It's a Challenge to Figure Out When to Buy the Dip

I'm still tempted to buy the dip, but have been reluctant to pull the trigger. Last Thursday, I was tempted to join the buying and was kicking myself by the end of the day. On Friday, I was extremely happy that I hadn't, but couldn't bring myself to buy the close. Here it is, Monday morning, and I'm back to wondering if I missed the opportunity. The concept of being a day trader isn't what I strive for, but when daily moves on the Nasdaq 100 are almost 3% it is difficult not to get forced into buying. Trying to figure out what to sell hasn't been much easier. Muni closed-end funds are up anywhere from 5% to 10% in a couple weeks. That seems almost too good to be true, and my inclination is to take some profits. But many of these funds are still down 15% or so on the year, and while the discount to net asset value (NAV) has squeezed tighter, they are still cheap relative to fair value versus where they traded most of last year. I see two main conundrums facing the market right now: 1. The Fed The Fed is being pushed by D.C. and the media to act. Yes, the Fed is independent, but there is incredible pressure on its members to address high inflation. High prices, especially for food and energy, show little sign of abating. The Fed is starting to take the punch bowl away as Fed member after Fed member seems to committed to two summer rate hikes and are asserting that September is in play. Yes, they will be data-dependent, but the market can be jawboned. On the economic side, we are getting multiple CEOs sending up warning flares on the future of the economy. Many earnings calls were filled with discussions of slower demand, but more importantly, the need to contain costs, especially on the worker front. With Europe struggling, there is a risk that our economy will be exposed as being more fragile than many currently believe. So, the Fed has to hike, but hiking is dangerous - conundrum #1. 2. Data and Market Response to Data The payroll data last Friday were decent, but the data reflect the prior month and don't yet include plausible actions by companies trying to address costs (let's not forget that higher interest rates are also a cost to most companies). Do the data points start rolling over more than they already have? (The Citi Economic Surprise Index is quite low at -45, indicating most recent data have already been disappointing). The other problem facing us is how the market responds to good or bad data. In a perfect world, I am most comfortable adding to risk when good economic data cause stocks to rally and bond yields to go higher. That behavior is normal to me. However, in the past few weeks, the correlation between stocks and treasuries has been all over the place. Somedays, stocks zig while bond zag, but they've both zigged and both zagged often enough that no clear trend is in place. The scenario I'm most afraid of right now is one where we get bad economic data (that is my base case) that is followed by lower yields (my base case) and higher stock prices (not what I want to see). Those higher stock prices suck us in and then we get another rapid selloff as stocks shouldn't be rallying on bad news at this stage. That might be why I'm so fearful to pull the trigger on participating in what I see as a bear market rally in equities. Data is uncertain and market response to data is uncertain - conundrum #2. While dealing with those issues, which are keeping me in check, I am doing the following: --Almost out of energy stocks at the moment. It has been a great ride. --Keeping credit as it is performing very well. --Not buying treasuries as I prefer to take my interest rate in credit, from muni closed-end funds to BB or investment grade bonds (iShares Fallen Angels USD Bond ETF and VanEck Fallen Angel High Yield Bond ETF are two ETFs I find interesting, and while it is horribly illiquid, I'm dabbling with Janus Henderson B-BBB CLO ETF - a mezz tranche collateralized loan obligation ETF). --Adding homebuilders. --I could see buying some Chinese stocks (such as iShares China Large-Cap ETF ) for a trade, but it would be for an extremely short-term pop as I do not see China as investible long term given its current administration and overall direction.

It's a Challenge to Figure Out When to Buy the Dip

And it isn't much easier to know when to sell in this market, either.

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