NEW YORK (Real Money) -- At some point we settle in. The sellers say, why am I selling? The buyers say enough is enough, I am doing some buying. At some point the events of Ukraine get factored in, the confusing nature of bonds are accepted and the upside shines through.
It's difficult now because we are so very quick to forget the painful times. It's been placid and sanguine. There hasn't been much of a reason to sell and sellers have been unrewarded. It is their turn. You have to wait them out on individual stocks, though, not on the S&P because many of the people selling S&P futures have been negative all along and now feel vindicated and empowered.
There are always schools of thought about how to handle selloffs. Some want to buy the stocks that have held up the best, betting that they are the strongest and they rebound fastest. I have not, historically been of that school because if you are wrong about the selling then you are in with a lot of weak hands playing that game.
Remember there are a ton of people who say, "I can't believe this stock is still up, let me lock in that gain before they take it away."
I have much more been in the school of, "I can't believe I am getting this bargain, I can put this one away or buy more because it is priced for imperfection rather than perfection."
Now, we all know that the backdrop's gotten bad. That's in the no-kidding element of it all. We all know that people have written off whole cycles that were good a few weeks ago. They want to be early. You just have to ask what early is. Does Ford (F) go back to $15? Can you see General Motors (GM) at $31?
If so, I would say that unless you are a short-and-cover type, you don't take action. If you are intellectually honest and you think the cycle is over then just go short and stay short because if you have that level of conviction GM goes to where it yields 5% and Ford to 4% where they might have protection.
I think there's a lot of worry out there that's making the consumer nervous. We tend not to think that the headlines matter to the earnings, but when you see the news it doesn't make you feel that good times are ahead. So, you might pause in your buying.
Plus, I think the chartists are playing a huge role here. We have seen some serious breakdowns that imply, for example, that a United Technologies (UTX), which traded at $120 not that long ago, could easily go to the mid-$90s. A 25% decline is of some magnitude for a company that missed its quarter. UTX simply didn't have as good a quarter as we thought.
So, keep in mind when all is lost that it's not. Keep in mind that Vladimir Putin wants the Ukraine back, but, perhaps at a certain point, he settles for some hegemony and the Western allies realize that perhaps the guys they are backing aren't the pristine good guys that they are portrayed as.
Also, as much as it sounds callous to say, if Ukraine gets taken over forcefully by Russia and there is a coup, there's not much anyone can do about it anyway unless you want to start a hot war. All of this other stuff just says to the Western European politicians, "We are going to lose our jobs because of some godforsaken area that was never ours to begin with, maybe this is our Vietnam or our Iraq and we aren't going to go with President Obama into the abyss because he has nothing to lose and is just another American warmonger except of the Democrat variety."
I remain cautious, but less cautious when I see so many stocks down huge. We are losing the people who got in and don't know what it means to lose money.
Until they lost enough of it, the selling will continue. It will be truly safe to buy when another generation of complacent buyers -- the ones who paid up for stocks and now hate them -- gets blown away. Heartless but true.
At the time of publication, the author was long GM and UTX, although positions may change at any time.
Editor's Note: This article was originally published at 8:38 a.m. EDT on Real Money on Aug. 1.