Wheee!

Inflation running hotter “than expected”. Market overrun with panic.

As offered before, the markets run on hype and hysteria.

Steve

3 Likes

Today isn’t panic, just noise. I’m waiting for real revulsion.

Golden Cross on the SPX. The golden cross occurs when a short-term moving average crosses over a major long-term moving average to the upside. I would use the 50 and 200 day MA because past bear markets had significant short-term pops that failed and went lower. Similar to the “mungofitch 99 day rule” of staying out of the market if there has not been a new high for 99 days or more.

VIX 35 to 40.

OFR Financial Stress > 5.

St. Louis Fed Financial Stress Index > 2.5. I think this series is less reliable than OFR Financial Stress since it’s showing that financial stress now is exceptionally low even though interest rates are going up. But when it spikes it’s like fireworks going off. I don’t expect a major panic but any value over 1 in this index indicates serious market stress and a buying opportunity.

Free Credit Balances in Customers’ Securities Margin Accounts < $150 billion.

https://www.macrotrends.net/2603/vix-volatility-index-histor…
https://www.financialresearch.gov/financial-stress-index/
https://fred.stlouisfed.org/series/STLFSI3
https://www.finra.org/investors/learn-to-invest/advanced-inv…
https://www.investopedia.com/ask/answers/121114/what-differe…

Wendy

8 Likes

Confused Wendy. Are you saying you are waiting on a golden cross before you get back in?

The golden cross occurs when a short-term moving average crosses over a major long-term moving average to the upside. I would use the 50 and 200 day MA because past bear markets had significant short-term pops that failed and went lower.

You should have bought ENPH mid July!

https://bigcharts.marketwatch.com/advchart/frames/frames.asp…

Get ready to buy TSLA!

https://bigcharts.marketwatch.com/advchart/frames/frames.asp…

The Captain
long ENPH, TSLA

1 Like

<Confused Wendy. Are you saying you are waiting on a golden cross before you get back in? >

That would be the lowest-risk approach. It would avoid the bear traps.

But I’m thinking that I might get back in when the Fed announces that they are done raising interest rates. The Fed’s plan: 1) inflation declines to the Fed’s target for at least 2 to 3 months so they can be sure inflation won’t pop back up as it did in the 1970s, 2) there is slower growth and perhaps a mild recession which would be self-healing and not require Fed intervention. Then the Fed would maintain a “neutral” fed funds rate and not cut rates.

If that best-case scenario occurs, I think the stock market would respond with glee. I’m sure that many traders would try to front-run the Fed. That’s what has been happening and the optimists were disappointed today when inflation didn’t subside.

A true bull market would have legs. I wouldn’t risk front-running the Fed. I will wait until the upward trend is established.

That’s because I’m risk-averse.

Wendy

10 Likes

That would be the lowest-risk approach. It would avoid the bear traps.

Wouldn’t the lowest-risk approach be to dollar cost average, i.e., put some money in at each major dip so one doesn’t completely miss the bear bottom?

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Possibly. But my IRA is only at 10% cash. To do what you propose I’d have to sell to raise the cash to deploy it later. I could see myself raising another 5%. But that’s about it.

I’m 55. And while I don’t want to live through another big drop, I still would like to see another 70% gain, if not a double, before I retire.

That would be the lowest-risk approach. It would avoid the bear traps.
----------------------------
Wouldn’t the lowest-risk approach be to dollar cost average, i.e., put some money in at each major dip so one doesn’t completely miss the bear bottom?

How does one know which dips are the “major dips”? And how many suitable dips will there be so you don’t blow the wad too soon or wait and end up with too much dry powder that should have been used sooner?

I say, if you’re gonna time the market, and this DCA thing is just market timing, you might as well wait until you have something you can actually time. i.e. the aforementioned crossover, 40 week SMA +1%,2%,3% whatever floats your boat, or something else that’s prima facia go/no-go, instead of requiring discerning major vs no-major dips, deciding how much is enough to invest at this dip, and how many dips the future will entail.

