The market is now fully ST overbought. The last couple of times this has happened it led to abrupt downdraft either immediately or within about 1 week. I'm thinking it will happen again given the gap and run nature of this market advance since the lows in early July. As usual, be prepared for head fakes in either direction as Mr. Market doesn't like too much company when going where he wants to go.
There was an excellent piece this past weekend by John Hussman over at www.hussman.net. Even though there have been times where I have disagreed with him and pointed out biases in his thinking, I make it a routine to read his commentary every week. Not only does he provide unique and in depth perspectives and has made some great calls (yup, he has some bad ones too like everyone else), he is amazingly knowledgeable about the intricacies of economics, financial markets, the fed and pretty much anything related to finance which makes me feel quite humble. He has my respect and you can learn a lot from him even if you don't agree with his market outlook.
I find that the weakness of guys like Hussman who know all this stuff about market is that they get a false sense of their abilities. They think that because of their abundant knowledge, they have the market figured out and they typically will reassure themselves by back testing models/theories they come up with. ...as if the market is some sort of equation that can be solved. As a result they become quite dogmatic with their views failing to adjust them quickly when they are flat out wrong or get their timing wrong (same difference in my book).
Here's the problem with knowing too much and models that use back testing.....the market is not an equation that can be solved. It's never the same from cycle to cycle and there's not enough data points to back test models. 100+ years may seem like a lot of data points but it's not in the context of human existence. In addition to that, although fear and greed never go away, as the decades go by government authorities learn from prior mistakes made (maybe not all the time). Liquidity, market transparency and global integration of markets have improved exponentially compared to the early days. Human knowledge and technological advancement has exploded exponentially as well as centuries have passed. The progesss we have made in the past 200 years dwarfs the progress made for 1000 years prior to that. The spread of democracy and capitalism across the world througout the decades is another huge paradigm shift.
All of these positive structural factors undermine dogmatic notions such as "true market lows only happen with the p/e of the market is ___" or "market peaks always happen when the p/e is ___" simply because this was the average in previous market cycles. When you take into account the above mentioned ongoing structural positives you can make the case that the average P/E multiple at cyclical tops and bottoms will be higher going forward as the human race progresses and as we learn from the mistakes of the past becoming more experienced with capitalism.
Now yes, there are also some negative structural problems as well. The moral decay of North American culture (Europe as well I guess), unfavorable demographic trends in developed nations and a substantial rise in debt levels. However, my point is that the stock market is a dynamic beast that is very new to human beings when you consider that they've been on this earth for about 200,000 years give or take a few millenniums. It also cannot be approached from a mathematical/scientific approach because it's underpinnings are in a constant state of flux. Conclusion: You need to approach the market as an artist more so than a scientist. You probably know a lot less about where the stock market is headed in the long run than you think because you don't know what types of major paradigm shifts lie ahead and just how well/poor the human race will advance. This is why you must always keep an open mind and reject dogmatic views.
Wednesday, July 28, 2010
Friday, July 23, 2010
Never break the golden rule
(Note: I wrote most of this Thursday)
First off, some comments regarding market action. It continues to be poor for the most part despite upside progress this week. Yet another gap up and run day yesterday (Wednesday). Since peaking in late April the market resembles George Costanza....neurotic and impulsive. 2% moves one way followed by 2% moves the other way is not a healthy market, it smacks of a market dominated by short term technical type traders playing a game of chicken with each other while the "long term" smart money is still watching on the sidelines. The results of the "stress test" in Europe will be released tomorrow and I suspect it will be favorable given how strong the euro has been lately. But this is a just a distraction if you ask me and shouldn't be given much merit because in the end all that matters to the market is earnings.
Earnings season has been good so for but with leading indicators rolling over at the same time companies are "raising guidance" and thus expectations, the market may be setting itself up for disappointment next time around. In the meantime, without any concrete evidence of a slowdown just yet, the bulls could have their way for a while still but I suspect yet another major retracement lies ahead somewhere so if you play this rally keep one foot out the door although that can be tough to do when you see the market gaping up and down large like it has been doing lately.
