Plunge in the 4th quarter?

[weddy]

Hi guys,
I am mostly a reader of this forum, not a writer and certainly want to thank everybody for all of your different insights and opinions.
A question that comes now to my mind: everybody (or perhaps not everybody ) is talking, expecting a plunge ot the stocks in the 4th quarter.
But isn't it so that when everybody expects the same thing then the opposite happens?
Thx!!!

[SOL]

Hi guys,
I am mostly a reader of this forum, not a writer and certainly want to thank everybody for all of your different insights and opinions.
A question that comes now to my mind: everybody (or perhaps not everybody ) is talking, expecting a plunge ot the stocks in the 4th quarter.
But isn't it so that when everybody expects the same thing, then the opposite happens?
Thx!!!

That is very true, but that's where MP comes into play. You are referring to pure contrarian investing; Mass Psychology MP takes things several steps further. let's examine a few factors

Many individuals have come to embrace the buy-the-dip trading methodology. Indeed, the percentage is well over 40%, when in the past it was well under 20%. So the big players are going to act a bit unpredictable by introducing the random madness factor (RMF), where it appears things are happening for no rhyme or reason to drop the percentage well below 20%. This long prolonged 1st corrective phase could be seen as the first phase of this strategy.

2nd, individuals have come to believe it won't come to pass if everyone expects something. Expecting and acting on it are two different things. So because many fall for the "it won't happen factor", they won't act on it by doing what they would normally do, i.e short the markets. So it's an ideal setup for the RMF setup. The big players might initially extend the topping phase just to make it look like a base is being built for the next leg up; instead, the shoe will drop off.


There is too much around, so the elite players now have the power to influence short-term to intermediate-term patterns.

P.S. Made some corrections as I was typing fast, and some of the stuff did not make proper sense. In essence, I was trying to say that people are not going to do what they normally would when they expect such an event to occur. Normally everyone would short the markets (your average joe), by trying to become contrarian players; they are, in fact, still in the camp of cannon fodder agents because the Contrarian perspective has now become the common perspective.

I will expand on this later if it still does not make sense.

[Yodean]

A question that comes now to my mind: everybody (or perhaps not everybody ) is talking, expecting a plunge ot the stocks in the 4th quarter.

You bring up a very good point. I take all projections with a grain of salt. One way to do this is to force myself to assign a certain % probability of any specific event happening - the number I make up is really a guess, but the process forces me, over and over again, to remember that there is no certainty in life, much less the financial markets.

Over the decades that the stock markets have been in existence, no one (to my knowledge) has been able to consistently predict both price and time simultaneously, and I don't think this is going to change anytime soon.

As a minor example, no one really saw the depth and degree of the recent Q1/Q2 correction coming. Sure, on the blogosphere there were a few "broken clocks" calling for a correction, but they had been saying this for years.

And of course, the Russian Special Operations could be considered a Black Swan, but as I've said previously on a few occasions, strange, unpredictable things tend to "coincidentally" happen when yield curves invert, and the 10-yr starts hitting 3% or higher ...

Investing is really just an euphemism for speculation. Speculation is just guessing. So, for me, the idea is to learn to guess better.

And of course, the more predictions you make, the higher the % that some of them will come true (and others not).

The TIT has made a brave call for Q4 - specifying both time and price action. Kudos.

Whether it comes true or not, we'll find out soon enough.

I think there's prolly a reason or two that most astrologers and Tarot card readers are poor, to my best knowledge.

Man plans, God laughs.

[SOL]

You bring up a very good point. I take all projections with a grain of salt. One way to do this is to force myself to assign a certain % probability of any specific event happening - the number I make up is really a guess, but the process forces me, over and over again, to remember that there is no certainty in life, much less the financial markets.

Over the decades that the stock markets have been in existence, no one (to my knowledge) has been able to consistently predict both price and time simultaneously, and I don't think this is going to change anytime soon.

As a minor example, no one really saw the depth and degree of the recent Q1/Q2 correction coming. Sure, on the blogosphere there were a few "broken clocks" calling for a correction, but they had been saying this for years.

And of course, the Russian Special Operations could be considered a Black Swan, but as I've said previously on a few occasions, strange, unpredictable things tend to "coincidentally" happen when yield curves invert, and the 10-yr starts hitting 3% or higher ...

Investing is really just an euphemism for speculation. Speculation is just guessing. So, for me, the idea is to learn to guess better.

And of course, the more predictions you make, the higher the % that some of them will come true (and others not).

The TIT has made a brave call for Q4 - specifying both time and price action. Kudos.

Whether it comes true or not, we'll find out soon enough.

I think there's prolly a reason or two that most astrologers and Tarot card readers are poor, to my best knowledge.

Man plans, God laughs.

You are right calls are made after examining all the data one can (especially psychological in nature) and then focussing on the outcome that has the highest probability of coming to pass. However, one should have more than one plan in place. Our overall investment theme is to always buy a stock at a discount. Corrections/crashes provide the biggest opportunity (which most mistake for disaster) to implement such a plan.

