Read With Care This Weekend
Stop and think about it for a moment -- I'm not saying avoid reading today or this weekend, but be cautious when you do.
After a shellacking in the markets, many traders have a tendency to seek out opinions and articles that support their positions. We have a tendency to dismiss those who write or take positions opposed to ours. I think of the staunch reaction to Dennis Gartman's recent call to sell stocks. Immediately, folks looked for it to be a signal to buy or a bottom signal. I still see a lot of posts about buying the dip on Twitter, or claims that it is time to get out the shopping list. Ironically, I know several traders who now have their selling list. Not their short-term trading, but stocks they've held for many years that have enjoyed a five-year bull market. Still, this doesn't make the headlines and many will quickly set aside an article urging caution if they are bullish. On the flip side, there are bears who could care less what the Fed and the economy are doing. In the end, this weekend offers the opportunity to take in both sides of the market argument.
First, read with an open mind, not a predetermined conclusion. Second, keep time frames in mind when you are reading. This is just as important. If you scalp intraday and go home every night in cash, then the macro picture probably isn't a huge deal to you and the technical landscape is going to be very important. For long-term holders, the macro picture is paramount. And it seems as if the HFT story is going to continue to affect everyone. Remember, it can continually tick lower just as it has continually pushed the markets to tick higher. Third, don't be afraid to respond to an author and ask questions. The good writers want questions. It will stimulate everyone's thought process, but as always, do it in a respectful manner. In other words, don't emulate me.
As we talk about a "shopping list" because of the recent selloff, pay attention to a few numbers on the chart below.
Yes, we've pulled back off the highs, but are stocks really a bargain "all the way down here." So small-caps are now going to be more than 7% off recent highs, but still up 20% over the last 52 weeks. The SPDR S&P 500 (SPY) will now be a whopping 4% off the highs, but still up almost 17% over the last 52 weeks based on current opening indications. Utilities, a safe haven and yield opportunity, have been crushed by 81 basis points. Utilities are less than 1% off the 52-week highs. Gold and long-dated U.S. Treasuries are still way off 52-week highs and the Japanese yen is not quite underperforming like some in the media would like us to believe.
This shows me that equities have plenty of room to fall before any real damage is felt. The fact that utilities are so strong has me concerned, though. Momentum scans are still coming up everything bonds, and there just hasn't been many of the boisterous buyers I know on Twitter throwing in the towel or admitting to even one loss yet. While a bounce should be in order late today or maybe Monday, it is more for traders than long-term buyers. The numbers still don't show any panic in equities, or even a correction across the board yet.
At the time of publication, Collins had no positions in the securities mentioned.