George Maniere: Sometimes Doing Nothing is Doing Something – How to Find the Market Bottom

InvestingAdvicebyGeorge: Yesterday I had a dozen readers write to me asking if we should we be buying into the market now or commenting on what great bargain prices these stocks are selling for. I have written many times that “sometimes doing nothing is doing something”. I told them that the hardest thing to do when the market sells off 634 points is to do nothing. I will explain why.

In every market there is one stock or sector that is an indicator. I feel that in this market that indicator is Gold. Yes I do own GLD. But I will not buy into this market sell off until gold sells off. Why? The answer is because right now Gold is perceived to be the ultimate safe haven. Well what it is the safe haven from? The answer is the continued debasement of currencies and the fear that is being shown in the equities market. Yesterday it was clear that people had lost all appetite for owning stocks and were content to park their money in safe havens like gold and even US Treasuries. While yesterday was a record volume day, I read a statistic that really floored me. While there were approximately 4.5 billion shares traded there were only 25 million shares traded to the upside. The selling we saw yesterday was either short covering or people selling to get out. Either way it felt like capitulation.

The VIX hit an intraday high of 50 which was a rise of 35% in one day. These stocks that are being dumped will not feel like they were great bargains if we go back and test the 2009 lows. Do I know where this market will bottom? NO! What I do know is that I will watch gold like a hawk and when it finally capitulates then I will know that the market is putting in a level of support. Until that happens I will not participate into buying this market and I urge all my readers to do the same.  As I write, the VIX looks like its signaling we’re almost done with the selling and we could get a short covering rally but the futures are signaling a further selloff in the markets and gold is also showing another strong rise of $48.00 an ounce so I expect another day of sitting on my hands.  

It has been the relentless stream of bad news that has turned what could have been a short-term market dip into what now looks like a prolonged selloff with no bottom in sight. While the Standard & Poor’s downgrade of U.S. debt was in itself a needle moving event, it has rightfully served also to amplify the problems both domestically and elsewhere in the world. The lowering of the rating gave everyone an entire weekend to worry. We still have a long way to go as Europe is a complete mess. Our economic woes are as much Europe as they are in the United States and I have serious doubts that politicians in Washington and in Europe have the gravitas to navigate their way out of the crisis. There are so many issues to deal with that it’s hard to see how we’re going to work our way out of them.

My experience in the market has taught me that the market is going to correct the way it should. Because it takes a little longer just makes it more pronounced. Memories are short but let’s not forget that it was just two and a half short years ago there was total capitulation in the market. I remember that a copy of the New York Times Sunday edition (maybe rightfully so) cost more than a share of the stock. There is going to be a point where stocks are a giveaway and that is when people will begin to step in and start buying. How will we know that moment? The answer is to watch gold.  It will tell the story. When it sells off you will have your chance to buy in at the real bottom.

So in conclusion I want all of my readers to realize that this is one of those defining moments in time. The best thing to do today is to do what you did yesterday, nothing. While all of the charts are signaling very oversold conditions in the futures gold is up again and looks to be ready to set another new record high. What does this tell us about the market? It tells us that we are not yet close to a bottom. Keep doing three things. Keep sitting on your hands, keep watching gold because it will tell the story and keep the lessons we learned in 2009 firmly in your mind. What looks like a bargain today will look quite different if we are retesting the lows of 2009.

One last thought. For all of my silver bug friends I must tell you that I have been watching silver for a week and I do not like the way it is acting. There is an old stock market axiom. “The market only discounts a stock once.” That means you only get one swing at the ball and we may well have had our turn at bat with silver last April. Gold is certainly the flavor of the week and I still feel we will see silver at $55.00 by year’s end but I am beginning to feel that we may well go back and retest the $32.50 level before we reach the $55.00 level. I know many of you are very enamored with AGQ but I want you to be very careful. If my suspicions are correct make sure you have stops in place so you are not hurt. 

Remember, “Sometimes Doing Nothing is Doing Something.”

One Response to George Maniere: Sometimes Doing Nothing is Doing Something – How to Find the Market Bottom

  1. Chelo says:

    So after seeing the markets rebound like they did today, do you still think that the “real bottom” (i.e. the sell of of gold) is still to come?

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