The “There Is No Way” Market

Unless you have been living under a rock, you know that the game has changed this time.

There is something a bit more ominous about this latest market sell-off.  Nothing concrete yet — no definitive chart or stat you can point to — that tells us this might be more than the standard 4-8% mini-correction we have experienced numerous times over the last few years.

But something in the tone and tenor seems different.  Sometimes when the indexes are down big, a closer look still finds winners among the leaders.  All the former leaders have been taken out to the woodshed this time.  The losses seem broader, more across the board.  The only stock showing strength is $MSFT, which is cold comfort.

A prized thoroughbred naturally has different types of gaits; walk, trot, canter, and gallop.  They may not be discernible to the crowd, but the trainer who handles him daily with love and respect can distinguish them, and can tell when something is amiss.  He knows that pushing his horse when his underlying health is suspect can have dangerous consequences.  Seasoned professionals know the same thing about the markets.

For some reason, markets like the one we are in right now seem to attract soft money, not repel it. Investors and traders who should be doing nothing more than sitting on their hands and re-reading the Market Wizards series are rushing to “take advantage of the volatility.”  Meanwhile, smart money is standing aside, waiting for more information, a clearer picture, and a better diagnosis of the market’s health.

Regardless of whether this is “the big one” or not, we have definitely entered into a dangerous type of market, what I like to call a “There is no way” type of market.  It’s hallmark is the cry of “there is no way,” which comes from those with some, but not enough, understanding about how markets work.

There is no way it can go lower.

There is no way it won’t bounce here.

There is no way $AAPL won’t come back.

There is no way I can sit on the sidelines while this is going on.

There is no way I am wrong on this stock.

There is no way I went full margin on that position.

There is no way I could have lost all my money.

There is no way I am going back to working as a used car salesman.

The irony of the “there is no way” market is that, “Yes!” there is a way.  It is precisely when you start believing that there are things the market just won’t do, that it in fact does them.

Markets like this are the exact type in which you have to put your biases away and keep your mind open to what can happen.  You also need to alter your strategy.

If you are a trader, resist the urge to catch every bounce.  Trade less.   Trade smaller.  Trade smarter.

If you are an investor, pare down your losers and raise cash.  Find the stocks that hold up best during this turmoil and put them on a list.  That is your shopping list, the one you will use to buy from when things settle down and the smoke clears.  Those stocks will be the winners in the next move up.

Brilliant stuff like this rains down like..well, rain, on my stream during the week.  If you want to get wet, follow me on Twitter and StockTwits.  You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.

Brilliant stuff like this rains down like..well, rain, on my stream during the week. If you want to get wet, follow me on Twitter and StockTwits. You can also pick up my book Trading – The Best of the Best: Top Trading Tips For Our Times by clicking here.

  • heywally

    I think that if one is in a large cash position, that this is a very good time to — assuming you can do the screen time — day-trade (or swing) the intraday volatility with relatively small positions, scaling in slowly via indexes after weakness and scaling out into strength, “building a position” if it goes against you, but only up to a conservative limit. I prefer the 3X ETF’s — mainly TNA — , not for the leverage but for the less cash-at-risk. TNA moves big, so smaller positions are all that are needed. And of course, it is good if you can avoid doing any buying at all during the panic selling. :)

  • Pingback: 3 articles about trading and investing that you should read today - StockViz

  • Pingback: Thursday links: sitting on your hands | Abnormal Returns

  • Mr West

    More doom and gloom.

  • Pingback: Has the market changed? | ducati998

  • James Otter

    but joe fahmy says there is strength in the market if you have the right stocks and that you shouldnt be a wimp and trade the volatility. Is he right? I’m so confused?

    No one ever made big money in the market being a wimp. If you don't have the stomach for it, don't play the game.— Joseph Fahmy (@jfahmy) January 29, 2014

    • http://bclund.com/ bclund

      Joe Fahmy was sent by our evil alien overlords to deceive us into losing all our money.

  • Pingback: Hot Links: Too Many Fires Burning | The Reformed Broker