When asked how he made all his money, Jim Rogers answered, “I sell euphoria and buy panic.” The way he determines that is to wait until prices are “gapping” in the charts. Gapping on the upside is considered “euphoria,” while gapping on the downside is representative of “panic.” Currently, crude oil is “gapping” on the downside and Treasuries are gapping on the upside. The result has left stocks gapping on the downside as well. The implication, even though I continue to believe stocks are in a secular bull market, is that corrections in bull markets can be painful. Recall, since the March 2009 low, we have experienced a number of 10%+ corrections in the S&P 500 (SPX/2011.27) with the worst being a near 20% affair.
However, what is happening now should have come as no surprise to readers of these comments for in late December 2014 we repeatedly counseled to raise some cash because the “timing models” that served us so well last year were telegraphing a rough patch in the first few months of the new year. Yet, in my opinion, it is too late to panic. The time to raise cash was a month ago, not now. Now it is time to make your “shopping list,” looking for the opportunity to selectively redeploy that cash into preferred equities. Granted various stocks will make their lows at different times, so pick your spots carefully. Tactically, at least on a very short-term trading basis, many of my indicators are becoming oversold and it would not surprise me to see another bounce attempt off of some kind of low on Thursday. Unfortunately, I do not think any rally attempt “sticks” and we will subsequently go lower.
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