Blog Motto Update #5

While it looks like my “Bear Market Growls Until January 2010″ blog motto has been wrong for several months, if you look back at my original post, you will see that what I wrote there wasn’t too far off the mark.

I used a far-off-sounding 2010 date because I was trying to shock readers out of being so optimistic that the recession would end soon. And that was a very good call to make in July 2008. And while the stock market has rallied, the ranks of unemployed in the USA are still growing at an alarming rate. We are enjoying a statistical “recovery” at the moment, but nobody’s life has actually improved. And the stats have been clearly bent by the gigantic federal stimulus. Trillions injected; zero jobs created. Kind of scary when you think about it…

Most traders define a bull market by the slope of the 200-day moving average, so by that definition we are clearly in a bull market – except for a couple of crucial sectors. The 200-day for the BKX banking index has only just begun a very slight upturn, the DBC commodity ETF has turned up by exactly one penny, and the USO’s moving average continued to drop last week. Those three moving averages bear watching over the next couple of weeks.

The new blog motto is: “What Would Joe Sixpack Do?” Even professional traders have been baffled by the market’s historic straight-up move. Seasoned veteran and CNBC commentator, Art Cashin, has been reduced to mumbling darkly about “Ramadan” and “geopolitical events” as if he had inside information about a terrorist attack or impending war, which I’m sure he does not. Cashin sounds every bit the trapped short trying to rumor the market down.

But there is one thing that can make the market defy logic and go straight up: the American public stampeding in. Has Joe Sixpack gone back to daytrading 1990s style? Maybe. On September 16th, the Wall Street Journal published: “Return of Day Traders Drives Rise in Volume.”

If the stampede is on, it would explain why thinking like a professional trader has been a very dumb way to think recently. For example, when a stock shoots straight up, a professional trader might think: “That stock is overbought and is due for a pullback,” while Joe Sixpack might think: “Wow! That stock is going to the moon! I need to get on that rocket!” And you know what? Joe Sixpack wins that argument. Professional traders may have more money than Joe Sixpack, but Joe has the pros outnumbered by a rather wide margin, and “quantity has a quality all its own.”

So, the purpose of this blog motto is to focus on thinking like Joe Sixpack. Imagine that you are unemployed and despondent because you know that your government is sending all the jobs to Asia. You are sinking into destitution, have nothing left to lose, and decide to try your hand at gambling in the market with your unemployment checks before they run out. What do you buy?

In the 1990s, people logged onto America Online and read The Motley Fool. They also bought and held AOL stock and made a lot of money. What do they read now? Do they just watch Cramer on CNBC? Does Joe Sixpack buy the stocks of companies which advertise on NASCAR?

And of course, the American public has the reputation for coming in at the top. So, what does it take to make Joe Sixpack panic and cash out?

Note: I don’t think this era is analogous to the 1990s because back then, the USA had re-embraced capitalism after the debacle of the 1970s. Such is not the case today, and going in the socialist direction is not likely to spark a years-long bull market.

This entry was posted on Sunday, September 20th, 2009 at 11:00 am and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.