An Observation Or Two on the Market

My brother had the best one liner of the day yesterday. He emailed me at the close and said ‘yeah, this seems rational to me.’ Hysterical.

I was jumping for joy rooting the market on, keep going! Clearly the crisis is over and we should buy them with both hands. Depression? What depression?

Um strike that entire paragraph. Getting happy about an up day is as unproductive as getting upset on a down day.

In the video this weekend I mentioned the possibility of reducing exposure by a stock or two if we had a big feel good rally. I was thinking big would be 20% in a couple of weeks. With the big open I thought that if we got close to 10% I would sell something. As we got 9% with about 30 minutes to go left in the session I sold a widely held name that was not down a lot (a lot is relative these days of course) but also has no must own catalyst to it.

Obviously the day finished with an 11.6% gain. To repeat; yeah, [that] seems rational to me. If we rocket up more I’ll look to get a little more defensive one way or another. A reader commented about panicking up not being much better than panicking down. Well in terms of market health I agree but the phone did ring less yesterday.

Funny anecdote; yesterday as dragged my knuckles along the floor away from the stairmaster at the gym I heard a guy just getting on the treadmill let out ‘woo-hoo, now that’s a recovery’ as he looked up at the TV.

A reader left an interesting comment about re-working how to re-equitize given that the SPX is 34%, um make that 22% below the 200 DMA. I was grappling with this some over the weekend but yesterday’s massive rally takes that issue off the table some.

It is very difficult for me to believe all the market’s problems have been solved. I was never in the depression camp but there is still a long way between here and fundamental health. Yes equities will turn up for real before the economy but not with a bell ringing. Additionally I don’t think it should be so easy emotionally at a real bottom. But that’s just my opinion.

The other day I mentioned something called hindsight bias which is something becomes obvious after the fact like a big rally coming after a puke down. Was anyone feeling a little hindsight bias yesterday?

For anyone who was fearful last week, you were probably less so during the day on Monday. While I’ll save the fear is the wrong reaction speech for another day I would note that you probably still remember exactly what the fear felt like. You will have a chance to confront that feeling again. I don’t know if it will happen this week or not until the next cycle. If nothing else the rally on Monday serves as a reminder that stocks can still go up and that they will again either starting yesterday or at some point in the future regardless of anyone’s fear.

If you can remember that fear, then see the rally that came (no matter how long it lasts), well hopefully this can help you see why that fear from last week was unnecessary. This is a bear market event. Bear market events come along every few years and then they end.

One thing about crazy markets is that you may not do anything right but you’ll be ok as long as you don’t do anything wrong–like panicking out.

About Roger Nusbaum 169 Articles

Roger Nusbaum is an Arizona-based financial advisor who builds and manages client portfolios using a mix of individual stocks and ETFs. Roger writes a popular blog, which focuses on risk management, foreign stocks, exchange traded funds, options etc.

Roger has been recognized by many in the investment management industry for his expertise in portfolio management. Roger has been regularly interviewed by the financial press, trade journals, and television news shows. He has also had numerous technical articles published and has been quoted in a number of professional trade journals, newspapers, and consumer finance magazines. He appears frequently on CNBC Asia as a market commentator.

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