Last week, the stock market had a big rally on Monday and Tuesday. That rally caused a lot of people to come out and predict that the Federal Reserve was going to pivot soon. These same people were doing this back in July and the pivot notion fell apart at the end of August, and it fell part again on Friday.
The thing is, though, the bond market last week never confirmed the pivot thesis. TLT and LQD did not rally with the market early this week and fell near their lows already before the Friday stock market dump.
Here is a chart of the S&P 500.
I have last week’s action circled.
I want to draw one lesson from what happened last week – that is do not draw much meaning out of one or two day moves in this market.
They just don’t mean anything and it’s a lot of noise.
Do not buy stocks based on what someone is saying in reaction to one’s day’s action in the market and don’t sell them either.
The market is in a bear market and everyone is still trying to play for the end of it.
It’s all pretty much a waste of time until it is really over.
It’s easy to get provoked into making a bad trade by daily swings in the market and traders on TV and on the internet making claims based off the short-term gyrations.
I’m telling you it’s easy to get sucked in to a bad trade no matter how long you have been in the markets.
The best thing to do is set back and not watch the daily action.
Anyone who did that this week is better off than those who did not.
Just check on the market every few days.
At some point, I think gold is going to become the big play to invest in.
It is outperforming the market as you can see from the gold/$spx relative strength ratio on the bottom of this chart.
Typically, when something outperforms the market during a bear market or stock market decline it tends to lead on the next bull run.
Right now, though, gold is also trading with the stock market. You can see that with the correlation indicator right below the chart, which measures how closely gold is trading with the S& 500 and has gotten close to 1.00 in recent weeks.
What is happening is that when the market is falling gold tends to fall less and then is snapping back up better when the stock market has up days.
That’s a good sign for gold investors, but I want to see gold really breakaway from the stock market action before I get really bullish on it again.
That probably won’t happen until at least December and after more stock market drops.
I just think it’s still best to be patient in these markets and try to ignore the noise, which what most market commentary is.
In case you missed it I did a video last week about the whole pivot thesis was not confirmed in the bond market before the market dumped on Friday.
-Mike
