Without a doubt, it was a dismal day. Breadth was terrible, volume was heavy, and those who went long following the FNM/FRE news were punished for once again allowing hope to guide their investment decisions. That said, probably the most disappointing aspect to the trading session today is the fact that the only areas which had been showing any sort of life recently – homebuilders, retailers and financials – took massive hits, which has completely erased whatever burgeoning upside leadership there might have been.
We’ve been saying for quite some time now that the lack of decent technical set-ups in individuals charts, the continued propensity for failed breakouts, and the fact that the biggest gains have come in the worst looking charts means that we needed to keep our focus on capital protection and avoid building longer-term positions. That approach has served us well here at Shark Investing during this bear market, and we will continue doing just that until the market proves itself. Of course that means we will not be fully invested right at the bottom, but there’s no arguing the fact that we will be in a much better position having avoided losses and missing out on the initial legs of a new bull market than we would be if we allowed the serial bottom-callers to influence us.
The silver lining here is that we are starting to see the sort of despair that will eventually lead to a real bottom. Unfortunately, we suspect that this market is going to have to hit new lows before that happens.