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.