Self Evaluation 2010 and outlook for 2011

As the year draws to a close, it's the time of the year when I look back on what transpired and evaluate my own performance. It was a wild ride in the markets no doubt. Coming into 2010 I was expecting a multi-month consolidation phase to begin shortly because this had been the pattern of previous bull markets after about the 1 year mark from their onset. This consolidation phase was tricky because it looked like it began in late January but the market was able to recover from that correction and make new highs. Then in early May, the multi-month correction I envisioned finally took hold which latest throughout the summer. The wild oscillations of the market in 2010 whipsawed both bulls and bears alike. I started reducing positions in mid March (mainly because of individual stock circumstances, not because broad market concerns) and by the time the flash crash arrived I was almost entirely in cash and I stayed that way until late August. At that point I started accumulating positions again with an emphasis in the small cap Canadian energy services sector because the charts of these stocks and the fundamentals looked quite good. However, I did not commit full positions to these stocks because I was unsure if the market had truly bottomed and so although they went up substantially as a whole, I didn't profit as much as I should have.

Here's the good, bad and the ugly for 2010

The good

• Correctly identified and stayed in harmony with the primary bullish trend of the market
• Correctly predicted and prepared for a multi-month consolidation phase of bull market coming into 2010
• Cashed in on big winners bev.to and gdc.to for multi-baggers
• Avoided the summer meat grinder by remaining largely in cash
• Re-entered the market in late August/early September near the lows and established positions early in a strong sector - small cap Canadian energy services.
• Avoided ST trading and counter-trend trading i.e. shorting the market trying to profit from corrections
• Disciplined in selling losers early taking no major losses on any one position
• Added more to winning positions (but not always) which ended up going even higher

The bad

• Did not fully capitalize on all opportunities because I was too picky about certain indicators and market action...I wanted everything to be just perfect and as result I only partially committed at times.
• At times was too focused on ST wiggles of the market. Although I didn't trade them (given my preference for individual stocks), it over influenced the decision making towards the individual stocks I had on my radar most of which didn't even respond very much to ST wiggles anyways.
• Didn't get aggressive by pressing bets when at times I should have
• Cash position too high overall - at times high cash position was warranted, but other times it wasn't

The ugly

• prematurely sold positions psv.to and mal.to leaving huge money on the table out of fears that a ST correction near the end of the year would be detrimental to my year end compensation. This was a violation of my "don't turn an investment into a trade or vice versa" rule. Yes, I'm still bitter about this.

Overall, I believe the positives outweighed the negatives and it's reflected in my results and despite the idiotic blunder above, I'm up 55% for the year which I know is not too shabby but I should have done better. Like last year, I was too conservative keeping too much of my account in cash. Although I was very good in minimizing losses when I was wrong, I didn't fully capitalize when I was right and I was right more times than wrong. In December however, after getting reamed by that blunder I made with psv.to and mal.to, I improved on this. I doubled up my positions on isc.vn and wzl.to when I sensed breakouts coming for both stocks.

Part of the reason I have been overly conservative since I've started doing this full time was that I wanted to start things off on the right foot for both myself and my clients and so I kept large cash reserves in cash in case I messed up early. The other reason is that despite what you might think, I'm still not 100% confident in myself. Although I have 12 years of experience and I honestly believe I have a knack for this, I have only been doing this full time for 2 years and so I haven't proven to myself yet that I can actually do this long term for a living. Also, there's quite a difference when you trade while having a full time job as your main source of income compared to when you rely solely on trading for your income...you can afford to take a lot more risks in the market when you have a full time job. But now that I have had 2 good years under my belt, it has given me confidence and breathing room financially and so now I have the ability to be more aggressive. I know 2 years proves little but so far so good.

Next year should make for another interesting one. There's lots of important questions that will be answered such as: How will the situation in Europe resolve itself? Will jobs in the US start coming back signaling a self sustaining recovery? Will the fed start raising rates? Will Gold and commodities in general hit some sort of peak? Will natural gas hit a bottom (or perhaps it already has)? Huge opportunities will present themselves next year given the potential for some major turning points. Next year is the 3rd year of the presidential cycle which tends to be the most positive one from a stock market perspective. By no means do I place a big emphasis on "cycle theories", however, in bull market conditions any kind of indicator, or study that's flashing a bullish message tends to be effective whereas any kind of bearish omen tends to give muted negative results or false signals. Remember the bearish Hindenberg Omen and death cross in the summer? Massive bear traps.

Let's take a look at Wall street consensus expectations. The average Wall street strategist target for the SPX a year from now is 1374. That's about a 9% gain from current levels. Last year strategists predicted about the same return for 2010, as the average year end target was 1222.  This ended up being conservative but not very far off the mark. According to the latest consensus forecast published by Blue Chip Economic Indicators, the economy is expected to grow 2.6% in 2011. That's a pretty sluggish growth rate. Economists predicted sluggish growth last year as well and they actually got it right....for once but I don't think they'll be right this year. So, overall, I would say that Wall street is cautiously optimistic at best about next year. This leaves room for the market to surprise either on the downside or upside. I'm thinking the latter happens. Few pundits are expecting significant job gains next year even though leading indicators for jobs such as the downtrend in initial claims for unemployment are on the cusp on signaling so. In addition, the uncertainty regarding the tax cut situation has lifted and is bullish, corporate profits have been building solidly for over a year, there was no double dip and existing workers are being stretched. How much longer can companies hold off hiring given all this? It's just a matter of when, not if jobs start coming back strongly if you ask me.


As I've been pointing out time and time again, there continues to be underlying, deep rooted skepticism about
the market and the economy from people with the poorest track records - the typical retail schmuck trader, in addition to the average main street guy who still thinks we are in a recession. Meanwhile, the market is up over 80% from it's low almost 2 years ago in strong opposition to the schmucks. Who do you think will be proven right? Most of the schmucks didn't benefit during this bull run, in fact, many of them actually lost money betting against the market (which proves why they are schmucks).

Ever wonder why most people don't make money in the stock market in the long run? It's because they do the obvious or the easy. It's easy to bearish when the unemployment rate is high and headlines are negative, just like how it's easy to be bullish when unemployment rate is low the economic skies are clear blue. In life it's the same thing...if you always take the easy path you won't be a successful person. It's easy to eat junk food, it's easy to sit on the couch and watch TV all day, it's easy not to ask out that girl you like and just play it safe. What makes a successful person is one who does things that most people aren't willing or can't do. That means hard work, doing difficult and courageous things, sacrificing, being disciplined and thinking outside out the box. This is probably the single most important life lesson I will try to instill in my daughter.

I'd like to say some things about current sentiment conditions. The fact that everyone including my grandmother is pointing out how bullish sentiment is at an extreme right now makes it likely that the big correction everyone is waiting for will be elusive. I've said this before....a watched pot never boils. Instead, it's more likely any dips will be modest for a while and then a bigger correction happens sometime in February or March. That's my best guess and I don't give a shit if I get right or wrong because I'm not going to worry much about the dips and corrections. I'm going to focus on the bigger picture and the promising stocks/sectors within this bigger picture. It's important to keep tabs on how your stocks are behaving with the day to day movements of the market. The less they are moving in tandem the less you should care about the ST and IT moves of the market and the more you should be care about company/sector specific fundamentals.

