WASHINGTON, Jan. 12, 2016 – It’s getting harder and harder to write this column daily. The reason is simple. Until and unless the hemorrhaging price of Brent and West Texas Intermediate (WTI) crude oil is reversed, it seems that the entire universe of stocks, whether in the oil patch or not, is doomed to go down too, right along with that increasingly worthless black gold. So much for the “peak oil” we were being warned about by Washington’s die-hard cadre of Green Meanies.
Which gets right to the heart of the boring nature of writing about the same old, same old and trying to make it new. It’s not new. It’s old and it’s boring. We have simply found ourselves in a situation that won’t end until it ends, and there it is. Whether we call it a mere correction or a full-fledged bear market doesn’t make things any different.
That’s because, as January 2016 has made quite clear thus far, until the HFTs and monster funds stop the endless waves of selling, selling, selling—until that selling is finally exhausted—the current decline will continue to build. It’s as if the market is determined to take itself right back to the bottom we experienced in March of 2009. If it does, the massive decline will demonstrate that any money folks have made in stocks since then was all an illusion, which many of us quietly thought it actually was. We leave it to you to figure out if that’s the outcome we were promised by the Fed, Congress and the current feckless administration.
After hitting a new, almost terrifying new low of $29.33 bbl. earlier Tuesday, WTI has recovered slightly, getting back over $30 bbl. as we write this in midafternoon. But having broken through that assumed $30 support, the punditocracy—assuming they even know what they’re talking about—is now concluding the next stop down on this long, freakish journey is $20. But who really knows?
This epic uncertainty, combined with Chinese currency and market shenanigans plus the dawning awareness that Western governments and the compliant media have been lying to all of us about the depth and severity of the terrorists and miscreants these governments have been happily importing by the millions, and you have a market that is now panicking over the vastness of the unknown.
That means that this is hardly a good time to get into stocks. We’re slowly selling off our portfolio, whether we’re in the green or in the red, based on perceived intermediate term weakness. We seriously hate to do this. But as we’ve mentioned before, it is, frankly, the only sane thing to do until the ruthless, endless dumping of stocks finally exhausts itself.
We have no idea whether today’s wild market action will close up or down. But today’s continuing irrational trading pattern indicates that the selling tsunami is not over quite yet.
UPDATE: Unpredictable to the last, major market averages actually closed positive Tuesday, although a great number of issues, particularly small caps, are still failing to thrive. Something fishy going on out there and the bias still remains down for all markets unless we get evidence to the contrary. We’ve all been caught in far too many bull traps over the last 12 months or so, so let’s be careful about walking right into another one.
Today’s trading tips
We really don’t have any at this point except to reverse the last seven years’ worth of “buying on the dips.” Until proven otherwise, the algorithm now is “sell on the rallies,” which is precisely what’s been happening today. Whether the price of oil really has anything much to do with this or not is anybody’s guess. But it’s the current excuse for the selloff. If it weren’t oil, it would be something else.
For that reason, once again, we’re holding on tight to our term-preferred stocks for income (i.e., preferred stocks that have a firm redemption date not too far in the future), and we’re reluctantly putting our cash into very short-term (1-6 month) CDs. The return is lousy, currently about ½ of 1 percent. But that’s a vastly better return than the nearly 20 percent losses that more and more stocks have already experienced since Thanksgiving.
Some day, hopefully soon, it’ll be time to scoop up some bargains. But it’s very clear that day is not today.