If we had to guess we think it will be broken down into two waves, one wave around the time of Christmas plus or minus 2 to 3 days and one event in January. If it is an event that affects the markets at the low end, the Dow will likely shed 9 to 15%, on the upper end it could shed 19% to 22%. The normal course of action would be to panic in advance and during this pullback. However, Tactical Investors should opt for neither. Sit back and relax for it will prove to be a buying opportunity unless our trend indicator issues a different signal, and if it does, we will notify everyone.
As things stand, Bullish sentiment continues to trend upwards, IPO fever has hit the masses and the feeling that things can and only trend higher indicates that some sort of pullback should be expected. Generally, when the markets rally in one direction for a prolonged period (and rallies strongly), the ensuing pullback is usually fast and furious.
To err on the side of caution, we are going to get out of all option positions and take more profits off the table. We are also going to tighten the stops, and there is a high probability that at least temporarily we might move back to regular stops (and not the end of day stops); we have not made a final determination yet. However, we are also looking at using a universal trigger to buy a whole swath of stocks if the markets pull back.
So, for example, an interim update could be sent out, if the Dow were to shed 2500 points then we might say something like place limit orders and aim for the best price on the following stocks. This would provide us with an opportunity to move fast, because, in a fast and furious sell-off, one has to move quickly to lock in the best prices and issuing individual entry points for each stock, takes time and while we are tabulating the entry points we could miss the move.
The main takeaway from this should be that if the above suggestions are acted on, we are doing so only to err on the side of caution and not because we are gripped by panic. In the long term, any strong pullback has to be viewed through a bullish lens as long as the trend is up. Remember, when the masses panic, tactical investors celebrate.
And sear this image into your minds for it will be the new theme for 2021
at least the masses like us.
