Groping For the (Stock Market's) Bottom

So much for that potential buy signal.

Yesterday, we wrote:

If the market withstands a test of the bear market lows, it can move higher...However, if the [S&P 500] Index falls further, say a close below the 725 level, that will mark a bearish trading signal, as the market continues to make lower lows

The market never had a chance today, opening lower, and deteriorating as the day progressed. At the closing bell, the S&P 500 stood at 700.82, down 4.7% for the day, and breaking below any conceivable technical support level.

Now, based on a cursory read of the charts, it would appear that the S&P 500 could actually fall all the way to the 600 area, representing a decline of another 15% or so from these already beaten-down levels.

Admittedly, at this stage, there would seem to be much more room to the upside for stocks, while further downside could be somewhat limited. However, the recent trading activity suggests that it will now be quite some time before a meaningful, sustained rally in the stock market can take place.

This development is a bit discouraging for those, like myself, who were waiting on the sidelines for a buy signal. Over the past few weeks, it appeared that the market was putting in a nice bottom. Now, it's clear that we don't know where - or when - the low point for this bear market will occur.

In the classic investment book "Reminiscences of a Stock Operator" by Edwin Lefevre (without question the greatest book ever written about the field of investing), the protagonist, Larry Livingston (a very thinly veiled reference to the legendary trader Jesse Livermore) proclaims "It was never my thinking that made me money but my sitting tight."

In this regard, we're certainly in a "Livermore market" right now. Several blue chip stocks have appeared to be favorably priced for a few months now, but have continued to make lower lows. Using perhaps the bluest of blue chips as an example, GE looked cheap at $16 per share in early January, cheaper still at about $11 in early February, and seems like a downright bargain at less than $8 today. Imagine if you had bought GE back when it was "cheap." Talk about trying to catch a falling knife!

At this point, "sitting tight" seems like an awfully good strategy.

So, what should an investor do with his/her cash?

Buy canned goods.

They have a long shelf life, and there's a great variety of products available in this type of package.

The cans can also be used as paperweights, if needed, or even makeshift rolling pins.

Given the importance of portfolio diversification, I would strongly recommend buying many different types of canned foods. Try string beans and corn niblets. Peaches and plums. Tomato sauce and tomato paste (perhaps pizza sauce, if you're a higher risk/higher reward type of investment). Mushrooms are also a good part of any well-balanced can portfolio.

I'd also recommend a small allocation to non-canned products, just for a bit of further diversification.

I think that a nice pastry would make a particularly good investment. If you're interested in cross-border diversification, consider adding some exposure to the French (eclair), Italian (cannoli) and Austrian (strudel) markets. If current income/yield is important to you, focus on something with a cream filling or topping.

In general, short-term (less than a day old) pastry is a nearly risk-free investment, and tends to be a whole lot tastier than Treasuries.

As for the aforementioned Mr. Livermore, he died in November 1940, approximately 17 years after "Reminiscences of a Stock Operator" was published. The man widely recognized as one of the greatest stock and commodity market traders of the early part of the 20th century blew his brains out in the coatroom of the Sherry Netherland Hotel, across the street from Central Park. He was penniless at the time of his death.

Maybe he should've bought some nice cheese danishes instead.