Careful What You Wish For!!

I know what you’re thinking, what you’re “wishing for” I should say. You have vague recollection of past periods when the market sold off hard for a few weeks (I say “vague” because—during times like these—you have a tough time leaning on those memories that would otherwise have you sleeping like a baby [meaning, the market has always recovered from those past periods]). You’re wishing that you’ll wake up tomorrow to a Dow Jones Industrial Average that’s up 700 points because something somewhere somehow brought back all that cash that people accepted for the stocks they sold on the way from Dow 18,000 down to 16,000. Well, you shouldn’t!

What you should be wishing for—if you’re wishing for the market to bottom—is what you saw today, only “worse”! That would be a huge selloff for a few days on huge volume. Today, in my view, was merely a big selloff on big volume. It might very well be enough, but I’m thinking the money that’s lying in wait wants to make sure your mom and pop give up the ghost and get the heck out of the market once and for all. That’s the hallmark of a market bottom—huge panicky selling on huge volume. From there an extended rally can begin that lasts until the next time some house cleaning needs to be done. Again, I’m not convinced we’re there just yet.

As you’ve heard me say, last year’s correction didn’t count. It didn’t last long at all! And here we are with the second one in 6 months (down 10.6% from the November peak [the previous correction bottomed on August 24]). That’s virtually unheard of! But, again, in my view, the last one didn’t hang around long enough to pull any weeds. I know it sounds crazy, but unless you’re trying to get rich trading the market short-term (better to play the Power Ball!), you want this.

Per that stock market conversation (click here for the whole thing):

Investor: Will that help the market?
Adviser: What do you mean? Help it go up, or help it go down? Both are important.

Investor: What do you mean?
Adviser: You can’t have one without the other. Down trends are essential for the long-term survival of the market. Kind of like taking a rest every now and then. The longer the market stays up without any sleep, the harder the sleep when it finally comes. The good news is the market has always woken up.

Investor: Can’t you be a little more helpful and just give me a forecast for 2008?
Adviser: Trust me, my forecast won’t help you. And does it really matter?

Investor: What do you mean, of course it matters?
Adviser: What do you want the market to do – go up or go down?

Investor: Now there’s a brilliant question – I want it to go up, of course!
Adviser: Now or later?

Investor: Huh?
Adviser: Let’s forget about up for a moment and think about down. Since the market is for sure going to go down every now and then. Would you rather it go down now or later? Are you going to need the money you have in stocks now or later?

Investor: Later.
Adviser: Okay then, since we know the market will always go down, and since you’re not selling your stocks till later – better that the market go down now rather than later, don’t you think?

Investor: Okay I get it. But I still don’t like it.
Adviser: I understand. Most people don’t. But it’s my hope that, with a healthier perspective, you’ll stress less going forward.

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