Hold on a second. This darn crystal ball of mine is on the fritz again!
Sometimes, the lines can blur between a rational extrapolation of the facts into an investment thesis and straight out fortune telling. As pros, we must refrain from trying to become fortune tellers. It’s OK to know that you don’t know.
The scariest place for an investor to be is in not knowing that he or she doesn’t know.
Ignorance of one's own ignorance is a killer in the stock market.
Very often, if we can be patient, the market will “tell” us where it is going without having to resort to the sooth-saying ways of many of today’s market commentators. Here’s what we do know: retail sales for December were poor.
Retail behemoths like The Gap (NYSE: GPS) actually saw sales decline by 8%. The fear here is that the US consumer may be finally running out of gas, and a cut from the Fed may not come in time to bail consumers out.
The Fed has committed to a non committal stance. The charts tell us that we will probably see the US dollar rally here from an oversold condition. A cut by the Fed would put this nascent dollar rally at risk, so that option looks like a non-starter. But the good news is that it also does not have an immediate need to raise rates in order to defend the dollar.
Without a clear direction from the Fed, it is corporate earnings that will likely lead the next move higher or lower in this market, and we’re about 10 days out from Q4 earnings season.
The pros I talk to are terrified of what will happen if the music stops, and there is a sense of “jumpiness” among the market participants that I regularly communicate with. Nobody wants to get left holding the bag. But no one wants to miss a potential rally, either, and so the twin forces of greed and fear once again work their magic on pro and amateur alike.
An old Wall Street mentor of mine, affectionately known as “The Rack” (as in the Middle Ages torture device,) once told me that if you're banging your head against a brick wall, just simply stop. Remember, awareness of ones own ignorance immediately elevates one's decision-making process. If you don’t know what to do, simply wait for more information to develop.
So what if you miss a move? You think that’s going to be the only move the market will ever see? Don’t buy into that broker “gotta buy it now” garbage. The decision to postpone an investment decision IS AN INVESTMENT DECISION.
There will be lots of profit opportunity this year, make no mistake. Your job, though, is to wait until conditions have aligned themselves so that when you do make an investment decision, you have the highest percentage chance of being right.
Never invest to satisfy an emotional need for “action”. Go to Vegas for that; when it comes to Wall Street, you need to have ice running through your veins.
Drain the emotion from the decision-making process, and watch your returns skyrocket! More importantly, you’ll make less boneheaded plays. Avoiding a loss is as good as making money, make no mistake about that!
Chief Investment Officer
ETF Master Trader