Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Is This Pullback A Flash In The Pan Or Epic Market Breach?

By Joseph L. ShaeferETFsJan 19, 2016 01:06AM ET
www.investing.com/analysis/is-this-an-epic-market-breach-or-flash-in-the-pan-380553
Is This Pullback A Flash In The Pan Or Epic Market Breach?
By Joseph L. Shaefer   |  Jan 19, 2016 01:06AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • The answer to this question is key to our upcoming success or failure
  • The first decision we need to make in portfolio strategy is: be mostly in the market or mostly out
  • Either way, there are always ways to play -- like those below

I’ve been too busy to post anything for a while but I want to at least briefly address the question above.

I don’t tend to over-react to the market action of any single week or so. Over the years, I’ve seen many upswings follow panics and many plunges be replaced by steady gains. I was lucky enough to call the current cyclical bull market that began in March of 2009 for what it was 3 days before the actual low (and was roundly heckled by those too deeply immersed in the day-to-day heartbreak from October 2007 to March 2009. You can see that article here).

We must remember that no market goes straight up or straight down. Within this current up-cycle, it is easy to forget that the S&P 500 had a drop of 16% from April 23 till July 2, 2010 that had the permabears claiming we were headed for Doomsday once again.

Or that from April 29, 2011 until October 3, 2011, the S&P fell 19.2%. Was T.S. Eliot right? Is April really the cruelest month? Yes, …sometimes.

But April isn’t alone. From May 2 to August 25, 2015 the S&P fell another 12.4%.

By comparison, this current pullback might seem like a piker. And it may yet prove to be. But this time feels different to me. In particular, it comes too closely on the heels of the previous decline. I mean, really, we had a rally of just 9 weeks before the US markets came tumbling down again?

Add to this that the cycle since 2009 has run nearly a full 7 years. Were these the fat years? Are lean ones ahead? (Some relief here: unlike the cycle related in Genesis 41, bear markets tend to be more volatile but also tend to last only half as long as bull markets.) No matter how you slice it, we are either very close to or beyond the expiration date of this bottle of milk.

Then, of course, there are all the more transitory reports out there that primarily confuse and confound clear thinking, giving talking heads on CNBC something to do between commercials: the full slate of geopolitical crises like China claiming uninhabited islands closer to Japan, Taiwan, The Philippines, Vietnam, Malaysia and Brunei than to China. Or the Chinese government lying about its numbers or skimming the rewards of its citizens’ labors for the top Party officials. Or OPEC. Or the tensions between Saudi Arabia and Iran, Russia’s bald-faced invasion of Ukraine while the US government pouted and appealed to the UN, the nuclear gift to Iran destined to bankrupt more American energy companies and send tens of thousands of additional workers onto the unemployment rolls, etc., etc.

These all pass, but a double dip within weeks of each other, the weight of a very old bull, and the likelihood of poor earnings comparisons add gravity to the mix and make it more likely we are closer to the beginning of a bear cycle.

If I believe that, why not sell everything last week or, for that matter, this coming week? Because “usually” markets don’t go up or down in a straight line. Permabulls will be encouraged by low prices and will buy the bargains – and make no mistake, based upon the last 7 years, there are some fine bargains out there. I just don’t believe any rally will have the legs to launch a new bull.

That’s why we have remained calm in this storm and instead are looking for a bit of sunshine to allow us to sell our more market-sensitive holdings and move into more cash and income holdings. What are we most likely to keep? Health care, especially managed care firms and the best-financed biotechs; insurers and regional banks; and all our long/short positions and our current short ETFs and funds, like ProShares Short S&P500 (N:SH), ProShares UltraShort S&P500 (N:SDS), Ranger Equity Bear (N:HDGE), ProShares UltraShort Russell 2000 (N:TWM), ProShares Short MSCI Emerging Markets (N:EUM), and Direxion Daily CSI 300 China A Share Bear 1X (N:CHAD) that, until now, have only been hedges. See my previous articles for other examples.

We will also add some developed markets sovereign debt; with Europe, Japan, Taiwan, Korea and others looking to reduce rates, their bonds are likely to appreciate while providing us with good income. We will again embrace the preferred shares of some of our favorite companies; again, I’ve mentioned these in previous articles, no need to extol their virtues yet again. And as the opportunity presents, I think we’ll add water utilities once again to our portfolios.

Does this sound too conservative for some? I’m sure it will be. Yet I project that the total return, a combination of the dividends and interest we will receive as well as some capital gains and merger and acquisition activity that always takes place when the price is right, will provide us with a 7-10% return this year. One might scoff at that in a rip-roaring bull market but if the market ultimately ends this cycle down 20-30% or more, those of us returning “just” 7-10% will be there with our portfolios intact to pick up the gold amidst the rubble.

Disclaimer: As Registered Investment Advisors, we believe it is essential to advise that we do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as "personalized" investment advice.

Past performance is no guarantee of future results, rather an obvious statement but clearly too often unheeded judging by the number of investors who buy the current #1 mutual fund one year only to watch it plummet the following year.

We encourage you to do your own due diligence on issues we discuss to see if they might be of value in your own investing. We take our responsibility to offer intelligent commentary seriously, but it should not be assumed that investing in any securities we are investing in will always be profitable. We do our best to get it right, and we "eat our own cooking," but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.

Is This Pullback A Flash In The Pan Or Epic Market Breach?
 

Related Articles

BlackBull Markets
Yellow Card For Sports ETF By BlackBull Markets - Sep 01, 2021

Cristiano Ronaldo announced that he would be leaving Juventus Football Club (MI:JUVE) and returning to play for the club where he started his professional career, Manchester United...

Is This Pullback A Flash In The Pan Or Epic Market Breach?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
August Brown
August Brown Feb 09, 2016 2:35PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Year Joseph - you are totally right, so agree with you! We all MUST remember that usually markets don’t go up or down in a straight line. Permabulls will be encouraged by low prices and will buy the bargains – and make no mistake, based upon the last 7 years, there are some fine bargains out there. I also don’t believe any rally will have the legs to launch a new bull. . .
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email