If there’s anything we’ve learned about these markets over the last
several years, it’s that they’re capable of anything. We’ve also learned
to expect a dramatic move when one would least expect it. Yesterday’s
reversal was about as indiscriminate as anything we’ve seen since just
before the election, and it came at a time very few expected it.
However, if you follow the markets daily activity as closely as we do, then you’ve probably come to learn these markets have had a very consistent habit of breaking down on new highs, but which new highs has always been the question. Truth is, sometimes these markets have broken down on new highs and sometimes they haven’t, but one thing’s for sure – when they have reversed themselves sharply, it has usually always come when the bulls start to get a little too giddy.
That last comment right there has been one of the single biggest reasons many traders have hated this rally for a very long time. They get aggressively long and the markets break down on a short-term basis. They aggressively short and the markets rally until they’re forced to cover. We have enough bright minds here to know this has been a pretty common theme for quite some time.
This is precisely why we don’t trade aggressively on a short-term basis. Although we clearly don’t think these markets are topping out on a long-term basis yet, they do continue to make pretty big fools out of those who just can’t quite understand how the markets love to play a game of opposites these days.
The bottom line is that was a pretty long winded way of saying we’re not surprised about what took place yesterday. We knew a selloff was coming sooner, rather than later – it just came a little later than we thought it might.
What to do now? Nothing yet. If you’re a swing trader, the move may or may not be over yet, more on that in a second. If you’re a long-term investor, the markets only gave up a few percentage points yesterday, if that, so it’s not as if we should be jumping in guns a blazing and looking to average down in our favorite ideas. More importantly, there’s no reason to jump ship either, especially since we’re exposed to good quality companies that will likely continue to prove themselves over the next several months and beyond.
If there’s one big mistake investors tend to make, it’s jumping ship in good companies just because the markets blow off some much needed steam. It happens all of the time, so don’t be among the sheep. Stay the course in quality ideas until a point in time the markets implode. Then, and only then, average down in those quality ideas.
If you’re timeframes and strategies require much more of a timing mechanism to your efforts, we don’t think yesterday was a long-term top in any way, shape or form. However, the much needed breather could be in for more downside ahead, but let’s not bet on that either right now.
When we dig into yesterday’s move, it was banks, biotech and pharma that led the move lower, three major sectors of the markets we actually like more than most on a long-term basis. Coincidence? No. Pharma and biotech continue to be under heavy speculation with lawmakers and the companies within those sectors still unsure over what’s to come of healthcare legislation, which is set to get underway in congress as soon as tomorrow.
However, if you follow the markets daily activity as closely as we do, then you’ve probably come to learn these markets have had a very consistent habit of breaking down on new highs, but which new highs has always been the question. Truth is, sometimes these markets have broken down on new highs and sometimes they haven’t, but one thing’s for sure – when they have reversed themselves sharply, it has usually always come when the bulls start to get a little too giddy.
That last comment right there has been one of the single biggest reasons many traders have hated this rally for a very long time. They get aggressively long and the markets break down on a short-term basis. They aggressively short and the markets rally until they’re forced to cover. We have enough bright minds here to know this has been a pretty common theme for quite some time.
This is precisely why we don’t trade aggressively on a short-term basis. Although we clearly don’t think these markets are topping out on a long-term basis yet, they do continue to make pretty big fools out of those who just can’t quite understand how the markets love to play a game of opposites these days.
The bottom line is that was a pretty long winded way of saying we’re not surprised about what took place yesterday. We knew a selloff was coming sooner, rather than later – it just came a little later than we thought it might.
What to do now? Nothing yet. If you’re a swing trader, the move may or may not be over yet, more on that in a second. If you’re a long-term investor, the markets only gave up a few percentage points yesterday, if that, so it’s not as if we should be jumping in guns a blazing and looking to average down in our favorite ideas. More importantly, there’s no reason to jump ship either, especially since we’re exposed to good quality companies that will likely continue to prove themselves over the next several months and beyond.
If there’s one big mistake investors tend to make, it’s jumping ship in good companies just because the markets blow off some much needed steam. It happens all of the time, so don’t be among the sheep. Stay the course in quality ideas until a point in time the markets implode. Then, and only then, average down in those quality ideas.
If you’re timeframes and strategies require much more of a timing mechanism to your efforts, we don’t think yesterday was a long-term top in any way, shape or form. However, the much needed breather could be in for more downside ahead, but let’s not bet on that either right now.
When we dig into yesterday’s move, it was banks, biotech and pharma that led the move lower, three major sectors of the markets we actually like more than most on a long-term basis. Coincidence? No. Pharma and biotech continue to be under heavy speculation with lawmakers and the companies within those sectors still unsure over what’s to come of healthcare legislation, which is set to get underway in congress as soon as tomorrow.
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