Is it too late to sell?

End of Day Update:

The S&P500 plunged over 2% as Grexit fears launched into overdrive. We smashed through 2,070 support and closed a hair above the 200dma. Volume was elevated, but surprisingly low for such a dramatic move. No doubt the holiday-shortened week contributed to this slower than expected volume. Of course it would be more accurate to state it the other way; our slower than normal week contributed to this outsized volatility. When big money is on vacation, markets are often less stable, especially when spooky headlines get involved.

Two-weeks ago we traded near all-time highs when many investors assumed a Greek compromise was all but signed. This week we crashed to the lowest levels since winter as investors assume the Grexit is all but assured. This is a great example of why smart money trades against the herd. When everyone assumes the deal is done, then it is priced in and there is little upside remaining. That is the perfect opportunity to take profits and wait for the inevitable problems to arise. We’re in this to make money, not own stocks. The only way to beat this game is by taking profits when we are confident and don’t want to sell.

Lets get one thing straight, the Grexit is a non-issue for anyone not living and working in Greece. Our financial system had five years to manage, hedge, and otherwise reduce exposure to a Greek default. Most Greek debt is now held by European governments who can weather these losses. For them it isn’t a big deal because they didn’t enter into these positions expecting a profit, or even their money back. All they were doing is buying stability and time. And given that they delayed the inevitable Greek default by five years, they did a pretty good job. While a few politicians might lose their jobs and damage their legacy over this, the financial system will survive without Greece because of the time they bought us.

As for the markets, they are the most emotional when uncertainty is at its greatest. Many stock owners took a sell first, ask questions later approach to these headlines, offering their stock at a steep discount to anyone willing to take the risk. But as often the case, one person’s loss is another’s gain. The time to sell was two-weeks ago when we didn’t want to sell. Anyone with a longer-term view, today is the wrong time to sell. Resist the temptation to throw your trading plan out of the window and join the emotional herd rushing for the exits. For those lucky enough to be in cash, the best trades are the hardest to make. While we don’t want to recklessly buy every dip, we need to be prepared to jump in when everyone is convinced it will only get worse. That is the point where the last of the holdouts breakdown and hit the sell button. Once the last of the hopeful have given up, we run out of sellers and stop going down.

Individual Stocks:

Everything went down today because there is no safe harbor during an emotional dash for the exits. But once the anxiety passes, like it always does, the resulting price action will reveal which stocks are ready to lead the next leg higher. The stocks that fall the least and rebound the quickest show us who the true market darlings are because they’re stocks traders are most excited to own reluctant to sell. While it is a little early to be buying the dip, look for strong price-action and be ready to buy before everyone else does.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL