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  • Writer's pictureSteve

Wowza!




What a November!  The S&P rallied nearly 9% as stocks charged higher the first of the month and never looked back.  Investors, after being so pessimistic in October, flip-flopped their emotions at breakneck speed.  Recall last month I noted, "What's more, that final week of October saw numerous breadth thrust indicators trigger including another Zweig Breadth Thrust.  Adding fuel to the already smoldering fire is a reversal in the sentiment of a Barron's survey of "large money" managers, not to mention data around NYSE short interest, margin debt, Nasdaq vs NYSE volume, Investor's Intelligence surveys, AAII surveys, retail money market funds and put/call ratios.  Many of those data points are also flashing in ways typically indicative of at least a short-term bottom."  But wait, now there's even more!  November saw additional positive market signals kick in including a so-called "Breadth Thrust Reversal" on the Nasdaq 100 and another breadth signal whereby advancing stocks outpaced declining stocks by better than 3:1 over a 10 day market period.  Similar readings on both indicators pointed to strong returns, especially in technology stocks, over many (but not all!) market periods.  I could go on, but won't.  


All those signals I just talked about seem to be telling us it's time to buy (if you haven't already).  So is it?  Or is this the "All Clear Echo?"  Will buying with a longer-term time frame in mind only lead to heartbreak and losses?  I mean, remember the yield curve?  That thing that's been inverted for 18 months now?  The last six times it inverted, we got a recession within 12-18 months.  Is it different this time?  Stock market "bulls" (those who think the market is heading higher) seem maximally emboldened right now while "bears" (those who think the market is heading lower) are despondent.  We've got ourselves quite a conundrum and knowing who, or what, to trust seems like a crapshoot. 


So, what's an investor to do?  I'm reminded of an interview the famously successful fund manager Ray Dalio once gave.  In it, he was asked how he so often seemed to know what the market was going to do and be positioned for it ahead of time?  His response -  a chuckle, and then he described how he never knew what the market was going to do ahead of time, but that he always had a plan worked for every possibility.  Then, when something happened, he could reach for and implement whatever plan he needed so quickly it seemed like he was positioned well before the move.  With that in mind, I'll end with the words that are always at the top of my plan (yes, I have one!) - "Honor your stops, honor your system, and above all, honor your plan (whatever the plan is)."

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