10 Minute Read

Tackle Today: Patience Pays

February 15, 2022

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«Return of capital > Return on capital


Here’s a phrase I once heard about falling stock prices:

“If they don’t scare you out, they’ll wear you out.”

I couldn’t think of a more appropriate description of the current environment. Think about the meaning. When stocks break support and move into a downtrend, it creates legions of bagholders. We call them underwater longs. They are bulls with losing positions that now desperately want to get out at breakeven or less of a loss. This creates a lot of overhead supply that takes time to chew through.

The more severe the decline, the longer it takes to recover. With Friday’s selloff slamming the S&P 500 back below the 200-day moving average, bears have reasserted themselves and denied a quick return to an uptrend.

This is becoming a patience-testing slugfest for those that enjoyed the relatively easy conditions of 2021 and quick profits. The thought of this taking months to resolve itself is annoying. But it’s a reality. Return of capital trumps return on capital. And the best way to protect your dough when the storm is raging is not to take dumb risks. Unfortunately, until the market’s technical conditions improve, I think there are a lot of dumb risks out there.

Don’t get worn out. Better conditions lie on the horizon. But you must be here when they return.

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Chart of the Day: Gold glitters

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Today’s line up

Tales of a Technician: The Math of Scaling In

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