Technically Speaking: Has “BTFD” Become “STFR”

Kevin Wilson recently penned a piece for Seeking Alpha that made a great point about where the markets are currently. To wit:

“Famous market observer Art Cashin mentioned a metaphor in October 2017 that resonated with me. He said (words to the effect that) at that moment, market players had only the protection provided by pictures of lifeboats, not the lifeboats themselves. This is just like the Titanic, whose measly 16 lifeboats looked nice, but left many hundreds on board with no means of escape when the ship sank. That is the current market situation in a nutshell. Players seem to believe that their positions are diversified enough to protect them in a downturn, and in any case, many appear to expect no major drawdown in spite of many months of extreme volatility. I would argue that the risk is far greater than perceived by many, and the protections most have in place are quite inadequate.”

Indeed, that is the case. As I noted in this past weekend’s newsletter, while the S&P 500 has declined only marginally for 2018, the devastation across markets has been dramatically worse.

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In other words, traditional diversification, which is considered the “defacto” portfolio protection strategy by the mainstream media, has not worked.

Over the last several weeks, I have been discussing the transition of the market from “bullish” to “bearish.”

“The difference between a ‘bull market’ and a ‘bear market’ is when the deviations begin to occur BELOW the long-term moving average on a consistent basis.”

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“For only the third time in the last decade, the market has now slipped below that longer-term trend.

The difference, this time, is there are no Central Banks talking about coming to the markets rescue – at least not yet.

Currently, it is still too early to know for sure whether this is just a ‘correction’ or a ‘change in the trend’ of the market. As I noted previously, there are substantial differences which suggest a more cautious outlook. To wit:

  • Downside Risk Dwarfs Upside Reward. 
  • Global Growth Is Less Synchronized
  • Market Structure Is One-Sided and Worrisome. 
  • Higher Interest Rates Make It Hard for the Private and Public Sectors to Service Debt
  • Trade Tensions With China Are Intensifying
  • Any Semblance of Fiscal Responsibility Has Been Thrown Out the Window
  • Peak Buybacks. 
  • China, Europe, and the Emerging Market Economic Data All Signal a Slowdown
  • The Democrats won control of the House in the Mid-term elections which will effectively nullify fiscal policy agenda moving forward.
  • The leadership of the market (FAANG) has faltered.

Here is the important point.

Understanding that a change is occurring, and reacting to it, is what is important. The reason so many investors ‘get trapped’ in bear markets is that by the time they realize what is happening, it has been far too late to do anything about it.”

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Disclosure: The information contained in this article should not be construed as financial or investment advice on any subject matter. Real Investment Advice is expressly disclaims all liability ...

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