Hold On as Stocks Tumble


Oh no, not the dreaded US trader with the wispy white hair and goatee. It’s always bad news when he shows up.

He looks a bit like Colonel Sanders without the Southern suit and glasses.

I can always tell when the US market has had a big down day overnight. I always see this same guy on the front page of the business papers.

Their media editors obviously have a collection of stock images that represent different themes.

The US market down in a bad session = old, white-haired US trader looking worried.

There’ll usually be a headline above him saying ‘Dow down X points!’

You can see him on the Australian Financial Review website today.

I have various other images of him at my desk in the Agora Financial office (I’m not there today). Back in February, our white-haired barometer was in The Australian over multiple days!

I like to put dramatic headlines aside for future reference. In times like this, they remind me that the market will always throw up tough days and ‘mini’ crises.

Since 2009, they’ve blown over and the market has gone on to make new highs.

I don’t expect the following quarters to be any different.

Actually, I was going over some old files yesterday. I’m transferring some old records to a new computer.

One of those old headlines was in there as a screenshot.

It was about the ‘Grexit’ wiping off billions from the ASX.

Remember that?

Nobody even remotely cares about Greece anymore (except for the Greeks).

Still, it’s not pretty seeing your stocks go red.

That’s why it’s important to have faith in your selections…

Two signals from the market says no real panic

Of course, it depends if you’re trading or investing. You have to know what type of game you’re playing.

However, here’s a few points that might give you some comfort in the short-term.

The VIX, the so called ‘fear gauge’ of Wall Street, is nowhere near the level it hit in February.

See for yourself…

Source: Optuma

This suggests the level of ‘panic’ out there is muted, relatively speaking. We saw similar levels in March too.

That’s not all…

The Wall Street Journal reported in July that trading in US stocks was averaging around 5-6 billion shares a day at the time. The point was, things were pretty calm considering the fears going around.

They were ‘escalating trade tensions with China, a cooling global growth outlook and fears about the impact of rising interest rates.’

Sound familiar?

Volume was around 7.5 billion in the last US session.

It hit as high as 12 billion in February.

Again, the February shakeout was more acute.

Now, I can’t tell you where the market goes tomorrow. These things could get worse.

But these signals suggest this down period is not quite as panicky as February, and the best course of action is to hold steady.

The market went on to recover and make new highs then, and it can do so now.

Here’s the other thing…

The market to become volatile, but still profitable

You’ll need to brace yourself for more days like this.

There’s no doubt we’re closer to the end of this bull market than the beginning. tellpetsuppliesplus

Volatility is likely to increase.

Let’s look back at some history.

The Nasdaq rose 130% between January 1999 and March 2000.

It also had FIVE drops of around 10% in the same timeframe.

I expect we’ll see something similar play out over the next 12-18 months.

Hold steady. I don’t see any major economic problem on the horizon.

Volatility is the nature of the beast when it comes to the stock market.

My colleague, Steve Sjuggerud, made a great point on how shares can fool us all this week. You should check out the full piece in his Daily Wealth service.

Back in 1994, he was assessing the outlook for the market.

Get this – US stocks had gone up in 12 of the previous 13 years.

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Steve thought the market was getting expensive. He stayed cautious and largely out of the action.

In 1995, he watched the S&P 500 go up 38%.

They went up another 23% and 33% in the following two years after that.

The Nasdaq, for one, still did not slow down. It rocketed up in 1999.

It peaked in March 2000!

Valuations are not going to tell us when to finally call the end on this US bull run.

Big market tops usually involve wildly rosy projections for the future and some sort of ‘new era’ paradigm, not to mention rank speculation.

Nothing about today feels like that.

When our Colonel Sanders lookalike disappears completely, then I’ll worry. It will mean the mainstream isn’t selling fear around stocks because the crowd’s turned greedy.

I’m hanging on. I suggest you do the same.


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Callum Newman,
Editor, Profit Watch