Euphoria and Scrambled F-15’s

Unresponsive plane. Scrambled F-15’s. Something went horribly wrong. Those were the headlines last week when a single prop plane suffered a sudden and catastrophic loss of cabin pressure. We have a colleague who is a very astute investor with a lifelong connection to flying, the aviation industry and the investigation of plane crashes. According to our colleague, a plane flying at 31,000 feet needs to be pressurized in order to protect it from the outside elements. A cabin that loses pressure can quickly turn into a death trap. Typical procedure when faced with a loss of pressurization would be to declare an emergency and reduce your altitude to 20,000 while donning an oxygen mask. The pilot’s other choice would be to declare an emergency and proceed to 10,000 where he/she could breathe without assistance. It may be speculation at this point but it appears that last week a pilot with over 20 years experience lost pressurization over the eastern United States and F-15 fighter jets were scrambled in response. According to air traffic controller transcripts the pilot stated “We have an indication that is not correct on the plane”. He proceeded to reduce his altitude to 28,000 feet.

“Not correct on the plane.” As humans we have a tendency to go with our gut or ignore warnings signals because all looks or seems fine. Why didn’t a pilot with 20 years experience declare an emergency? Why didn’t he quickly descend to 20,000 feet and put on his oxygen mask or just go straight to 10,000 and avoid danger completely as his signals were indicating? One of the symptoms of not receiving enough oxygen is a feeling of euphoria. Was it pilot error due to the loss of oxygen or was he simply ignoring the indicator light? As humans we tend to ignore things that get in our way. We may not want to come down from 31,000 feet because the air is thinner and we will get to our destination faster. Managing your investments is like being a pilot. It is about managing risks to get to your destination.

Being long the market seems to be bringing feelings of euphoria as the market marches ever higher. All systems go. Let’s not let the feelings of euphoria take over us. Let’s make sure we are paying attention to our warning indicators. The indicator lights are flashing red in the markets. If we come down from 31,000 feet we may get to our investing destination a little slower but at least we will still get there. Let’s make sure we get to our investing destination. Is it time to come down to 20,000 feet and put our oxygen mask on?

This is what we had to say in our last blog post and not much has changed on the technical front. The Russell 2000 has moved below some of its moving averages and that has us leaning even more towards our bearish thesis. A move above 118 on IWM is our stop loss and that would mean that the bulls are back in charge.

 The chart I am watching is the Small CAP Reversal chart I attached below. It is a textbook reversal pattern. Having said that, nothing right now that is happening from a monetary perspective is in the textbook. Watch the Russell 2000  (IWM). If it closes below 108 it should go to 96 very quickly. That is a 17% drop from current levels. Large caps will not fall by as much but it could change the trend of the market and that could last for months. 

 Hope this helps. If you can keep your head while…

 I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

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Published in: on September 13, 2014 at 8:47 am  Leave a Comment  
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