Have you also noticed how currencies are now trading like equities? It's becoming normal to see the Canadian dollar moving up or down 1 penny or more every day. It wasn't too long ago whereby a half cent daily move was considered large. Now a half cent move per day is a given. I have to admit as bullish as I've been over the past several months, the way equities, commodities and currencies have been trading in lockstep for about 3-4 years now, disturbs me from a long term perspective. I realize part of this has to do with the notion that commodities are now more than ever a barometer of global economic activity but for them to have such a strong correlation to equities, which is a completely different type of asset, just doesn't seem right. Equities throw off earnings/cash flows and have underlying assets and liabilities while commodities don't.
It seems to me that that equities, commodities and currencies are largely dominated by automated technical/program trader types. If you look at the flash crash for example you will notice that currencies had the exact same gyration as equities did at the exact same time which proves how linked they are all by automated program trading. Perhaps this is the true "new normal" which doesn't necessarily bode ill and is simply a reflection of today's technology....perhaps.....but something just doesn't feel right about this...it's the missing human element and it smacks of a market becoming more of a casino full of gamblers rather than a collection of rational investors. As a result, there there be a lot more market "noise" compared to the old days. That can be both good and bad. Good, because you can possibly exploit such noise (if your timing is right). Bad because it may cause you to misread the market and get burned. The key is distinguishing between what is noise and what is not and that's never been easy...now it will be harder than ever. By using market sentiment and what I've been calling "market action", it helps filter out the noise.
Switching gears now.....As I mentioned in a recent post, I have a list of rules, guidelines and adages that I follow religiously. I call it the "investing/trading bible". The first and most important rule I have is called the golden rule it goes as follows:
NEVER EVER go all in on one idea/trade such that if you get it wrong you get wiped out.
You can get it right 90% of the times but if you disobey the above rule, all it takes is one time for you to be wrong and you are out of the game. The actions of a friend of mine provide a good example. He recently confessed to me that he lost about $100K investing in Fannie Mae which got delisted from the NYSE about a month ago. Not only did he go all in on one stock, he did so using borrowed money....and even worse....he borrowed from a credit card! There was a low teaser rate being offered by the credit card company and since he figured he would make big money in the stock quickly, he went for it. Now he's in the hole $100K with a 20% interest rate! I was so flabbergasted when he told me this...I was almost speechless. Not only was this bonehead decision completely out of character for my friend but he didn't consult me whatsoever before doing it. Not to say that I'm a market genius, but he knows investing is what I do full time and he knows and admits that I have a ton more experience and knowledge than he does (he is your typical joe blow retail investor). At the very least he could have asked me what I felt about Fannie Mae (I would have told him not to touch it with a 10 foot pool given that it's essentially a zombie company).
I asked him why he didn't consult with me first and he said he wanted to be responsible for this own actions. That's honorable of him but I think the real reason is that he knew I would tell him not to do it which is something he didn't want to hear. Like all newbies to this game, he wanted to make big money quickly. My friend is in a situation whereby he's living with his gf renting out a basement-like apartment. They both have decent jobs and plan to get married and have kids soon (given their age) but I don't think they are quite ready financially given significant debt burdens. I believe my friend made this move not so much out of greed but because he wanted to be able to break free of his financial shackles so that he could move ahead with this life. Now he's in trouble. Big trouble. I doubt his gf know about what he did and he now has this crushing debt burden hanging over his head which can destroy him both personally and financially.
