The stock market is down sharply Tuesday and I can feel the stress and hand wringing.
Loyal readers of Kamich's Korner on Real Money may remember that back on Oct. 11, I wrote that, "The market has turned down and looking for reasons is not a strategy in my mind. I think this decline could last until the turkey is about to go into the oven. The market pundits need to change their tune from 'buy the dip' to 'why did I buy the dip?' -- we need to see some pessimism.
Don't email me questions about what level. Let's just wait for some blood in the streets."
And then in the middle of October, when the stock market was plunging further, I wrote some thoughts about the S&P 500 saying, "For me, a tradeable low in the S&P will happen when people get discouraged. 'Blood in the streets' is good but I will settle for a parade of bearish guests on CNBC. How about you? Meanwhile, the old saying on Wall Street is to keep your powder dry."
Working from home Tuesday morning while the turkey, turkey breast and beef tenderloin are all defrosting it struck me that market participants are finally bearish and discouraged. From our London bureau our staff commented that "FAANG is in retreat, with the five core names giving back nearly $1 trillion in market value since their recent peaks, all within the space of three months."
Bitcoin -- remember that? Well bitcoin broke last week, down something like $700 billion in value. It is not that relevant to equities, but it does say something about the animal spirits in the market.
It was only a year ago that bitcoin was going parabolic and was the topic du jour at parties. Without mentioning names, the guests on CNBC this morning are bearish or they seem bearish to me at least. I cannot remember the last time I heard the phrase "bear market territory" so often.
Get the picture? Let's check out some charts.
In this chart of the Russell 2000 from Bloomberg, below, we can see that the Russell is extremely oversold using the stochastic indicator.
In this chart, below, we have a moving average envelope on the DJIA and I am imagining that prices will be down close to the lower band.
In this chart, below, we can see a moving average envelope around the 12-month moving average on the DJIA. Prices will be below the 12-month average and making a stab at the lower band.
Prices are down sharply an hour into trading. A parade of statistics along the bottom of my TV screen are in red with the headline "Market Sell-Off."
Bottom-line strategy: If you kept your powder dry then you have some funds to put to work in the market. This is not a buy that will see prices rally to new heights but it should be a respectable year-end rally. 2019 will see the bear return.