I pay more attention to what is being done than what is being said. We can listen and believe in whatever is spoken but at the end of the day it is the actions that count most. We see what is being done everyday by market players – buy, sell, hold. We hear analysts say this or that about company XYZ, just an opinion. We listen to company executives spin a recent quarter and offer up hope for the future. All of that chatter is meaningless – show me what is being done rather than being said!
The last couple of days may have put the bulls on their heels. No dip buying, increased fear, buying protection (high put/call ratio), and increased volatility. Perhaps the reality of the economy slowing down from the blistering pace of 2.2% in Q1 (insert joke here) is hitting investors and traders.
Friday’s non-farm payrolls number was not horrible when you factor in the adjustments, revisions and seasonality but it is a far cry from where the economy should be on job growth. At this point of a long cycle the economy should be creating more than 300K jobs a month to make up for the enormous losses in 2008/09.
What action did we see the last few days? Selling – pure selling of stocks. For whatever reason there is, it doesn’t matter what that reason – the sell button was far more active than we’ve seen in recent days/weeks. I don’t care the excuse – there are a million of them.
We can argue about the reasons for the dismal numbers but the facts are there – low job creation will hold back a strong recovery. The results (or lack thereof) may be a game-changer come November. Additionally, there is nothing the Fed can/will do to improve the situation – they have done so much already and have already said the road to recovery would be long and difficult.
Timing is everything in this business. Not being prepared at the turn can be costly. As an options trader I prefer to wait for signals before making a financial commitment. That timing will always be later than most but will serve me better as a trend follower. Momentum is a powerful signal and shows me where money moving. Again, action speaks to me more than anything.
We are upon one of the worst months historically for markets. Why is that? Is there any month in the calendar that tells you to ‘go away’? From a psychological standpoint the phrase ‘sell in May and go away’ is paralyzing to an investor. Should you sell some or all of it? Do nothing?
If you do sell, when do you get back in the game? There are more questions, too. Do you play defense? Protect gains rather than sell? Do you join the ‘talking herd’ or just follow your own plan? Too many questions to answer and you then suffer from analysis paralysis. Confusion – indeed.
What I teach my clients or students about this troubling issue is to be true to the plan – the ultimate goal. Do not listen to the noise, rather pay attention to what the market is saying (action) rather than what is being talked about in other circles (words).
If you are a contrarian, don’t just go against the grain ‘just because’. Have a game plan in mind and stick to it.