I believe he confessed to me because he needed a catharsis and he wants my help although he's too proud to ask. If I had the money I would lend it to him because I know he's good for it. I have many friends who I've known much longer than him but I wouldn’t lend most of them $1. His best bet at this point is to ask his family for help. If he has any capital left to invest aggressively I will offer to manage his account for free to try and make back some of his losses. I mentioned this idea to him briefly and he said he would only consider it if I was paid some sort of a commission. He's a proud man that's for sure. I told him absolutely not. Even though he hasn't asked me, I intend to sit down and talk to my friend in much greater detail regarding his situation. I know deep down he wants me to and even if he doesn't, this is one of those rare times when one needs to stick his nose into his friend's business. He needs help and if he needs to face his problem head on.... and fast.
First off, some comments regarding market action. It continues to be poor for the most part despite upside progress this week. Yet another gap up and run day yesterday (Wednesday). Since peaking in late April the market resembles George Costanza....neurotic and impulsive. 2% moves one way followed by 2% moves the other way is not a healthy market, it smacks of a market dominated by short term technical type traders playing a game of chicken with each other while the "long term" smart money is still watching on the sidelines. The results of the "stress test" in Europe will be released tomorrow and I suspect it will be favorable given how strong the euro has been lately. But this is a just a distraction if you ask me and shouldn't be given much merit because in the end all that matters to the market is earnings.
Earnings season has been good so for but with leading indicators rolling over at the same time companies are "raising guidance" and thus expectations, the market may be setting itself up for disappointment next time around. In the meantime, without any concrete evidence of a slowdown just yet, the bulls could have their way for a while still but I suspect yet another major retracement lies ahead somewhere so if you play this rally keep one foot out the door although that can be tough to do when you see the market gaping up and down large like it has been doing lately.
Have you also noticed how currencies are now trading like equities? It's becoming normal to see the Canadian dollar moving up or down 1 penny or more every day. It wasn't too long ago whereby a half cent daily move was considered large. Now a half cent move per day is a given. I have to admit as bullish as I've been over the past several months, the way equities, commodities and currencies have been trading in lockstep for about 3-4 years now, disturbs me from a long term perspective. I realize part of this has to do with the notion that commodities are now more than ever a barometer of global economic activity but for them to have such a strong correlation to equities, which is a completely different type of asset, just doesn't seem right. Equities throw off earnings/cash flows and have underlying assets and liabilities while commodities don't.
It seems to me that that equities, commodities and currencies are largely dominated by automated technical/program trader types. If you look at the flash crash for example you will notice that currencies had the exact same gyration as equities did at the exact same time which proves how linked they are all by automated program trading. Perhaps this is the true "new normal" which doesn't necessarily bode ill and is simply a reflection of today's technology....perhaps.....but something just doesn't feel right about this...it's the missing human element and it smacks of a market becoming more of a casino full of gamblers rather than a collection of rational investors. As a result, there there be a lot more market "noise" compared to the old days. That can be both good and bad. Good, because you can possibly exploit such noise (if your timing is right). Bad because it may cause you to misread the market and get burned. The key is distinguishing between what is noise and what is not and that's never been easy...now it will be harder than ever. By using market sentiment and what I've been calling "market action", it helps filter out the noise.
Switching gears now.....As I mentioned in a recent post, I have a list of rules, guidelines and adages that I follow religiously. I call it the "investing/trading bible". The first and most important rule I have is called the golden rule it goes as follows:
NEVER EVER go all in on one idea/trade such that if you get it wrong you get wiped out.
You can get it right 90% of the times but if you disobey the above rule, all it takes is one time for you to be wrong and you are out of the game. The actions of a friend of mine provide a good example. He recently confessed to me that he lost about $100K investing in Fannie Mae which got delisted from the NYSE about a month ago. Not only did he go all in on one stock, he did so using borrowed money....and even worse....he borrowed from a credit card! There was a low teaser rate being offered by the credit card company and since he figured he would make big money in the stock quickly, he went for it. Now he's in the hole $100K with a 20% interest rate! I was so flabbergasted when he told me this...I was almost speechless. Not only was this bonehead decision completely out of character for my friend but he didn't consult me whatsoever before doing it. Not to say that I'm a market genius, but he knows investing is what I do full time and he knows and admits that I have a ton more experience and knowledge than he does (he is your typical joe blow retail investor). At the very least he could have asked me what I felt about Fannie Mae (I would have told him not to touch it with a 10 foot pool given that it's essentially a zombie company).
