I’m seeing a lot of financial people on Twitter trying to find a bottom in this market. Even ones who think we are in a bear market are looking for a rally to buy. I hope one comes, but the best way to make money is to wait for a bear market to actually be over before you buy. Bear market rallies eat people alive. I tried to buy during two of them and neither was a good experience for me. Once was the day before the stock market started a bear market rally in January of 2008 and the other was with mining stocks in 2014.
I’m not saying be 100% in cash. I’m not. I have some cash reserves and long positions that I have hedged with short positions and do think we still have bull markets going on in commodities and metals and mining stocks as they are above their 200-day moving averages. It is things below their 200-day moving averages that you have to be very wary of now.
One thing I’m seeing these people on Twitter say, though, is that sentiment surveys are all bearish so it must be time for a bottom.
The problem is all of these people are using data going back 10 years.
That’s just what they are looking at.
If you go back to the 2007-2008 bear market they would see – and you can see – that these surveys showed everyone to be bearish starting in 2007 all through the 2008 bear market. They were not a reliable buy signal at all.
Here is the Investors Intelligence Survey, for instance, with the ratio of bulls/bears, back then.
There were more bears than bulls in this survey by the end of 2007 and that didn’t change until after the market bottomed in 2009.
So, anyone who bought and held on the basis of this survey would have gotten wiped out in the 2008 bear market and crash.
What is better is to look at what people are actually DOING and not how they are just responding to surveys.
I talked about that in the video I did Sunday in regards to keeping a close eye now on the Fidelity top orders information, which is updated live.
If you missed that video you can find it here.
I also am considering launching a live public trading portfolio as a way to talk about money management and risk during times like this in the market – and for me it might be a fun way to try to be competitive with the other experts in this market this year.
Will have more to say on this later, although I mentioned it in a post here.
-Mike
