Let me preface this entire post by saying something I will probably repeat several times a week for the next several months: my entire investment premise is based on a major rally, from which I intend to profit, and a cataclysmic collapse resuming in the first half of next year, from which I also intend to profit (subject to the machinations of a government which will, at some point, seek to stop bears from profiting from the economy's collapse). Readers, get used to me saying this, because I am going to keep repeating it to avoid being misunderstood.
So………
Let's review a couple of basics. This is what a bull market looks like:
This is what a bear market looks like:
In markets like these, a few rules hold true:
- Whoever is in control (that is, the winning side) makes tons of money; the opposite side gets horribly damaged.
- Those who get in on the right side early and do as little as possible profit the most. Someone who went bearish in October 2007 and sat on his hands for the next year did fantastically well. Someone who was bullish in the mid 1990s and sat on his hands for the next five years did fantastically well. A "trader's" mentality is a complete waste of time and energy in a market like this.
- Those in control of the market get increasingly cocky, to the point of self-assured infallibility, as the market continues to go their way; conversely, those on the other side look increasingly foolish until such time as people simply ignore them as deluded and pathetic. (This latter group would have been the bears in the late 90s and most of this decade, and the bulls for October 2007-October 2008).
Now, this is what a major top looks like:
…..and this is what a major bottom looks like:
Almost indistinguishable, aren't they? Let me share my beliefs about these markets:
- Virtually no one makes money, because they keep getting whipsawed to death. Those who tend to be wrong a little more often than they are right get completely wiped out, because they lose a bit more of their base with each whipsaw until there is simply nothing left to trade.
- The side formerly in control begins a market like this absolutely assured that "their way" will resume at any given moment, but as the weeks, months, and years drag on, they get increasingly frustrated and disgusted with the market, which used to print money for them so readily.
- The formerly losing side is pleased that the relentless move (either up or down) is over, and they seek their revenge against the opposition. More broadly, they anticipate a change in trend. But they are likewise frustrated, because every time it seems like "their time" has finally come, the market turns in the other direction, bouncing between a relatively narrow range, chopping all participants into hamburger.
I propose that the market we have been in over the past two months is a miniature version of the latter. Very few people are making money anymore. The side formerly in control (the bears) is ticked off that their money machine has stopped. The formerly losing side (the bulls) is champing at the bit for the market to explode higher, but it simply hasn't happened yet. Everyone is frustrated, and everyone is confused.
Now, let me step in here and say that I don't think what we're seeing is a major bottom, and God knows it's not a major top (!) I do think we are seeing an intermediate term bottom, expressed nicely by the EUR/USD:
I've tried to "ride the chop", and, on the whole, I've been doing OK. Some of my "high-risk" purchases are exhibiting the characteristics of stocks that are poised to move higher…………I will go out on a limb and even say for a few issues the gain will be hundreds of percent higher, perhaps in a matter of a couple of months. Indeed, although these purchases were only on December 1st, 10% of my holdings are already up more than 40%.
Another characteristic of these "grind 'em up" markets is how acrimony is on the rise. I remember in the months prior to the bear market starting, people were downright nasty to me. Other blogs put up mock pictures of me, and people would email (or even call) me to chastise me. Of course, such voices went mute (and perhaps broke) once "Tim's market" kicked in.
Now that the bear market has slammed on the brakes, and everyone's just standing around looking at one another, the acrimony is bubbling up again, but in different ways. Bulls hate the bears; bears hate the bulls; and everyone hates the market. It seems to me the emotional landscape matches with what I have witnessed at prior turning points. When things are very plainly sailing in one direction, the losing side tends to shut up.
I have been able to switch gears between bullish and bearish fairly adeptly recently, but it's a lot of work, and I'd much rather let the markets sail one direction for a while; I do think a hefty move up is being cooked up, and such a move could be even higher than the 1,000 on the S&P I was thinking (more like 1,150). Such a move would be fantastically exciting, and the best news the bears could ever imagine. But we must continue to take things a day at a time until meaningful resistance levels, quite strong thus far, have been taken out.