I asked him why he didn't consult with me first and he said he wanted to be responsible for this own actions. That's honorable of him but I think the real reason is that he knew I would tell him not to do it which is something he didn't want to hear. Like all newbies to this game, he wanted to make big money quickly. My friend is in a situation whereby he's living with his gf renting out a basement-like apartment. They both have decent jobs and plan to get married and have kids soon (given their age) but I don't think they are quite ready financially given significant debt burdens. I believe my friend made this move not so much out of greed but because he wanted to be able to break free of his financial shackles so that he could move ahead with this life. Now he's in trouble. Big trouble. I doubt his gf know about what he did and he now has this crushing debt burden hanging over his head which can destroy him both personally and financially.
I believe he confessed to me because he needed a catharsis and he wants my help although he's too proud to ask. If I had the money I would lend it to him because I know he's good for it. I have many friends who I've known much longer than him but I wouldn’t lend most of them $1. His best bet at this point is to ask his family for help. If he has any capital left to invest aggressively I will offer to manage his account for free to try and make back some of his losses. I mentioned this idea to him briefly and he said he would only consider it if I was paid some sort of a commission. He's a proud man that's for sure. I told him absolutely not. Even though he hasn't asked me, I intend to sit down and talk to my friend in much greater detail regarding his situation. I know deep down he wants me to and even if he doesn't, this is one of those rare times when one needs to stick his nose into his friend's business. He needs help and if he needs to face his problem head on.... and fast.
Wednesday, July 14, 2010
A big change for me...but little has changed with market action
I am now a proud father of an absolutely beautiful and healthy girl. Wow! I was just getting used to being called a husband and now this! I cannot fully describe the type of connection I felt when I locked eyes with my daughter for the first time which was about 10 minutes after she was born.
Here's a picture of her just after that moment of connection
The best way perhaps to describe it was that I felt I was looking at myself (even though she looks more like my wife!) because I feel my child is literally a part of me the same way my arm and leg is and there's nothing I wouldn't do for her.
Although I'm exhausted I'm also ecstatic at the same time! It's a huge life change no doubt...probably the biggest I'll ever have. Much has happened to me in the past 4.5 years. I met a girl, moved in with her, quit my job to trade, got married, bought a house and now I'm a dad! Such huge life changes in a short span of time which at times feels overwhelming...but that's life. You don't always get to determine the pace of such major changes because opportunities and circumstances are often out of your control.
Ok, so let's get to markets. As you may have guessed, my attention has been a lot less on the markets and more on other things lately. But throughout it all, I was able to briefly take peaks at how the market was doing intraday. We got the dead cat bounce I expected to fill the gap and then some. Unfortunately, this rally yet again has been almost exclusively done via gap up and morning strength action which is indicative of bear market type bounces that eventually get entirely retraced. Such bounces can be quite sharp and can even carry on for weeks. Whenever we get sharp drops or rallies you tend to see market technicians harp about "breadth thrusts" which are supposed to be indicative of major trend changes. Well, I don't trust such notions in this day in age because of the dominance of program trading. Such program trading has led to an increase in market noise/false signals. The more "automated" and technically oriented market participants are the less likely that traditional technical analysis is going to work. This may seem counter intuitive. The reason I believe this is so is because if so many are acting on the same buy/sell signal there are few left to be the "greater fool" that will allow all these technicians to unload their positions onto for a profit and is them who become the fools!
