Median Investors are Blind to Risk: NASDAQ 100 (INDEXNASDAQ:NDX)
The median investor is arrogant and blind to risk right now. In their eyes they don't have any reason to be concerned, the market started the year on a positive note and as a result they know exactly what's going to happen during calendar 2017. The Trader's Almanac, after all, tells them that as goes the first few days of the year so goes the year itself, but come on man!
Ultimately, that could be right, or that could be wrong, but I'm not looking for the answer and I don't think you should try to find the answer either. Who cares!
We're in the business of making money no matter what happens, not trying to predict what happens in order for us to make money. If we're wrong, so be it, we manage risk and we can mitigate risk over time, and if we're right, fantastic, will take a short term gain and let them add up over time as well because short term gains lead to long term success in our book, but predicting where the market goes and doing it while being blind to risk is not something that we will ever do.
Obviously, we all have to have a foundation for our decisions, and we do, but the macro economic conditions that exist today tell us that eventually, which is the key word, this market is going to crash.
Liquidity data would tell us that this is unlikely to happen anytime soon, maybe not for a few months at least, but there are fiscal changes on the immediate horizon which could change the dynamic we're witnessed you today completely.
- Does the market really like change?
- Better said, does the market really like uncertainties?
My experience is that the market does not like uncertainties at all and uncertain earnings and growth conditions exist on the immediate horizon, but right now no one cares. At least, no one seems to care, and I say it that way while identifying the perception of risk by the median investor in the market today.
The median investor is a guy with a few hundred K in his portfolio, a grouping of stocks he considers to be good ones, with the rest in the trading portfolio that might require a little more work. For most of these types of investors the stocks they hold are Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc (NASDAQ:GOOG), or something like that, and these stocks have been doing well. The relative strength in these widely held names which are often holdings of the median investor in the market today have caused many of them to discount the notion of risk control, and that is the big risk in my point of view.
Once people start ignoring risks, which I think I am seeing right now in the NASDAQ 100 (INDEXNASDAQ:NDX), the risk of rather abrupt price adjustments becomes high. The technicals certainly seem to suggest that we are heading in that direction, but the NDX is no quite there yet. It's close though, and our technicals have defined both longer term resistance and downside confirmations for all markets, but most importantly for the NDX, the strongest market YTD.