I believe next year will indeed be another bull market year but most of the gains will happen in the second half of the year. The reason I believe this is because, as the bears have been desperately pointing out, the market is overbought and several sentiment indicators are at bullish extremes. But unlike the bears who think such extremes are signalling a bull market peak, I believe it's signalling a ST/IT term peak. Now, I've said it here many times, trying to profit from corrections in bull markets is often very difficult and frustrating and should be avoided. If you're ever ST cautious in a bull market and you can't sleep at night, fine, raise some cash but don't short. In 2011 my goal is to continue to focus more on individual names and sectors and less on the wiggles of the general markets. I hope to have the courage to act more on my convictions when it's warranted.

There will very likely be at least 1 time in 2011 where market sentiment will swing in the opposite direction showing excessive bearishness due to some scare so be patient and wait for it because that will be the time to get aggressive. It's possible for it to take weeks, or months for it to happen while the market still grinds higher but it will happen and when it does any gains in the interim will be wiped out rather quickly. But don't let this stop you from buying a stock that you believe has tremendous upside coming it's way because of favorable company or sector specific catalyst/fundamentals. So long as you don't believe the bull market is in danger of being over, fuck the ST market wiggles and have the courage to just buy it..or at least get partial exposure.

I hope everyone had a good year and I wish you all the best in 2011!

Priceless information

As I was waiting to pick up my Portuguese chicken take out order at The Red Roster tonight, I overheard a group of people talking at the table next to me. One guy jokingly said to one of his friends "would you like coffee, tee or G?" G was his girlfriend or wife who was sitting next to him. She said "I'm not for sale" and then her boyfriend/husband said something like "well, in this recession we need all the money we can get". This was music to my ears. This little anecdote may not sound like much, but it strongly reinforces the notion I've been talking about in regards to how mainstreet is nowhere close to having a positive outlook about the economy. This guy was still talking about a recession when we have been out of one for well over 1 year. When you hear the average Joe still saying the word "recession" when the economy has already turned the corner and more importantly, when the stock market has gone up strongly for 20 months, still making new high after new high it gives me tremendous confidence that the bull market is far from over. I bet no bull market has ever ended with mainstreet still bearish like this. To top it all off, on the Conan O'Brian show tonight I just heard him say right now "in these tough economic times" during his conversation with one of his guests.

So bears, can you honestly tell me that when the dumbest of the dumb money indicators are still saying the words "recession" and "tough economic times"  that bullishness is as high as it was in 2007? LMAO! You are delusional or in denial! Keep grasping at those contrarian straws. The ultimate and most reliable contrarian indicator on a long term basis is the main street schmuck and this indicator solidly favors the bulls.

I don't mean to sound cocky here because the sentiment indicators that bears are citing such as AAII, the VIX, insider selling and such can warrant (but by no means assure) a scary multi-month correction like we saw in the summer...I'm not denying that. But I strongly suspect that this high level of bullish sentiment that supposedly is as high at it was at the 2007 peak is giving bears comfort keeping them on the inverted slope of hope thinking that this bull market has gotta be close to running its course.

This will be my last post before Christmas and so on that note I'd like to wish the handful of you who read this blog a Merry Christmas!

Bizzaro world continues

My how things have changed from 10 years ago. Coming into 2001 the market had entered the early stages of a big bear market. The market trend was firmly down as was the direction of earnings and general economic activity. The pessimism was building but the majority of retail schmucks and the popular gurus du jour were still bag holding bulls. Then in early January the fed came out with surprise .5% rate cut which temporarily ignited the market. The bulls were dancing on the streets as they were proudly advertising that according to history every single time the fed cut rates, the market was higher a year later....except for 1 time. Any guess as to when? Yep, you got it; after the 1929 crash...which had so many similarities to the 2000 tech crash! Yet the bulls were oblivious to this. As a bear at the time, I had to admit it did give me some doubts. It took courage to be bear back then, just like it has taken courage to be bullish these past couple of years and even now. Back in 2001 the majority was hopeful the fed would succeed whereas now there is no shortage of fed haters/skeptics. Its bizzaro world folks. Back in the summer of 2009 I made a post whereby I hypothesized that we were in bizzaro year 2000. 2010 was another bizzaro year and I believe next year will be one as well. Whereas most retail schmucks 10 years ago were bruised but hopeful bulls, I believe most retail schmucks now are bruised but hopeful bag holding bears.

A news item floating around the bear circles is a recent bullish article in USA today which says strategists are encouraging people to buy stocks. The bears are pointing this out as a contrary indicator. This is grasping at straws if you ask me. As I mentioned with my previous post, the average Joe Blow out there is still bearish/skeptical about the economy and in my opinion that counts more than bullish strategists. These guys might be saying "buy stocks" but most people haven't been doing that and I'm sure a lot of people would say "fuck you I'm not buying stocks" when they read that article. What people do with their money counts more than lip service. By the way, coming into 2010, the average year end price target for the SPX predicted by Wall Street strategists was 1222 as I posted here. Turns out they were pretty accurate.

I also find it interesting how I see so many of the bearish ilk point out this USA today article. It was just like how they were all pointing towards the negative ECRI leading index readings in the summer. Remember that? I made a post about it. This indicates desperation, "slope of hope” type behavior on the part of the bears....and how ironic is that given that the phrase "slope of hope" is known to characterize the bulls during a bear market. As the saying implies, bear markets descend upon a slope of hope, i.e. bulls are foolishly hopeful throughout a bear market and it's this hope which prevents true capitulation needed to mark the end of a bear market. This time around it's the bears who have been foolishly hopeful...hopeful that the bull market will soon be over and so they grasp at any sort of data point or contrary indicator to justify their refusal to capitulate.

Bears riding the inverted slope of hope...yet another example of bizzaro world!

Mainstreet far from giddy about the market

I just read an article from the investing section of Macleans.ca, a mainstreet type magazine. In it discusses how people are still emotionally scared from the crash and are reluctant to get back in. You can read it here. I've always said that the most reliable and powerful contrary indicators is when you see mainstreet sentiment in opposition to the primary trend of the market. When that happens it's quite a reliable sign that the primary trend is in no danger of ending. It's clear to me that mainstreet still has plenty of contempt towards the market. I know this is just 1 article but I get the sense of this anecdotally as well.

If the bull market from March 2009 has seen it's high at 1246, it would probably be the first time in history that a bull market has ended when 1) The bull market is less than 2 years old 2) A large portion of Mainstreet is still afraid of the market 3) Monetary conditions are very accommodative. Therefore, it's EXTREMELY unlikely that the bull market is over correction or no correction. Just remember this when the market starts going down and things look scary.

I see bears out there trying to make the case that based upon sentiment indicators people are as bullish as they were in 2007 at the top of the market. I don't want to sound like a broken record but again I must stress that the sentiment indicators these bears are using are only applicable to the ST or IT. In addition, it is not uncommon to see extreme, chronic bullish sentiment early in a bull market (time wise, not advancement wise) when the evidence starts becoming overwhelming that the recovery will be self sustaining. This is what happened from mid 2003 to early 2004 wherby we saw sentiment go way off the charts bullish. The market ignored this extreme sentiment until March of 2004 and when the rally did finally end, what ended up happening was a multi-month consolidation wherby the market was down only 10% at its lowest point. After that the bull market resumed course in the fall and made new highs by the end of the year.

