I got back home a few days ago.... it was a great trip topped off by watching Real Madrid vs. Marseille 13 rows from center field....but this blog is not about me it's about the markets and so let's get down to it...
Unfortunately for me I got stopped out of my bearish position only to see the market tank without me. There were a couple of times after I got stopped in the 2 days afterwards whereby I could have re-entered the trade at about the same price but I didn't. Not to make excuses but if I was to have re-entered the trade I would have needed to monitor the position very closely on an intraday basis (which I couldn't do) given that I didn't believe I had as good an edge as I did when I originally entered the position, which in that case, I was comfortable enough to simply put in a stop and not pay attention to what the market and indicators were doing.
Anyhow, what's done is done and I'm not going to beat up myself too much given that I was on vacation with very limited time and access to play the market. I've been fortunate enough thus far that my long positions as a whole have stayed flat during this drop in the market but I know that can change if the downside accelerates.
Just prior to this decline I made note of how I felt a correction was immanent due to the Johnny come lately bulls that appeared to have jumped on the bullish bandwagon. After the greater than expected job losses data and drop in the market we have seen thus far, the mutterings of a V shaped recovery by a few prognosticators has likely been nipped right at the bud. Let me clear by saying that most people DO NOT expect a V shaped recovery but just prior to the correction I started to hear more and more talk about it's possibility as I pointed out with permabear James Grant.
On Friday I was watching BNN (the CNBC of Canada) and the sentiment by any of the guest commentators such as fund managers and analysts was overwhelmingly bearish. Given their tone, I would have thought that we were in early March...but all we've seen thus far is a little blip down of about 5% from the intraday high of 1080 on the SPX. The tone of these folks were of "see, I told you so" about the rally but I laugh at these guys because they have been the same people who have scoffed at the rally since April missing out on a huge part of it (which many of these guys had admitted to doing). One of the guests on BNN said "this rally has not felt right intuitively". When he said that I immediately said "no shit" because guess what?....a lot of the times the market is not easy/obvious.
Most people fail at this game because they do what their so called "intuition" tells them to and by intuition I'm referring to is what common sense suggests and for most people common sense is the conditions they perceive today - news headlines and popular statistics like the unemployment rate, GDP and job losses all of which are lagging or coincident indicators which are useless. Most people don't realize that the market doesn't care about today it cares about tomorrow. Yes, sometimes the market gets it wrong and sometimes it overshoots a bit (and thus corrects) but most of the times when you see the market persistently going in a direction that you think is wrong...its YOU that will likely be proven wrong.
Bear market rallies and bull market corrections don't last for 6 months. Sure, anything is possible and there's a first time for everything and believe me, I'll keep an open mind, but history strongly suggests we are in a bull market and this is not a bear market rally that perhaps has now exhausted itself. The sentiment backdrop also supports this notion because I still see plenty of skepticism and doubt out there. Sure, there have been pockets of bullishness but that's to be expected after a 60% rise but by in large, this historic rally has been the least respected and most hated rally I've seen.
While in Spain I had access to CNN Europe and I can tell you, the tone from there as well is still one of doubt/skepticism. They are still using the words "recession", "economic crisis" and "not out of the woods" even before this latest drop.
A little later on tonight or early tomorrow morning I'll take about the ST outlook and my strategy going forward.
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