The stock market priced in a long Trade War with China this week with a 1.5% decline in the S&P 500, at it’s low on Thursday. Or so they said on TV. In the old days, it would take a few days for information like that to become the consensus opinion. Today it happens instantly, as computers read every news item that hits the tape. As one expert was quoted, it seems like finding good stories at reasonable prices has gone out the window, and owning stocks is more about managing the headlines. Reading 10-K’s and listening to conference calls seem like a waste of time. Seems like all stocks are going down. It doesn’t matter why. We are headed right for the next Depression. That’s how it felt at 2:58 PM at 2805.
Thursday started with the Dow Futures down 250 points first thing in the morning. China had been making news overnight. I had bought some stocks Wednesday afternoon, and now they would be crushed. Jim Cramer was on CNBC. He said that when every sector is down, there is usually a rally. If no story sounds good enough, it’s time for a rally. There is nobody left to sell. I felt re-assured, since he said the exact opposite last night. My fear index started to rise. The S&P opened down 40 points, enough for me to curse myself. I bought some stock.
At 11am, weak Industrial Production numbers hit the tape, and stocks sold off again. I winced. When stocks stabilized around 1pm, I took a deep breath and bought more, taking a guess at which industries investor interest would rotate into. By the 2:58pm re-test of the $2805 under-cut low, I was almost fully invested. If it broke this key level of support, I could go down the tubes. It marked almost exactly a re-test of the May 13 bottom. Stocks should be bouncing but they weren’t. I was resigned to the fact that I was going Belly Up, just floating upside down on the surface. It made me choke. I bought call options.
And it held. Not every investor believes the US and Chinese are destined for mutually assured (economic) destruction. Trump and Xi can’t be that stupid. At 3pm, the President had a press conference to throw a fig leaf to farmers and mumble about including Huawei in any negotiations. Presto, the market went up about 17 S&P 500 points in 20 minutes. Maybe it was just the shorts who needed to cover if the President said anything important. It rallied just enough for me to make a few bucks on some day trades, and provide some afternoon momentum for Friday.
In my experience, buying stocks when the market is falling can be treacherous, the proverbial falling knife. It actually makes me sick to watch the market during these periods, knowing I could lose on my investments. But it also gives me valuable information. If I am too sick to buy stocks, others must be sick of watching them fall, and will be the last to puke out their shares. That’s when the professionals jump in, covering profitable short trades and dipping a toe in on the other side. My gut tells me all the loud belly aching by Trump and Xi is an act, and a deal will soon be in the interest of all involved. It’s a Contrarian point of view, the opposite outlook of the consensus. It felt like a short-term bottom to me.