“Just Make the Voices Stop”

When the financial media’s Team Hysteria repeats the same doomsday loop over and over again until it sounds like the shrill goobledy-goop of a tape recorder being fast-forwarded…

When you can see the talking heads' mouths move on CNBC but the drone of their words have devolved into the dentist-drill whine that you hear right before getting attacked by a swarm of mosquitos…

It might be time to consider that the stock market selling is hitting a crescendo and that it is putting in at least a short-term low.

Now obviously this is hardly a scientific way to look at the stock market. I could roll out a bunch of indicators that “prove” the S&P 500 had a good shot at a rally around midday today…

The gold line on the chart is the 200-day Moving Average (MA). It is a widely accepted metric for defining the long-term market trend. There is no particular reason that the 200-day MA gets the esteemed role of defining the trend. It’s just that investors and traders alike agree that the 200-day MA is important…

And so the programmers who build the trading algorithms that control +70% of daily trading on the New York Stock Exchange will include the 200-day MA in the if/then statements that dictate buying and selling decisions…

Maybe something like “IF the S&P 500 hits the 200-day MA, THEN stop selling and start buying.”

The box below the chart contains the Moving Average Convergence Divergence, usually referred to by its cool street name “MACD.”

These lines and the associated histogram measure how far away the asset price (in this case the S&P 500) is from the important moving averages. The MACD is a gauge for whether stocks are overbought or oversold. When the lines are at the top of the zone, it means that prices have moved far above the MAs, and people say “stocks are overbought.”

Stocks tend to stay overbought for a while, because investors are always most bullish when prices have been running higher. But price always has a way of reverting to the mean.

It typically takes a little while for the MACD to move lower – it takes some work to squeeze the bullishness out of investors. But every so often, the MACD will make it all the way down to oversold levels, where it is today…

This is the second-lowest level for MACD in the last year, second only to the August 5 lows. I don’t know if you remember that sell-off, but it was nasty. The S&P 500 peeled off 5% in three days…

Emotional Roller Coaster

So I call the MACD and the 200-day Moving Average “scientific” indicators mainly because they use numbers and specific formulas to generate what look like indelible measurements.

But the truth is: all they are really doing is creating a visual to depict investors’ relative levels of fear and greed.

It’s like looking back at past selloffs, seeing where they bottomed and thinking “Wow, I wish I had bought there. If only there was a way to see that the market was putting in a low…”

Technical indicators are an attempt to codify the conditions that exist when stocks are hitting highs and lows. They are an attempt to measure the emotions that drive stock prices: fear and greed.

And the thing is, as investors, you can get a sense of where the fear and greed pendulum is just by checking your own emotional reaction.

For instance, think about how many times you’ve heard the incessant chant of “tariffs tariffs tariffs tariffs tariffs tariffs tariffs” over the last week? A little concerning at first, then stocks start to react and it gets scary, you start to worry that the market might really collapse, but then the financial media keeps on with “tariffs tariffs tariffs tariffs tariffs tariffs tariffs” until you’re thinking “please stop saying that, please…”

That’s a sort of capitulation moment, at least for the short-term.

I hit my capitulation moment around 10:30 this morning after I’d heard the word “tariffs” a kajillion times and the S&P 500 was down 100 points for the third time in four days…

I waited an hour, bought a few weekly Nvidia calls, and sure enough, it made the voices stop.

A Word on Tariffs

I thought I should probably clarify something about tariffs. I’m not trying to tell you that tariffs are unimportant and that you should ignore them. On the contrary, they are potentially very significant and are a big reason stock prices have been crushed for the last few days. But the market ebbs and flows, and conditions seem favorable for getting a little flow going. Maybe it will only last a couple of days; we’ll see.

Cheers,

Briton Ryle
Chief Investment Strategist
Outsider Club

X/Twitter: https://twitter.com/BritonRyle

“Just Make the Voices Stop”

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