Do Not Buy This Stock Market – It Is Extinguishing Optimism And Reinstating Worry

Keep sitting on cash. Pandora’s box is opening, releasing the frightening risks that have been ignored even as the stock market rose and built investor enthusiasm.

Disclosure: Author holds 100% in cash reserves

(Important: If you haven’t read it already, do read my August 30 article, “Stock Market’s Rise Is Stretched – Reversal Could Hit Apple, NVIDIA And Tesla.” In it, I explained why this selloff could happen.

But doesn’t this mean missing out on bargains?

No. The bargains are yet to come. First, optimism will be squelched. Then, the Chicken Little’s will have their day in the headlines, broadcasting risks that are real and imagined. Finally, after the pendulum swings to the fear extreme, positive outlooks will be few and, even holding cash, we will feel the pessimism. That’s when it will be time to buy. Until then, stand aside and watch the angst build.

Won’t there be stocks that go up?

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Yes. However, but they will be hard to spot in advance. Importantly, they won’t reveal themselves through fundamental analysis. All those economy, business, consumer, government and social uncertainties remain. So, any forecasts are simply guesses built upon hoped-for views of life in six months.

One area that could help an investor speculate (at this point, that means gamble) is a promising technical picture. For example, I have practiced analyzing all-time high stocks since 1964. In a market like the one developing, there will be few of those, but there might be a nugget or two.

Otherwise, most technical measures will be meaningless, except for showing how much lower a stock or market can fall.

What about tech stocks, especially the major leaders? Won’t they recover from their selloffs?

Perhaps someday, but likely not soon. Those stocks captured the lion’s share of the optimism, and rose to huge allocations in funds and indexes. All that excess has to be washed out. Moreover, the stocks’ fundamental valuations were pressed to the limit and need to return to reasonable levels.

(Important: If you haven’t read it already, do read my September 8 article, “Stock Market Omen? Apple’s High Price Now Has Weak Fundamental And Technical Support.” In it, I show how past success can drive favored stocks to unsupportable levels.)

Still own stocks? Tomorrow, September 11 might offer an opportunity to sell

Today’s (September 10) fall, added to the previous declines, may be interpreted as a buying opportunity. Additionally, because tomorrow is a Friday means traders will clear out their positions by the end of the day (i.e., before the weekend). If those positions are tilted to shorts, the afternoon could produce an upside move as they buy to cover. Last Friday’s move is a good example, although it was influenced by the longer, three-day holiday weekend in the U.S.

The bottom line: The coronavirus market rise is turning down for real, not simply dipping

Now looks like the time to be out of stocks. With bonds offering miserably low yields, cash reserves appear the best bet. Yes, they earn next to nothing, but preservation is better than taking the risk of more significant loss.

And remember: No matter what the market does from here, there will be more buying opportunities in the future – there always are.

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