Time to Panic?

June 3, 2009

By Bill Singer

Yeah, I know, You feel like hitting the Panic Button because the market is down over 100 points today (June 3rd) and it's only mid-day and everything that you read says that the dead cat has bounced and now you're afraid that this is the beginning of a new end of the world and you're going to lose everything that you made back the past three months and then some.

Do I have all that about right?

 

 

One thing that I have tried to avoid is predicting markets or stocks. Not my skill set. Not my job.

Still, on a day like today folks clutch at all sorts of straws for help. I guess I should have known that I would be one such straw when I wrote about the Three-Day-Down Trend and commented on the unusual Ten-Day-Up-And-Down Trend. See immediately below for those references. However, if you carefully read my blog, you will see that I only presented my analysis as a "thermometer" of the markets and did not suggest that it was reliable as a predictor.  What caused me to examine the underlying statistics for those two metrics was the persistent and insistent clamor from a whole host of self-styled market prophets that in early April 2009 we were being duped into believing that we were in the midst of a recovery.  Buy now -- you were warned -- and you'll regret it. 

On March 9, 2009  the Dow Jones Industrial Average (DJIA) was at 6,547.05, which represented a nearly 25% drop for the year-to-date.  As of yesterday's close, the DJIA was 8,740.87, or some 2,200 points higher than the March 9th low. Year-to-date, we're not even down 1%. Of course, who the hell knows where we will close today. Bernanke's dire comments and the unemployment numbers have done quite a number on the market.  Of course, absolutely none of this stuff existed or was in anyone's head yesterday...yeah, right.  

It's all a game. Flick the light switch up and it's good news and a recovery. Flick the light switch down and it's bad news and a relapse. Up. Down. Up. Down. Up...hey!! you kids want to stop playing with the lights before I have to come upstairs?

Unfortunately, a few of you have asked for my alleged insight today in the face of the 100-point-plus rumblings this afternoon. Provided you don't rely on anything that I'm going to say and you acknowledge that I'm as much of an investing doofus as all the other know-it-alls, then continue reading.  On the other hand, if you're smart enough to disregard my ramblings, good for you and stop reading any further.

As I see it, we've just passed through a 90-day period during which we gained over 2,000 points and recovered some 25% in year-to-date losses.  By any measure, that's impressive (yeah, I know that we lost thousands of points to get here -- for those of you who forgot, on October 9, 2007, we sat at a DJIA of  14,164.53).  More to the point, you can't just go up all the time. You have to go down and sideways too. Just the way the market operates, folks.

As I see it (and for those among you who require such guidance: This is the part where you should be skeptical of my wisdom), sometime around May 5, 2009, the market took a psychological breather and tried to figure out where it was headed. Starting on that day, we went through a ten-day period of alternating up and down DJIA closes.  I can't recall a similar period in my lifetime and many others were similarly impressed -- which is not to say that such a stretch didn't occur during the past 57 years, but I just don't recall one.  We ended that period of stagnation with four days (May 19 to 22) of lower closes for the DJIA.  That was the first time since March 3, 2009 that the DJIA closed down for more than two consecutive days. Given the end of both the ten-day and three-day streaks, it would have made sense on May 21 to scratch your head and wonder what's up.  I did.  

Many of you wrote to me that you felt the four days of downside heralded a market break and you sold. Okay, if you were concerned about protecting recent profits, not such a bad reaction. Always better to take small profits than incur larger losses. However, on May 22nd the DJIA closed at 8,.277.32 and would rise some 500 points by the close of June 2, 2009 (which culminated with four consecutive days to the upside).  Depending on how much we give back today and in the coming days, you may or may not regret any May 22nd sales.

All of which brings me to my point (finally! you say, after being forced to plow through all that wishy washy stuff above).  Given how apparently horrendous the news was today that allegedly pummeled the markets, I'm somewhat impressed that as of the writing of this Blog (about 2:15PM ET) that we're only down about 127 points.  Wasn't that long ago when such lousy news would have hammered us by hundreds of points.  Then there is this other issue: a lot of folks are asking me about taking "profits" today, when a few months back it was more about preventing further losses.

My sense of things is that we're going through a period of consolidation and not the start of a new, major leg down. I also think that while we are still a big gorilla on the world economic scene, we've lost a few pounds and are now more like a 600 pounder rather than our former 800 pound version.  Similarly, so many nations seem disgusted with our spendthrift ways that there is more urgency to solve the problem multi-laterally rather than solely relying upon the United States to grow itself out of its doldrums and re-start the world's smaller economies. Like it or not, the reports about moves to develop alternative reserve currencies and to instigate local recoveries are signs that we will not likely return to from whence we came.  The world is no longer revolving solely around the U.S.A. -- whether we like it or not.  That may indicate a new period of market diversification and less dependency upon the U.S. economy.  

