Zero Appetite For Risk

This is the worst flat day in the history of the stock market. My stocks are doing worse today than when the market was down 500. And for what?

Margin liquidations. Hedge funds rebalancing out of risk, etc, etc.

This is a classic pattern, one that has fucked me numerous times in my career. It’s the bifurcation of the market, splitting the risk from conservative free cash flow names like a motherfucker. This trend isn’t in its final stages, unfortunately. In my experience, these sort of moves tend to exacerbate to the downside, forcing people to sell into extreme weakness.

One day these risk names will come roaring back. But by then, you will be long out of them, unless of course your time horizon is long and you still have dry powder to average down. This is the very worst part of investing and it tends to trick almost everyone, professional include. The demoralizing grind and rapid price movements tend to stress people out and cause attrition in the market. Once the last bull throws in his towel, then the market will bottom.

My best guess is to be long in size by October. September will likely continue to grind out traders until we get an ultimate inflection point. I do not believe the market is doing anything irrational. This is standard operating procedure, an olde fashioned “squall” if you will. Students of the market should know that these moves are to be expected and are always temporary. We might very well resume a downtrend, one that sustains itself for years to come. But even during bear markets there are pockets of brilliance, places to hide, asset classes to buy on the cheap. What you’re seeing here is tossing out the baby with the bathwater. An enterprising speculator will view this as it should be: opportunity.