Every wall is a door.
Ralph Waldo Emerson
The markets are not free; corrections end at arbitrary points. In other words, the top players decide when the markets will correct and how far they will drop and or rise. This is why we focus on the trend and not absolute price targets as almost all free market forces have been removed. However, some individuals are still fixated to the idea of exact points, as opposed to the idea of viewing strong pullbacks as buying opportunities. This kind of mentality is what led these individuals to miss out on this 7-year bull market, and they look back sorrowfully wishing they had jumped in. What they forget is that they were doing the same thing today as they were doing yesterday; this is the reason this market is likely to trade much higher than most expect. Yes, the outlook certainly does not look rosy right now, and things look dire right now, but this has always been the case. Look at a past previous market disaster and see if anything has changed. As soon as the markets started to pullback, the Doctors of Doom started to blow their trumpets. Fast forward and the financial markets have not ended. This article is a perfect example of how the Media does nothing but fan the flames.
Today was the first trading day six days after terrorist attacks left Wall Street and the nation badly shaken. The resulting closure was the longest on the New York Stock Exchange since the 1930s. The biggest losers on the day: airlines, major insurers face tens of billions of dollars in claims after last week's attacks, as well as financial services, travel and hotels, and retail stocks. The biggest winners: defense and security stocks.
Midway through the day, as the market tumbled, President Bush publicly expressed his "great faith" in the U.S. economy, which he said is still poised for growth despite last week's attacks. "I understand it's tough right now. Transportation, business is hurting, obviously the market was correcting prior to this crisis. But the underpinnings for economic growth are there," Bush told reporters at the Pentagon.
Shaky Start Expected
Trading was hardly expected to be business as usual. Many experts were predicting that already shaky financial markets would lose further ground as the damage inflicted on the psyche of the American people filters its way into the economy and the stock market, further undermining the confidence of consumers and investors. Full Story
Oh just in case you did not figure out, the above excerpt is not from last week’s action though it sounds dangerously similar. The above comments were made years ago when the Dow was trading in the 8900 ranges.
Don’t become part of the mass mindset and fret and worry about every move the markets make. Instead, focus on the stocks you would like to own and then use such wonderful corrections to open positions in the companies you were dying to open yesterday but could not because the price was not attractive.
There are many investors out there who embrace the herd mentality, and the poignant part is that they do not even realize this. By being part of the herd, they will end up buying right at the top out of pure frustration at having missed the entire ride up by and selling at the bottom.
Must read: The fact that Americans prefer to drink coffee than own stocks indicates that markets are more likely to trend higher than crash. Our V-indicator has surged to a new high so as we stated last year in the December 2015 newsletter; traders need to be prepared to deal with extreme volatility.
If reason governed markets, then all those with Ph.D.’s and higher education would be the ones raking in the highest gains; instead, these chaps are the ones that consistently lose. You need to change your mindset now and throw this fear out of the window. Stop waiting for someone else to give you the push you need to give yourself; you cannot expect someone to dig you out of the trench you dug yourself into. Your biggest problem is fear; the second one is that you are angry and upset that you missed the ride up so far. The longer you hold onto the old mindset, the more you will lose.
You have two options now
1) Change today or risk losing even more in gains. There is no such thing as a perfect entry point. As we have stated for the umpteenth time, there are almost no free market forces at play now; the top players decide at what arbitrary levels the correction ends. This is another reason the markets are experiencing such extreme moves as predicted in advance by our V-indicator. So the solution is simple. Make up a list of stocks, ETF’s, I-shares, etc. that you wanted to buy and use strong pull backs to open new positions.
2) The second option is to continue to doing what you are doing now and hope that the outcome changes with the time. However, remember that the definition of insanity is doing the same thing over and over again, and hoping for a new outcome.
The trend has not turned negative on any of the indices though it has turned neutral on one of them. Neutral is not something we are going to worry about. Our V indicator has surged to yet another high, so extreme volatility is here to stay. In fact, 2016 will probably be remembered as the most volatile year on record.
Should you panic and join the masses?
That choice is up to you. History indicates that the masses always panic and the wrong moment. Clearly sentiment was far from euphoric; thus, the current market action looks more like a correction than a crash.
What separates today from yesterday? Nothing today is the tomorrow you worried about yesterday and that is how it will remain for most investors. They worry about this and worry about that, and while they are worrying the markets are trending higher. When they finally stop worrying and jump in, it’s usually too late.
Why do the masses always jump in late?
They are held back by fear and then suddenly try to do something because they are angry that they missed this ride. Mark our words, these individuals will jump into the markets almost at or close to the top; at that point Euphoria will be setting in, and it will be time for us to leave. What we find strange and amusing is how they will persuade themselves to jump into the market one day in the future when it is extremely overvalued, and how they hesitate to do anything when it is not. Do not join this crew, for even though they claim to want change, they do the same thing over and over again. If they would simply sit down and look at what drove them before, they will see that the same set of silly emotions is driving them today. Hence, they are destined to lose. You cannot win using a methodology that failed before.
If you are part of this group and want to break free, then force yourself to go against your emotions. Do the opposite of what you think you should, especially if it has failed to produce any results in the past. Going forward view every strong pullback as a buying opportunity; change will not come from standing still. This outlook will prevail until the trend turns negative.
In the short term, we expect more volatility as emotions will do the talking now. The astute investor will have enough time to build up a nice list of stocks that he or she always wanted to own at a lower price. Opportunity comes when you least expect it. Before the markets started to correct sentiment was not euphoric or extremely bullish, and so it is hard to envision a market crashing when the masses are far from Euphoric.
Crises refine life. In them, you discover what you are.
Allan K. Chalmers
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