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Friday, March 29, 2024

Whiplash Wednesday

Yee-haw!

Ride that bull…  If this is a bull market I'd hate to see how a bear market treats us.  The best thing about this week is how funny it is to watch Kudlow and Company as he has now been reduced to senile rants where he repeats "Goldilocks" and "The greatest story never told" over and over like some demented mantra.

Kudlow and Cramer (who used to share a show) both follow the same pattern of telling investors how great the economy is, how global markets are on fire, how the housing crisis is a short-term issue, how commodities are still undervalued… while at the same time crying that the Fed must act to avert a crisis.  Which is it guys?It's not just them, we get these mixed messages from most of the MSM pundits and if I actually belived that these people beleived what they were saying then I would give up all hope for the US economy. 

Only by assuming these guys are shameless hustlers who are looking to manipulate retail shareholders into making misguided investment decisions in order to enrich the hedge funds can I continue to believe in this country because if these guys truly represent the actual thought processes of the investment community, then we are truly doomed!

Markets run in cycles and we have to let go of this bull cycle and ride out a bear cycle, in order to get to the next bull cycle.  The government, the media and the Fed have, for the past year, been trying to change the ordinary course of things by pretending we can just skip from one bull market to another bull market without all that messy correction in between.  Its simply not healthy.  The 5 stages of grieving are Denial (we went through 2 years of that in housing), Anger (who hasn't been blamed for this now?), Bargaining (Cramer et al screaming for Fed intervention), Depression and Acceptance.  The last two parts we keep skipping as every time the depression (a bear run) starts, the bulls ratchet up the bargaining and the Fed or the Government cave in and "rescue" the bulls.

Any good psychiatrist will tell you that avoiding these last 2 stages of grief will only lead to a much worse situation down the road as the refusal to face the depression and accept the situation can lead to an endless string of bad decisions as we are unprepared to move on in a realistic fashion (see "Psycho" for the end result of refusing to accept a loss).

The market moved from yesterday's depression right back to bargaining (the new Fed "deal") and jumped right back to denial agian this morning BUT THE LOSS WAS STILL THERE!  When your mother is dead, sticking her corpse in a rocking chair and putting on a wig and her clothes is NOT going to mean everything is fine (and if you haven't seen Psycho then that probably sounded pretty crazy!).  Sooner or later someone will drop by and ask about your Mom (in this case, the hundreds of billions of financial losses) and you can't just stab them all in the shower.

OK – perhaps we've stretched the analogy here but the value of your stocks, especially your options to buy stocks, is based on future performance expectations and uncertainty is not a neutral event.  You have to look at the likelihood of conditions improving vs. the price you are paying for a security (funny word as they are anything but) and this ridiculous notion that the market can OR SHOULD go up constantly is very detrimental.  If all the people who had ever been born never died, where would you live?  The same goes for companies – everything has a season yadda yadda…

Anyway, we had a totally fabulous day as we didn't buy the rally from the outset.  At 9:31, with the Dow opening at 13,569 my opening statement to members was: "I’m not doing anything in general – sometimes you have to take a hit, take a breath and then come up with a rational course of action. Let’s see what levels we get to before buying into this. I’m not sure how much this really helps anything other than giving the bulls an excuse to rally. The CB’s have been giving money out like candy anyway, this is just more of the same but we’re not going to fight the tape."

Just 18 minutes later, the Dow 100 points higher, after having peaked at 13,700, someone asked me if we should consider taking on new LTP positions and I said: "LTP – I’d wait a bit for a real dip. 13,700 is so close to the top of the year’s trading range that you are much more likely to be overpaying than underpaying.  I’m tempted to short here actually but I’ll just be happy if this lunacy calms down here. I’m really getting fed up but S&P 1,505 is nothing to rally about and all I see is a ton of blocks being sold to retail investors who think $40Bn tossed out by the CBs is going to solve something. If they Dow breaks back below 13,600, we can probably short anything we wished we shorted yesterday, like XOM, which is now up over yesterday’s high and very close to it’s 10/29 high of $93.61 (spike to $94.27). At that point, out of principal, I will have to bet the farm on XOM going down!  If you are long, I would suggest exiting with the big boys and just being happy you got out of yesterday’s mess with little damage. Let’s wait for a real breakout before we start “bargain hunting.” If you are short, I would roll up to Jan puts but you have to assume Dec is dead as we only have 8 sessions left."

This is essentially following my "Don't just do something, stand there" policy of crisis management that has served us well in several sharp corrections this year.  After that very excellent top call we not only held onto but improved our short positions, cashed out our longs and generally had a really good time playing stock market roulette as the Dow dipped back to my 13,000 to 13,300 trading range after a pointless 5-day, 500-point diversion.

Fred said:  "Phil, I think I’ve almost achieved nirvana…I checked the total value of my virtual portfolio and I was up $2,700 on the day. On days like this in the past I’d be down at least $10,000 – $15,000 and thought this was normal. This includes my mutual funds which move with the market."

Wiiboxer said: "Thanks to all for their AAPL insight, especially Film & xian. I held yesterday & DD before close. Sold into the initial excitement this morning as Phil’s always says. Whoot whoot!!!!"

Windywheel said: "Today’s market is nuts. I don’t understand it. But I made progress on my positions yesterday and I’m doing so today as well. NOW THAT IS ASTONISHING! Thank you Phil for your genius and your kindness and generosity in sharing and teaching it!!!"

To which KC replied: "Windy – great post. I can certainly relate, as I have also been there (arguably still there at times). Completely agree that to learn this requires total commitment and discipline in applying the system (something I don’t/can’t always do, and need to do better in this department).  Phil – I’ll take this opportunity to thank you again for your patience and willingness to share/teach. I’ve learned a ton since joining the forum in late Marc, though there’s still much more to learn."

I want to thank everyone who participates in our member chat section as the grand tapestry of contributions is by far the best I've ever read and many of my great trade ideas come from the ideas other members toss out that we refine into a trade.  It's a real team effort and I'm very proud of our group, especially the way you all are so quick to help the new members as they come on, as we all see the rewards that are shared by all as people like Windwheel, K1 and many more get up to speed and become excellent contributors themselves!

On a devestatingly down market day like yesterday, for us to have the time to chat about what constitutes a pun in the afternoon makes this the most rewarding project I've ever run and I want to thank all the members for making this such a fabulous year as I still look forward to sitting at my desk every day and sharing my ideas with you.

 

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