WASHINGTON, February 22, 2017 – It has been one Freaky February for the stock market. We’ve been mostly MIA this week as we’ve been dealing with an apparently burst water line at our weekend house in West Virginia.
That disaster was probably due to the old 1924 pipes not being buried deeply enough to resist the recent hard freeze. A problem obviously caused by global warming climate change.
As we await the likely heart-stopping repair estimate to repair those pipes, we’re back at Investing Central trying to revive our recently burst portfolios.
Hopefully, our DYI efforts here will provide at least some relief, and soon.
February stock corrections
As anyone who’s currently got skin in the stock market game will acknowledge, the Freaky February correction in stocks has been a massive and extraordinarily swift return to investing reality for bullish types like yours truly.
We figured we were in for some kind of correction.
The only problem was, we hadn’t figured on more “professional investor” idiocy like the big short VIX (market volatility) gamble the bigwigs were quietly taking. These idiot wunderkinds were quietly shorting various VIX ETNs (Exchange Traded Notes), figuring that market volatility (i.e., big market swings) were a thing of the past, never to be seen or heard from again.
Unfortunately, when you decide that something in the investment world is forever, Mr. Market always shows up to teach you a lesson. In the case of the VIX-shorting wiseguys, it was an epic lesson. A lesson blowing them out of their shorts so fast and so hard that pretty much everything in the world of listed stocks was completely nuked in a matter of days.
Margin calls abounded, and, well, you read about it in the newspapers and heard about it from TV’s talking heads. Too bad that most of what you heard, in this case, was definitely NOT fake news.
Calms before storms
Markets managed to calm down a bit helping many of us little guys to get some of our money back, assuming we held on to most of our damaged stock positions, of course. But a blow-off this big will take some considerable time to heal.
Thus, we seem to be in a pattern where we’ll see one or two days of really nice gains. Followed by a nasty gut punch that takes some of those gains back.
We suspect we’re dealing with a fairly violent period of “sideways correction.” A sideways correction occurs at some point in a massive market blow-off – up or down – arresting the move for a day or three before it resumes and ultimately tops out or bottoms out. That point occurs, more or less when either the buyers (on an up-move) or the sellers and short sellers (on a down-move) are either close to being done or when they have run out of cash and margin funds.
It looks like we’re here. That means X days, weeks or even months backing and filling endlessly, mostly getting nowhere fast. Thursday’s action bears this out. When we returned from our latest short trip out to WV around noon today, we took a look at the market, and voilà! Stocks were up a good 250 Dow points.
Now we’re back down below 180, a pattern we’ve been seeing for several days now whenever the bulls start to buy again.
What’s likely happening here is that those remaining investors will scare off enough to sell everything that’s left in their portfolios. Then step back, thank God their stock is going up for once in this Freaky February, then punch that “Sell! Sell! Sell!” button Jim Cramer likes to hit on his “Mad Money” program on CNBC.
It seems they mostly due this when they return from lunch.
That’s why (we think) we’re having to deal with these bi-polar, Freaky February trading days that begin with a brief selloff at the opening bell, followed by some hearty buying all morning. After lunch hour, if the sellers decide the early bulls have taken their stocks up enough for the sellers to exit either for a modest loss or at breakeven, that’s when we hear “Sell! Sell! Sell!”
Exit stage left
Sometimes the market tries to come back. Sometimes the bulls just head for the exits, or their favorite watering hole. Today is one of those days. It looks like stocks will close up today, but as we close in on the 4 p.m. trading bell, the averages are once again beginning to fade. At 3:53 p.m. ET, the Dow is up around 161 and trying to sink further. Our guess is, that’s exactly what it will do.
Expect this kind of boredom to be par for the course until the sellers tire and a mildly bullish tone returns. We hate this sideways stuff ourselves. But that’s the price investors usually pay for too much of that Greenspan-ian irrational exuberance.