Special Bulletin: February 8, 2022

A Funny Thing Happened on the Way to Zero

Investors often fall victim to their own minds (emotions) in several ways. One specific area is in the form of extrapolation: To infer or estimate by extending or projecting known information. Once a waterfall price-panic is in motion, our minds (with the help of our eyes) often assume the worst. As silly as this might sound, I can tell you from my 35+ years of advising clients that sometimes the fear of an investment (even the market!) going to zero actually crosses certain peoples minds when in the throws of a serious sell-off.

That type of emotional reaction was most likely experienced by certain investors during this past January 18th through the morning of the 24th. While the thought of the indexes going to zero is a ridiculous fear, the fear of losing their money felt by many investors was very real nonetheless. That’s often what makes market bottoms, or at least sets up countertrend bounces… like the one we just experienced. So while many in the public were panicking, the pros stopped selling (at least temporarily) and stocks started to float back up with the help of the “buy the dip” crowd. A funny thing happened on the way to zero- prices went back up.

It’s not a “ha ha” funny, but rather a peculiar or an unexpected “funny thing” in their minds. But is it really? We don’t think it’s unexpected at all. Experienced stock market investors know that it never goes straight up or straight down. It’s always more jagged like a lightning bolt. So, learning how to manage emotions, even wrestling with the subconscious to keep it from extrapolating, can have a significant positive impact on an investors results.

As of today’s close, (SPX @ 4,521.54), our Current Market Outlook was upgraded to “Uptrend Under Pressure” with a yellow light. The “Core Four” shows 2 red and 2 yellow lights with today’s action (see top of page) with the VIX casting the tie-breaking vote for the bulls by slipping back under its 50-day mav.

A big test is nearing. The S&P500 is approaching its own 50-day mav and a battle between the bulls and bears awaits. A question mark moment is upon us again.

What to do now? Expect volatility to stay elevated. Remain calm and patient, and refresh your watchlist. The US 10-year Treasury note neared 2% this week and the stock market handled it fairly well. Let’s see what happens if/when it pops over it.

Have a Triumphant day! ®