Sometimes we get days like today where people just say, "I've had it, I want out of here."
They want to sell pretty much everything, or maybe everything except what's been going down endlessly, like oil, where the stocks bounced even as the price of oil failed to do so, or some of the more heavily shorted stocks that finally caught some lift.
What's going on here?
I think this market has suddenly become fearful in a way that the vast majority of portfolio managers have become fearful of the dips.
Let me explain. For the longest time, ever since the market bottomed six years ago, if you decided to buy down-and-out merchandise, or picked at value, or just grabbed growth stocks that were bounced around by extraneous events, you did well. That's where the "buy the dips" phrase came from. In fact, the best strategy of this era is to wait for a stock of a company you like to come down to a price you think is fair and then buy it.
The buying opportunities have been legion -- all sorts of them. Washington's toxic politics gave us repeated dips that, in retrospect, were fantastic times to snap up the stocks you wanted. I can't count the number of shutdowns and debt-ceilings and budget-wrangle opportunities Washington gave us.
Or how about the numerous Fed scares? Think about the sheer numbers of times we have heard that the Fed was about to raise rates? It's really been an untold story how ridiculous this parlor game became over the years. We have had four years where important people, pundits and commentators told us that the Fed was going to raise rates and wreak havoc upon those who owned stocks. They never did, and each time we heard that they were, well, it was a buying opportunity.
Then there were all of the amazing opportunities coming from overseas: the ongoing Russia/Ukraine fracas, the spike in interest rates in Europe in 2011, the Cyprus crisis, the Spanish crisis, the Italian crisis, the Greek crisis, the Greek crisis and then again, the Greek crisis.
They were all moments where you got great prices to buy stocks that you like. Just plain sweet.
But something is different this time, and it has people taking a pass on this dip. This time it feels more like the 2007 to 2009 period, where buying stocks on the way down just meant you were going to lose money.
I know you feel it. I do, too. You can even gauge it. There were 60 new lows in the S&P 500 in the last few days. That means 60 stocks that if you bought on the dips, you were annihilated.
We have had whole sectors we thought were going to get value but the value proved illusory. First it was coal. I get that. The coal companies are in the crosshairs of President Obama and the Environmental Protection Agency. There's no way you can beat that combination.
Then coal spilled over to copper and iron, and the makers of these commodities are now on the ropes. Who knows when or if they can bounce. If you bought the dips in those, you are simply trying to figure out how big a loss to take.
Then the contagion spread to the oil and gas complex, including the pipeline companies. When oil was first more than cut in half and traded down to $43 not once but twice, lots of people bought the dips and they were rewarded beyond their wildest dreams when oil bounced, and bounced hard, all the way up to $60 and change. It was breathtaking and it took up everything, including the most beat-up stocks and the ones least prepared for the decline.
Here we are almost back to that same $43 level, but the stocks are all so far below where they were when we were there last that they have are among the most dangerous stocks out there. It started with just the heavily indebted companies, the smaller independents that borrowed a ton in order to exploit the different shales. Then it spread to the intermediates, the multi-billion dollar companies that had been market leaders for ages. Last week it got to the majors as Royal Dutch Shell (RDS.A), Chevron (CVX) and Exxon Mobil (XOM) all said that there is no way we are going to see a recovery in oil any time soon.
Now, forget for a moment that today, oddly, the stocks actually bounced. The declines have been stunning and they have wiped out hundreds of billions of dollars in value. The master limited partnerships, so often sought out as safe havens with outsized yields, have fallen apart, many of them down by as much as 50%.
All of these have devastated the "buy on the dips" crowd.
The rails were next, brought low by the fact that they had gotten involved in the oil-transport business and they carried coal -- two different cargos in free-fall. I can't believe how many times dip buying in this group worked. But not this time.
Then it spread to the industrials and techs that had been so terrific for so long. These industrials were felled by two different vicious headwinds: the strong dollar and the collapse of the Chinese stock market. I can cite a host of companies that have been crushed by these two -- United Tech (UTX), IBM (IBM), Qualcomm (QCOM), GM (GM), Ford (F) and even Apple (AAPL). The latter, the largest company in the world, has been in a tailspin that has obliterated the dip buyers. Only those who bought at the height of yesterday's Bank of America Merrill Lynch decline -- the one where I took my Apple watch off at $112 -- have made any money since this stock hit its peak in April at $134. Rough stuff. These stocks and their brethren -- like long winners Qorvo (QRVO), Avago (AVGO), Skyworks (SWKS) and NXP Semiconductors (NXPI) -- have been horrifying.
And today the "buy on the dip" strategy got to some of the most reliable -- or at least seemingly reliable -- companies on earth: cable and entertainment stocks. They all had the same characteristics -- great cash flow, constant growth, are almost totally domestic (so they are not subject to the amazing dollar) and monster buybacks.
Yesterday, perhaps the most formidable leader of the entire "buy the dip" movement, Disney (DIS), formerly the number-one performing stock in the Dow, got blasted and it's still reeling today, although I think the selling has now run its course.
When redoubtable leaders get drubbed in stunning fashion, ones that have been the single-best bouncers, the ones that come back the fastest - you decide, heck, it's too risky, I am going to sell all my highfliers because the downside seems far more unfathomable than I thought. So today they got to growth stocks in stunning fashion, some of them having midday reversals that were breathtaking in their severity. Of course, it didn't help that cult stock Tesla (TSLA) reported a not-so-hot quarter or that FitBit (FIT) blew out the numbers, but then wouldn't show its hand about what awaits shareholders and potential shareholders.
Plus, even though commodities have come down, particularly fuel, this time the retailers and the restaurants have been spotty in their recoveries. The airlines are desultory. These roared last time oil came down to this level. But not this time.
Now let's add insult to injury. Other than the energy stocks that I think were caught up in a weird short squeeze, the only real leader today was Netflix (NFLX). Ouch! Netflix is the slayer of all things media. What's good for Netflix is, frankly, good for, well, Netflix and nothing else.
With this many new lows, with this sole General Netflix and no followers, we have a stunning development: Buying dips has become the equivalent of falling off a tightrope without a trampoline or even a safety net. It's a strategy that has become a symbol of complacency.
So here's my suggestion: I want you to keep some cash. Don't fall in love with stocks as they dip. And accept that, for the moment, you aren't buying a dip, you are trying to catch a falling knife, and unless you are a butcher block, you have very little to show for it except bright red losses oozing from all aspects of your portfolio.