As such, I'm looking at today's retreat as presenting opportunities in the near term rather than a time to cash in my chips and go home.  I expect that things may be choppy, if not nasty, going into the weekend. However, I see more and more stories about decelerating recessions worldwide and signs that some emerging markets may be nearing a point in time when they will start to pull on the rope and draw us all along. 

Bottom line: Take some profits off the table if you think it will help you sleep at night.  However, I think this is more the pause that refreshes than the last chance to get off a train ready to go over the cliff.  

What's my timeline for that call? Well, I'm not into any day by day horizon, so let's say we all meet back here by Labor Day and see whether staying long was smart-- or whether getting out was smarter.  Finally, by way of disclosure, here is what I own (keep in mind that in addition to day trading, I also tend to hold positions for short timeframes.  As such, what I own today I may not own tomorrow -- or I may have only held for days as of this disclosure):

PIO, DBA, FXI, EWS, EWZ, PIN, MOO, GSG, and IGN

 

The Bill Singer Three-Day-Down/Occam's Razor Chart

http://BrokeAndBroker.com/3daychart.htm

ARCHIVED BLOGS ON THE THREE-DAY TREND:

          http://www.brokeandbroker.com/index.php?a=blog&id=161  (April 6)

          http://www.brokeandbroker.com/index.php?a=blog&id=164  (April 8)

          http://www.brokeandbroker.com/index.php?a=blog&id=166  (April 14)

          http://www.brokeandbroker.com/index.php?a=blog&id=168  (April 14)

          http://www.brokeandbroker.com/index.php?a=blog&id=169  (April 16) 

          http://www.brokeandbroker.com/index.php?a=blog&id=175  (April 27)

          http://www.brokeandbroker.com/index.php?a=blog&id=176  (April 29)  

          Forbes.com: Three Down Days? Then Stay Away!  (May 8)  

          http://www.brokeandbroker.com/index.php?a=blog&id=181  (May 11)

          http://www.brokeandbroker.com/index.php?a=blog&id=186  (May 20)

          Forbes.com: Our Seesawing Markets  (May 20)  

DATE

DJIA

A/O 1/1/09 TICK TREND Net UP/DOWN

NOTES

2-Jun-09 8,740.87 -0.405% UP
1-Jun-09 8,721.44 -0.626% UP
29-May-09 8,500.33 -3.145% UP
28-May-09 8,403.80 -4.245% UP
27-May-09 8,300.02 -5.428% DOWN -1 -8
26-May-09 8,473.38 -3.451% UP 1 -7
22-May-09 8,277.32 -5.687% DOWN -4 -8 4
21-May-09 8,291.13 -5.529% DOWN   -4  days
20-May-09 8,422.04 -4.038% DOWN   -4  DOWN
19-May-09 8,475.85 -3.429% DOWN -4  
18-May-09 8,504.24 -3.101% UP 1 -4 10
15-May-09 8,268.64 -5.785% DOWN -1 -5 days
14-May-09 8,331,32 -5.071% UP 1 -4 of
13-May-09 8,284.89 -5.600% DOWN -1 -5 one-day
12-May-09 8,469.11 -3.501% UP 1 -4 Trends
11-May-09 8,418.77 -4.075% DOWN -1 -5  
8-May-09 8,574.65 -2.299% UP 1 -4  
7-May-09 8,409.85 -4.176% DOWN -1 -5  
6-May-09 8,512.28 -3.009% UP 1 -4  
5-May-09 8,410.65 -4.167% DOWN -1 -5  
4-May-09 8,426.74 -3.984% UP 2 -4  
1-May-09 8,212.41 -6.426% UP   -6  
30-Apr-09 8,168.12 -6.931% DOWN -1 -6  
29-Apr-09 8,185.73 -6.730% UP 1 -5  
28-Apr-09 8,016.95 -8.653% DOWN -2 -6  
27-Apr-09 8,025.00 -8.561% DOWN   -4  
24-Apr-09 8,076.29 -7.977% UP 2 -4  
23-Apr-09 7,957.06 -9.336% UP   -6  
22-Apr-09 7,886.57 -10.139% DOWN -1 -6  
21-Apr-09 7,969.56 -9.193% UP 1 -5  
20-Apr-09 7,841.73 -10.650% DOWN -1 -6  
17-Apr-09 8,131.33 -7.350% UP 3 -5  
16-Apr-09 8,125.43 -7.417% UP   -8  
15-Apr-09 8,029.62 -8.509% UP   -8  
14-Apr-09 7,920.18 -9.756% DOWN -2 -8  
13-Apr-09 8,057.81 -8.188% DOWN   -6  
9-Apr-09 8,083.38 -7.896% UP 2 -6  
8-Apr-09 7,837.11 -10.702% UP   -8  
7-Apr-09 7,789.56 -11.244% DOWN -2 -8  
6-Apr-09 7,975.85 -9.122% DOWN   -6  
3-Apr-09 8,017.59 -8.646% UP 4 -6  
2-Apr-09 7,978.08 -9.096% UP   -10  
1-Apr-09 7,761.60 -11.563% UP   -10  
31-Mar-09 7,608.92 -13.302% UP   -10  
30-Mar-09 7,522.02 -14.293% DOWN -2 -10  
27-Mar-09 7,776.18 -11.397% DOWN   -8  
26-Mar-09 7,924.56 -9.706% UP 2 -8  
25-Mar-09 7,749.81 -11.697% UP   -10  
24-Mar-09 7,660.21 -12.718% DOWN -1 -10  
23-Mar-09 7,775.86 -11.400% UP 1 -9  
20-Mar-09 7,278.38 -17.069% DOWN -2 -10  
19-Mar-09 7,400.80 -15.674% DOWN   -8  
18-Mar-09 7,486.58 -14.696% UP 2 -8  
17-Mar-09 7,395.70 -15.732% UP   -10  
16-Mar-09 7,216.97 -17.768% DOWN -1 -10  
13-Mar-09 7,223.98 -17.688% UP 4 -9  
12-Mar-09 7,170.06 -18.303% UP   -13  
11-Mar-09 6,930.40 -21.034% UP   -13  
10-Mar-09 6,926.49 -21.078% UP   -13  
9-Mar-09 6,547.05 -25.402% DOWN -1 -13 4 days 
6-Mar-09 6,626.94 -24.491% UP 1 -12 of
5-Mar-09 6,594.44 -24.862% DOWN -1 -13 one-day
4-Mar-09 6,875.84 -21.655% UP 1 -12 Trends
3-Mar-09 6,726.02 -23.362% DOWN -5 -13

