Staying cautious in this Baby Shark Market
Everybody sing along with me to the tune of Amaris’ favorite song right now, Baby Shark:
“Mark…ets up! Doo doo, doo doo, da doo doo.
Mark…ets down! Doo doo, doo doo, da doo doo.
Mark…ets up! Doo doo, doo doo, da doo doo.
Mark…ets down! Doo doo, doo doo, da doo doo.”
Third and fourth verse, same as the first.
Here’s the thing about trying to game the day to day movements in these markets — don’t.
On Friday, when the markets were down 700, I thought to myself, “I should sell some more puts, locking in some more of these huge profits we have in these things that we bought right before the market tanked 10%…” But then I thought about how I’ve already trimmed nearly half of these things and I don’t want to rush out of all of them. By the end of the day the market had rallied 300 points of its lows and then when the DJIA was up 400 points yesterday at lunch time, I was like, “Dang it!”
Yesterday around 2pm ET, when the DJIA was up 400, I thought to myself, “I should nibble some more puts, buying back some of the ones we sold but with lower strike prices…” But I then I thought that I don’t want to rush out of load up on the first big rally day up from the bottom, right? So when the DJIA closed down 400 points from its intraday highs yesterday, I was like, “Dang it!”
Now this morning, the DJIA is back up 400 points and I’m like, “I should buy go ahead and nibble more more puts buying back some of the ones we sold but with lower strike prices…”
But look, let’s remember our mission. I’m not trying to game every day to day move in a market made up for thousands of stocks and millions of emotional traders/investors. Let’s say I’d actually bought and sold those puts along with the markets swings perfectly the last two weeks. Does that do us any good long-term? Well, it wouldn’t hurt!
But remember the mission, I’m telling ya’: Maximize our upside potential and minimize our risks for my money for the next 30 years.
It was just exactly two days before the stock markets put in their all-time highs and then pulled back 10% when I wrote on January 30 in Trade Alert: You scared, worried or relieved? Why I’m buying some put hedges:
“Most likely I expect we do get a 10% pullback in the stock markets and that some of the more volatile stocks, including some of our own will get hit for more than 10% in the next few weeks. That said, once again, as I’ve been saying consistently for nearly a decade during this economic expansion and Bubble-Blowing Bull Market, I still think the longer-term forces are likely to continue to drive stocks higher after what might be a more serious pullback in stocks than we’ve seen in a while…
The market hates coyness, and I’m not being coy, but we might finally get a pullback in the stock market that brings us some new buying opportunities and/or the opportunity to buy a few shares back of the big winners we’ve trimmed over time.
As I often remind you when markets are at all-time highs and in rally mode — remember how you felt the last time the stock market was down 10% and the headlines were full of panic and explanations of why more selloffs were ahead. Realize right now, that if and when the stock market is down 10% next time, you’re going to be a bit scared. You’re going to wonder why you didn’t sell everything at the exact high a few weeks prior.
Be prepared for those emotions now. Whether this is the start of that “next time” the stock market sells off or not, you want to be prepare for it now.”
Cody back real-time April 10 2018. Let me be clear that I’m not now looking back at what I have (so far) accurately predicted about the markets selling off 10% from those all-time highs of late January and saying that the sell-off is all over because we did go down 10%.
Rather, if I had to guess, I’d guess that the path of least resistance for the stock market for the next few weeks is still downward. I do think earnings this season will show huge growth, maybe even beating the very high bar of 17% earnings growth and 10% revenue growth for the S&P 500. But I think there’s a lot of worried traders and long bulls out there who are holding and fighting off their instincts to sell into the recent panics in hopes that this earnings season will bail their stocks out from these recent losses. I expect that set up means that those weak-handed longs and “hopeful” traders/long bulls will start selling and beget more selling even if the earnings reports are really strong.
More than 80% of the stock market will report earnings in the next three weeks, starting next week.
We got lucky in buying these puts and getting cautious right before the markets tanked. And let’s not be greedy now.
So hang onto your hats, keep your socks on, and sing along me and everybody in my household (including Amaris’ nurses) as we all have this song stuck in our heads for the last week:
“Baaaa-by shark. Doo doo, doo doo, da doo doo.
Mark…ets down! Doo doo, doo doo, da doo doo.
Mark…ets up! Doo doo, doo doo, da doo doo.
Mark…ets down! Doo doo, doo doo, da doo doo.”
