“Never make predictions, especially about the future.” — Casey Stengel
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Since last week’s podcast, a lot has happened: earthquakes, a tsunami, and nuclear chaos. The VIX index (the volatility index) has skyrocketed – we can continue to expect plenty of volatility in the upcoming weeks. Tuesday the market was down 200 points; we saw the same on Wednesday, Thursday the market was up 160.
Strap on your seat-belts, get ready for plenty of volatility.
As a reminder to our regular listeners and to inform our newer listeners: the media makes money by selling advertising. Because of this, the news tends to be more sensational in an attempt to keep you watching (or reading).
We have been saying for a while the market has been over-bought and in need of a pullback. What’s happening now in the market is…not a surprise. The long term charts are still positive. Although it’s been rough, what we’re going through now may ultimately just be a correction, and not a re-run of 2008.
The thing that really gets me is we can spend months watching the market climb up inch by inch, only to give it all back in a week’s time.
The downside tends to happen a lot faster than the upside.
The biggest difference between now and 2008 is this: In late 2007, the relative strength chart measuring “cash vs. the stock market” actually flipped over, and started to favor cash.
Look, this chart doesn’t change like very often, so when it does flip over, it is a very big deal.
This chart answers the question, “which is currently stronger?” Putting money into cash, or putting money into the stock market? This is why we prefer to focus on what is happening now – instead of trying to predict what will happen next. Like we said last week, the big picture backdrop is still positive, but the short term is very, very sloppy.
Let’s take a side-bar and talk about the events in Japan in the last week:
1. Terrible 9.0 Earthquake
2. A 30-foot Tsunami Wave
3. Nuclear Reactor “issues”
I’m stunned at the political posturing and rhetoric thrown around regarding nuclear power here in the United States.
Let’s be clear: this nuclear power station has been online for 40 years and survived a 9.0 earthquake. The station was still working after the earthquake – it was the tsunami that knocked out the power.
Are any of the nuclear power plants in the US in danger of being hit by a tsunami? I don’t believe so.
But you won’t hear that on the news. As usual, the media drums up emotions.
It is this reason why we rely on point and figure charts when managing your money here at Mullooly Asset Management. These charts do not show any events, or points where you can add in emotion. Emotion is an ingredient you don’t need in this recipe.
These charts simply show the ongoing relationship between supply and demand. And again, that’s not a theory– it’s an economic law.
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Thank you for listening. We welcome your comments and questions.