Right now is a tricky spot for the market. On one hand I see signs that the market is "tired" and some sort of multi-week shakeout is forthcoming; on the other hand I still see trapped bears and top pickers who keep waiting for that pot to boil, but as they say, a watched pot never boils! I talked about Rydex and NAAIM and how they have been warning about an impending "one last scare" in the market. So far no dice on that but they have become even more bearish for the market as NAAIM now shows 83% net long exposure which is the highest net long exposure year to date. I have found that NAAIM sentiment is better at calling bottoms than tops though. There have been times when high long exposure led to immanent corrections while other times the market remained "sticky" to the upside and grinded higher for several more weeks before a correction finally ensued. But clearly, going long with NAAIM at 83% is not what you call an ideal entry point. Ideal entry points are when it goes sub 30%. One money flow indicator that has been bullish for the market is inflows into mutual funds/ETFs. They have been quite muted during this rally off the June lows.
It seems to me that for the market to get any downside traction we will have to get to the point of maximum frustration for all players whereby trapped bears and top pickers finally throw in the towel in disgust (moronically blaming the fed for "rigging the markets of course), while some sidelined investors itching to get in on a "pullback" lose patience and chase.
On the Macro front, we got the pending ruling in Germany regarding the legality of ECB bailout fund on the 12th and the fed meeting the day after whereby QE3 may be announced. So, it wouldn't be surprising to see the markets continue this tight range for another week torturing traders even more.
As far as my current holding are I only have 1 right now - hwo.to. This has been my largest holding all year and my most successful (it has grown to now compose 30% of my account). I can be a strong holder no matter what the markets do given their company specific fundamentals and rock solid balance sheet. I realize this is a large concentration which goes against my rules but I'm willing to make the exception given my convictions, the safety of the balance sheet and my offsetting cash position.
With 4 months to go before year end I'm up only 7.5% YTD. A lot of people might say that's not too shabby but I'm certainty not satisfied with that. I've had a real stinker in fmc.to which dragged me down about 3.5% but hey, shit like that is gonna happen from time to time. My accumulation rule of only committing 5-10% of capital to start a position and never averaging down mitigated my wrong decision to buy the stock. I realize that with my primary style of "buy and hold" with small illiquid small caps I can see my performance dramatically improve with just a few good days but it can also work in reverse. Right now my fate is solely dependent on hwo.to. Although I'm confident in the company I'm uncomfortable riding on just one horse like this. My YTD gains can be wiped out if there's a big pullback in the stock. I need to find more opportunities. As I've said before, I'm willing to engage in ST trading opportunities but I can't "force it". The moment you try to force the market into giving you money you will quickly find yourself giving your money to it. If there's none for the taking, then so be it. Wait as long as it takes for your pitch. This is the time of year when I start hunting for small cap names in TSX. Hopefully I will uncover some gems.
I want to talk a little bit about convictions. I believe that in this game if you want to make big money you gotta bet big when you have a strong conviction (but you can't be reckless). A lot of people I'm sure will disagree and say you gotta grind it out but I have realized that fortunes can be made if you are early in identifying some major macro theme or company specific story and bet big. Imagine if you bought in size and held gold stocks in 2001, energy stocks in 2003, Apple in 2009. But alas, very, very few people did this. I'm sure those few who had the courage to bet big, sold far too early while those few who managed to "buy and hold" only did so with a small amount of money. Early in my "career" I was guilty in not only failing to bet big when I had a strong conviction but also failed to sit tight as well. Chalk that up to lack of confidence and emotions. I still have not mastered the "be right and sit tight" mantra eschwed by Livermore but I'm getting better.
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