in some of the market favorites has been eye opening. Personally, I have been short NVDA as a hedge in a long/short portfolio, along with a few other high fliers, and these hedges are working very well right now. On an absolute basis, I still think NVDA, and others, could repeat what some of the best technology stocks did from 2000-2002.


It is going to be an interesting next couple of years,

Trapping Value profile picture
@KCI Research Ltd. Yes SOX price to sales is nuts. Only way justified if we get 50% growth rates and zero gross margin compression for 5 straight years.
Bocaita profile picture
So, Trapper, do you own any "tech" stocks at all at this point ?
Trapping Value profile picture
@Bocaita No, but a few on my list now.. We had one tech stock in our portfolio by selling Covered calls and cash secured puts and that was CSCO.
Landlord Investor profile picture
Great quotes demonstrating how many supposed experts know nothing about basic economics. I agree that bonds are not “cash” on the sidelines. Cash is M2 but that has indeed been growing at a record rate. Like a hockey stick chart.
Trapping Value profile picture
@Landlord Investor M2 X Velocity though....
I am not a deflation guy by the way. I think bond bulls are gonna be carted out in body bags. The guys who bought French 50 years bonds in early jan have already lost 24 years of "yield".
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