Too, Too Much Fear in the Air!

I have other work projects I am working on. Those projects have consumed most of my waking hours.

Nonetheless, I keep the radio and tv on.

I simply cannot believe my ears! There is so much gloom and doom on the airways. The debt downgrade has really thrown the media into a frenzy. Geez! I'm a bear too but things don't go down in a straight line. There's always a bounce or reaction or correction to the main trend.

I am bearish on the market in the long run. Daniel Arnold was right. (See The Great Bust Ahead) The trend is down. Nonetheless, even if the trend is down, even if we are locked into a broadening top pattern, even if the world is coming to an end, there will be some up movement. It is just a matter of time.

Why am I so confident that we can get out on a bounce? Several reasons.

1. We haven't hit the 200-day moving average yet on a weekly chart. I keep to the left of my eye a weekly chart of the S&P 500 Index dated July 8, 2010. I keep this chart on the file cabinet because it reminds me of the importance of the 200-day moving average (all praise to Sy Harding, by the way). Even in January 2008 when the October 2008 plunge was ahead of us, the market respected the 200-day moving average. The market tipped below the 200-day moving average (panic, panic, panic) and then bounced (short covering rally) up to 1300. The bounce nearly erased a loss of two weeks in two weeks. If it happened before, it can happen before. There is nothing new in the market.

2. The retail public is sooooo nervous right now. I smell the fear in the air (and mind you, I am focused on other things right now). The Saudi Arabian market is down 5% right now ("Oh, dear!") The debt downgrade wasn't priced in. ("Oh, my!") The fears are all around us. I live by Contrary Opinion and the Fear Factor. I saw the daily stochastics on the S&P 500 Index dip into single digits on Thursday. That reminds me of the last week in August 2010. Just that little dip told me that a bounce is coming. Now, it doesn't mean the trend will turn up. Not at all. But that little intelligence will protect me from selling at the bottom. And that's really a good thing in volatile conditions.

3. What is my target? Some financial commentators and analysts shy away from targets. They prefer to rely upon the market's energy. I respect that approach. But I need something tangible to hang my hat on. For me, moving averages clear away the fog of fear in real time. Remember my old colleague Joel? He's looking in the rear view mirror this weekend. I just know it. And he's thinking, this drop will never end! This could go straight down to zero. This could be 1907, 1929, and 1987 all rolled up into one.

And that's why the rear view mirror will fail you. We all have a natural and human tendency to project past market conditions into the future. But markets, even trending markets, cycle. They go up. They do down. And they go up again (if you are a Bull/smile).

Anyway, I felt the need to reassure Club Members on this scary weekend. Embrace the fear. Accept the anxiety. Put your faith in the moving averages over your head. You cannot trust your feelings. They will betray you. You cannot trust the rear view mirror. It will deceive you. Place your faith in a simple idea, that there is nothing new under the sun in the marketplace. Even if we are heading to 950 or 400 on the S&P 500 Index, its not going to happen on Monday morning. Nor is the crash of a lifetime going to happen next week.

Well, that's all I have to say. Sure, we are in a Bear Market, a threatening down trend. But we know that markets bounce. Markets are attracted to moving averages like bears to honey. We will be ok and navigate these shoals well.

Your hearing too much fear on the airways commentator,

Wink