by Michael Batnick, The Irrelevant Investor
The first bit of investing advice Jack Bogle received when he came into the business is “nobody knows nothing.” That message rings loud and clear on a day like today. Some people are able to manage risk better than others, but at the end of the day we are always in uncharted territory as no two markets are exactly alike.
To review..
Last week we experienced some extreme bearish sentiment as the S&P 500 had a peak to trough pull back of 9.8%.The “Fear & Greed” Index went to 0 and my friend Ryan Detrick told us that the NAAIM equity exposure was at the lowest levels since September 2011. The fear on the stream was palpable.
Today, just one week later, we are 7% off the lows and just 3.5% away from making new all-time highs.
The V-shaped recovery that we’ve grown so accustomed to certainly seemed like a low probability outcome. Consider that last week, we were 4.4% lower than the prior low made in August, something that we haven’t seen since this bull market began. Furthermore, indices sliced right through the 200-day moving average and some areas, most notably energy and semi-conductors looked like they were in straight liquidation mode.
Two weeks ago I pointed out that we tend to see the best rallies within corrections so the fact that we saw a nice bounce the last few days was more the rule than the exception. On Tuesday, the mid-caps had their single best day since the first trading day of 2013.However, after the S&P 500 retraced 61.8% of the recent decline, we stalled and closed on the lows yesterday. This was “the signal” for traders to book some profits and potentially go short, if you’re into that sort of thing.
I was talking with some colleagues yesterday and said that today was going to be a key day, whatever the outcome. Either, bears would see follow through and would maintain the upper hand for the first time in forever, or the bulls would take out yesterday’s highs, forcing shorts to cover and the fear of missing out causing the under invested to chase, which is precisely what we’re seeing so far today.
Make no mistake that what we’re experiencing now has literally nothing to do with global growth, earnings or valuations. Psychology is driving this market and it is truly fascinating to watch.
Whether the V-shaped rally takes out prior highs remains to be seen. I’m not bullish or bearish, I’m net confused.
Photo by Giulia
Copyright © Michael Batnick, The Irrelevant Investor
