Up until last Monday (October 29, 2018) we had focused on our short-term model’s “sell signal” of October 2, 2018. The “S” word alone makes most investors uneasy. They find the “B” word, “buying” more pleasant. The reason for this is perhaps best explained in a book written by Justin and Robert Mamis titled “When to Sell.” Here are some pertinent excerpts:

*Stocks are bought not in fear but in hope. No matter what the stock did in the past it assumes a new life once a purchaser owns it, and he looks forward to a rosy future – after all, that’s why he singled it out in the first place. But these simple expectations become complicated by what actually happens. The stock acquires a new past, beginning from the moment of purchase, and with that past come new doubts, new concerns, and conflicts. The purchaser’s stock portfolio quickly becomes a portfolio of psychic dilemmas, with ego, superego, and reality in a state of constant battle.

*The public is most comfortable when they are sitting with losses, because if their stocks are down from where they bought them, they don’t have to worry about selling them. Once he’s got a loss, the typical investor is sure he isn’t going to sell. He bears the lower price because in his mind it is temporary and ridiculous: it’ll eventually go away if he doesn’t worry about it. So selling at a loss becomes absolutely out of the question. And since it is out of the question, and his mind is made up for him, the struggle of any potential decision vanishes and he’s able to sit comfortably with the loss.

*To the public mind, selling is NEVER sound. It always conveys the possibility of being wrong twice: first, admitting that they’ve made a buying error; second, admitting that they might be wrong in selling out. And if the stock has actually gone up, they’re tormented: should they take the profit or hold for a bigger one? That creates anxiety, and anxiety breeds mistakes. But as long as they’ve got losses, and never have to decide, they can sit back comfortably and dream instead.

*Through the entire market cycle lurks the fear of finalizing the deed of taking if from dream to reality by selling. BY not selling, by tightly holding on to his stocks, the investor never has to face reality.

And “selling” was the theme for October, because since the September peak the Russell 3000 lost about $3.5 trillion in market capitalization. Technology was hit the worst, losing some $759 billion, with Financials in second place at $580 billion. In fact, there was only one sector that saw an increase over the same timeframe and that was Utilities, but we digress.