Worries rise and stocks fall

Just when you thought it was safe to go back into the water… worries resurface and the selling commenced. Monday and Tuesday experienced some low volume selling that would be construed as part of consolidation in the current uptrend. Wednesday was just a good old butt kicking with higher volume and more of bite that left a mark for investors. The issues are nothing more than has been hashed and re-hashed since December. First, the Fed worries over hiking rates too soon in a lackluster period of the economy. Second, strife in the Middle East sending the price of crude up more than 3% on the day. Third, economic data as the durable goods report was ugly… really ugly. Expectations for a modest gain of 0.1%, but it fell 1.4% thanks to weakness in the auto and aircraft sales. Even ex-transports the number declined 0.4% and ex-transports was up just 0.1%, again well off the expectations. That was not a good way to start the day. Fourth, worries are starting about Q1 earnings from the multinational companies impact of the strong dollar. Combining several of these events easily created the double whammy event of today.

Going forward is the catalyst of worries above enough to carry stocks lower or was this a one day emotional reaction? Are there sectors diverging from the challenges/worries facing the US markets? Should we be worried enough to be raising cash levels in our accounts? Are commodities ready to rise on the threat of inflation? Bond yields rose, where is the flight to quality? I know, there are too many questions and not enough answers at this point to give us clarity in direction. That said, we do have a discipline that defines our stop or exit points if the downside accelerates, which answers some of the questions relative to what we do now. We have already prepared for the worst, right? The rest is an act of patience to gain some clarity and validity to the worries defined by the analyst and investors above and in the news.

STOP! Put today in perspective both fundamentally and technically. Frame what it means relative to the time frame you are investing for and then act accordingly. Remember, this is part of the entry process for buying stocks, entry (where to get it), exit (where to set your stops based on the strategy, risk and time horizon.), and target (where we are going or the objective.). That is why I spend so much time on this in teaching the process or discipline needed to manage money. When the proverbial #$%*^ hits the fan, the decisions of what to do have already been determined. I hit stops on micro term trades today. Most resulted in a profit with most recent trades suffering minor losses. All is good and it was a net gain on the day, but the most important part of this process was not having to make exit or sell decisions in the emotions of the battle. All is well or least it should be.

All that leaves now is to determine the next direction to head relative to the micro term (0-13 weeks) strategies. For that you will have to tune in tomorrow morning after I have time to digest the damage, filter the crap from reality and determine what opportunities were created as a result going forward. Of course we have to make the necessary adjustments to our longer term holdings as well. Stops in the right place, gains taken if need be and focus on the objective. Planning and managing the ‘in-between’ is key.

If you have seen the movie, ‘Robocop’… you clearly understand the difference between artificial intelligence and emotional intelligence. Together they offer a unique opportunity, but still have there challenges in the execution process. What we are doing is not dissimilar to the movie… combining artificial intelligence (software, programming and quantitative analysis) with emotional intelligence (the human factor and the emotions we bring to the table). When both are at their best the results are like watching synchronized swimming. When one is out of balance it is like watching a train derail… not much you can do but what watch. The goal is create an environment for the most synchronized trading possible and avoid the train wreck of losing more than our risk allows. Take it one day at a time and keep moving forward. Learn from the mistakes, enjoy the victories and focus on the end objective.