The last missing pieces to the recovery are jobs and housing. This is pretty much what the bears are clinging on to. It shouldn't be much of a surprise that these 2 things are still weak given that jobs are a lagging indicator and housing was the epicenter of the crisis and is also influenced by the job situation. Let's look at the jobs situation. Initial claims for unemployment came in today below expectations at 420K dropping the 4 week moving average to about 423K, the lowest level since August 2008. 400K is the magic number which in the past confirmed that significant and sustained job growth is on the horizon and given the trend in place it's very likely we will see this threshold breached in 2011. Once the job situation is on solid footing, housing should follow suite. If this happens to be the case, forestry stocks could do very well next year. I am making a list....checking it twice

Sentiment indicators don't tell the true story

Here's a comment from a trader Tim Collins over at realmoney.com regarding the weakness in some of the NASDAQ high flyers such as NFXL

"Did someone over at the Fed sneeze on the buy key? No one wanted to touch it until it was properly cleaned and sterilized?"


This type of contempt towards the market is a common attitude traders have. Although I'm sure Tim wasn't totally serious with that comment, there is this notion out there that the bull market is mainly the result of manipulation by the fed/government. In the "buy the dip" video I recently posted you can see this same attitude. Why is it there is no mention from these guys that earnings have exploded to the upside for the past 18 months and is on track to reach near all time record levels for the year? Nahhh....it's all bs government manipulation by the fed right? These clowns are in such denial it's bordering delusion.


Despite the low put/call ratio readings, a high number of bulls in the sentiment survey's, ect, which bears use to claim that practically everyone is bullish, it's still apparent to me that the deep rooted i.e. longer term sentiment out there is skepticism/bearishness. As I said before sentiment indicators as the above mentioned, only pertains to short term traders and therefore only relevant to ST prospects of the market. Plus, we have seen time and time again that once the market dips to any significant degree, the excessive bullishness as per these indicators gets unwound quickly and hits the opposite side of the ledger.

Look at mutual fund flows, look at consumer confidence, look at the media and ask the average Joe if he's positive on the economy..... then try to tell me with a straight face "everyone is bullish". Please, give me a fucking break. Who are you kidding?

In conclusion, yes, traditional sentiment indicators are redlining here but there's 2 important caveats to this.

1) bullish sentiment in a bull market can stay chronic for weeks/months before the market corrects in a significant way
2) this "excessive bullishness" only pertains to the ST or IT term prospect of the market.

When it comes to the long term, things like consumer confidence, mutual fund flows (over long periods) and the general attitude the media and Mr. Joe Blow investor have towards the economy are what you should be paying attention to sentiment wise. In addition, monetary conditions are important to watch. Bull markets die when you have a combination of high LT bullish sentiment and tight monetary conditions (inverted yield curve). A major policy mistake or series of policy mistakes could possibly derail a bull market as well but such a thing hasn't happened since 1937 when stimulus was withdrawn too early. Keep in mind though that before that bull market ended in 1937 it had already been ongoing for 4+ years and the economic damage in the early 1930's was far more severe than what we experienced and thus the economy was more fragile and vulnerable to set backs from policy errors.

Correction or no correction, conditions are nowhere close to suggest the bull market is over. I'm still sitting on a good sized cash position but I doubled up my position on isc.vn just before it broke out last week and so far so good (now that I said this it's almost all but guaranteed to drop). I may double up on wzl.to as well. I'm comfortable with my long exposure right now because it's not aggressive (I have 60% cash) but it's enough to make an impact on my bottom line and my longs have been all very non-correlated to the day to day moves of market...essentially no correlation at all. My longs are all stocks that currently trade between $1-2. A lot of people tend to think these types of stocks are very risky. It depends....You can find a lot more inefficiently priced stocks in the microcap/small cap space. In fact, I find some of these stocks are much safer than your typical "safe" dividend paying large cap stocks. And the profit potential is far more lucrative and explosive. Yes, there's a lot of junk out there that trades sub $5 and liquidity can be an issue but there's also a lot of hidden gems if you dig deep enough. The true junk of the market are the penny stocks that typically trade below .20 on the OTCBB or the TSXV. You should stay away from these as they are typically either flight by night, lottery ticket mining companies or permanently broken companies.

Market at fresh 2 year highs...still no mea culpas from bears

Here's something I wrote back in April 2009

"A comment on analysts Whiteny and Roubini who have recently achieved super star status: From my experience anytime an analyst or strategist or whoever become market sages they inevidabely will fall from grace usually shortly after the point when everyone worships their every word (we could be at that point already with these 2). These 2 will WITHOUT A DOUBT one day become goats. Mark my words."


The goat horns are sprouting with these 2 along with other offenders such as Hussman, Mauldin, Schiff, Prechter and a boat load more who gained noteriety as bears during the crash but have been dead wrong about the bull market. It's comical how they have been digging in their heels week after week, month after month refusing to admit defeat. The market has now rallied 85% for almost two years and they have been fighting it pretty much every step of the way. Do these jokers realize how ridiculous they look? I mean, what the fuck will it take before they say "hey you know what? I was wrong....big time wrong". But you won't hear that. These guys have too big of an ego. I find most bears to be so full of themselves and their self righteousness to ever do that.


Look, I don't care if the market peaked on Friday and starts a new bear market on Monday which would then result in a "see I told you so" reply from these permabears. To be so inflexible as to miss out, or even worse, bet against a near 2 year, 85% bull market is INEXCUSABLE in my book. Not only were outsized long opportunities missed, but if a new bear market were to start on Monday, their followers wouldn't have much money to capitalize on it after getting reamed for so long. And their followers probably didn't fully capitalize on the crash in 2008 either because they covered shorts too soon....I saw it first hand. Most bears became neutral and some even ST bullish when the SPX hit 1000 in the fall of 2008 and with few shorts to support the market, it probably exacerbated the crash.


Now having said all this, I still respect some of the information/insights I get from some of these guys like Hussman, because I learn more about the markets and it gives me a balanced perspective. It also challenges my own bullish beliefs and if after reading what these guys have to say, if can still honestly be bullish it makes me all that more confident.


check out this message board post I just read

Bulls will hang themselves again 11-Dec-10 04:56 am

They are playing in a bears cave. The market has gone nowhere for 9 years and theres decades to go. They play off bear market lows and call it a bull market but those lows keep getting hit over and over again and it will happen again. It was all end badly again. Personally I think none of the profits reported are real nor are the government numbers. I think things are much worse but the government is in cahoots with businesses to cook the books in order to have gains in the stock market for more tax revenues to pay for the bailout. Still the economy is dead. This rally is all a big lie. Stuff like this from the shmucks keeps me LT bullish. I'm getting over my blunder with psv.to If you want to see how I reacted see 3:25-3:35 of the video below. ok....it was slightly less violent than that.