Now, one very good thing going for the bulls from a sentiment perspective is that the AAII bull/bear ratio (as of last Thursday) is showing very extreme bearish sentiment. It's almost 3:1 bears vs. bulls which is a 15 year low! That's very good news on IT basis. The Rydex cf ratio also sank to an extreme 1.2 last week which is also very good news. In an ideal world for me I would like to see the market retrace this bounce and start acting like a bull market again i.e. flat/weak opens and strong closes to give me the "all in" buy signal I'm looking for. But more often than not the market doesn't give me all the things I look for. Sometimes during the initial move of a bull run you get the shitty upside action (a gap up and run day) and then market action improves. But we haven't seen that yet. Practically all the upside has been done in a shitty way since the recent low of last week.
Bottom line: more patience still for longer term traders/investors but some there’s some really encouraging sentiment figures that favor the bulls here on an IT basis. The market has basically gone nowhere for 9 months but that’s going to change soon. To the ST traders...this market is for you now.
Here's a picture of her just after that moment of connection
The best way perhaps to describe it was that I felt I was looking at myself (even though she looks more like my wife!) because I feel my child is literally a part of me the same way my arm and leg is and there's nothing I wouldn't do for her.
Although I'm exhausted I'm also ecstatic at the same time! It's a huge life change no doubt...probably the biggest I'll ever have. Much has happened to me in the past 4.5 years. I met a girl, moved in with her, quit my job to trade, got married, bought a house and now I'm a dad! Such huge life changes in a short span of time which at times feels overwhelming...but that's life. You don't always get to determine the pace of such major changes because opportunities and circumstances are often out of your control.
Ok, so let's get to markets. As you may have guessed, my attention has been a lot less on the markets and more on other things lately. But throughout it all, I was able to briefly take peaks at how the market was doing intraday. We got the dead cat bounce I expected to fill the gap and then some. Unfortunately, this rally yet again has been almost exclusively done via gap up and morning strength action which is indicative of bear market type bounces that eventually get entirely retraced. Such bounces can be quite sharp and can even carry on for weeks. Whenever we get sharp drops or rallies you tend to see market technicians harp about "breadth thrusts" which are supposed to be indicative of major trend changes. Well, I don't trust such notions in this day in age because of the dominance of program trading. Such program trading has led to an increase in market noise/false signals. The more "automated" and technically oriented market participants are the less likely that traditional technical analysis is going to work. This may seem counter intuitive. The reason I believe this is so is because if so many are acting on the same buy/sell signal there are few left to be the "greater fool" that will allow all these technicians to unload their positions onto for a profit and is them who become the fools!
Now, one very good thing going for the bulls from a sentiment perspective is that the AAII bull/bear ratio (as of last Thursday) is showing very extreme bearish sentiment. It's almost 3:1 bears vs. bulls which is a 15 year low! That's very good news on IT basis. The Rydex cf ratio also sank to an extreme 1.2 last week which is also very good news. In an ideal world for me I would like to see the market retrace this bounce and start acting like a bull market again i.e. flat/weak opens and strong closes to give me the "all in" buy signal I'm looking for. But more often than not the market doesn't give me all the things I look for. Sometimes during the initial move of a bull run you get the shitty upside action (a gap up and run day) and then market action improves. But we haven't seen that yet. Practically all the upside has been done in a shitty way since the recent low of last week.
Bottom line: more patience still for longer term traders/investors but some there’s some really encouraging sentiment figures that favor the bulls here on an IT basis. The market has basically gone nowhere for 9 months but that’s going to change soon. To the ST traders...this market is for you now.
Thursday, July 1, 2010
Market breaks "support" but bears not pressing shorts
Well, the market has broken the well watched 1040 level. As per my previous posts, I'm not suprised in the least. Let's see if this will usher in capitulation or not. Suprisingly, bears I track haven't been pressing and with the market closing near the LOD making a fresh new low since peaking in April, this argues we got more work to do on the downside although we are now in dead cat bounce territory given the present oversold condition of the market.
