rogernusbaum

The last couple of days have been yet another example of how the stock market goes up when it "shouldn't." I don't understand all of the nuance with the latest chapter involving military conflict with Iran, I don't think I am hearing any sort of strategy being articulated and I would hope that war is never Plan A. Regardless of any of that and despite a negative reaction in the futures market overnight, stocks had a good day during regular, Wednesday trading.

This table from Michael Batnick recaps most (all?) of the reasons stocks shouldn't have gone up over the last ten+ years.

Obviously there were dips along the way and maybe a bear market (I think it was more of a fast panic that happened to be 20% but not a real bear for being over so quickly), but any sort of emotional sell response turned out to be a mistake. I am sure there are things on there you don't remember, there are at least a couple I do not, but in real time they were big deals. The poster child for this concept was from 2002 when CEO's were going to have to start signing off on their company's earnings reports and this was going to mean lots of trouble for lots of companies. It was a nothing burger and coincided with a bottom of sorts (there was another bottom in early 2003).

The first paragraph in this post is an emotional reaction to the latest with Iran, I don't fully understand it and I don't like the parts I think I understand but so what? The market going up when it is not "supposed" to is not new and will continue to be the case long after this episode. Knowing this makes it much easier to stick to your investment strategy, whatever that might be. My strategy involves slowly implementing a defensive strategy when the S&P 500 Index goes below its 200 day moving average (DMA). Implementing slowly minimizes the fallout from a market whipsaw. Whatever the reality of Iran in early 2020, the S&P 500 didn't get anywhere near its 200 DMA. No matter what I think about anything, I don't take top down defensive action (as opposed to selling a holding for bottom up reasons) unless the SPX goes below its 200 DMA. That might be coming with this Iran news or not, I don't know.

What I do know is that the next time the S&P 500 breaches its 200 DMA, regardless of when that happens or what the perceived reason might be, I will take defensive action because that is my strategy. What is your strategy? Whatever it is, you chose it believing it to be the best chance for you to reach whatever goals you have.

There's nothing wrong with drawing conclusions about the significance of any sort of event you believe is important, but you can't let those conclusions cloud your investment strategy judgment. Trust your investment process and stick to your investment process.