The Good, The Bad, & The Ugly

Not so fast Mr. Market told us today.  After building a little steam the past couple of weeks, the big bad bear came out of hibernation (actually a short nap) and knocked the bulls around pretty good today. Markets were down about 5% across the board after more bad economic news (more on that in a minute). 

The Good?  We can’t go straight up without having pullbacks.  I talked about the market being overbought in the very short-term.  I’ve said it before and I’ll say it again.  Markets don’t go straight up or down.  They typically give back half of the gains before resuming upwards.  So, that would mean another day like today before resuming the uptrend which would be quite normal.  Also, remember I discussed last week the upside down head & shoulders potentially forming.  For that to happen, we needed a pullback.  If this doesn’t take us to new lows, then that would be bullish.

The Bad?  Some of the purchases I made in the last few days I was stopped out of today.  That would only be bad if they start going up tomorrow and keep going up.  I bought First Solar (FSLR) a couple of days ago and was stopped out of that this morning.  Fortunately, I had a nice gain.  The Bad is also the fact that today wasn’t that weak pullback I was looking for.  It was a 90% downside volume day and a 500 point drop in the Dow will cause many to wonder if the bear market is picking up steam.  Also, many will question the election results as the cause.  I’m not convinced the election caused this today.  

The Ugly?  The economy continues to produce horrible numbers.  More job cuts and a low ISM number.  Not a shock to me and you.  We’ve been pointing that out for months.  That’s not the part I’m surprised about.  Remember that one of our tests to see how strong this market is was the ability of investors to ignore bad economic data.  They didn’t ignore it today.  They sold it off in the morning and pushed it lower as the day went on.  

So, where do we go from here?  Continue to use stop losses on those positions you don’t really want to hang on to if times get rough again.  As far as buying, put it on hold until this round of selling stops.  Even though I’ve been buying the past week or so, I still have plenty of cash (which is bigger with my stop losses getting triggered today), plenty of bonds, and a few good quality positions.

I do want to point out that bear market rallies are normal.  I believe this one will ultimately last longer but as I wrote last night, don’t let your guard down.  This is still a very volatile and dangerous market.  Bear market rallies though make you (me) feel as if we’ve turned the corner.  They all feel that way.  A caller on my show this morning told me he’s happy because he never sold any positions so he’s bounced along with the market.  I asked what would make him sell.  He told me he wouldn’t sell regardless.  I think that is a terrible and scary strategy (or lack thereof).  How does he or you or me know that the Dow won’t go to 5000 when it’s all said and done?  We don’t.  Don’t ASSUME anything.  Don’t predict either.  People in the late 1920s and early 1930s we’re saying the same thing to themselves.  

Make sure you have plenty of income and a sell strategy.  At the same time, don’t be afraid to trade.  The solar stocks made me some quick money.  Having 2-day trades isn’t my cup of tea.  But, drastic times call for drastic measures.

Have a good evening.

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