Lose your shirt this week in the markets? The answer is probably yes. No need to send me an email -- I can feel your losses in the plethora of tweets from the investors I track each day. Let me fill you in as to why you are probably taking it on the chin right now:
1. You think there are "key support points" in the stock market. When fear is rising (as it is currently), abandon those lines on a stock chart and use some common sense. The market is pleading with you not to buy stocks, it's saying it wants to bust through any downside support points you have neatly drawn on a TD Ameritrade stock chart. Wake up. Respect the market.
2. You have been programmed since 2009 to "buy the dips." Hard to argue with this logic, as buying the dips has proven fruitful since the stock-market meltdown. However, you have to buy the stocks when you have a sense that there will be no further, more-severe dips. At present, the market is saying the dip has deeper to go down.
3. You are listening to money managers continue to tout stocks on TV. Yesterday morning, I listened to one proclaim love for consumer cyclicals, while another veteran of the trade said the selloff in oil was nearing an end. But at the same time they are proclaiming you should stay the course, they are on their iPhones putting in sell orders. I may look 21 years old, but I have seen the games being played. Listen to your own inner self and trust the investment disciplines you are supposed to hold dear.
Truth hurt? Too bad. It is within your power to stop the mistakes you are making in this very-choppy market. I would not be a buyer of stocks at the moment, plain and simple. There are a few notable exceptions -- one being American Eagle Outfitters (AEO), which I mentioned in Columnist Conversations: it plays to the bullishness around some retailers as a result of the drop in gas prices, and the company had an amazing quarter.
You should be pairing down year-to-date winners to raise cash. Losing positions should be exited to prevent further losses. And, after all that is done, sit tight and read a book. The market is in adjustment mode for a confluence of reasons -- China, sluggish U.S. growth, a suddenly unpredictable Fed, and an array of little things -- and standing in the way of market forces will cause you to get run over.
Here are a few things not to like about this market. (Yes, there is a method to my madness.)
1. A blue-chip stock, Disney (DIS), gets smashed on a single analyst downgrade. Disney had another strong quarter. It has Star Wars coming out soon. All signs point to strong growth in the quarters and years ahead. Yet, a downgrade sends the stock spiraling 6% in one session. This is a classic sign the market is becoming increasingly agitated. I would expect more best-in-breed names to catch downgrades against this backdrop, as companies hit the investment-bank presentation scene in September. Analysts are looking for excuses to downgrade -- and avoid getting stuck holding buy ratings on plunging stocks. After all, it's almost bonus time!
2. A high-growth company, such as Popeyes (PLKI), has its stock whacked despite a stellar quarter. Talk about a negative sign for the market. Immediately, I am concerned that a company like Starbucks (SBUX) will catch a downgrade that shaves off a few percentage points.
3. Oil prices down, stock market continues to go down. Ideally, I want to see oil prices go down and stocks to go up. Or, heck, I would even take oil prices rising and stocks rising.
4. Financials continue to pull back on the belief that the Fed won't raise rates in September, or perhaps at all this year. These stocks normally do well in a rate-hiking cycle. But, I think a part of the decline in financials is over concerns of an autumn slowdown in the housing market -- as volatile stock markets weigh on homebuyer sentiment.
As an aside, talk about Buffett's latest big acquisition proving to be a market top...