Stunning to watch the financial pundits and the action of some investors with their reflexive buy the dip mentality after the massive volatility shock. The S&P500 moves straight up for two years without a back-to-back 1/2 percent correction and then is hit out of the blue with an explosion, and the natural impulse is to rush in, buying the mantra, “stocks are on sale.”
If Macys marks up its inventory of, say, underwear by 50 percent over the past year, and then has a 10 percent off sale, is the underwear on sale really a buy?
BTFD has worked for past several years. However, after the financial tornado that has just ripped through markets, “Toto, I have a feeling we are not in Kansas anymore. We must be over the rainbow.”
Short term volatility is greatest at turning points and diminishes as a trend becomes established — George Soros
The stock market, which has been driven by sentiment, had priced in almost all things good yet ignored the change in, and changing global monetary regimes and move up in interest rates, is now unhinged.
Look how the Dow whipped around today — opens down 100, climbs to up 400, moves back into the red only to climb back up to 300 again and lose it all in the last half hour to close down. The biggest reversal in the Dow since August 2015.
Ditto for the S&P500 and double ditto for the NASDAQ. That is a market unhinged from its anchor and needs to find a mooring.
The world may (and, we emphasize may, as nobody knows the future) have changed, folks. No rush to buy, no Russians buying.
What We Are Buying
Therefore the only dip we are buying for an investment (trading is a whole different ballgame) is a big juicy French Dip. Moreover, we are certainly not rushing to the head of the line to buy the first Dip.
We will reassess when we feel we are back in Kansas, Toto.