In the Midst of Panic

August 16th, 2007 · 1 Comment · Uncategorized

Probably not what everyone is thinking, right now, but if I'm going to keep my head about me and keep a market perspective on the market, then I have to consider that when some people sell out of fear, panic, to preserve diminishing profits, or to stop losses, there's always someone on the other side of that trade. So the question arises -- and one should always, always try to discern the motivations behind each side of a transaction -- why are an equal number of people buying, right now, what so many are selling, right now? Could it be because others are selling at cheaper and cheaper prices and those buying are seeing bargain-basement prices? If you had to guess, who would you suspect is likely getting the advantage?

For some reason, people don't tend to think of the stock market like they do most other things. In other areas, it's called a sale. There's always someone, somewhere, wanting to get out of an asset -- for whatever reason -- and depending on their motivation, they'll take less and less for it. Others lie in wait for such opportunities in order to accumulate assets at relatively low prices.

Everyone is welcome to their doomsday, economic collapse, chickens-coming-home-to-roost scenario, or whatever. But do keep in mind that what is going on is essentially and mostly an exercise in total freedom and is completely independent of your predictions or judgments, regardless of how meritorious [sounding] they may be. Each player is out there selling according to his, her, or their own judgment; and others are buying according to their own judgment. Collapse essentially means: there's no one to buy at any price; and that doesn't even look like a remote possibility, even with credit (liquidity) getting tighter.

Let's revisit in November - December time frame. My money says we'll be making new highs. Oh, and I've been putting my money where my mouth is. I've accumulated a bit. When -- not if -- we begin moving back up, I'll be buying in blocks as prices move up and selling puts like crazy (a bullish option play). Here's where we were last year around this time when I not only lost money by being on the wrong side of the market (in both directions), but got fooled into missing out on an amazing run to the north.

Sp2006

Here's where we are today. Look familiar?

Sp2007

Look what happened last year, from the July / August 2006 bottom to Feb 2007.

Sp20062

Now here's some noise-filtering perspective. This is the S&P from the beginning of the 2002 Bull Run. What tells you that July was the top of this 5-yr run? See each of those five major dips? For each seller, there was a buyer. Who tuned out to be right, five of five times?