We expect the markets to top around October, but nobody can state when the correction will start. The market could put in a slow topping formation and then drop, or it could initially drop fast and then create base like pattern to give one the impression that it's time to jump in again. However, if the markets put in a lower high, the base formation after a knee-jerk downward move is usually a signal that much lower prices are in store.

Any trader worth his salt always has a backup or several backup plans.

We have backup plans, but given the way, things are panning out: stocks blowing up while the markets are attempting to trend higher signals that the markets have not put in a long-term bottom.

[Triplethought]

One problem I have is that I will be out of office August 25th thru sept 26th. I'm worried that I won't be there when it's time to sell some of our holdings. So I've sold a few things that are in the green early. But the vast vast vast majority of MU plays are underwater at this point. You've stated that we will always mozy for the exits. The question becomes when do we have the courage of our convictions that there will be a 4th quarter plunge enough that we're willing to accept some losses by bailing out of some of these positions?

[SOL]

One problem I have is that I will be out of office August 25th thru sept 26th. I'm worried that I won't be there when it's time to sell some of our holdings. So I've sold a few things that are in the green early. But the vast vast vast majority of MU plays are underwater at this point. You've stated that we will always mozy for the exits. The question becomes when do we have the courage of our convictions that there will be a 4th quarter plunge enough that we're willing to accept some losses by bailing out of some of these positions?

You could always sell long-term covered calls on the positions you don't want and use some of the funds to buy puts, thereby hedging yourself for almost free. Tactically jumping in and out should be viewed as getting in at a lower price with the potential for much more upside.

No one can predict exactly what will happen in the future, but it is likelier that the top will occur in Oct. A top does not imply that the markets will crash the next day

[Triplethought]

One problem I have is that I will be out of office August 25th thru sept 26th. I'm worried that I won't be there when it's time to sell some of our holdings. So I've sold a few things that are in the green early. But the vast vast vast majority of MU plays are underwater at this point. You've stated that we will always mozy for the exits. The question becomes when do we have the courage of our convictions that there will be a 4th quarter plunge enough that we're willing to accept some losses by bailing out of some of these positions?

You could always sell long-term covered calls on the positions you don't want and use some of the funds to buy puts, thereby hedging yourself for almost free. Tactically jumping in and out should be viewed as getting in at a lower price with the potential for much more upside.

No one can predict exactly what will happen in the future, but it is likelier that the top will occur in Oct. A top does not imply that the markets will crash the next day

Thanks. I've been assuming there will be a stock market crash over a 2-3 day period. I'll consider selling some covered calls - I haven't done much of that. How far out should I consider for the strike date? Nor have I bought puts (I'm more comfortable selling puts at this point). I'll probably continue trying to get into cash whenever possible even at a small profit. As of this morning we have 2 quarters of GDP decline, which some say is the old definition of a recession. Of course the govt will not declare a recession for a while yet. Either way the other play on the big losses is perhaps to sit on them and ride them all the way thru the recession, which you implicitly endorse and advocate by setting a series of sale prices that "probably won't happen" in the next 6 months.. Hopefully the recession won't last long.

[Yodean]

One problem I have is that I will be out of office August 25th thru sept 26th. The question becomes when do we have the courage of our convictions

1) Sept. 26th - end of current Shmita year. The Hammer of Doom will fall on investors around that time. But it might fall on the bears as opposed to the bulls. Or vice versa. Cycle inversion - i.e. melt-up vs. melt-down.

2) The "courage of our convictions" is a bit of mainstream bogus - true at times, but generally mental junkfood. True courage lies in going _against_ your convictions, when appropriate.

I think you mentioned you're going to Burning (trans)Man and then doing something else after ... be careful around late September ... the HOD and all that ...

[Yodean]

You could always sell long-term covered calls on the positions you don't want and use some of the funds to buy puts, thereby hedging yourself for almost free. Tactically jumping in and out should be viewed as getting in at a lower price with the potential for much more upside.

@Sol: TT asked this, and I'm curious as well - what duration for SCC do you like in this specific scenario? 1 to 2 years? And for the corresponding hedge puts with this combo, I am assuming something like 6 months or so?

[SOL]

You could always sell long-term covered calls on the positions you don't want and use some of the funds to buy puts, thereby hedging yourself for almost free. Tactically jumping in and out should be viewed as getting in at a lower price with the potential for much more upside.

@Sol: TT asked this, and I'm curious as well - what duration for SCC do you like in this specific scenario? 1 to 2 years? And for the corresponding hedge puts with this combo, I am assuming something like 6 months or so?

The same strategy I mentioned before applies (when I was talking about selling longer-term puts to buy short-term puts). What you sell should at least have 2X more time. Generally, 3X plus would be better. So 1 to 2 years when selling the calls and 6 to 9 months on the puts you purchase.

[Yodean]

The same strategy I mentioned before applies (when I was talking about selling longer-term puts to buy short-term puts). What you sell should at least have 2X more time. Generally, 3X plus would be better. So what 1 to 2 years when selling the calls and 6 to 9 months on the puts you purchase.

Thanks Sol. Sounds like a very ninja-like combo tactic ...

[MarkD]

Looks like I will be celebrating a birthday near the turning point. Anticipating a few nice drinks and seafood dinner.
Ciao!