If we only had something to hang our hats on, we could do some buying.
But we don't, and we should stop pretending we do. Right now, at this very moment, I find it incredibly hard to have conviction about anything.
First, we should understand, buying a stock or a mutual fund is a big deal. Where you buy, when you buy, does matter. Far too often, we hear that if you like a stock or a company, you should go buy shares in it once you have done the requisite homework.
That couldn't be more wrong. You commit capital when you think that the odds that favor your purchase is at a decent, less risky level than another time.
I don't hear many people talk about this concept. They like such and such a company -- so why not go own stock in it?
They don't think, "I really like this company, but I don't like the stock at these prices."
They tend to want to fear missing out more than they fear losing. One of the reasons why that is, at least in this tape, is that that we have had 250 days without a 5% decline. So, missing a stock has become more of a sin than buying one and then having it go down.
Now, if you could hang your hat on something, say that inflation's coming down, or the Fed is on pause or perhaps COVID has peaked, those would be reasons to hang your hat.
And it's always a possibility. We got a consumer price index that was better-than-expected Tuesday. But does anyone actually know of anything that costs less than it did a year ago?
We have numbers that show that COVID might be peaking. But how about what happens when kids start giving it to each other and to their parents now that the school year has begun in earnest? How about when the weather gets cold? Will COVID come roaring back? I know that we are learning to live with COVID, but if that's the case, why do we have millions upon millions of people not wanting to go to work, because they say they fear getting sick?
Oh, and is the Fed really on hold? I thought it was only on hold because of worries about the delta variant. If that's peaked, then why should it remain on hold? Where is the conviction on the macro side that you need to pull the trigger? Nothing to hang your hat on, for certain.
Then we have this endless day-to-day chasing problem. The Dow Jones industrial average was up Monday, which I said would cause traders to come in and do some buying in that group. So what happens? The industrials open higher and then sink when there are no buyers "underneath." You typically want to buy stocks when you know you want to buy more of them, in case you didn't pick the bottom. But if you bought stocks because you thought the trend was your friend, or because you haven't gone wrong purchasing the dip, you are suddenly wondering if that's a mistake.
Has the pattern changed? You might have been hanging your hat on buying dips, as the philosophy has worked for ages. But maybe it won't anymore. The calendar says that dip buying doesn't work right here. Maybe the calendar is right.
How about the individual stocks here? We are getting some disturbing trends. For ages I have found that if you are buying high quality stocks and you keep buying on the way down you are going to make out like a bandit.
Take Apple (AAPL) . The stock of the greatest company in our universe has tended to run up into a product launch like we just had and then sell off. Last week, though, the stock had been pummeled by the so-called loss to Epic in a recent federal court ruling. I figured that if the stock had always run into the launch and then gotten slugged, perhaps because it sold off before we could have the opposite effect. I hung my hat on the idea that there were low expectations for the Apple 13 and the other goodies that come with it.
Nope, just like it might have gone down if it were up into the launch, it went down anyway. So the pattern recognition that I wanted to hang my hat on had failed.
Or take Wynn (WYNN) . Here's a stock that's been pummeled by the idea that COVID was going to hurt business both here in Vegas and in Macau. I own it for my trust and I expected, like in the tenet I gave you earlier, that it would be viewed as a major reopening trade. So we bought some for my charitable trust. We were looking real good, but then last night the Chinese government let it be known that just as it was trying to discourage gaming among youths, it seems to want to crack down on gambling in Macau.
So, I thought I had something to hang my hat on. Instead there was nothing there.
Then think of the groups that we thought were going to make us a ton of money. We thought that the drug stocks had evaded attacks on pricing, because President Joe Biden didn't bring it up when he was elected. The group had a huge head of steam on it, a real hat hanger.
And then last week it turns out that the Biden people were just biding their time. The plan is to roll back drug prices to levels that would cause a huge amount of pain to shareholders. Now the group has no bottom.
Lately people have been making the case that the banks were cheap enough that they couldn't get hit. We heard nice risk reward and that they were cheap vs. earnings. I heard a lot of people make the case it was time to buy.
But I kept thinking, why? Why now? What do you know? What does you conviction stem from? The answer? After today's selloff, nothing.
So what do you have to do with have the conviction to buy?
Ahh, this is the real rub, isn't it? The answer is simple: When you feel like buying more of a stock that goes down, not cutting and running because you never had anything to hang your hat on to begin with.
What's the cure? First, it's price. When stocks fail to go down on bad news and then fail to go down when that bad news is pointed out to them by analysts the next day, you might begin to have the conviction you need. Then it's going to be time. We may, as I have been saying endlessly, have to wait until we are getting to the second week of October to get through the period of maximum seasonal pain that we have had for the past two decades. Finally, it's going to have to be no big declines on nothing. Again, go back to Apple. The stock had been down big ahead of the launch. The launch went fine and the stock got crushed anyway.
Now, periodically, I read a little about myself on Twitter -- as little as possible I might add -- and I see that have become a raving bear.
One, that's not such a bad thing to have been since this month began. But, two, I am not a bear, I am neutral, just waiting to have something to hang my hat on before I pull the trigger. Lots of unseasoned players in this market are mistaking my caution for my belief that the market is headed down. All I want is to lessen my chances that the stock market gets clobbered, after I am done my buying.
Right now, I am keeping my rally cap on my head. It will be rather obvious when I have something sturdier to hang it on.
(WYNN and AAPL are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these or other stocks? Learn more now.)