As it stands currently, there isn't an investor in the markets that isn't replaying Q4 2018 in their minds after the market decided to don its face paint, grab a metal spiked club and pummel investors into complete submission. It did this through the obscene act of moving up near the psychologically important resistance level of S&P 3000 in order to not only fail at resistance, but take out the key support level of S&P 500 2945 at the close....all done, by the way, in one sitting.
The market managed to get the bulls excited in the first half hour of trading and then proceeded to spend the rest of the day sucking their hearts out through their brain in a steady fashion for the remainder of the trading session.
One can't blame investors then for having post traumatic stress syndrome of Q4 2018 almost immediately as the market is going out of its way to remind investors that it can be ruthless in its disdain for sustainable profitability while investing.
Of course, the simplest explanation that is being offered for today's dramatic reversal is that the ISM number sucked, we are moving into a recession and all of us are doomed. However, this line of thinking is well understood already. We have seen economic numbers over the past few months that have reinforced the most bearish of economic theses, followed by economic numbers that have reinforced the most bullish of economic theses. In other words, the random vacillation in economic numbers leads an astute investor nowhere fast. It would seem that the economy is just as confused as the markets or is it that the markets are confused because the economic numbers make little sense? I digress.
The most important message of today's market is not shocking economic weakness. Rather, the most important message of the market today is that it is going out of its way to reinforce that it hates investors. It has done everything in its power in one single trading session to shoo away investors for fear of being bit for the umpteenth time over the past 18 months.
Recently I was watching a video on psychology from Jordan Peterson. I'm quoting loosely from memory here, but he discussed the fact that in his younger years he would frequent bars and met a guy who would come to bars for the sole purpose of getting into fights. The gentleman that pursued bar fights as a hobby found that almost invariably, whenever a bar patron would invite him outside to partake in fisticuffs, there would be no fight. All the bluster took place within the bar setting, with nothing more than a handshake and kind words spoken once it came time to actually throw down.
It seems that on this first day of Q4 2019, the market has asked investors to come outside to fight. Odds are that once investors decide to step outside in the days and weeks ahead, they will find a market that is content with simply walking away instead of inflicting any real damage. The huffing, puffing and flexing of vascular muscularity here in an effort to remind investors of beatings in the past is simply too convenient and well placed to be taken seriously.
While a close below 2945 is indeed a reason to take in some risk simply as a function of discipline, a bullish stance is much more likely than not to yield impressive results when all is said and done in Q4.
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