Because the market has been up for so many days this year – seemingly without a break – that today actually felt like a really bad day. But when you realize that niether the Dow nor Nasdaq were down at least 1%, it wasn’t bad at all.
The Nasdaq was showing strength til the Apple buyers quit around 526. The price then close under 500, which was an intra-day swing of over 5%. There were still some stocks that moved up nicely but the indices fell with Dr Copper. The copper chart, with 2 straight small gap up days followed by a big down gap day and 3 more losing days (in the past 6 days) could be causing traders to halt (as in “was that the peak of this little run?). Copper, being one of the most used metals in the world – is typically a leading indicator for the rest of the market. And with recent market history, no one is going to feel bad keeping any profits they might have made the last 6 weeks.
Among the large cap dividend payers that I keep my eye on, there was no serious damage with the worst performer in my little watch group being Cisco (down ~0.8%) but with IBM and JNJ up for the day. The MLP’s were up ~0.5%. Tips (TIP) were slightly up and long bonds (TLT) were slightly down.
Gold was up a bit – maybe people are putting together this little equation – bad market > Uncle Ben Bernanke prints money = gold up? However, in the overnight market, it is slightly down so who knows.
Walking In Respectfully Means Not Having to Run Out with Tail Between Legs Too Often
Here is where late traders have to be cautious – or even investors who have trouble stomaching losses (not talking to you iron-tummied buy-the-dippers!). The gap up in early January caught most by surprise – and then there’s fools like me who saw the tax loss selling in December but failed to fully load up at the end of December! Anyway, if you didn’t get in as the market turned, you likely ended up chasing stocks higher – or worse, you watched til the market was up 5,6,7% and then jumped in. As trader Peter Brandt kept saying over the past 4 weeks, he was so mad he didn’t buy the QQQ’s and had that urge to buy late – and he’s a long-time pro! Imagine what the amateurs were feeling.
The problem with entering moves late is that typical market action could send you out of a trade faster than you planned. With some indices up over 10%, it makes sense that the market might correct 3-4% (or more: 0% environment = extra choppy markets). So if you entered a trade or investment poorly, you could find yourself down 5% on a trade when the market is up for the year – and that hurts! You might have to exit for risk management reasons. Therefore, if you are in this position, examine what you did, when you bought, why you bought what you did and when you did (print out the chart while analyzing), and see how you could do better. And you might say “I am an investor, I won’t sell if the price falls 5% or more.” OK how did that attitude do for you in 2001, 2002, 2008?
People always talk about being long term investors and buying on the big dip (Barry Ritholz would disagree- he thinks everything is a trade even if you plan to hold it for 10 years); but that’s only cool if they were in 100% cash when it happened. We got people 93% invested, the market crashes and they invest the other 7% and proclaim victory. And furthermore, the next time this happens, I am betting that Fed money printing magic won’t come to the rescue – so you better have cajones of steel to buy THAT dip when it comes. I’ll keep my risk management plan of planned entry and exit. And remember, with a good exit plan, in a bull market you oftentimes never have to sell if your plan is constructed right.
A poor entry into a stock, unless you’re lucky, oftentimes leads to a poor exit. Study good entry, and even if you have to exit, it has a chance to be graceful and not nearly as painful.
Good luck out there, God bless your efforts:) – and have a plan in place!
At the time of this writing, I or my clients own the following investments mentioned in this column: Gold, AMLP, TIP, IBM puts
Note: this article is meant to be some helpful thoughts to share and not investment advice specific to you. Please consult your own advisor regarding investment and financial decisions. See our disclosures page