I screwed up...and comments regarding sentiment

I typically sing the chorus of this song anytime I fuck up. What did I do wrong? My chickening out in early November is what I did wrong. Two of my positions psv.to and mal.to are now significantly above where I sold them. When I sold, I had a negligible loss on mal.to and a nice 50% gain on psv.to in just 2 months . So, you might say, don't feel so bad, you still made out well. Wrong. I broke of my rules which is don't turn an investment into a trade or a trade into an investment. I did the former. My motivations for selling psv.to in early November was that I was concerned about ST market weakness and I was concerned that the stock would get a pullback because it was overbought. Such pullback would compromise my year end compensation and given the illiquidity of the stock such a pullback could have been severe. I was correct on all counts except that the pullback was short and shallow and so far today the stock tagged 5 and volume has picked up big time. I sold at 4.20. Ouch . Now with 3 weeks to go before year end there's no way I will chase that stock for the risk of a whipsaw right before pay day is too high. Had the stock been ST overbought any other time prior to November I would not have sold. That doesn't change the fact that what I did was wrong. Had I'd been heavily exposed to the stock I would not have been so hard on myself but I wasn't. The bottom line is that I showed lack of balls, I broke my rules and I got justifiably punished.

When you go through something like this you need to keep your composure. Your immediate impulse is to "get revenge" by becoming more aggressive. This will only lead to more pain as you will likely enter trades that aren't ideal. i.e. you start forcing trades and then you get burned a second time and then your confidence starts to plummet and you begin a vicious circle. Turn off the computer, take a deep breath and just let it go. The main reason I started this blog was for the sake of a release mechanism such as these types of instances. I'm still pissed though lol!

As far as the market goes my best guess is that even though we could see some turbulence in the next week or 2, such downside would be contained for now and we are going to close out the year close to or at the high of the year. In all the bull market years of 2003-2006 Decembers were all positive and the market managed to close out the year near the best level of the year even when sentiment conditions were redlining.
If I'm right and we end up closing out the year on a positive note, then it becomes likely a more serious correction would take place early in 2011. Now that I said this, watch the market take a big nose dive to make me look like an idiot....wouldn't be the first time.

Regarding sentiment. I looked back to see if there was ever a notable time when the market ignored the contrarian implications of excessive bullish sentiment for a long time. There was. It was in the summer of 2003. From the summer of 2003 until the end of the year, AAII sentiment averaged over 4:1 bulls vs bears, Investors Intelligence average 3:1 bulls vs bears and the VIX traded below 20 most of the time. Yet despite what appeared to be very excessive and chronic bullishness for months, never mind weeks, the market still trended higher with only minor dips closing out the year on the highs. Why did the market not respond negatively to such over the top bullish sentiment? It was because there was overwhelming evidence of a recovery out of a recession which thus justified bullish sentiment. During the collapse of 2008 we saw a similar thing happen. Extreme bearish sentiment was ignored as the market kept on plunging because the negatives were simply too overwhelming.

This is why when it comes to sentiment, high bullish sentiment in a bull market has far less contrarian "omph" then high bearish sentiment in a bull market and the opposite is true for bear markets. I've said it before, the market is more an art than a science and yes, there's luck too. It also goes to show you how difficult it is to ride out the primary trend of the market to it's fullest because somewhere along the line there's going to be something that worries you and shakes you out prematurely. I am guilty of such an offense.

More LT positives

The Obama administration has agreed to extend Bush tax cuts for 2 more years. This is very market friendly news. How much of it is baked in though? Tough to say but with market leading NASDAQ making a fresh, albeit very marginal new 52 week high I wouldn't rule out higher prices still. I just read this article which talks about how firm hiring plans are the strongest they've been in 2 years. I mentioned the other week how initial claims for unemployment is approaching the 400K threshold which in the past has signaled sustained and signficant monthly job creation. It seems to me that more and more evidence is pointing towards strong job creation in 2011.

This is a frustrating time for me. In early November I cashed out on half of my overall positions that I bought in early September for nice gains. The stocks I sold have either gone up a bit or are flat since then. Do I buy them back or just forget about them until next year? Some of them are consolidating very nicely here like tec.to (I still own half of my original position). When I look at the charts from a stand alone basis it says I should be looking to re-enter these stocks if the entry point is favorable and you know what? I think that's what I'm going to do but fuck I'm still hesitant. These stocks were fairly non-correlated to begin with and so I shouldn't be getting so hung up on ST market concerns. Plus I can always hedge those concerns away via an OTM index put. There's also other stocks showing great basing action as well such as nd.to. Oh boy, what to do what to do....

Permabear disgust off the charts

If there was a gauge that could measure the level of retail permabear disgust I think it would be deeply redlining right now. I can only imaging the rage and frustration they must be feeling after getting caught short in September and taking it right up the ass for 3 months. Then, just when some relief was finally arriving they take a one two combination to the solar plexus and groin


Here's a comment I found interesting from the host of a popular bear blog which reflects the disgust that I'm noticing from bears


"Let me preface this by saying that my bear mojo has been almost completely drained from my veins at this point. The best positions I have are all long ones, and after 20+ months of hearing (and repeating) Why The Drop Is Going To Start Now, I'm getting close to just focusing on the long side. Call it capitulation if you like; I think I'm past caring."


First of all, there's no chance this joker will ever be able to just focus on the long like he says. Like I said before many times, permabears can't exclusively play the long side because they have paper thin conviction on the long side. They don't believe in the bull market and all it will take is a 2-3% dip in the market for them to start permabearing again. It's like a crack addiction. I've heard this same joker make similar comments a few times before since 2009 and every single time he ends up getting burned with shorts.

Check out this funny tongue in cheek video from someone who is probably a frustrated permabear who got crushed




Now, you might be thinking that if the bears are throwing in the towel like this it must means the market is due for a sell off. I would agree this is true but I wouldn't go too far with this. When the bull market peaks for good you probably won't hear so much anger from bears..... instead, you will hear nothing. They will have been extinct, wiped out, gonzo just like the bulls who got crushed in the tech wreck of 2000-2002 and in 2008 and early 2009. And the bears like the guy who made that video don't truley believe in the bull market. They just think it's a government inflated ponzi scheme. I gotta tell you, it's amazing to have witnessed the typical retail schmuck go from a stubborn, in denial permabulls in 2000 and 2001 to stubborn, in denial permabears since 2009 getting burned both times.

So now what? Well, look. The market no longer has the wall of worry type sentiment support it had in September and October like I was noting then. Since early November I have seen greed creep in. We have favorable seasonality now which could keep this market afloat until the end of the year but it's going to be tough for the market to make sustantial new highs given the poor sentiment backdrop. Should you short it? Like I said a couple days ago, you can be my guest but I will pass. I have a rule to never go short in a bull market no matter how tempting unless its to hedge longs.I prefer to go to cash if I feel bearish/cautious in the ST. I still have some longs but it's only about a 34% position of my overall portfolio and these positions have been very non-correlated with the market and they are core long term holds which I am a strong holder of. The only time I would consider a stand alone speculative short position in a bull market to capitialize on a correction is if all the main indicator I use in addition to my intuitive gut feel is overwealmingly bearish. In that case the risk/reward would be so heavily skewed that I would be willing to make an exception to my rule. With bullish seasonality in play and the market just a stone's throw away from new YTD highs, despite poor sentiment back drop, it's not enough to warrant a short position for a trade under my rules...it only warrents raising cash. Keep in mind my holding period for ST trades are multi-week not 1-3 days. If the market manages to keep afloat until January, then the risk-reward for a bear trade would likely be worth it under my rules and I would pull the trigger.

