Over on RealMoney Pro, Doug Kass discusses why he disagrees with my column about how pessimism has not paid during the Trump era. Doug has a bearish bias and, as always, he has very sound and persuasive arguments for his positions.
Where Doug and I tend to differ is that I focus on current price action and tend to be less anticipatory. I focus on reacting to conditions as they change and try not to predict what might happen.
As we saw this week when the market danced around to the Italian bond issue, there was no way to predict what would happen. The sell off on Tuesday wasn't predictable and neither was the bounce on Wednesday.
My approach was to evaluate the action as it occurred and react in the way I thought would work best. When the market sold off on Tuesday I noted that there was still excellent relative strength in small caps and speculative stocks while financials suffered the brunt of the damage. The indices were misleading as to the impact of the news. I saw no reason to rush and sell since the price action I was watching was largely positive.
Yesterday the market embraced that more positive view and we saw more positive action in many stocks. It was the sort of action that often leads to more upside but today the market shifted gears instead and is focused on the negative fallout of the tariffs.
Breadth is weak and we've given back some of yesterday's gains but I still so no reason yet to believe that this is a harbinger of more downside. It is just trading range action and the tendency for a very long time is for it to be quickly forgotten.
At this point I do not see a confirmation of Doug's bearish view in the price action. As I discussed in my prior column, I am watching small-caps closely as an indicator but as a reactive trader there just aren't enough negatives for me to worry. I've made some sales today but I see a few things I want to add to like Momo (MOMO) and maybe Alibaba (BABA) .
I'll be happy to join Doug in the bear den at some point but the price action has to convince me that Trump is going to be a net negative and that the dip buyers are going to give up. I don't see any convincing proof of that yet.