As the markets recently made lows and cemented a bear market, the crowd suddenly became anxious to spend. After all, a 22% drop in the S&P 500 index should be enough to find some names in the bargain bin. Traders and investors are desperate to find a reason to go long this market -- turning over every stone for a clue. Sentiment still seems pretty bearish with the American Association of Individual Investors
data pointing toward a sixth straight week of heavy bearish feeling.
data pointing toward a sixth straight week of heavy bearish feeling.
I've been reading lots of Twitter ( TWTR) posts lately, and, while most of them point to "bearishness" as prevalent, I'm seeing far too many who want to be bullish. Is that contrarian or just fighting a trend?
Indicators are mixed, but they may be pointing toward some sort of turn higher. Unless the price action confirms the indicators, however, you can't jump ahead. Yet, that seems to be the modus operandi these days. Anticipate, estimate and guess the direction. What happens after the directional bet? We get slaughtered.
We have yet to see much follow-through in the markets after strong market days. In fact, going back to early April, we see any big rally day has been sold viciously the following day, losing most or all of the rally. How frustrating and annoying that must be if you're catching a falling knife! As we know, that is the wrong approach and leads to devastating losses.
So, what is the right formula? As difficult as it sounds, waiting patiently for a trend to establish is the best route to take. If you believe a trend can continue for some time, then it's really very easy to do. But when we are impatient, or losing and just need to bank a win, we tend to see the markets as we want them to be rather than what they really are.
This is a bear market, there is no disputing that fact. It will be over some day, and most of us will miss that turn, and that's OK. However, if you can make some adjustments to your style, technique and execution you can win. Wait for the right moment to strike. That requires discipline and patience, and not letting the crowd or sentiment ignite your desire to buy.