I am still willing to pull the trigger on some stocks that I'm eying but I admit that I am nervous doing so given my market outlook. Also, I don't want to do anything stupid because I get paid by my clients on annual performance and so far it's been a good year and with 1 month to go I've locked it in to a significant degree and I don't want to see last minute shrinkage on pay day,

Holding your breath would have worked!....at least for the time being

Well, so much my "don't hold your breath" comment. Dead wrong. If you did held your breath at that 4th retest of 1175 you could have exhaled with delight on Wednesday. Tuesday night I read a bloomberg article that suggests the EU may be forced to take more action to fight the crisis. You can read the article here. Then, Wednesday morning there were rumors that the US may step in to help Europe. This along with better than expected ADP jobs report caused the gap and go rally. These types of rumors and headline risks are examples of why I stay away from ST trading i.e. 1-3 day holding periods. There's no way you can predict many of these types of things.

I believe it's pretty much a lock that more aggressive action will indeed take place in Europe with or without the US despite any public backlashes. For better or for worse, the EU has committed itself to market intervention and for them to pull the plug or maintain status quo while the debt markets implode seems very unlikely. They've gone this far, they aren't going to turn back now. And yes, I wouldn't be surprised if they get help from the US.

Most people out there it seems don't like all of this government intervention and would rather have them stay out of it and let the "free market" deal with any crises that arises. I think that's a very dangerous line of thinking. People seem to have this notion that so called "free markets" are ideal. They are not. Totally free markets would result in abusive monopolies. In addition, free markets are NOT always efficient. They are still subject to irrational herding behavior and the madness of crowds which would still allow for manias, panics and depressions and during such depressions, without any safety net from the government/fed they would be unnecessarily severe and prolonged. In my opinion a totally free market is the equivalent to letting teenage kids do whatever they want free of restrictions, guidance and support from their parents. Yes, parents can make bad decisions and be either too passive or too strict with their kids which can backfire but overall, kids are better off having parents then not having them. Parents also provide a safety net for their kids when they fuck up and are in need.

The mistake the parents (i.e. the government/fed) made 5 years ago was that they allowed their kid (the economy) to get lazy and spoiled. He spent his college tuition secretly gambling on online poker instead of buying books and paying for courses. When the kid was dead broke and even owed money on his credit card he whimpered back to his parents and confessed. If your kid did this what would you do? Not supporting him would result in the kid claiming bankruptcy and not going to college. He would certainly "learn his lesson" but the cost to him would be enormous and potentially life ruining. The alternative is to support your kid by giving him a "bailout". You lend him the money to pay for college at a generous interest rate payable at some point after he gets a job. Does he deserve it? No. The bailout creates a "moral hazard". Yes, but not giving him a bailout is worse. And the bailout CAN indeed work IF the money is used properly.

I always hear people say you can't solve a debt crisis by with more debt....all you are doing is kicking the can down the road. This is not necessarily true. If that new debt is used to refinance existing debt at more favorable terms such as lower interest rates and extended maturities the borrower gets an immediate and long lasting benefit. And if that debt provides the necessary capital to survive a downturn and is used efficiently to capitalize on the upswing it could kick start the person/firm/country into lasting profitability/prosperity which could then be used to service/retire existing debts. I mentioned this before once. Take for example what happened in the movie Rounders. Mike was heavily in gambling debt and had until the next morning to pay up to a couple of shady characters. He got a friendly "bailout" loan from his professor and with that money he played poker and won big. He had enough to pay off all his debts, both hostile and friendly, and still have plenty left for himself. So there you have it....a debt crisis solved by using more debt.

Switching back to the markets now...aside from sentiment concerns I have which are intermediate term in nature, longer term fundamentally, we could be close to the point where we see sustained job growth and that would likely trigger the next major phase of the bull market. Initial claims for unemployment is approaching the 400K level. During prior recoveries whenever the 4-week average dropped to 400K that would be the tipping point of when you can confidently expect to see significant, consistent monthly job gains. We aren't there yet but we are getting close and based upon the trend we could see this happen in the first half of 2011. If we start seeing a string of strong job growth what will be the excuse then for the permabears? I wonder if any of them would actually capitulate. No, of course they won't. They’ll just say that the day of reckoning has been pushed back and will be even worse when it comes. You can never lose by saying "I'm not wrong, just early" because you can keep saying this for as long as you need to until eventually you get proven right. Just ask Pretcher who has been bearish since 1987 when the SPX was at 300. Unfortunately, there's this tiny inconvenience of losing all of your money if you actually bet alongside these "I'm not wrong, just early" gurus before they actually get proven right.

SPX 1175 held 3 times....don't hold your breathe for a 4th

I think we are at an inflection point here. I believe we'll either see the market hobble its way back to the YTD high by the end of December or break down very shortly. I'm thinking the latter. If we get the former, then I suspect the market will have unfinished business to do on the downside and the first 3 months of 2011 will be rather rough.

Notice that 1175 has held 3 times now. I wouldn't be holding my breath for a 4th. Sentiment wise, conditions are still not favorable. AAII sentiment popped back to almost 2:1 bulls vs bears last week and Investor's Intelligence sentiment has been at 2.5:1 bulls vs. bears for 2 weeks now. pcr data is also still nowhere close to oversold. This wouldn't be such a concern if price action was still acting bullishly but it hasn't been. Since peaking in early November the market has been sloppy and the chart looks toppy (I'm a gangsta rapper). This latest sideways action looks like as I suspected would happen a couple weeks ago which was choppy sideways action to work off the ST oversold condition of mid November before making another leg down.

It's often difficult and frustrating trying to capitalize on the short side in a bull market. So, be my guest if you dare try it. I prefer being heavily in cash. It keeps my sanity and objectivity intact.

PIIGS still not slaughtered

According to a recent bloomberg article, the average yield for 10-year debt from Greece, Ireland, Portugal, Spain and Italy reached 7.57 percent, a euro- era record. The spread of PIIGS bonds vs. German bonds is also at a record for 2010. It seems as if the bond markets aren't convinced enough regarding the latest actions taken to stem this PIIGS crisis or perhaps they are anticipating some sort of restructuring. Either way the PIIGS problems haven’t been slaughtered and that's probably going to keep a lid on the upside for the market at the very least. It could very well trigger a more significant downside move than what we've seen so far.

However, as I said earlier in the year, I believe somehow, someway this PIIGS problem will be eventually be resolved without derailing the bull market. I feel this way because in young bull markets the rising tide of economic activity lifts all boats and tends to deal with such problems which are in my opinion aftershocks of the 2008 meltdown i.e. problems that are based upon old news. In the 2003 recovery, a big concern was the huge shortfalls pensions had due to the 2000-2002 bear market. People feared companies would have to divert capital towards shoring up pension plans hampering capital investment thus the economy. The pension problem was also aftershock problem which resolved itself as the markets recovered.

