Well, THAT was exciting, wasn’t it?

No?OK, things did get a bit hairy there and its too early yet to say that we’re out of the woods. Traders are still extremely skittish and will be for a while.  We’ve had a couple of green days in a row, but they were not booming up days compared to the falls that preceded them. Plenty of smart traders are counselling people not to be too quick to buy the dip. 

That’s generally good advice when you get a real 10%+ correction. Even if it reverses right away it’s not unusual for it to revisit the low and often it doesn’t hold it. Note my comments near the end of the editorial about tomorrow’s US CPI print. If this really is all about yields, and it seems to be, markets will not be happy if there is even a baby inflation spike tomorrow that wasn’t expected.All that said, I still don’t see evidence that this is more than a garden-variety correction and there are no signs yet of the US or world economy stalling out.  his too shall pass. It has at least had the benefit of working off the overbought conditions in metals and the oversold conditions for the US Dollar.  Barring the markets really falling apart, it looks like metals should again start grinding their way higher and the USD lower. That, and the overall late cycle backdrop are still the paradigm that we need to generate some larger gains in our little corner of the market.

***

You can’t say I didn’t warn you. The editorial in the last Journal on January 29th warned of an impending correction, due to surging bond yields as much as anything. That proved to be prescient as we got a 10%+ drop in the S&P 500 and most other large global indices in the past two weeks.

Yay me, but already consigned to the “what have you done for me lately?” drawer I’m sure. When something like this happens, traders stop caring about context and start obsessing about tomorrow. What’s next? Are we done yet? Is this the opening act in a bear market? Am I freaking out too much, or not enough?

All good questions. Mostly impossible to answer, but good nonetheless. Let’s start, whether you care or not at the moment, with context. Short run, its hard not to trade emotionally in situations like this but, long run, it’s usually a mistake too. 

After all, what’s done is done. There’s no point in focusing on a drop that already took place. It’s whether we’re at a bottom now that matters. So far, there’s nothing special about this drop other than its speed, which was impressive.

Print Friendly, PDF & Email