Quiet
Posted on Sunday, August 20th, 2023
We are empty nesters again!! Yay! We moved the boys back into their college dorms last week. We are really becoming pros on this. We had Kevin moved in under the 2-hour mark. What a team! As much as I dreaded this the first few years, I must confess I really enjoy it now. We all know our roles, and we just click as a team. We were done moving Kevin in before 1130 in the morning and left for a nice lunch in town. We will miss the boys, but they will be back often, and we will end up in Athens to see some football games this fall, I am sure. But for now, I am enjoying the quiet.
You know I am a bit of a contrarian. I’m always hesitant to buy when others are buying and sell when everyone is selling. The proprietary indicator that we told you about last week is still flashing a yellow caution signal. Why is it flashing? Everyone and their uncle has sold volatility and gotten long stocks (and Short bonds). The S&P 500 is down just over 2% since it appeared on our radar. People ask me what’s coming? What is going to drag the market lower? What are you seeing? We don’t know, and we don’t care. Our signal is telling us that whatever the news is, the market is not positioned to cushion the blow. Whatever the next news cycle brings, it should have an impact. Often, we get major negative news, it is just that the market is prepared for it. Just to be clear – our signal is not a get-out-of-the-market signal. It’s a reduce positions and perhaps buy some volatility signal. Here’s the thing. There is always a chance for news to move markets. It becomes impactful and moves markets if investors/traders are not positioned for it. That is what my signal is telling me. People are currently underestimating the market’s ability to move. People have been selling volatility, and it is time for the market to push back. I’m not happy that the market has sold off 2% so far because the market will move less when our signal goes red. I am in the – I hope we rally next week camp, but I have one eye on the exit.
During this week, I came across an insightful chart that effectively encapsulates my sentiments regarding the market’s trajectory over the long term. Anticipating the journey ahead, it becomes apparent that we are poised for a persistent and challenging path characterized by a continuous interplay of surges and setbacks. Why? Inflation is going to come to us in waves. Not to say that we won’t make money, just that given the presence of inflation, it will be more of a trader’s market for the next 7-10 years. We will need to act quickly and decisively. (Credit Agricole)
One of the best trades in 2023 has been selling volatility. That is like picking up pennies in front of a steam roller. We think the steam roller is about to have its day. We will know if the shift in sentiment turns this into the beginning of a more prolonged bull market when the S&P 500 tests the 4000-4200 area. A short-term selloff of 9-13% would present itself as a healthy, burning-off positioning too heavily weighted towards the bulls.
“Short term volatility is greatest at turning points and diminishes as a trend becomes established.”– George Soros
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.