WASHINGTON. After spending much of Columbus Day in the red, the Dow Jones Industrials (DJI) managed to close the day slightly in the green. But at the 4 p.m. closing bell, other widely followed averages closed in the red. Ah, but now it’s Tuesday. And at least as far as the DJI is concerned, Monday’s action seems to have been a dead-cat bounce. Today, the bears have returned to the fray and stocks are going wobbly again. We’ve seen action like this before.
Like our mixed animal metaphor, trading is très murky on this Tuesday afternoon after Monday’s sort-of-holiday. Stocks traded yesterday, of course, but bonds did not. Today, everyone’s back in action. And happily, overextended bond yields dropped just a bit this morning after a week-long tear.
Unfortunately, bullish investors’ sighs of relief weren’t enough to bring back a new round in the Great Trump Rally. At this point, in this boring, confusing, mopey market, it looks like only Santa Claus can lift Mr. Market’s spirits enough to re-launch the most recent market rally.
Volatility, bearishness are impeding a really good dead-cat bounce this week. Something’s gotta change
But Houston, there’s a problem. The VIX volatility index remains uncomfortably high by current standards. That generally means skittish if not frantic selling, often on the downside. Such action generally augurs poorly for the bulls.
Worse, the McClellan Oscillator, which actually ticked up Monday after a prolonged and nasty dive, still looks bearish here. It’s low enough, however, to give us some hope for a more impressive and much bigger dead-cat bounce later in the week. Or even something more. Fingers crossed.
Interest rates again
Interest rates have got traders down these days. Ditto the post-Kavanaugh confusion, the impossible-to-predict Election 2018 results, the constant drip of bad news coming out of the tech sector, and the continuing bad signs coming out of China. These latter signals make it look like no trade deal at all is imminent.
Then there’s those irascible tech theives, the Chi-coms
Like all good Communist governments – as if any of them are “good” – China has spied and stolen its way to competitive industrial status with the West. After all, why not pillage the American economy in particular, which, under our previous socialist president, happily sat by while the Chinese swiped all our tech innovations and used them to beef up their own. Which is what the previous administration wanted – to weaken an unworthy America to Third World status.
Well, that worked. But now, suddenly, we have an administration that doesn’t like this kind of economy-ruining nonsense at all. So they’ve decided to go to the mat. But, again like the good Communists they are, China has no intention of playing more fairly. They’d rather steal the rest of our stuff and then crush our own economy. It’s the way they roll. And that’s really what we’re dealing with. It goes way beyond tariffs.
Many American businesses that do business with China realize this as well. Some businesses, Silicon Valley in particular, would rather cave in to Chinese demands for sharing their technologies than risk a loss of business. Others, however, are quietly behind the unfashionable Trump Administration’s efforts to prevent even more of our good tech stuff from getting swiped.
It’s a really muddy issue. But it haunts more thoughtful Wall Street investors. And, for that reason, I think it colors current trading patterns as well.
Looking for excellence during the upcoming Q3 earnings season
The numbers we’ll start to see from business that begin to report Q3 earnings this month could make a big difference in stock prices and in the movement of stock averages. If we could get some nice Q3 numbers, if interest rates would at least calm down if not pull back a bit, and if Election 2018 provides at least some near-term clarity politics-wise, the currently absent bulls might decide to re-start the party.
If not, stocks might be in for some kind of nasty correction.
As for me, I don’t have a clue at the moment. No Rosetta Stone seems to exist for this situation. It’s just one imponderable after another, and the resulting uncertainty is why this market sucks. Money you think you made one day gets pulled out of you the next. If you try to sell to lighten up your exposure, whatever it is that you sell will become a roaring bull the very next trading day. Meanwhile, if you hold on to perfectly good stocks that have decided to implode – like our current holdings of U.K. telecom giant Vodaphone (symbol: VOD) – you get hosed for your faithfulness.
The only people likely having fun these days are the hair-trigger day traders and options fiends. The volatility here is what makes playing-with-matches style trading action so much fun. But for boring old guys like this writer, it’s simply no good. It leads to stupid mistakes whenever you get fed up. Which these days is often.
How to invest when you have no idea what’s really going on
Our various investing accounts are actually still ahead for the year. But the averages have been beating us, percentage-wise, which is unusual, at least for this investor. And yet that’s what’s driven me to replace most of my holdings in individual stocks with ETFs, a tactic that’s really been working well. Otherwise, you can’t benefit from those superior moves you see occurring in most averages. (Until recently).
I.e., if you buy the damned averages via appropriate ETFs, you’ll often get a better ride than you will as a stock picker. At least for now. Frustrating but true.
My current attitude? I’m hanging in there mostly invested and with a reduced cash horde. But I’m reducing disastrous positions when feasible. Meanwhile, I continue to invest (in small increments) in largely commission-free ETFs following broad based indexes. The rest of the portfolios are mostly in short-term preferred stocks, although these are getting harder to find in this rising interest-rate environment. Additional stocks and ETFs fill out the balance. But a major requirement: most of them must also pay a decent dividend. In this market, that’s a must for a variety of reasons.
But getting involved in big, new positions right now seems to be a bad idea. That’s because I have no clue when the sun will come out again on Wall Street. There’s just too much confusion and uncertainty right now.
When will this indifferent market change?
Again, I have no idea. So, until that situation changes, stocks will likely continue to get spooked by the least hint of anything resembling negative news, making it difficult to develop a new strategy. The occasional dead-cat bounce can be a welcome opportunity to lighten up, though, if it makes sense at the time. Things will clear up eventually.
We’ll be back with updates this week, IF we can figure out where this clunky train is headed next.
— Headline image: “Dead cat bounce.” Cartoon sketch of a clearly pre-deceased cat. Original via Flickr public domain, modified by the author for satirical purposes.