A floor trader just made an interesting observation on CNBC. He said that people would rather miss the first 10, 15 or 20% off the bottom rather than lose another 10%. He said this thought process is preventing people from stepping in to buy stocks.
I do not doubt what he says but it reveals an interesting psychological point. For anyone who is the long term investor they say they are then the wish to avoid a 10% drop over some short time frame when they expect stocks to go up over the longer term becomes completely irrational. If you were given a newspaper dated March 2, 2019 it said the S&P 500 closed at 3251 yesterday then would it matter if got to that level by way of going to 400 first? If you knew where it would end up in ten years there would be no need to sell.
The stock market today is at a new low so by definition anyone selling today is selling low, it may go lower from here (that is the fear that would motivate someone to sell today) but unless you think stocks are permanently broken then selling now is simply fear based and reactionary which is exactly how the bottoming process works. Bottoms are put in when fear is maximized. I am not saying today is the bottom, I have no idea but the process of cutting in half, stumbling along the bottom for these past few months, the failure of more companies and the increased fear among market participants is the bottoming process. Not the bottom but the process of bottoming.
I dont know if my thesis is correct but even if it is do not take that to mean it will soon be off to the races for a new bull market, it may be a while before that happens. What I do expect is a big bear market rally that tricks people into thinking a new bull has started. Not going much lower, if that is right, does not necessarily mean going higher. The point here is to avoid emotional selling at the low.
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