As the recovery continues to gain momentum, government revenues around the globe will rise easing concerns of deficits while strengthening the ability for bailout giving countries like Germany to keep providing support. Germany by the way is already in a strong position, by far the strongest country in Europe economically. If some sort of restructuring does take place with PIIGS debt, European banks which own the debt would take a haircut. But again, the rising tide of economic momentum along with the steep yield curve could possibly allow banks to be recapitalized enough to take the blow. I say possibly because quite honestly, I don't know if the European banks would likely indeed be recapitalized enough. This is something I should research more.

Look, I'm by no means an expert about the situation in Europe. What I do know is that history suggests the issues in Europe will not be a bull market killer at this point of the cycle. It can certainly trigger a correction/consolidation like it did in the spring and summer but in the end it's all about earnings and monetary conditions. Earnings for the SPX have been strong and are not far off from hitting all time highs while monetary conditions are extremely accommodative. At the same time a large portion of public opinion is skeptical/cynical/hateful towards the market and that too suggests the bull market is far from being over. At the same time I get the sense that a quite of few of those people who have been riding the long side on the bull market aren't really true believers...they are just riding the trend with their fingers on the sell button the moment the market shows any hint of trouble and that too is a LT bulish sign Even I, with my LT bullish posture still have nagging doubts. I too hit the sell button with some of my positions when I think the market is in danger of a correction, which goes against what I preach when I say that the you will have a tough time beating buy and hold during a bull market. I can't help it. I'm a chicken sometimes. I have doubts. I want to maximize profits by market timing. I'm a Pretcher fan deep down.

Ok, the last point is a lie.

November rain

Nothing much really to say regarding the market. The correction continues to play out. So far this looks every bit like a correction given how most of the downside has occurred in the first hour of the trading day. But, it's quite likely the correction is not over despite the potential for more dead cat bounces. I will be patiently waiting for the dust to settle and I got plenty of patience.

Today I met with a former boss of mine "Joe" (yes that's actually his name). He's an advisor who gave me my first job out of school as his assistant. He wants me to manage some of his money for him. He's an accountant by trade and still practices it along with his advisory business (which he smartly leveraged from his accounting business).

Joe told me about his recent exploits into the forex market whereby his interest in it was sparked by his IT guy of all people (ya, I know....what the fuck does an IT guy know about forex?) One day his IT guy told him about a "black box" system he was deriving for trading currencies which was based upon back testing several types of technical indicators . Based upon this "back testing" this model supposedly produces 70% winning trades. Apparently it took this guy several months along with tons of computing power to come up with this winning "algorithm" and it's still not finely tuned yet. Joe is really excited about this and he's hoping that if this black box is successful he would give up his accounting and financial planning businesses. I smiled and nodded the entire time. Joe is a greedy man...always has been since I've known him. Joe is the kind of guy who wants to make a lot of money quickly in a way that seems easy or risk free... and so I'm not so sure if the word "greedy" is the best way to describe such a person. Anyhow, there are a lot of such people in the world....people who are looking for some sort of loophole in the system that allows them get "free money"and almost all the time these people end up losing their ass.

As Joe was talking to me about his forex spiel I smiled and nodded the entire time. Instead of telling him that he's being naive fueled by his greed-like tendencies, I took the polite path and told him that before he actually puts money on the line he needs to paper trade this "system" for several months to see if it actually works. He agreed that he would have to paper trade first but he would be willing to jump in for real after only a couple of successful months. Oh boy I thought. The best thing that could happen to Joe is that he loses money right away if he ends up trading forex using this idiotic black box idea and realizes that there's no holy grail in the market. Otherwise, he will get a false sense of confidence, bet big and then eventually lose big.

I am opposed to any black box trading system. These systems are derived/back tested using historical data and that's the problem. Every economic cycle is unique and there's no assurance that any particular variable/indicator which behaved a certain way in the past will continue to act the same way going forward. Take for example the Canadian dollar (the loonie). Only in recent years has the loonie been equated as a "risk currency". For at least the past 5 years the general equity markets and the loonie have been strongly correlated. It wasn't always this way. During the roaring bull market of the 1980's and 1990s the loonie was in a long term downtrend. So, a black box system could possibly do well for a while but then eventually the rug gets pulled from underneath it when the market changes stripes.

Black box systems also do a poor job of dealing with fat tails...the so called black swan events. The perfect example of this was the collapse of LTCM in 1998. This fund had a so called black box system derived from some of the greatest minds in finance. If these "geniuses" got their ass handed to them it gives me little confidence that some IT guy can come up with a holy grail to beat other forex traders 70% of the time.

I hope Joe doesn't quit his day job.

Less is more

I don't want to comment too much on the day to day action because quite frankly, it's not relevant to my style of investing/trading. In bull markets I trade a lot less than in bear markets because that's the best strategy. I won't lie though....if I strongly sense that the market is vulnerable to a major setback or consolidation I will pull the trigger on certain long positions that I think could be exposed and that's what I've been doing. I also did this in the spring and basically twiddled my thumbs the entire summer. During these past couple of weeks I have been raising quite a bit of cash. I just got rid of the one dog stock I had mal.to at a modest loss and I have partially cashed in on stocks that have made great runs such as psv.to and tec.to. I bought them about 2.5 months ago. I might regret doing so given that they are still holding up very well but I felt over exposed given my market outlook and it's easy for these rather illiquid stocks to go down quite quickly. I still haven't sold any wzl.to and isc.v. wzl.to just recently made its breakout and did so on a day when the market tanked big. isc.v is very undervalued and is consolidating very nicely here. You can just smell a breakout coming. They report earnings on the 29th. All of these stocks are basically in the same sector benefiting from the general rebound in drilling activity for oil and gas and new growth opportunities such as the Bakken and Marcellus shale.


When it comes to the markets the mistake most people make is that they over-trade. Most trading blogs obsess about and try to predict the day to day movements of the market. I'd be willing to bet that at least 85% of the people who do so lose money in the long run. It's just too random. It also makes you myopic and slow to identify when a change in the long term trend may have occurred. Take for example my daughter. I see her every day 12 hours a day and so it's hard for me to notice her change. My parents on the other hand see her 1-2 times a week and they always notice her changes.

Take a look at any yearly chart and you will see that you would only have to have made 2-5 moves the whole year to be hugely successful. The majority of the times you would be watching the market doing nothing either in cash or fully invested. Jesse Livermore was correct when he said the most important part of investing/speculating is the sitting....that is, being right and sitting tight or sitting tight waiting for opportunity when the risk/reward is heavily skewed towards a certain outcome before committing. It can be very difficult to just sit there and take no action for long periods of time when you do this for a living. It's very tempting to touch something similar to the urges of a male teacher at an all girls high school. More often than not, when I tried making something out of nothing i.e. forced a trade I regretted it. When I dabbled in a day trade I regretted it more often than not. When I focused too much on indicators such as stochastics, MACD and RSI I regretted it more often than not. My successes came from focusing on the larger moves ignoring the day to day minutia. I know I am guilty of commenting on it at times but I do it for entertainment purposes only!

