What is it about “Big Wednesday” wipeouts that I find so intriguing anyway?
After living in Hawaii as a young man for 35 years I can relate. And I’ve posted
various Wednesday wipeouts more frequently recently than I ever expected.
The point is markets are on the verge of a waterfall-like
collapse.
Even with conditions as oversold as currently, an epic
[pardon the surfer lingo] collapse could happen. This is the result of all the
news you know by now. Why regurgitate them here?
The government may have
little ammo left, but don’t be surprised if they start buying stocks and index
futures to prop markets. After all, as I’ve been saying their attitude, “In for
a penny, in for a pound”, means they’re committed to do just about anything.
I’d say we’re exiting the
denial phase and entering
capitulation where a
“get me out” mentality
dominates. This from all manner of delevering activities plus redemptions from
mutual funds, financial advisory accounts, hedge funds, endowments and so forth.
This selling runs all across all asset classes except bonds and the dollar.
Investors want safety and cash.
Volume expanded
today while breadth was as miserable as one would expect.
Capitulation? It feels like that’s happening and we may
experience a sharp waterfall like collapse if investors decide to throw in the
towel. There’s no certainty of that or anything.
Many people have been
discussing a so-called Black Swan event. This is taken from the English who felt
there were only white swans until confronted by black swans in Australia. At
least this is my understanding. The event has been expanded to current market
conditions whereby the financial media, regulators and market participants
believed that what we’re experiencing now would never happen. But it has, hence
the Black Swan belief as all are blindsided. However, there were many ignored
voices of dissent who argued strongly that these conditions would occur once the
housing bubble was unwound. Then, they argued, this house of cards would
collapse. And, so it has.
With so many investors in shock they search
for a reason and have turned to the Black Swan event as the reason. They didn’t
know this would happen. No one told them. They chose not to listen to the
message from the charts and stuck to their plans. Hopefully people will learn
but I doubt it.
Now all want to know what to do. For us, we’re in cash
and most subscribers at least are anxious to “do something”. Patience and risk
management is more critical now than at any other time. Our time to invest will
come. Perhaps we’ll miss a big waterfall event as short sellers. Or, we’ll be
late to the next upside. But new tools like leveraged long or short ETFs allow
us now to make up ground fast should we be late. That’s fine with me.
Have a pleasant evening.
Disclaimer: The ETF Digest is long
FXY.
