Two weeks ago I said: "A few weeks ago I called for a Pull-Back to set up a Buying Opportunity. That forecast has matured to the point where Buying is eminent."
Well, I guess I could say that I was also right, but I was very dissatisfied with how the rally began and the subsequent lack of follow through. Seven trading days ago, wham the Dow jumped 250 points and as far as I'm concerned that was not a prudent Buying Opportunity and I passed. So far, I believe that I am right by continuing to hold cash.
The market is now very likely setting up for another Pull-Back and I hope to participate. That is perhaps a week or more, down the line.
So, with that in hand ...
Specific Company - Shorts and Inverse ETF - Buy - Recommendations will be provided to SafeHaven rather soon, ( I hope ) just like in my April 8th Update / Recommendations.
Commentary: You have most likely noted in my warning below that "Selective" has now become or should become a key word in your vocabulary of avoiding losses. This refers to your future investment decisions for Companies and ETFs and both Buying and Shorting. Bull or Bear, the charts are a mess.
In the old days when most everything was going up and the old "dartboard approach" worked quite well. I do not have to tell you that "everything" is no longer going up, and if I were to guess, currently more securities are going down than up! That is with respect to trends over the past six - eight months or so.
Let me offer a query: Let's assume that we have completed all of our analytics and homework and have a list of 20 Candidates for Investing either Bull or Bear. In addition we have determined that these Companies all have about the same risk factor. And our profit projections for the different Companies range between 5% and 25%. Finally our Asset Allocation Model calls for investing in just 10 Companies. Which ones (Companies) would you choose? I trust my point is clear to you, if not, please feel free to let me know. This is important!
For me, being selective means that when I feel the stock market is approaching an Inflection Point, Bullish or Bearish, that is when my analytics process begins a very comprehensive review of all Sectors, Industry Groups and their component Companies. Up and until that point (about 1 - 2 weeks ahead of an anticipated inflection point is about right) doing a lot of analytics and research is just spinning your wheels and a waste of time, things change too fast in this marketplace to try to start working on the analytics any sooner. That also means that you must have a computer assisted methodology in place that can thoroughly cover your entire universe of Sectors, Industry Groups, Companies and ETFs.
I also have shared before that if you look at the charts of all the Companies in a given Industry Group, they the Companies are scattered all over the charts. Above I called them a mess. Simply said, that means that some are going up, some are going down and still others are doing nothing. Once I have a large enough and comprehensive list of Candidates for Investing, Bullish or Bearish, I go back to the Fundamental and Consensus Analysis for a long and hard look at each one. That is very time consuming but is absolutely necessary. I am constantly "weeding the garden" so if you are interested in having a profitable investment program, I suggest you learn to weed, fertilize, water and cultivate your garden. It's called nurturing. Remember, a good part of my Analytics is a process of having the tools in place to "compare" a large number of Candidates for Investing and "selecting" those with that will produce the best profits in that particular market cycle.
Saying it another way, I am sharing the importance of being selective and that principle means, identifying just those Companies have the best projected profit projections and a reasonable risk/reward ratio, again depending upon my focus, Bullish or Bearish. ETFs have their own special treatment for being selective and that's another story on another day.
Reading a glowing article, looking at spectacular fundamentals, looking at the highest ratings of some research firm, and many other similar factors is just plain worthless these days. For example - often the best Companies to Buy when I believe the marketplace is approaching a Bullish Inflection Point is often a Company that does not have all that much pizzazz. In fact when I read articles, a blog or information and data packed with pizzazz I often don't even check it out. Remember, I'm set up to check stuff out with very little effort, but I don't often waste my time. Hype and sales pitches do not make money for Investors! They never have and they never will. I'm a lucky guy, the harder I work the luckier I seem to get.
Many have asked - how to you determine if a Company or ETF is going to have a high propensity to be profitable or have a propensity to be a loser?
