Fascinating but Deadly

by Jeffrey Saut of Raymond James, 7/30/18

If one would be successful in speculation, he should keep away from the stock-ticker. It is a fascinating little machine, and any one holding stocks and constantly watching the ticker will have plenty of thrills. But the practice is a deadly one. It may be a good thing for the professional trader to watch, hour by hour and day by day, all the little price fluctuations on the tape, but for the intelligent investor, whose aim is to buy stocks when they are dear, constant watching of the ticker and haunting of brokerage houses, in the belief that consumption of the gossip and rumors circulated there is necessary in order to keep well posted, is an unmixed evil. He cannot hang over the ticker and listen to all the cheap gossip in the brokerage office without having his vision distorted. He will unquestionably abandon gradually his long-range view, and adopt a short-range view of the situation. He will adopt the trader’s attitude almost certainly, and that is fatal.

Instead of holding his stocks through a long market swing, one watching the ticker is more than likely to become disturbed when he sees prices falling a point or two and sell, especially if he is listening to the senseless gossip that passes for speculative wisdom in the average group of ticker fiends. They will say, as prices of stocks react, “They don’t look good to me,” or “These stocks ought to be sold; they can be had cheaper in the morning,” or “This market is in for a reaction.” The first thing he knows, he will be following the rest of the traders, selling his stocks. Then when prices later turn strong, he will buy them back again at higher prices. For then all the talk will be in this strain, “These stocks certainly look good to me,” “These stocks ought to be bought right here,” “I look for a substantial rally in this market.” And so it goes.

. . . Beating the Stock Market, R.W McNeel (1921)

“Do you have the mental fortitude to accept huge gains?” is a line from The Elliott Wave Theorist’s Robert Prechter in an era gone by. But it is as true today as it was when first penned in the 1970s. And to do that, one has to ignore the ticker and hold stocks through a long market swing. Such swings tend to happen once or twice a year. The recent swing, from the February 9th low of ~2532 that we identified, into last week’s intraday high of ~2848, was a good year with a gain of 12.5%. In fact, the S&P 500 (SPX/2818.82) came within 12 points of our long-standing trading target of 2860. Longer-term, however, we continue to think the stock market is going substantially higher. Yet, the late week bombshells from the likes of Facebook (the biggest one-day drop in market cap ever at $119B), Twitter, Intel, etc. proved to be too much on Friday, leaving the SPX off some 0.65% for the session. Still, the SPX continues to reside above the 2790 – 2800 upside breakout level (chart 1 on page 3) and earnings continue to surprise on the upside.