Tonight was Investor’s Business Daily Meetup Group night. Investors all over the world who are interested in IBD trading strategies can meet on the last Wednesday of each month to share their insights on investing and trading. Tonight, about nine of us met at a local restaurant. There is a core group of regulars with a few newcomers attending once in a while. Tonight it was all experienced members who are fairly addicted to trading the market. We all study stock charts, read IBD, and use many of the IBD investing tools.
Tonight’s meeting was different than the other meetings that I have attended during the past year. No one circulated piles of charts of promising industries or stocks to buy. The discussions were subdued and everyone said that no one was making much money trading. They were licking their wounds and lamenting that this was the worst market in a long time.
In spite of their bearishness, only one other person besides myself reported trading the market on the short side. These very sophisticated traders had no experience shorting stocks or buying put options. They were finally content to be out of the market or to severely limit their stock purchases. This is still quite an accomplishment, in light of everyone’s craving to be involved in the market. (We talked about our being addicted to being in the market all of the time.) There was a consensus that it was now critical to conserve our capital so we could take advantage of the bull market that would emerge someday.
I suspect that our group of traders is experiencing the same types of emotions that other traders are across the country. A lot of newsletters are also quite bearish. It is still possible that market conditions could get much worse. For example, it could get so bad and they could become so bearish that they might not be able to resist learning how to short the market. Regardless of whether this happens, I just know that in past market declines (when I did not short stocks), when I reached the point that I had deserted the market and no longer wanted to own stocks, a major market bottom was not far away.
But we are not there yet. Our General Market Index (click on the table to enlarge) remains at zero. This index does not measure sentiment, only price trends. So we must wait patiently to see if this apparent alienation and resignation among traders is indicative of an imminent change in the market’s trend.
Did you notice in my explanation of the General Market Index yesterday, that the index concentrates solely on price? Economic measures such as the underlying business environment, interest rates, inflation and consumer spending are conspicuously absent from this index. My assumption is that the most important measure of the market is the market action itself.
Remember the saying that one could place all of the economists in the world end-to-end and they would still never reach a conclusion? Well, we could spend endless hours arguing about what various economic indicators mean and how they might affect the current market. I think, however, that if a truck is bearing down on me while I am crossing the street, I get out of its way. I do not debate whether the truck should be there, or whether it will stop in time or whether this situation should not be happening to me. To survive, I need to react quickly to the truck’s action. Similarly, I need to react to the market’s action and not get caught up in the ubiquitous speculation about all of the “underlying causes” of the market’s behavior.