Market Shocks (and Aftershocks)

Stock Market Video

Market Shocks (and Aftershocks)

This Week’s Fortune Cookie

In Case You Missed It

Stock Market Video

In this week’s Stock Market Video I look at the market’s remarkable correction and equally remarkable recovery. I advise investors to take the recovery with a grain of salt, as unusual volatility seldom strikes just once, and a big splash in the market generally leads to a few subsequent ripples. Cash is still your best friend, although I give a few big, liquid stocks that should get support from institutional investors.

Market Shocks (and Aftershocks)

For anyone who has spent more than a few years on the teaching side of the U.S. higher educational system, the arrival of September will always trigger a little Pavlovian response that whispers, “Fall semester!”

The humidity goes down and the days, already noticeably shortened from their June maximums, will start to trend cooler. The sun is still hot, but if the tomatoes in your garden aren’t red by now, they’re going to have to get a move on.

In the natural progression of the year, the start of September is the start of Autumn, I don’t care what the cycle of equinoxes says. (The change of seasons may not be so obvious in September, but anyone who lives in New England and thinks that winter doesn’t start until December 21 is just fooling themselves!)

In the stock market, September is usually a time of increased purpose, as the giants of Wall Street return from their summer vacations (after Labor Day), tanned, re-energized and ready to grapple with the market and its challenges.

And the challenge they will face will be something like “What the heck just happened here?”

The stock market, which had been trading in a sideways range for a historically long time, began to weaken during the week of August 17 and really went over the falls on August 21 and 22, making for an uncomfortable weekend for many traders.

Then came the Monday morning wipeout as the major indexes opened for the day with a mountain of sell orders to chew through. And while we have also seen a remarkable recovery on Wednesday and Thursday, anyone who thinks that everything in the market is now going to be sweetness and light needs to get their meds adjusted.

Markets don’t stage historic dips like the one that climaxed on Monday without creating a few waves (tsunamis?) that will be roiling the waters for a while. At the very least, we will need some time—and possibly a retest of Monday’s lows—to get the major indexes back on an even keel. And that’s leaving out the very real possibility of more real weakness.

My prescription for what to do now has two parts. As far as the market goes, you should be looking at your growth stocks with a very, very critical eye. If you have stocks that fell hard on Monday and haven’t bounced back with the market, you need to bounce them right out of your portfolio. If you have stocks that are still profitable but look weak, take some profit (sell half of your position, for instance) and hold the rest with a tight stop. And if you’re thinking of buying some of these fabulous rebounding stocks, think very hard about how they might be affected by further market weakness.

My prescription for what to do with the remains of your summer is this: Make liberal use of the clear, refreshing beverages that are garnished with lime and little umbrellas. There will be plenty of time for the brown liquids when temperatures are lower. Spend as much time with good books, good crossword puzzles and good friends as you can. The number of summers we all get can be substantial, but it’s not infinite. Enjoy.

This Week’s Fortune Cookie

Here’s this week’s Fortune Cookie. Remember, you can always view all previous Fortune Cookies here and Contrary Opinion buttons here.

fortune cookie

 “Life can only be understood backwards but it must be lived forward”   Soren Kierkegaard



Tim’s Comment: Hindsight is 20/20, but because we cannot undo the past, we can only learn from it and apply those lessons going forward. The good news is that even as the world moves forward, the world of investing moves in identifiable patterns that are based on human nature … driven by fear and greed. And the more you pay attention to the actions of the market and the mood of its participants, the more you can use the experiences of the past to profit in the future.

Paul’s Comment: I doubt if Kierkegaard, a 19th century Danish philosopher/theologian was much of an investor. But if he had caught the bug, he might have modified his little observation to say, “Investing (or market movements or anything else connected with buying and selling stocks) only makes sense when you look at a past chart, but you still have to make your buying and selling decisions on the best evidence you have today.” But I like his version better. It has the feel of something that you might see on a poster in the office of one of your more intellectual colleagues.

In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.

Cabot Wealth Advisory 8/25/15 — Four Ratios and Ratings to Increase Your Returns

Value guru Roy Ward of Cabot Benjamin Graham Value Investor shows how different valuation metrics can find strong, undervalued stocks. Stocks discussed: Synchronoss Technologies (SNCR), Allergan Corp. (AGN) and Penske Automotive Group (PAG).

Cabot Wealth Advisory 8/27/15 — My First Market Crash

Tim Lutts, Chief Analyst of Cabot Stock of the Month, writes about his reaction to the 1987 market crash, and what he’s learned from subsequent crashes and recoveries. Stocks discussed: Cognizant Technology Solutions (CTSH) and Schlumberger (SLB).

 

Sincerely,

Paul Goodwin,

Chief Analyst, Cabot China & Emerging Markets Report

 

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