In a Market This Difficult, What’s the Smart Move?

The market is under pressure again on Thursday morning, and the cause is no mystery. Continued uncertainty around Iran has pushed oil prices higher, raising inflation concerns and putting pressure on bonds.

The real problem is not diagnosing what is wrong. It's that we do not know enough about what lies ahead to price stocks fairly. The conflict will end, but we do not know when, and we do not know how much lasting damage there will be to energy prices. We were already dealing with inflationary pressures and concerns about job growth, and those could become much bigger problems if Iran remains a mess.

What has kept the downside from being more dramatic is the hope that some major positive development could hit at any moment. This has given rise to the Trump TACO trade. He has a consistent pattern of making very upbeat comments just when the market looks most vulnerable, and traders have learned to anticipate it. That anticipation is providing a bid, but the bounces are fizzling fast as the president loses some credibility.

The best market advice I can offer is to do very little. Do not try to predict what will happen in Iran or where oil prices will go next. That is Wall Street's favorite parlor game, but no one can consistently make accurate predictions. Investors like to believe they can, but I have never met anyone who could do it reliably over time.

Great investors do not make grand predictions. What they do is react aggressively when they find an edge. When they begin to see signs that a turn is taking shape, they start to act. They do not buy into the teeth of a decline or into a cloud of uncertainty. They wait patiently for hard evidence they can lean into.

The most important thing I have learned over 25 years is to focus on reacting to price action rather than predicting it. The current environment is a perfect example of why.

I am essentially an optimist because I know that market cycles are inevitable, but timing determines the level of success, and I cannot time what is happening now. All I can do is wait for price action to give me some clues.

Using this approach requires being willing to give up the game of picking an exact market low. That exercise has enormous appeal because it satisfies a natural gambling instinct, but that is all it is.

There is some bounce action as I write, but we are not going to get any real clarity about direction, no matter what happens today. A market turn will be a process that requires a series of positive developments. One strong day is a start, but it will need confirmation. That is when the smart money will go to work.

Stay vigilant, watch your positions, and try your best to protect capital, but otherwise, it is probably a good day to do something else.

At the time of publication, Rev Shark had no positions in any securities mentioned.