This morning, I reread yesterday’s thinking about the market and I noticed a glaring omission. I should have written a corresponding sentence to offset the following.
- Yet, whenever a positive catalyst appears, the market seems to run with it.
The above is true in this current market environment. The market has gone up whenever some positive news appears, as recent record highs attest but, and as well, the opposite is true, as we see today on the news from the World Bank.
- Bad weather in the US, the crisis in Ukraine, rebalancing in China, political strife in several middle-income economies, slow progress on structural reform, and capacity constraints are all contributing to a third straight year of sub 5 percent growth for the developing countries as a whole.
So, the sentence that I failed to write should have been this – Whenever a negative catalyst appears, the market will run with it as well. Each side in this tug of war needs a catalyst to spur the troops to pull harder. Today, the bears got their catalyst and they are pulling hard.
Even though the bears pull harder and more dramatically when they pull (so it seems), don’t lose sight of reality – the current market environment is one of give and take producing a bit of churning.
- Yet, when the market approaches a milestone, such as 1900 in the S&P 500 just last week or DOW 17,000 this week, it balks, ruminates, and then churns a bit before taking the leap.
The good news is the market turbulence is now happening at a higher level than it was a few weeks back. We have new floors and ceilings, so a big day for the bears still leaves the market in a decent place. Simply, the World Bank news is not enough to send the market into a serious tail spin, even when the talking heads, celebrity naysayers, and hilltop screamers pounce on today’s drop in the market.
Then again, the day is still quite young, and it would not be the first time the bulls have fought back against an early onslaught from the bears. I for one would not be surprised if the day ends up less bearish. As always, we will see …
- When the market gives you an opportunity, you should take it.
Opportunity is everywhere in the market, as it is in life. The issue is 1) recognizing it and 2) taking advantage of it when you recognize it. The former requires a keen sense of the market in general, as well as understanding market movement in particular economic areas. The latter requires an ability to research specific markets to find the trade. Both skills take years to learn, and even then, there is the reality of the market that often foils the “the best laid plans …”
The current market environment has foiled me for some time now. Trading is difficult when the market is churning as it is. Any piece of “bad” news or any perception that the news is bad can send the market spinning down, which then catches me in my trades. This creates two issues for me. One, it ties up my money because I don’t sell until my trade comes back or I know it is dead, and two, it makes me dubious about getting into new trades, which means I am not making money. The antidote for a market such as the one we currently have is investment.
I am also an investor, and that means the long-term environment is important to me. Even though the current near-term market environment is choppy, the long-term conditions have been steady, and will remain so for some time.
- The world’s two top fashion retailers Zara owner Inditex and Hennes & Mauritz reported strong sales growth on Wednesday, benefiting from a recovery in consumer spending in their core markets in Europe.
So, my “hedging” is not long and short trades or option plays, rather it is playing the long term and the short term market. Investing in the long-term market means understanding the macro picture. Trading the short-term market means understanding the micro reality of specific markets.
Okay, so right now the market is deep in the red, so my long-term investments will likely go down today. Interestingly, though, even as the overall market fades today, my short-term trades are in the green. I guess my hedging works in reverse as well.
Trade in the day; invest in your life …
