The major indices are close to another trading halt at the open this morning as they give back the majority of yesterday's substantial gains. This is the fourth time in the last 10 trading days that a big bounce was immediately reversed the following day. The S&P 500 has not had two consecutive positive days since February 11 and 12.
What is most troubling about the market's inability to gain any traction is that there has been trillions of dollars in both monetary and fiscal policy thrown at the economy to deal with the repercussions of the coronavirus but it is not putting a floor under the market.
The market is recognizing that this is not just a monetary problem but a health and social problem. There continues to be tremendous uncertainty about the intensity and duration of the coronavirus but many are hopeful that efforts at containment will 'flatten' the curve. Money can't solve that problem at this point which is why the market is not reacting to the efforts that are being made to provide economic support.
The big question remains: What is the best way to deal with this market? Hopefully, you have a large amount of cash on hand at this point. If you don't then I suggest that you mark your positions to market and then trade them as if you just bought them today. Forget what you paid originally and focus only on what you can control today.
If you do have idle capital do not be in any rush to put it at risk. The biggest mistake being made right now is buying for the long term without any appreciation of the shorter-term risk. It is far more important right now that you protect your precious capital from further loss than try to position for potential gains at some unknown time in the future.
The opportunity to make money is not going to disappear if you are patient. In fact, your ability to produce gains and move your account back to even is likely to be enhanced if you avoid trying to predict the low.
For much of the last decade, I have battled folks that constantly tried to predict a market top. My advice was to stay with the trend as long as possible and only react when the price action shifted. That worked out well and now I suggest the same approach in reverse. Avoid trying to call a market bottom and stay in cash until the price action shifts. Reaction beats anticipation when it is impossible to predict the future.
Like many of the folks that are buying now, I am convinced that this market will rebound very quickly once we have some greater certainty about the coronavirus. The tremendous fiscal and monetary stimulus that is being announced now will make for a vigorous recovery.
While I'm optimistic about what will happen down the road, I see no benefit in buying at this point. I'm not at all concerned about missing out on future gains. I'm far more concerned about actual losses in the short term. This market does not care about fundamentals or technicals right now, so why should we?
Stay safe my friends. The time to profit is nigh.