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the aforementioned crossover, 40 week SMA +1%,2%,3% whatever floats your boat, or something else that’s prima facia go/no-go, instead of requiring discerning major vs no-major dips

Thing is, that is trying to fit rational data to the short term antics of dumb, panicky, animals, as they stampede from one headline to another.

Steve

4 Likes

I tend to sell in Jan to fund 6 months of RMDs in my IRA. No problem selling in Jan 2022 as was at market highs. Of course, RMD was based on market highs too.

Fast forward to September. Dividends and interest from funds in IRA kick in about 50% of what I need, but funds getting down to below next withdrawal for monthly RMD takeout. So had to sell something in Sept to get me through the end of year and a few months more. Groan. could suspend monthly take and take lump sum in Dec…but…

Well, now down about 10% from Jan…but you have to take out the RMD …and I’m not convinced market will be up in Dec. Could also be down another 20%. so I bit the bullet and sold 2.5% more.

I’m at 76 so it’s over 4% withdrawal each year ratcheting up. And no, I didn’t have much time to move money to ROTHS. While I was working 25 years ago, they were just starting I think = or could have been a lot later.

“The Roth IRA, named after the late Delaware Sen. William Roth, became a savings option in 1998”

I was long retired by 1998…and within a few years of RMDs. Fortunately my IRA is 20% of my total portfolio so it’s not a tax killer. I’m still under the 20% marginal tax bracket overall. Thank goodness for dividends and cap gains at 15%.

t.

Thing is, that is trying to fit rational data to the short term antics of dumb, panicky, animals, as they stampede from one headline to another.

Steve

Yes, about that. Most of life is that way. Almost everything is based on expectations. People are pattern-seeking creatures. It was essential to survival in the “recognize the puma in the grass or get eaten” days. So, patterns and expectations are the tools here. My view is: using the rational data is usually close enough. Sometimes you get stung by “Los Irracionales” but even that can be salvaged by reacting to the pattern change.(Unlike the puma thing which cannot be rectified.) Maybe this gets filed under "Don’t let better, and certainly don’t let perfect, be the enemy of good.

I just didn’t see the pattern in DCA’ing at “major dips.” The 40 week SMA +3%? That pattern I can see.

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But I’m thinking that I might get back in when the Fed announces that they are done raising interest rates.

If/when the Fed makes that announcement you can count on a 1000 point bounce, and you will be late to the party. I don’t think you can hope to find the absolute bottom and then grab it; you need to anticipate it - either by being prescient or more likely by buying when your gut and other perhaps more reliable indicators tell you inflation is evening out/the economy is doing OK/etc.

Aren’t you the one who posts Control Panels aiming to predict the near term future? Then predict!

4 Likes

I say, if you’re gonna time the market, and this DCA thing is just market timing, you might as well wait until you have something you can actually time. i.e. the aforementioned crossover, 40 week SMA +1%,2%,3% whatever floats your boat, or something else that’s prima facia go/no-go, instead of requiring discerning major vs no-major dips, deciding how much is enough to invest at this dip, and how many dips the future will entail.

And good luck to you, you are almost certainly better at this than I am. I’ve waited for the bottom in the past and it has typically been ugly. I understand not fighting the Fed and that Europe is headed for a winter recession so greater drops might certainly occur. But I also can’t predict inflation and employment numbers. If for some reason inflation and employment decline faster than expected then the Fed might very quickly reverse course and the markets boom. For me, trying to time the bottom is like betting on an inside straight.

As an alternative strategy, I have a list of stocks that I am interested in and a price where I would consider buying in. If a dip occurs and that price is reached I’ll think about buying.

I used this most recent dip to take fliers on General Dynamics (GD) and Northrop-Grumman (NOC). I figure that recent events have greatly increased the global demand for US military equipment (like drones and vehicles)and that during a period when consumer demand may fluctuate greatly, companies whose revenues come primarily from government contracts will tend to outperform the S&P. They have so far in recent months. I also see this as a bit of a diversification as I don’t have many dividend stocks. GD is also a major player in AI and NOC in space so these seem to me to be relatively safe investments in these areas.

