Some of this and that

I've been sick like a dog lately. Right now I'm in a holding position. With the exception of 3 stocks I have on my radar, I'm not willing to buy or sell anything. I have exposure to the core group of stocks that I'm quite confident about LT, willing to ride out any pain that could result from any kind of general market correction. If I'm a bit fortunate, these stocks will ignore the day to day action of the market and trade on their own accord as they have been doing for the most part, but I'm prepared for the worst. I also have about 50% in cash. The stocks I own are all sub $2 all of which have at least 100% appreciation potential from current prices in the next 12 months (at least in my view).


In these times, I like to reflect upon the rules and guidelines I have made for myself to help ensure that I keep in the right frame of mind. I wrote "the trading bible" for myself which is a 4000 word document containing all of the things I've learned over the years. Every single thing I wrote there has been right as rain and when I went against it I usually paid the price. Every once in a while I re-read it and make revisions if neccessary to make sure I stay sharp and focused. Since I've started this blog I've mentioned several of the lessons and "market truths" that are contained in this document.


As Dennis pointed out 2 weeks ago in the comment section, it's a tricky situation right now for anyone bullish long term given that the market appears "stretched" in the ST. I suggested that in these types of situations you should sell down to the "sleeping point" but still have the courage to maintain core long positions - those that you are quite confident about longer term. The last thing you want to do is be right about the market going down but wrong about your stock going down with it only to see it keep climbing. If you must, then hedge your positions using index puts but don't get overzealous by going net short or even net neutral. Big money is made riding big trends. If you think the bull market is not over then act accordingly and don't get so obsessed with timing corrections. Ya, nothing is for certain and it's not a time to be aggressive on the long side but you have to have at least some courage in this game otherwise you'll just end with mediocre results or hardly any at all.


As far as market action and the vibes I'm getting out there, I gotta tell you, this market is a thing a beauty....not because it's going up but how the motto of my blog continues to play out over and over and over. The market is making complete utter fools of everyone. Coming into the new year I pointed out how I sensed a strong consensus opinion, from both bulls and bears alike, that a correction was immanent which of course made me believe we either wouldn't get one or it would be much milder than expected. Well, here we are approaching the end of the month and surprise, surprise no correction. Those calls for a correction haven't faded. In fact, I have seen several "10% correction" calls from many of the so called "market gurus" out there. Once again, I will re-iterate that at this time, we will likely not get a correction or it will be milder than expected given this group think. One thing though that's bearish is how the market leading NASDAQ has been under performing lately. However, this under performance has only been for 1 week and so let's not make a mountain out of mole hill here just yet.


I'm also noticing a weird thing. Gold has been weak since the start of the year even though the dollar has been weak. Very strange indeed. Is this a warning shot across the bow? I think it could be, but again, let's not make a mountain out of mole hill. In fact, I wouldn't be surprised to see gold bounce as it's now ST oversold and I'm noticing a lot of people on BNN talking about the weakness in gold. How will you know when the gold bull market is over? Quite likely when you see it crash 30% or more within a couple of weeks and plenty of pundits and retail view it as a great buying opportunity. Bubbles don't end quietly, they end violently, so I would be very suspicious of the gold bull market being over if we see a gradual, multi-month correction of 10-20% like last year.


After the initial crash of a bubble you will get several dead cat bounces. If you missed timing the crash (which is difficult and usually unprofitable in attempting to do so) you will still have plenty of opportunity to make big money shorting gold using those dead cat bounces. Let the market tell you when it's ready. Think about this bull market in equities. If you missed the first 30%, which was fast and furious, you still had plenty of opportunity to make money going long. Bottom picking and top picking is usually a losers game, especially top picking because there's no limit as to how high a price can go. If you bottom pick you can simply buy and hold for as long as it takes for the tide to turn. But when you go short with a meaningfully sized position, you risk getting squeezed out your position by force. You don't have the luxury of being early. You can top pick use long dated put options to avoid getting squeezed but even those aren't fool proof given that they still have an expiration....but that's certainty the way to go if you're going to attempt a top pick.