5

2-Mar-09 6,763.29 -22.938% DOWN   -8 days
27-Feb-09 7,062.93 -19.524% DOWN   -8 DOWN
26-Feb-09 7,182.08 -18.166% DOWN   -8  
25-Feb-09 7,270.89 -17.154% DOWN   -8  
24-Feb-09 7,350.94 -16.242% UP 1 -8  
23-Feb-09 7,114.78 -18.933% DOWN -3 -9

3

20-Feb-09 7,365.67 -16.074% DOWN   -6 days
19-Feb-09 7,465.95 -14.931% DOWN   -6

DOWN

18-Feb-09 7,555.63 -13.910% UP 1 -6  
17-Feb-09 7,552.60 -13.944% DOWN -3 -7  
13-Feb-09 7,850.41 -10.551% DOWN   -4  
12-Feb-09 7,932.76 -9.612% DOWN   -4  
11-Feb-09 7,939.53 -9.535% UP 1 -4  
10-Feb-09 7,888.88 -10.112% DOWN -2 -5  
9-Feb-09 8,270.87 -5.760% DOWN   -3  
6-Feb-09 8,280.59 -5.649% UP 2 -3  
5-Feb-09 8,063.07 -8.128% UP   -5  
4-Feb-09 7,956.66 -9.340% DOWN -1 -5  
3-Feb-09 8,078.36 -7.953% UP 1 -4  
2-Feb-09 7,936.83 -9.566% DOWN -3 -5  
30-Jan-09 8,000.86 -8.837% DOWN   -2  
29-Jan-09 8,149.01 -7.148% DOWN   -2  
28-Jan-09 8,375.45 -4.568% UP 3 -2  
27-Jan-09 8,174.73 -6.855% UP   -5  
26-Jan-09 8,116.03 -7.524% UP   -5  
23-Jan-09 8,077.56 -7.963% DOWN -2 -5  
22-Jan-09 8,122.80 -7.447% DOWN   -3  
21-Jan-09 8,228.10 -6.247% UP 1 -3  
20-Jan-09 7,949.09 -9.426% DOWN -1 -4  
16-Jan-09 8,281.22 -5.642% UP 2 -3  
15-Jan-09 8,212.49 -6.425% UP   -5  
14-Jan-09 8,200.14 -6.566% DOWN -6 -5  
13-Jan-09 8,448.56 -3.735% DOWN   1  
12-Jan-09 8,473.97 -3.446% DOWN   1  
9-Jan-09 8,599.18 -2.019% DOWN   1  
8-Jan-09 8,742.46 -0.387% DOWN   1  
7-Jan-09 8,769.70 -0.076% DOWN   1  
6-Jan-09 9,015.10 2.720% UP 1 0  
5-Jan-09 8,952.89 2.011% DOWN -1 0  
2-Jan-09 9,034.69 2.943%

UP

1 1  
31-Dec-08 8,776.39 0.000%     0  

Home | Professional Services | Investor Resources | Trade Groups & Education | Starting/Expanding A BD/RIA | Broker Dealer | Blogs | Shopping Center | Contact Us

VISIT WALL STREET'S LEADING ONLINE COMMUNITY
BrokeAndBroker.com