While markets have been up most of the day until now (2:35 EST), the Dow just rapidly plunged 180 points. The Feds doom and gloom statement is finally confirming what the stock market has been telling us for weeks. This is exactly why we do not buy stocks on the way down. There has been a tremendous amount of chatter around the concept of buying stocks perceived to be cheap compared to their intrinsic value or buying in expectation of a strong, V-shaped bounce.  As I’ve said before, that is buying into a downtrend, or more frankly, buying into weakness. In the stock market, weakness begets weakness. Individual investors, small hedge funds, and possibly mid size hedge funds should not have been long for the last two weeks.

 

This market is violently volatile. Except for the aggressive short term traders who feed on volatility, why would anyone want to participate in this? Our number one rule in investing is, and will always remain, capital preservation.

 

Be careful,

 

Scott O’Neil

President, MarketSmith Incorporated