First just a quick remark before giving you a brief insight into the answer of that question. Remember that I am looking for Companies and ETFs that project to be profitable (winners) when I have a Bullish mindset, and I am looking for Companies and ETFs that project to be profitable (winners) and when I have a Bearish mindset I am looking for Companies and ETFs that project to be profitable (winners). That sentence should provoke a few Email questions or at least cause you to scratch your head just a bit from at least a few of you guys and gals. "Winners" are profits from both Long and Short investments. It is often difficult for some Investors to understand that we make profits on the Short side, during a Bearish market condition, when the price of the Company goes down. Strange but true.
Now, regarding the above question, obviously I am not able to share the explicit details of how I determine the winners from the losers. However, there are three conventional analytic answers that rather simple answer the question. These happen to be technical in nature. They are: I look at relative strength, momentum and the trend of the Company and I look at those same indicators in that Company's respective Industry group very closely. I do so rather differently than the textbooks suggest and I believe differently from the way most other financial analysts describe or work with these three indicators. For me, the different technical "theories" and "charting systems" both in the text books and currently used big time by financial analysts have not, over the years, and do not today produce consistent profits. For me it is a puzzlement why Investors and financial analysts who have not and are not doing well continue to follow the same path.
Conclusion: So, I hope my sharing is clear that in today's marketplace that the old dartboard is of no value any more, other than for enjoying a game of dart throwing and I might add that the good old days of nearly everything going up are gone and gone forever. Nor are the textbook systems worth a damn. I believe that you must do as I have, over a number of years, develop your own methodology and skills to the point that it works well for you.
You all know we take classes and go to school or university to learn. If we are lucky we find those mentors who are willing to offer advice and help to shorten the learning curve and that is great. With regard to the stock market a good mentor can greatly lessen both the time spent learning and the number of losses you must take, over the coming months and years to learn how to be consistently profitable. Why not be profitable while you are learning?
I can tell you from both personal experience and many long studies, specifically on this subject, if you continue to read a large amount of the junk that is flowing so freely in today's cyber world, and if you invest in manner that the Street, mutual funds, the media, salespeople and most financial analysts do, you are in big trouble and you will remain in big trouble as long as you stay in that realm. It's a whole new ball game.
• Patience and Discipline - waiting for my list of Fundamental, Consensus and Technical - Conformations - is necessary and it works very well!
• Two weeks ago I said: "The Market is now (very possible) setting up for another meaningful but likely (short in duration) Rally!" So for 7 days we have had a rally with only the first day being significant. The follow-on, this past week was nearly a zero week.
Now it looks just the opposite. One of these days this choppy and bifurcated market (late March to date) will do something meaningful and the next possibility of that is a Pull-Back.
• High Volatility may not currently be showing up on VIX - lately, but it is clearly - alive and well.
I'll Update these opinions and thoughts - promptly if Market Conditions change.
I would also like to share and remind you that , in each Posting -- while my mini - forecasts are ( over the years ) very accurate - there are currently many Variable Market Conditions ( going's on - stuff ) that can delay an anticipated - Investment Opportunity - Long or Short. Unfortunately, given half of a chance, the dynamics of the current Marketplace will most often create a delay! But, sooner or later ...
And as a Warning regarding my Sector / Industry Group - Rotation Work: Rotation is my essential key and is foundational to consistently profiting in this Marketplace. So, I strongly emphasize the above word - "Selective." Even within my " In Favor" Sectors and Industry Groups the component Companies are widely scattered on the Charts, and often appear to be heading in many different directions. Obviously, some of those "directions" are not good for your bottom line!
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As a retired businessman, financial analyst and asset manager I decided after about 5 years of retirement, in late 2007 to resumed my place in the business of providing personalized investment direction, asset management services and consulting / mentoring services.
Whatever the task to be accomplished, some people will do it better than others will, and so it is with the investment of capital for income and/or growth.
To profit is glorious. To profit by Investing Wisely is divine!
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Smile, have Fun - Investing Wisely,