Am also closely watching Lockheed and Raytheon for much of the same reasons, though Lockheed’s last quarter results were a bit depressing.

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If/when the Fed makes that announcement you can count on a 1000 point bounce, and you will be late to the party. I don’t think you can hope to find the absolute bottom and then grab it; you need to anticipate it - either by being prescient or more likely by buying when your gut and other perhaps more reliable indicators tell you inflation is evening out/the economy is doing OK/etc.

I have learned that waiting for a bottom leaves you waiting for the next bottom a decade later. Market bottoms are hard to predict (although mungofitch does a pretty good job). What I have learned is that finding attractive entry points on excellent companies is a lot easier than identifying market bottoms. Right now it’s easy to see attractive opportunities in companies like Google, META, and BRKB. Could Google fall further from it’s current price of $105? Sure. Will it be worth a lot more than $105 five or ten years from now? Undoubtedly. Of course I could be wrong. Russia might use tactical nukes in the Ukraine. NATO might intervene leading to another global war. The energy crisis might tip the world economy into a cataclysmic depression. Anything is possible, but assuming that capitalism remains the dominant way we organize economic and social life on earth, and assuming we don’t annihilate ourselves in the near future, things look pretty bright for owners of Google and Berkshire at these prices.

Why predict the market bottom when dollar bills are lying on the ground at our feet?

PP

2 Likes

All good stuff in this post.

And good luck to you, you are almost certainly better at this than I am. I’ve waited for the bottom in the past and it has typically been ugly. I understand not fighting the Fed and that Europe is headed for a winter recession so greater drops might certainly occur. But I also can’t predict inflation and employment numbers. If for some reason inflation and employment decline faster than expected then the Fed might very quickly reverse course and the markets boom. For me, trying to time the bottom is like betting on an inside straight.

A few things: I didn’t admit to doing any of this. I was just contrasting 2 different types of “timing.” One more metaphysical, divining major bottoms out of x-number of future bottoms, vs a clear buy/don’t buy signal. And who says anybody needs to catch a bottom or a top to avoid the effects of a prolonged downturn? That’s all this timing stuff is about anyway.

I can’t predict or “forecast” any of that other stuff either. Inflation, unemployment, what might happen in Euroland or Ukraine vis a vis gas supplies and the war. I also think none of it will be as bad as people are saying but that’s a hunch. I wouldn’t invest on a hunch. Or maybe it’s because I’m old now and I remember all the times the world was going to end but here we all are. Better than ever. Or not. But it didn’t end.

As an alternative strategy, I have a list of stocks that I am interested in and a price where I would consider buying in. If a dip occurs and that price is reached I’ll think about buying.

That’ OK too. If you know something about the stocks you want. I don’t know how you’d know if or when you’ll get your price though. And if not, I guess that particular investment isn’t very important in the first place?

I used this most recent dip to take fliers on General Dynamics (GD) and Northrop-Grumman (NOC). I figure that recent events have greatly increased the global demand for US military equipment (like drones and vehicles)and that during a period when consumer demand may fluctuate greatly, companies whose revenues come primarily from government contracts will tend to outperform the S&P. They have so far in recent months. I also see this as a bit of a diversification as I don’t have many dividend stocks. GD is also a major player in AI and NOC in space so these seem to me to be relatively safe investments in these areas.

Am also closely watching Lockheed and Raytheon for much of the same reasons, though Lockheed’s last quarter results were a bit depressing.

All, also pretty universal ways of buying stocks. But I can see you are A) trying to make money and B) timing the purchase based on background goings on and not any kind of a hard signal. And you are not seeking a “bottom”, just a good time and place. That’s all a moving average will get you but, as I see it, it’s less work.

This sentence entertained me:

Could Google fall further from it’s current price of $105? Sure. Will it be worth a lot more than $105 five or ten years from now? Undoubtedly. Of course I could be wrong.

An Undoubtedly. Followed by an Of course I could be wrong.

Not making fun, please don’t take it that way.

Just an observation of a statement that I feel represents our uncertainty.

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It certainly is a funny juxtaposition, but I did follow up “Of course I could be wrong” with the end of the world scenario.