The risk isn’t a crash.
The risk is a whipsaw.
You are about to understand this.
Michael A. Gayed, CFA, posted these three lines on his X account this morning and they caught my eye. As surfing the Internet oftentimes does, one link lead to another and things got pretty interesting.
Gayed publishes The Lead-Lag Report (https://www.leadlagreport.com/).
To be clear, I am not a subscriber and I’m not endorsing his work, although it does look interesting and I may sign up for it in the future.
In any event, I clicked on Michael’s bait and discovered something I felt was worth sharing: a hysterical bluegrass song on the perils of whipsaws. It was performed by the legendary commodities trader, Ed Seykota, and his Trading Tribe bluegrass band.
From the halls of ChatGPT:
Ed Seykota is a renowned commodities trader and one of the pioneers of computerized trading systems. He is best known for his trend-following methodology and his remarkable long-term trading performance.
Key Facts About Ed Seykota:
• Background: He studied electrical engineering at MIT and earned a degree in management. He applied his technical background to the financial markets in the early 1970s.
• Innovation: Seykota was among the first to develop a computerized trend-following system for trading futures. He did this while working for a major brokerage firm—this was groundbreaking at the time.
• Performance: According to Market Wizards by Jack D. Schwager, one of Seykota’s clients turned a $5,000 account into $15 million over 12 years, primarily using his system.
• Philosophy: Seykota emphasizes psychology and emotional discipline. One of his most famous quotes is:
“The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses.”
• “The Trading Tribe”: He founded this group to help traders deal with the emotional side of trading. He believes that managing emotions is more important than technical knowledge.
• Notable Quote:
“Win or lose, everybody gets what they want out of the market.”
Me again. You may have noticed by now that I am resisting the urge to add to the millions of words written about the tariffs or the insane volatility they have inspired. Words to the wise among you: uncertainty about the economy has increased and volatility has increased with it. Trying to catch a falling knife can be hazardous to your financial health - just don’t do it.
For what it’s worth, if there is going to be a counter-trend whipsaw bounce in the S&P 500 Index, I wouldn’t be surprised to see it happen around the 4788 area. NOT TRADING ADVICE. NOT A RECOMMENDATION.
Stay calm & carry on.