I have to agree with you on risk/reward and timing. Folks have been in a hurry to buy the bottom all the way down from 5000 after all. What's the hurry, we've been asking ourselves around here for more than twelve months!
I'm confident that an appreciation for History, Fear and Greed will work together for the patient speculator and investor.
On balance, people have short memories or at least weight more recent events more strongly than those more distant. While now and 1998 are different, in my mind we can look at the two times to speculate what is likely *not* to transpire this time.
ottographs.com
Not In My Backyard
In 1998, the potential failure and subsequent rescue of Long Term Capital Management, as well as the Asian financial crisis, loomed large in people's minds. Fear was palpable, but clearly at some point, the crowd decided that it was a problem largely contained within other people's back yard - that plus the ever accommodating Federal Reserve had demonstrated that it would would play the hero and ensure that financial problems remained overseas problems. And their efforts worked, then.
So in 1998, and only after setting up a successful test of bottom on the daily chart (no such pattern exists yet today), did the COMPX (and other markets) move higher.
Not only did it move higher, it leapt upwards from early Oct 1998 until Feb 1999 for a move of about 1200 points -- a strong directional move supported by higher lows and higher highs on the daily charts, and on the weekly chart a single massive upswing. Heady stuff!
ottographs.com
In denial? This time it is different
Perhaps we are in the denial stage now. Even though so many portfolios have taken incredible beatings, palpable excitement, and not just a little hope, exists on Silicon Investor and in chat rooms, barbershops, living rooms, and water coolers all over the world. Many appear to be expecting a re-run of 1998 or are simply buying into the veiled lie that everything always bounces back.
Fast forward to today - it is different.
ottographs.com
- these are not comparable market conditions;
- problems are in our back yard as well as world wide;
- and, coming off the back of a massive speculative bubble, its easy to conclude that the outcome will be different.
Its no surprise that the outcome is already different.
If for no other reason than the underlying problems are closer to home - which means we can expect at minimum a lot of backing and filling as the crowd continually revaluates whether the risks are weighted towards further downside or missing out on upside - we can be reasonably confident that there will be ample opportunities to establish long positions at points where risk can be minimized.
Each individuals 'long term capital management' plan needs to ensure that funds are left to fight another day. |
