Retest

 In The Lonely Bull

Stock markets in correction phases often make bottoms, not in just one climactic selling explosion, but in a retest of a prior low after a mini rebound.

This may be happening now.  Yesterday looked like a serious retest of the recent low.  This retest may be successful, and the stock market begins to recover.  However, not all bottoms are neat and tidy, some are messy with a lot of up and down as investors seek more information or confirmation that the worst is over.

The correction came about because of concerns for international business trends and how they may be impacted by tariffs.  In addition, rising interest rates are potentially a problem, as well as the uncertainty surrounding the upcoming mid-term elections.  All of these have led to some investors taking profits and moving some of their portfolios to the sidelines.  The problem is that too many of them decided to do it at the same time.  This is the second correction this year.

So, corrections happen.  They are opportunities to add or upgrade various holdings.  It is rarely a time to sell.  Only if systemic problems in the business environment are so great that real threats to fundamentals are the cause, then scaling back may be appropriate; that is not the case today.  However, even then, with a long horizon, there may be plenty of terrific opportunities.

What do you think Warren Buffet is doing during this period; selling – no, buying – you bet. 

The Lonely Bull

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