When someone asks me where I think the market is headed for the next year or so, I can usually give them an answer. Whether I end up being right or wrong is not the point, the point is that up until now, at least I was able to have a reasonable amount of confidence and clarity to provide a market outlook for the next 1-3 years. Anyone reading this blog since 2009 would know that the outlook I have had since the summer of that year was LT bullish. Coming into 2011, I believed the market would have another good year but it would have to go through a multi-month consolidation phase first at some point because the market was quite overbought. During this phase, I didn't think the downside would be more than 10%. Well, I was clearly wrong about that. Lucky for me I was largely in cash bracing for a correction. It didn't matter how much of a correction it turned out to be - I was safe.
Since the crash I've been having serious doubts about my longer term bullish outlook. There are some economic red flags out there and other indicators that suggest we could be in for a new bear market driven by a global recession. At the same time, there are good arguments to be made against a new big bear market and that this is simply a large correction or mini-bear market. You can always find arguments that support a bullish view or bearish view at any given time which could sometimes cause you get "analysis paralysis". I don't have a case of that. When I was bullish in 2009 and 2010 I was always aware of the bear arguments but I was able to dismiss them. Similar to how a judge scores a fight, I would determine who landed the bigger blows - the bulls or the bears - and then pick who I believed was the winner. This time around though, I can't seem to pick a LT winner because I score the match pretty much even between the bull case and bear case and I have made a few detailed posts highlighting the reasons why it's so tough to pick a side. If you look at what the market has done in the past few months it seems to reflect my judgement of a draw.
IT wise however, my outlook is not as clouded. Evidence to me suggests we aren't done with
downside even if Santa comes to town next week and the market lifts higher all the way into the new year. Capitalizing on IT market moves has been very tricky for me and in that regard, I think I have indeed been a victim of analysis paralysis to some degree but part of it has to do with the type of insane volatility we are seeing. The market is forcing me to either pick tops and bottoms or else chase a potential turning point after a big gap up/down - things that I refuse to do. When In doubt I stay out.
I'm willing to play IT moves if I get a good enough edge and I'm willing to pick away at some individual names trading at excellent values with solid balance sheets with still good prospects for growth. GDC.to was one I bought into last week...very small position. I did well with this one last year. Until I can get some LT conviction about these markets, I'm going to be playing tight and that means being very selective about my trades keeping plenty of powder try.
So when someone asks me what's in store for the market in the next year or two I answer "I have no fucking idea"....at least not right now.
Maybe when the VIX gets to the the low 20s, I will be looking for some short opportunity. Either way this is a crazy gap market dangerous to both bulls and bears. Picking top is always tricky though so I will probably just watch as my main stance. It does look like I will be closing out the year at 17% gain, I was up 25% at one point but got chopped up in the market since Q3. Oh wells considering the major averages is almost flat this year I am doing okay =).
ReplyDeleteI used to shake my head and say a few curse words when I see this kind of action but now I just laugh...I mean what can you do? The market is the market. Although I believe that ultimately were going to head lower, until I think the market is ripe to bet on that I will avoid the short side. I took it a step further and I've started to get long via some cheap individual names which I can be a strong holder of should I get "caught" and the market tanks big. There are pockets of opportunity out there on the long side. Some stocks are really cheap. Of course, cheap can get cheaper but the risk/reward is worth it to get some exposure especially with those sectors that are still have good fundamental strength. With oil at $90+ for example, oil companies are ripe for takeovers/mergers IMO.
ReplyDeleteGlad to see you made out solidly in the black this year given this chopfest of a market...not even many "pros" can say that.
Yea it was a crazy year. If I had closed all my position in late April before I went back to China I would've still be where I am today. All this trading afterward really made me no money at all. So going forward I need to stop over-trading and block out the noise. I really like to your idea of making only a few big trades in a year. It saves commission and lots of headache.
ReplyDeleteovertrading is a common mistake people make...even pros. It's very alluring to think one can time every little dip and rally...if you could actually do it you would be a millionaire very quickly but it can't be done....the ST is far too random and people end up either selling winners far too early or get whipsawed. Ride major themes and play the bigger trends...you make more money and you do it with less stress but it requires you to have more patience and conviction. In bull markets you primarily buy and hold. In bear markets you trade more because of all the violent swings but it's not easy as most people are finding out the hard way these past few months.
ReplyDeleteI personally believe that if you are going to try and trade the indicies in a bear market, you go for the bigger IT moves. If you can't find a good enough edge and the market is simply too chaotic then fuck it...don't trade. Taking a look at the one year chart, especially the past 5 months, I see it littered with body bags.... what a mess this year has been. But then again, there were a few sectors that did well like small cap CDN energy services which is where I made almost all my gains from. But until the bull market resumes, it's going to be a lot tougher to find winners on the long side.
• ICICI Bank Q1 net rises 25% QoQ to Rs2,605 cr.
ReplyDelete• Biocon Q1 profit drops 51% to Rs81 crore.
• Crude oil rises on falling US crude supplies.
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