I've noticed many bears covered shorts too early including the really stubborn dumb ones I track who got mauled last year and early this year over and over. It seems after taking such a beating, these losers have become gunshy (the ones who have any money left). I've noticed they are particularity weery of a potential bear trap from the H&S breakdown we have going on now because memories of last July's bear trap of the H&S breakdown are still fresh. Even the "pro" bears have missed this move. Bill Fleckenstein, had not been short during this slide fearing a bounce. Meawhile Douggie Kass turned bullish over a week ago and probably took it in the kiester. The ironic thing about this is that Kass was bearish pretty much since 950 or so last year including his "top of the year call" in August when the market was right where it is now! (I argued against this call). Does this mean we going to see the reverse of what happened in the summer of 2009? As bullish as I was just a few months ago, it's becoming more and more likely and it will become a reality if market action continues like this. In the ST, we are oversold enough to get a dead cat bounce soon but again, because bears aren't pressing here and because the market closed near the LOD making a frest new low, it suggest more downside ultimately lies ahead bounce or no bounce. I think ultimatley we will see puke action and a VIX spike to 40+.
The ironic thing is that this time around the permabears actually have fundamentals much more on their side as opposed to last summer and yet so many appear timid! Last summer earnings and leading indicators had only just started turning the corner from very depressed levels and were heading up sharply (check out the chart of the WLI I posted a couple weeks ago). This time around, earnings growth, although still in a bullish trend, is very stretched to the upside and due for at least a moderation while leading indicators have turned down sharply, not to mention a rising trend in systematic financial stress from low levels (whereas last year that trend was in decline from high levels favoring the bulls). So why is it bears are timid now? That's easy...ego.
When you get on a roll you start thinking that you got this game figured out and so you become bolder and bolder. (This was was the attitude of the permabears comming into 2009). You get so full of yourself that you become blind to when the trend has actually changed. You keep thinking it's a just a counter trend bounce and so you keep betting against it in size, doubling, trippling and quadruling down. Before you know it you are blown out of the water and mightily humbled. Then when the market actually does what you expected it to do or some fantastic set up comes you way you are too timid to act on it having being burned so bad and you miss it! Has this happened to you? It's happend to me in the past a number of times (I didn't blow my brains out....but I did get spanked badly). The hubris to humiliation cycle is one everyone goes through who plays this game. Human nature may not allow us to elimiate this cycle completely but the ups and downs of the cylcle can be mitigated significantly and that happens with experience and dicsipline.
I have several pages of "rules and guidelines" if you will, that I written for myself a few years ago. I have mentioned many of them sporadically on these pages. The motto of my blog is one of them. These rules were derived through exerience (i.e. learning the hard way) and the wisdom of others. Every so often I re-read those pages to keep me psycologically in check. One of the rules I have is this... "No matter how much you think you know about a stock or the market you know less than you think…probably a lot less. ". Another is this... "When you are on a hot steak realize that you probably aren’t as good as you think. When you are on a cold streak realize that you probably aren’t as bad as you think. Try to keep yourself in the middle." I have heard pro althletes and coaches say this as well. Being in the right place psycologically is so critical in the game of speculation...much more so than than in sports because there's no pysical element in this game to bail you out and there's no mathimatical or logical structure to follow that will guarentee success. For instance, on his worst day mentally, Lionel Messi is still better than 99.9%+ of the people in the world who play soccer. The same goes for a grand master chess player in his domain. But when it comes to gambling/speculation/investing, being in the right place mentally is far more critical. It's quite possible for the amatuer to beat the professional if he/she is mentally at their best and worst respectivly!
But I digress, back to the markets....I said this before...we are truley at a cross roads here. I'll say this again, if the bears end up winning this battle it ain't going to be easy to profit on the downside like many bears are finding out now. You will either get burned on a bear rally and/or cover too soon on the drops so beware....My best guesss is that we will see some additional downside and then get a dead cat bounce to about 1075 but it's just that...a guess. I won't play for such a bounce unless I see the whites of the eyes of the bulls.
This may be my last post for a while….gotta a baby due any day now!
