OK, now it's real. I was thinking that as I was watching the market action at noon today. As the financial media have been pointing out, all three major indices are now down at least 10% from their Jan. 26 highs. This is a correction.
If you have read my Real Money columns for the past four years, you'll know that I often rail against the top-down, ETF-driven nature of the current market. Thus, I wasn't overly concerned by Monday's move, but the action of Thursday and the third hour of Friday's trading (I won't make a prediction as to how we will close today; I have given up on that type of soothsaying) shows me that the markets really are running on fear, opposed to greed.
Wednesday I was asking people, "Can it really be a correction if Amazon is trading above $1,400?" Well, (AMZN) finally broke down over the past two days and hit a low of $1,265 today. As with the overall market I will not - -for fear of sounding stupid -- attempt to guess where Trifecta Stocks holding AMZN shares will finish trading today. But the fact that Amazon could sell off is more telling than the fact that it is bouncing off that $1,265 low.
That's the problem with corrections. The baby gets thrown out with the bathwater. There is a lot of bathwater to go around in the global markets and please do not succumb to myopia. Watch the other markets.
The Treasury market jumped Friday at noon as stocks hit their lows of the day, with the yield on the 10-year dropping from 2.85% to 2.80%. That's a flight-to-safety trade and it should scare those investors with long stock positions.
Remember that the genesis for all this volatility was the wage growth shown in last Friday's non-farm payrolls report. Rising inflation is horrible for bonds, but in the short term it can be helpful to the non-interest sensitive issues in the market. For instance, I am sure Jeff Bezos would be happy if Amazon could pass through selective price increases to defend margins in its core online retail business while the company makes forays into so many other areas.
So, when bond prices fall and stock prices follow, that can be a buying opportunity, but when bond prices rise while stocks are falling that tells me that portfolio managers are shifting away from riskier assets. That's a tough environment for stocks, because they will always be riskiest -- excepting cryptocurrencies, etc. -- assets that most portfolio managers can choose.
How long will this correction last? I was just thinking back to one of TheStreet's founder Jim Cramer's mantras: the trading tone for any given month is set by the jobs report on the first Friday.
Well, the market hated this jobs report or at least the wage component, anyway, as the growth in payrolls was indicative of an economy still in "Goldilocks" mode. So that tells me that February will continue to be an interesting month for stock traders.
So, as always, Jim accurately pegs the zeitgeist of this market, but for advice on when to enter individual names I refer to the mantra of another Kramer: Cosmo. Jerry's neighbor loved levels, and you should, too.
Pick round numbers and then multiply by a safety factor. I saw Alphabet (GOOGL) drop below $1,000 today, Exxon Mobil (XOM) fail to hold $75 and Tesla (TSLA) -- as I discussed in my previous Real Money column -- plummet through $300. I'm not buying TSLA at any price, but XOM and GOOGL offer a certain value. But not today.
I had been using the rule-of-thumb of buying Action Alerts PLUS holding XOM any time it fell through $80, but to accept the reality that we are now in a correction I am applying a haircut of 10%. So, I'll buy XOM at $72 and, using the same logic, GOOGL at $900.
Will they get there? Stay tuned!