Taking swift action

The IEA announced that it was going to release oil from it's reserve and that coupled with weak unemployment claims data was enough to send oil down as much as $5 to about $90/barrel before recovering a bit. I've been overweight energy services big time since last fall and today I did some major trimming to that position. Most of the stock I own in that space are small/micro cap and overall have held up well considering the damage done to the market thanks in large part to my biggest holding isc.vn. Amazingly, it actually has been climbing making new 52 week highs despite the correction in the market and the falling oil price to which it is levered to. I took 1/3 of my position off the table this morning. I consider myself quite fortunate that my largest holding has held up so well like this and quite frankly, I don't see how the stock can sustain such high levels in the short run given that it's peers have been trading down along with a backdrop of weak oil prices and weak stock markets, but hey, I would love to be wrong! I also got stopped out of my position in esn.to which was formerly tec.to (tec.to merged with esn and I got shares of esn plus cash this week). Given that I wasn't really all that thrilled about esn to begin with, it made me a weak holder. But all in all, I still made out well with that one given my original cost of tec.to and the cash given to me as part of the merger.

The key to surviving a correction if your a long term bull is to be a strong holder. I simply could no longer be a strong holder with my energy services holdings given the size of my position relative to my portfolio and the conditions of the markets, in particular the oil price making new lows.... so I sold to the point where I can now indeed be a strong holder.

I said before that these oil service companies can still do well with oil prices at current levels and even in the $80's. However, the trend is now down for oil and it remains to be seen whether the price will indeed find a floor in the $80's or $90's. Although I believe this will happen, I have to respect the downtrend which means there's no justification pressing with an overweight position....you press positions when the wind is at your back not when it's against you. Plus, when you are dealing with small/micro caps, liquidity can dry up quickly if things head south in a hurry and so you need to get out when the getting is good if you feel you are too exposed and I did that with isc.vn. If when the dust settles, the oil price can establish a bottom in the the $80's or $90's then I would be inclined to add back what I sold. Also, if isc.vn and esn.to end up rocketing higher now that I sold, I'm not going to be kicking myself. I know I did the right thing. It's not as if I was chicken shitting here....I had about 50% of my portfolio in energy services at one point this year concentrated in 3 small cap names. Now it's down to about 30% after these recent sales. My cash reserve is now up to 60%.

Having a more comfortable exposure to the market also makes me better able to look at the market more objectively. When you feel you are over exposed and you are caught in a downdraft you can easily slip into the "deer in the headlights" mode of thinking and then what ends up happening is that your emotions take over and you end up capitulating near the worst possible time.

Right now I'm researching a list of new names that I want to add to my portfolio. If you see some good long opportunities and are able to be strong holder then by all means, do some picking....just be aware that this correction/consolidation could drag on for months even if we see get some sort of bottom in the coming days/weeks.

In the 2004 consolidation, the market dropped as much as 10% from the high. That would give us a downside target of about 1233 on the SPX which could very well be hit before the summer is over....not necessarily on this slide but in due time. A 10% correction is not the end of the world or the bull market. Again, I must stress how far we have come since September alone. 1233 would put us where we were in mid December and back then the market was overbought on several measures and everyone was in awe as to how far it had gone up. If we hit 1233 now, the situation would be a lot different wouldn't it? The market would be well oversold and it would really flush out the weak holders as more trend lines and moving averages get violated. Investors/traders would be hiding underneath their desks bracing for the worst and pessimism would probably hit multi-year extremes. That would be the sort of situation that marks a final low. We'll just see how this plays out....and don't ever get fixated on price targets like 1233. There's no law that says the market has to drop exactly to that point or exactly 9%, 8% or whatever. Leave that dogmatic thinking to the loser elliot wavers