I've noticed many bears covered shorts too early including the really stubborn dumb ones I track who got mauled last year and early this year over and over. It seems after taking such a beating, these losers have become gunshy (the ones who have any money left). I've noticed they are particularity weery of a potential bear trap from the H&S breakdown we have going on now because memories of last July's bear trap of the H&S breakdown are still fresh. Even the "pro" bears have missed this move. Bill Fleckenstein, had not been short during this slide fearing a bounce. Meawhile Douggie Kass turned bullish over a week ago and probably took it in the kiester. The ironic thing about this is that Kass was bearish pretty much since 950 or so last year including his "top of the year call" in August when the market was right where it is now! (I argued against this call). Does this mean we going to see the reverse of what happened in the summer of 2009? As bullish as I was just a few months ago, it's becoming more and more likely and it will become a reality if market action continues like this. In the ST, we are oversold enough to get a dead cat bounce soon but again, because bears aren't pressing here and because the market closed near the LOD making a frest new low, it suggest more downside ultimately lies ahead bounce or no bounce. I think ultimatley we will see puke action and a VIX spike to 40+.
The ironic thing is that this time around the permabears actually have fundamentals much more on their side as opposed to last summer and yet so many appear timid! Last summer earnings and leading indicators had only just started turning the corner from very depressed levels and were heading up sharply (check out the chart of the WLI I posted a couple weeks ago). This time around, earnings growth, although still in a bullish trend, is very stretched to the upside and due for at least a moderation while leading indicators have turned down sharply, not to mention a rising trend in systematic financial stress from low levels (whereas last year that trend was in decline from high levels favoring the bulls). So why is it bears are timid now? That's easy...ego.
When you get on a roll you start thinking that you got this game figured out and so you become bolder and bolder. (This was was the attitude of the permabears comming into 2009). You get so full of yourself that you become blind to when the trend has actually changed. You keep thinking it's a just a counter trend bounce and so you keep betting against it in size, doubling, trippling and quadruling down. Before you know it you are blown out of the water and mightily humbled. Then when the market actually does what you expected it to do or some fantastic set up comes you way you are too timid to act on it having being burned so bad and you miss it! Has this happened to you? It's happend to me in the past a number of times (I didn't blow my brains out....but I did get spanked badly). The hubris to humiliation cycle is one everyone goes through who plays this game. Human nature may not allow us to elimiate this cycle completely but the ups and downs of the cylcle can be mitigated significantly and that happens with experience and dicsipline.
I have several pages of "rules and guidelines" if you will, that I written for myself a few years ago. I have mentioned many of them sporadically on these pages. The motto of my blog is one of them. These rules were derived through exerience (i.e. learning the hard way) and the wisdom of others. Every so often I re-read those pages to keep me psycologically in check. One of the rules I have is this... "No matter how much you think you know about a stock or the market you know less than you think…probably a lot less. ". Another is this... "When you are on a hot steak realize that you probably aren’t as good as you think. When you are on a cold streak realize that you probably aren’t as bad as you think. Try to keep yourself in the middle." I have heard pro althletes and coaches say this as well. Being in the right place psycologically is so critical in the game of speculation...much more so than than in sports because there's no pysical element in this game to bail you out and there's no mathimatical or logical structure to follow that will guarentee success. For instance, on his worst day mentally, Lionel Messi is still better than 99.9%+ of the people in the world who play soccer. The same goes for a grand master chess player in his domain. But when it comes to gambling/speculation/investing, being in the right place mentally is far more critical. It's quite possible for the amatuer to beat the professional if he/she is mentally at their best and worst respectivly!
But I digress, back to the markets....I said this before...we are truley at a cross roads here. I'll say this again, if the bears end up winning this battle it ain't going to be easy to profit on the downside like many bears are finding out now. You will either get burned on a bear rally and/or cover too soon on the drops so beware....My best guesss is that we will see some additional downside and then get a dead cat bounce to about 1075 but it's just that...a guess. I won't play for such a bounce unless I see the whites of the eyes of the bulls.
This may be my last post for a while….gotta a baby due any day now!
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