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Sell the Rally: It’s Wall Street’s stock trading mantra. For now

Written By | Dec 13, 2018
Bears' new trading mantra is sell the rally.

Wednesday chart of S&P mini index, courtesy ZeroHedge. See article below.

WASHINGTON.  The bulls can’t get a word – or a positive trade – in edgewise these days. For the past few months, they’ve instinctively followed their hearts and minds by doing what they always do. They That’s “buy the dip.” And then they get crushed. The bulls don’t quite realize that the bears are running the show right now. And their new trading mantra is “sell the rally.”

For years, most investment gurus, cable TV talking heads and blow-dries have pitched traders and investors to “Buy the dip.” In other words, whenever stocks and stock averages are having a nasty day or three, investors should put their idle cash to work by scooping up the accidental bargains after each selling squall peters out.

But for more than a calendar quarter now, even the largest stock rally can’t last for more than a day. Two, max. That’s because everyone and everything – individual investors, hedge funds and high-speed computers alike – follow a new mantra and / or trading program. “Sell the rally.”

Sell the rally: Wall Street’s current stock trading mantra

We saw the effect of that mantra once again in Wednesday trading action. Markets opened with an enthusiastic and potentially YUGE rally. But not long after the rally boosted the Dow Jones Industrial Average a few hundred points, the selling started. As the averages dropped, stocks rallied anew. But more feebly.

Once again, like the legendary Mongol hordes, the bears returned, swarmed the battlefield, and dumped loads of hapless shares once again. Rinse, repeat. This went on all day. Sure, the Dow eked out a gain by the end of the day. But it was only the pale ghost of the dynamite rally that started the day. Because: “Sell the rally.” Right now, it’s the only game in town. Until it isn’t.

ZeroHedge opines

ZeroHedge put up a tiny article this morning, headlining that piece with, shall we say, a more colorful headline to characterize what we just tried to describe above.

“Sell The F**king Rip”- Day 5

Short on words and long on tale-telling charts, he describes, succinctly and well, the chart we’ve reproduced and modified as our headline graphic above.

Another joyous green open and another immediate round of selling…”

Listing another descriptive chart describing the similar fate of the Dow Transportation Index, he closes out the piece. ‘Nuff said. Sometimes pictures really are worth 1,000 words.

CNBC sends in the sell-side guys

In between its usual litany of anti-Trump screeds contributed by its NBC rulers, CNBC put a more optimistic spin on Wednesday’s depressing, though still positive outcome.

“U.S. stocks finished higher on Wednesday, buoyed by the perceived progress in trade talks between Washington and Beijing.

“Uncertainty around these trade talks have sent stocks for a wild ride as Wall Street gauges the potential impact of a prolonged conflict on corporate earnings and the global economy. The major indexes have also traded around correction territory recently, down 10 percent from all-time highs set earlier this year.

“Stocks have also traded in wide ranges lately. The Dow has posted intraday swings of at least 570 points in five of the past eight sessions.”

Kill all rallies

Yep. Start out with a nifty rally, and watch the bears come back in to sell it back off again. But CNBC’s commentators still find a silver lining in all this.

“‘There have been lots of reversals this week,’ said Willie Delwiche, investment strategist at Baird. ‘If you want to get constructive in this market, tentativeness at the open is better than widespread gains.’

“Delwiche added sentiment is increasingly negative in the market, which could signal a bottom in the short term.

“Jeff Saut, chief investment strategist at Raymond James, said Thursday the S&P 500 has finally reached a bottom. ‘On Oct. 2, we had on our short-term model a sell signal and we told people if you have trading positions you should sell,’ Saut told CNBC’s ‘Squawk Box.’ ‘And we have put some of that money back to work.’”

Ah, but those Twin Tylers, currently the scourge of discouraged bulls that still read ZeroHedge, still see nothing but gloom and doom ahead. They cite the habitual Deep State-style of economic and political floundering perfected by the EU. And lately, it seems, even the Chi-coms themselves.

Another scare headline

“Rally Fizzles: Europe, US Turn Red After Warnings From ECB, PBOC”

Comment (with bracketed translations of the professional jargon):

“With algos [algorithmic traders and their fancy, high-speed computers] trying to force a rally for the third day in a row, the ‘STFR’ [as above, ‘Sell the effing Rip’] crowd arrived early as stocks in Europe and S&P futures surrendered early gains as investors initially bought on the latest optimistic developments in America-China trade relations, which however turned into selling after a BBG report that the ECB – as everyone had already expected – will lower its inflation forecast for 2019 when it publishes an updated outlook on Thursday.”

Wow, even yours truly doesn’t write sentences quite that long.

Well, Thursday is another day. Problem is, it looks like most of the other trading days we’ve all endured over the past few months. A decent, positive trade at the opening bell. Then, a downward fizzle sets in.

As of 1 p.m., the Dow has just gone slightly negative, apparently attempting to match the NASDAQ and the S&P 500, which have been pinned in the red for most of the day. All three are off less than a percent, and the trading action seems to lack all conviction. Odds are starting to favor another reversal, this time of Thursday’s half-assed rally. [That’s another technical term.]

Our opinion, FWIW:

We entered a bear market of uncertain duration sometime after Labor Day. The various European and China-US trade and policy messes are no help.

Neither was the Democratic House victory in November. All the rich Wall Street CEOs and other assorted rich jerks who express love for Trump’s business policies still funded his opposition and voted for them en masse this fall while suburban RINOs let the cable PR team get into their heads, causing them to vote Democrat or just stay home.

Now, this foolishly illogical clowns suddenly realize what they’ve done. They’ve halted the Trump Rally, they’ve stymied further US economic recovery, and, worst of all, they’ve effectively encouraged the Chinese, the North Koreans, the Iranians and yes, our “friends” in Europe to grit their teeth through the next 2 years of American political stasis, the better to make Trump look bad – and lose – in 2020.

Well, Lenin always did say that his Bolshie pals could easily wipe out those nasty capitalists and other bourgeoisie because these idiots would happily support their own deaths by funding the commies. We’re no fans of Lenin, here. But he sure did have those greedy capitalists figured out. So he used their obtuseness and stupidity against them. To this day, these overpaid cretins have never learned.

Even more market prognostications

At any rate, we may see a market where stasis settled in for a while. All this churning may get less and less extreme even as it continues. The nonsense simply has to settle down to the point where the bulls can sneak back in and take control of the stock market’s direction.

None of the chartists we follow seem to have seen the rather intense triple-bottom being put in not only in those major averages but also in the price action of many stocks themselves.

While we could be surprised, we think the Santa Claus Rally is pretty much canceled for 2018. Traders and investors are scared sh___less right now. That means, in general, that the sell-a-thon continues until the Waterford glass globe drops and the “2019” lights flash on Times Square.

At that point, we may finally get a bounce-back rally, at least, as all the remaining profits and plenty of tax losses will have been taken by the last trading day of the year, liberating at least some bold investors to think positive for 2019.

Or not.

Stay calm. All will be well. Maybe

Until then, aside from little micro-moves and window dressing of our own portfolios, or what’s left of them, it’s best to raise cash and lie low in the weeds. And mostly ignore the partisan political press. Their only aim is to keep all of us scared to death anyway, and that’s no way to get the bulls and the buyers feisty enough to dig us out of the current hole.

Stay tuned.

— Headline image: Wednesday, December 12, 2018 chart of S&P mini index, courtesy ZeroHedge.

Terry Ponick

Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Senior Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17