If the year-end bearish action is throwing you off, I have some advice, courtesy of my dad.
While my brother and I were growing up, our dad often used analogies, anecdotes, and old sayings to get his point of across when teaching us valuable life lessons. One of my favorites is, “Keep your eyes on the road.”
I often find myself NOT focused on what is ahead of me when I’m driving. Instead, I futz with the radio, chat with passengers, and even glance at my phone when I’m stopped at a light (yes, I do this … and I know you do). There is a lot of risk in this behavior.
The dangers of not paying attention can be applied to trading as well. Like driving a car, you have to pay attention to what is in front of you or risk veering off course.
Year-end bearish action is unusual
These past couple trading weeks have been good for some but not great for most. After a very strong performance in November, the bar was set high for this month, and why not? Historically, December is up, especially during the second half of the month.
But the stock and bond market have been telling us something different. With only days left to go before the year is wrapped up, stocks and bonds are both sputtering to the finish line. Maybe they have run out of steam?
It has been a great year for stocks, but eventually the bulls tire out. It is hard to say if this is the case, but certainly the internals and other indicators like breadth, volume trends, and volatility seem to point towards a big correction coming.
Will the market wait until the new year to correct or has it already begun? We can’t time the markets, of course, so be defensive. Raise cash and pay attention to what the markets are telling you.
Distractions like this can cause you to swerve and potentially hit a target you don’t necessarily want to meet.
