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.