Would You Have Bought the Devil’s Low?
Nine years ago, everyone gave up on the stock market.
The major averages were sliced in half. Cash was the market’s only haven. After enduring a harrowing season of never-ending crashes during the heart of the 2008 financial crisis, stocks were once again falling off a cliff in March 2009.
That’s when everything changed.
On Tuesday, March 6, 2009, the S&P 500 etched its intraday low — an ominous 666. Three days later, Business Insider reminds us, the S&P marked its closing low of the crisis.
The S&P would finish 2009 with a gain of more than 25%. The rest, as they say, is history…
“Since then, the S&P 500 has recovered all of its losses from the financial crisis, and then some,” Business Insider muses. “The nine-year rally is the second-longest bull market of all-time, and has tacked on as much as 331%, rallying to a record high of 2,872.87 on January 26, 2018.”
It’s easy to see the capitulation and the furious rally that followed the “mark of the beast” in hindsight. But at the time, the sky was falling every single day. Traders and investors were exhausted. Fear clouded everyone’s judgement. Instead of looking for positive divergences, the average investor’s attention was focused on an entirely different question:
How much lower can the market go?
It would be downright foolish to compare February’s double-digit drop with a generational low in the stock market. But on a much shorter timeframe (and far less extreme circumstances) investor emotions remain the same.
Once fear creeps into the picture, simple risk management turns into a fight against our own demons. We see ghosts of crashes around every corner, along with plenty of excuses to sell everything and safely sit on a pile of cash until the coast is clear.
We’re still seeing this behavior today. Even as the averages have recovered from their February lows, many investors are convinced we’re due for a steeper drop. Rapid shifts in sentiment have increased with volatility. You’ve heard the justifications countless times on financial television:
Stocks are too expensive.
The bull market is long in the tooth.
We’re due for a “real” correction.
Political headlines are also tugging at the market right now. Gary Cohn’s resignation as Trump’s top economic advisor in the throes of the debate over tariffs inspired futures traders to punch the sell button late Tuesday. If these levels hold, the market will gap lower at the open today.
Despite a more volatile backdrop, the market’s internals are showing improvement. Looking beyond the averages, we found most stocks were trending lower last week. I scribbled down just a handful of stocks to keep an eye on last week that were close to making new highs. This week, the market’s list of new 52-week highs is growing by the day.
The bulls are taking charge again. I counted more than 230 significant new 52-week highs posted just yesterday. The list was populated with many of our favorite bull market themes, from semiconductors to biotechs. The market’s strongest players are firing on all cylinders. That’s not bearish — no matter what the politically-obsessed news watchers tell us.