As of now the market still has work to do before the same indicators and anecdotes which warned me about the correction give the green light for the bulls again. Yesterday's bounce looked a lot like a dead cat one. There's chatter out there about how we are in a strong seasonal period from now until the end of the year. That is indeed true and this strong seasonal period is one of the very few I find worth paying attention to when a bull market is on but in my book, my market indicators which are based on sentiment, always overrule any seasonal shit and right now the indicators still suggest vulnerability for the bulls even though bounces and sucker rallies could still occur.

ST oversold but it probably won't mean much aside from a dead cat bounce

Market action is quite similar to the begining of the correction that happened in Janurary. We saw a sharp move down that made the market very ST oversold to just about the same severity as it is now. There's 2 charts below. The first is the market and the second is the overbought/oversold indicator. The blue circles highlight what happened in Janurary and the green circles highlight what has happened now so far.  In Janurary, after the initial plunge, the market got very ST oversold and chopped around for about a week working off the ST oversold condition before making another move to lower lows. I suspect something similar will play out this time as well but don't expect every wiggle to be the same....no two historical charts are ever the same. Given that the market closed near the low of the day, the best the bulls can hope for is a choppy basebuilding action near current prices. That's unlikely however. I suspect we will eventually see lower lows.


Don't get too obsessed about the day to day wiggles. The bottom line is that the bears have the ball now and so let's see what they can do with it untill the indicators give the green light for the bulls again. Unless you're a day trader, bounces are not to be trusted at this point as it's likely a retest or lower lows will follow.

To my delight my long positions actually advanced as whole since the market started going down last week making new highs since I bought them about 2 months ago but I'm trimming/cashing out on any positons that are getting overbought because even though my positions have been fairly non-correlated with daily market action, that can only go so far when they get overbought and if the market has another stab lower in it which I think it does. If I'm right about the market, it's highly probablable these overbought stocks will come down to earth since most of them are in the oil ang gas service sector which is ultimately driven by the price of oil and gas (more so the former) and oil has been moving in lock step with equities in general.  These service stocks have done very well because they have reported a big surge in earnings in Q3. Their earnings cycle bottomed in late 2009 - early 2010 unlike with general equities in which earnings bottomed in the early 2009. There is still at least another year of an upswing in this sector so long as oil doesn't tank below $60 or so.

On on completely off topic note, go to google maps and get directions from China to Japan. Check out step #42.

Correction/consolidation likely in progress

Ireland woes, Cisco disappointment, China tightening fears...pick your excuse. When the market is ready to go down it doesn't matter what the excuse is because it's gonna go down. There's already talk about Ireland getting a bailout so maybe this causes a dead cat bounce back to 1220. But bounce or no bounce we're likely in a correction or consolidation phase for the next 2-4 weeks.


I like to check the advance/decline line anytime the market breaks above a prior high. If it makes a new high along with the market it confirms the bull market is intact because the internals of the market are strong. Near bull market peaks you tend to see a divergence between the market and the A/D line. Near the top as the market makes new highs, the A/D line doesn't, signaling weakening internals. A flagrant example of this was the bull market peak of 2000 whereby the A/D line had peaked in 1999 and was in steep decline until the market peaked about a year later. In 2007 when the market hit a new marginal high in October the A/D line didn't confirm, as it did not pass above the high it made earlier in the year. I circled this below on the chart. That was a warning sign not to trust that new high. Just prior to this dip the A/D line had made a new high alongside with the market making a new high thus giving the thumbs up for the bull market advance. This strongly suggests any downside from here would only be a correction not the beginning of a new bear market.

In addition, as far as I can tell no bull market has ever died before its 2nd birthday and if you're still calling the move from March 2009 a bear market rally you are in serious denial. But hey, I'm not going to get complacent about anything...ever. There's no law that says a market can't make a LT top with a strong A/D line...history however is strongly against this happening especially when there is still so many LT skeptics with consumer confidence closer to historic lows as opposed to historic highs which is when LT tops are made. You gotta go with the odds and the odds say correction no matter how scary it may get. The same above analysis could have been made in April just before the flash crash and that was indeed one scary decline. However, this time around the potential for downside is not as high because a) bond yields are far lower now than they were in April and b) Traders were more complacent in April compared to now as evident by the put-call ratio, Rydex ratio and VIX.

Observing how traders react to the downside will be the key to knowing how long and deep this will go. Already, the froth is unwinding with the put-call ratio reaching  0.97 on Friday and the VIX popping 10% . It’s just a 1 day reading though. We still have a ways to go before unwinding the froth

Tread carefully

I'm finally seeing signs of complacency/greed from the trading community. During the past few days, traders have been piling into calls sending the 10 DMA of the put-call ratio to 0.80 which is consistent with ST tops. Plus, this heavy call buying of late is happening in the face of a flat market. That's unjustified optimism i.e. greed and also typically what you see near short term tops. Next, Mark Hulbert from Marketwatch.com has noted that the average market timer he keeps tabs on is 60% long. Anything over 50% has typically been associated with ST tops. I've also been noticing some permabear types trying to reinvent themselves by "going with the flow" instead of always trading with a bearish bias. Therefore, they have been positioned long. lol! Where the fuck were you idiots 15% ago? These clowns are weak longs and will get easily shaken out on a 1.5-2% dip because they are still bears at heart. Remember what I said several weeks ago....a correction will only happen once enough weak shorts have been shaken out and weak longs sucked in. I think we are at or very close to this point when you got option traders, market timers and some normally would be permabears positioned long.

I noticed Cisco tanked hard after hours sending the futures in the red. Will that be the catalyst for the correction? I'm not so sure but again, regardless of what Cisco reported, the market is now quite vulnerable for the next few weeks so be careful. This doesn't change my long term outlook which is still bullish. Nor should you dump all your stocks just to avoid a correction. If they are strongly correlated to the market then it would be prudent to lighten up or take a defensive strategy such selling covered calls or setting up a collar. My stocks are for the most part fairly non-correlated with the market and I'm quite confident in their company specific fundamentals so I'm not going to take much action unless it warrants it for company specific reasons. I may consider a small speculative downside bet in the way of OTM March index puts. It would also serve as an insurance policy just in case my stocks do start moving in unison with the market.

Although we are seeing signs of froth from trader types, nothing has changed in regards to the underlying long term skepticism/bearishness in the market which is why I remain bullish longer term. If recent history repeats, the excessive bullishness currently being exhibited by traders types will likely unwind quite quickly if the market dips 2-3% because these jokers are just "going with the flow"....they don't truly believe in the bull market. Next thing you know they will be piling into puts near the bottom. I'm getting ahead of myself here. Let's see the "correction" happen first.

Clowns to the left of me jokers to the right

I love it when Larry Berman goes on BNN. The guy has been atrocious in making calls on the market for as far as I can remember and yet they still have him as guest on his own segment called "Berman's Call". Here's his latest views:


1) Gold: LT bullish ST bearish....buy on a correction at around $1300
2) SPX: looking for a pullback to 1165 area
3) Canadian financials: too late to buy
4) LT bearish on nat gas

If you fade these calls there's a good chance it will turn out to be right. So, without further ado I would like to present to you Bizzaro Berman's call!

1) Gold will either keep going up with only minor dips or it goes down lot further than $1300.
2) The SPX keeps going up with only minor dips or it goes well below 1160.
3) Its not too late to buy Canadian financials
4) Bullish on nat gas long term.

