Brain Droppings – Markets In Turmoil

I’m told by several people much younger and wiser than me that the bottom is most certainly in. Perhaps – but being old and slow I tend to ponder these things. Alas, to have the certainty of youth is greatly missed after one’s long term memory fades and while one’s arteries become sclerotic with age.

It’s no surprise to me that the market has come off the highs as I have said repeatedly that I think the market is “expensive.” I was, however, surprised by speed of which it all happened this week. It’s not often we see 3% down days these last few years.

It makes sense we see a relief rally – perhaps as early as Monday. The $SPX RSI(14) closed in oversold territory at 24.84 and a host of other technical indicators support a bounce.

Still, after the carnage we haven’t made a lot of progress on getting valuations in line.

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I’m very aware that paying attention to valuation is an activity reserved for only the old and infirm. I’m also really sure that when the market abandons valuation metrics they seem to all-of-a-sudden matter one day.

I don’t want to make an aggregation error here either. After all, it’s a market of stocks. The good news is that finally we’re seeing value in sectors that everyone seems to hate.

I was scolded today because I’m building a position in $MU. I think it’s cheap. Maybe it’s a value trap. That’s the problem with being old. You just can’t keep your wits about you. Still, there are more stocks I like today than I did a week ago.

The tone seems to have turned in this market. The reaction to the rather benign Fed minutes would have sent the market up 1% plus 3 months ago. For the record I don’t think this downdraft has anything to do with Fed policy. I think it’s a pure fundamental story – slowing growth, commodity deflation, earnings growth deceleration, etc.  Crazy growth stocks have been pummeled this week as well. I had the temerity to sell $NFLX call spreads after the stock hit $127. My only regret so far is that I didn’t do it in size. Oh well, you can’t hit ’em all.

It’s also noteworthy that the more times BTFD fails the less previous practitioners believe in it.

A fellow (a really old fellow) for whom I have great regard thinks that what we’re witnessing is a “time correction.” I’m not so sure. Usually a sideways correction happens when stocks trade in a range and wait for earnings to catch up. I’m not seeing that at all.  As always, I reserve the right to be wrong.

Anyhow, I’m thinking we have more work to do on the downside. Market moves are never in a straight line and the most violent rallies usually come in corrections or bear markets. We’ll see. In the mean time I’m nibbling on stuff many of you would think horrible. I’m looking to do more of it.

That’s how I do.

 

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