"It's not the plan that's important, it's the planning."
--Dr. Gramme Edwards
The indices are showing some early signs of stabilization, but market conditions remain extremely chaotic and the overall technical condition quite challenging.
In Japan, the Nikkei fell more than 5% as yields on bonds fall deeper into negative territory. The indices are now down sharply since the last financial engineering attempt by central bankers in Japan, and this is raising concerns that the ECB, the PBoC and the Fed are quickly running out of ammunition to keep boosting the markets.
Despite the problems in Japan, Deutsche Bank in Germany finally bounced after it stated that it has sufficient reserves to make payments due this year. That is helping to hold European indices even and giving a slight boost to early indications in the U.S.
The key thing to keep in mind right now is that we are in a downtrend and have a full-fledged bear market in many stocks. Too many people waste too much time trying to fight the obvious. They want to believe that this is just a routine dip and will quickly blow over, like has happened so often in the last six years, but it is obvious that conditions are quite different this time. It is particularly ominous that much of the concern is being driven by European banks. It was a banking crisis that drove the 2008-9 bear market, and many of the worries now are very similar.
The other major change that is taking place is that the market is losing confidence in central banks. In the past, we could always count on some dovish comments to put a bid under the market, but we are no longer seeing the same reaction.
Janet Yellen is scheduled to testify on Wednesday before the House Financial Services Committee. The market has already discounted the chances of further rate hikes this year, but it will probably give us a temporary boost if Dr. Yellen were to confirm that the Fed may have made a mistake to raise rates when it did and take a more dovish tone.
With the market under so much pressure as it is, the conditions for some sort of oversold bounce are better but don't lose sight of the big picture. This isn't a market that can be trusted to the upside for long. There are severe headwinds, and the damage that has been done is not going to be quickly corrected.
As I noted yesterday, one of the challenges right now is that many stocks are far more sold out than the major indices. The indices are still trying to catch up to the downside with the average stock. Sectors like biotechnology have corrected a magnitude greater than the indices and may be offering bargains, but they are not going to do much to the upside, while the overall corrective action continues.
Make sure you have a plan. That is the key for dealing with this sort of market. Some folks believe it is a good time to build longer term positions. Others believe the best move is to raise cash and wait on the sideline, and there are others who love playing the short-term volatility created by the chaos.
Whatever your style might be, the important thing is to acknowledge the reality of what is going on in the market. Don't pretend that this is normal action of minor consequences. There are some major shifts occurring around the world, and we will have to navigate the fallout as that occurs. It may mean a much more protracted correction, or maybe we'll come roaring back, but all we can do right now is accept the reality in front of our faces, which is that this market has issues.
Early indications have softened a bit since I started writing, and there is plenty of nervousness out there. I suspect the bulls will be looking for a bounce into Janet Yellen's testimony tomorrow, but there are many trapped longs who would love to sell into some strength.