Tune in next week for another episode!

Let me talk about gold again. Berman is yet another "expert" who is long term bullish on gold but short term bearish saying to get in on a good correction. This has been the unanimous consensus for at least 1 month and if you listened you would have been still sitting on the sidelines, shorted or sold too soon watching gold go to new highs. This is a classic case of Mr. Market foiling the herd. By the way do you know anyone out there who is LT bearish on gold? Isn't if funny how after a 460% rise in the price of gold over 10 years everyone is LT bullish on gold? The same jokers I bet were long term bearish in the late 1990s.

Having said that though, I've noticed a lot of the same retail shmucks (I love this word) who were top picking the market getting run over had also been top picking gold and/or bottom picking UUP getting run over just the same trying to capitalize on a ST counter trend move. So many people out there are making the classic semi-sucker mistake of trying to be a smart ass by betting the other way of something that has made a strong move. People do this out of revenge or ego....revenge, because they missed out of the move and now they want to "get even" with the market betting the other way....ego because they want to be able to proudly say that they top ticked or bottom ticked something.

I've learned from experience and from others that 90% of the times counter trend trading i.e. top picking and bottom picking, is a losers play no matter how strong a move has been made are because a trend that's in place today is very likely to still be there tomorrow...that's just the way momentum works. The vast majority of my success has been going with the trend buying high and sell higher. That doesn't mean blindly chasing parabolic moves but rather looking for stocks that are gradually making new 52 week highs in a non-parabolic way without a lot of media attention. When I look for bottom fishing/turnaround candidates I want to see at least 5 months of base building/topping action or a reversal in trend.

Getting back to gold, you'll know when the gold bull market is over when the consensus calls for a correction and they get it right....chances are that correction will be the first move down in a bear market or crash. This is what happened when the NASDAQ bubble and oil bubble burst. In my last post about gold I said to keep an eye out for when gold trades 30% + above the 200DMA because that would when you should look for the parabolic blow off to terminate into a crash or new bear market. However, gold's cousin silver is already at 42% above its 200DMA! This is just about as far above the NASDAQ was from its 200DMA when it made its bubble peak in March 2000! This just goes to show you the difficultly in catching tops/bottoms. An extreme can simply get to an even greater extreme.

Arrogance

So much for the "sell the news" trade. I was watching BNN just as the fed made its announcement regarding QE. They had a few guests giving their take about it. 2 of them were bears one was moderately bullish. One of the bears talked about how we're going to be in the "new normal" of subpar growth for most of this decade (such an original thesis eh?) and how QE wasn't going to make a difference. The other bear was a frustrated floor trader who claimed how all this fed intervention is creating inflation via rising commodity prices and it's all going to end badly one day. What I found interesting about these guys, which is also common amongst today's bears, is the hand wringing, arrogant attitude they have. Bears have been dead wrong about the market to the point of embarrassment and instead of being humble; they dig in their heels and continue to talk tough. Anytime you see this type of behavior you know Mr. Market hasn't finished humiliating them. At what point are these clowns going to say "hey you know what I was wrong about the market". The retail shmucks who worshiped them are slowly but surely learning the hard way that most of these permabears are nothing but broken clock, arrogant pricks who will never admit to being wrong. They are no better than the "new era" permabulls who rode the market down in 2001 and 2002.


I want to say something about QE. Everyone is harping about how this is bad because the fed is "printing money" to buy bonds. This is not entirely true. People forget about the flip side to this equation. Eventually the fed will SELL these bonds back into the market thus "destroying money" in doing so. So, in essence what the fed is doing via QE is manipulating the mix of cash and government bonds held by the public. They are not creating new money on a long run basis because like I said, they are going to eventually reverse QE by selling back those bonds. But of course, a lot of people don't seem to or want to realize this. They just want to bash the fed no matter what.

Also, everyone keeps moaning about things aren't getting better, how unemployment remains high calling this a jobless recovery and that the fed is "pushing on a string". Guess what? I heard the exact same arguments in 2003! Eventually the jobs DID come and the fed's actions WORKED...it just took longer than normal and all along the stock market was making new high after new high signaling that things were going to get better. It seems that a lot of people out there don’t want the fed to succeed...they would rather see the economy collapse again. They say it's for everyone's own good to let "nature takes its course". But do you want to know the real reason why most feel this way? Ego. They bought into the doom and gloom hype after getting burned as bulls at one point in their life whether it was the tech crash or the 2008 crash. Now, as bears they are getting burned again and they are in denial just like they were when they were bulls. Its bizzaro 2001 folks!

Another bs thing I keep hearing from the retail shmucks is "the bull market is an illusion because gains in the stock market are only a reflection of US dollar weakness, so there's been little real gain." First of all, the dollar has dropped about 23% since the bull market started but stocks are up 75% therefore there is still indeed a "real gain". Second of all if this logic holds true then it must mean that countries that have seen their currencies rise must have an offsetting declining stock market. Well that hasn't happened. Countries that have seen currency strength have also seen soaring stock markets greater than that of US. So, the truth is that huge wealth has been created worldwide using whatever currency you want to measure it in.

Pretty much every major index in the world has hit fresh 2 year highs today. Overbought or not, this tells you the bull market is in full force. It seems quite unlikely with only 2 months left in the year the market is going to slip up in a big way before 2011. But given how overbought we are now, we will likely see at least some sideways consolidation in the coming weeks and yes, perhaps even the correction that so many people got burned trying to capitalize on. But you know what I always say, picking tops is dangerous game when a market closes right at a fresh multi year high because in such case it's very unlikely the market has seen its highest point, dip or no dip especially when most of the retail shmucks out there are still miserable and mom and pop investor is still MIA.

Big game of chicken about to begin

Bulls that were patient and brave enough to ride this rally up until now are probably tempted to take money off the table given election and QE uncertainty and you can’t blame them for doing so. Meanwhile the bears that got caught short in September and October and are still bag holding are probably close to throwing in the towel (not including the ones who got crushed and were knocked out of the game by force). Who's going to blink first the bulls or bears? You know what? I don't give a shit anymore. From now on, unless I see flagrant signs of a pending major turning point like in April, I'm not going to talk much about the day to day fluctuations in the market very much. My time is better spent researching individual companies and sectors. I did this last year late summer and it paid off big time. I've done it again this year and so far so good. Correction or not, I still believe this bull market has a ways to go and so long as that's the case conditions are favorable for sectors and individual companies that are thriving relatively better than others. It's not worth it to pass up on such opportunities fearing a correction in the general market because such stocks may not react to it much or at all. So long as it's not a 2008 type collapse you'll be sorry more often than not. You can use this post as an indicator that the top has gotta be in now (come on I know you're thinking it lol!). That's fair enough...go ahead and fade away! And I really do hope you make money picking the top! Seriously!


But I'm reasonably confident that any correction at this point would not be the end of the bull market and so that shouldn't deter me from buying stocks that are dancing to their own tune for the most part and have everything going for them (good valuation, positive trend in fundamentals, gently sloping uptrend chart). So, on that note I will likely be less active with my posts and I will talk more about the companies I'm looking at and less about the general markets until I see something really worth mentioning (such as if I'm getting an "all in" signal for a pending correction).