Four 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. Wham a 250 point Dow spike. So far, I believe that I am right by passing this investment opportunity and continuing to hold cash.
Currently, the market is now very setting up for another Pull-Back, and I hope to participate. That is perhaps a couple of days, a week or more, down the line.
So, with that brief update and mini-forecast in hand.
I believe that specific Company - Short Sale - Shorts and Inverse ETF - Buys - Recommendations will be provided to SafeHaven rather soon, just like in my April 8th Update / Recommendations.
Choppy Market -- Gotta Be Quick!
This is my 5th Article in a series I call: "Why Most Investors and Nearly All Traders Lose Money." It is also one of the chapters I have in my (un-published) book. The title of my book is: Decoding Wall Street.
I would like to share with you how I handle a 'Choppy Market' that won't let you in or out with any grace or compassion. For years, I have avoided this situation when it occurred, because choppy markets just did not present themselves all that often, and it did not matter that much if I passed on an investment opportunity once in awhile. However, in today's stock market I am afraid that we will all see much more of these difficult situations in the future. So, I believe that you need to understand the benefits as well as the drawbacks.
I once wrote an article comparing Las Vegas to the Stock Market, and in today's marketplace I often wonder if one is any better than the other. Comparing risk in Las Vegas to the risk of investing in the Stock Market favors the Stock Market only because from time to time the Stock Market gives you a level playing field. Not so in L.V. Choppy markets hardly ever give you a level playing field. That's because you have very little time to make investment decisions, often less than one day. More recently that means that if you did not place the order to buy or short the day the Inflection Point occurred, you may not have a second day to act. A first day spike up or spike down can absorb as much as 50% of your projected profits, in both Companies and ETFs, in one fell swoop. I won't play the odds in L.V. and I won't play (invest) in the stock market when half my projected profits are eaten up before I can place my orders. That is particularly true for my Clients. There is always a delay from the time I make my recommendations to the time you receive those recommendations and then take the time to place your orders. Think about that for a minute. First there is a day one spike and by day two the market is likely up or down even more!
Today's marketplace has become over run with the same emotion that people have when placing bets around the world over the Internet. This has become, Big Business in the last decade. People are using the lottery and betting / gambling to a greater extent than you can imagine. Investing in not gambling, yet in the past decade, or so the stock market seems to also be a place where people don't seem to care if they lose. I said 'people' not Investors. I still care very much about losing for just one reason. The reason is that I figured out over 40 years ago that if you have 90% or better profitable transactions, you can't lose. That means, you'll be profitable year after year after year.
During the past several months of dealing with a "Choppy Market" environment clearly you 'gotta be quick.' There is no question about this and the reason is (or perhaps the blame is) that you and I are definitely in a cyber world both via TV and the Internet. Uninformed and inexperienced 'people' are both seeing and hearing the gobble goop presented by the anchors of the financial TV stations and hundreds of bloggers and hence blindly following their advice. No checks, no balances, no time spent following - just blind investing! People are going ahead and investing in securities with the mindset of fully expecting to lose most of the time. For me that is just plain dumb and those doing it are just plane lazy! At a recent party, a gal came up to me saying: "I follow your Blog and Commentaries, but I have become a trader." Being polite I said - oh, how are you doing? She said, well I am down $40,000, but I have had a very good week, this past week. I smiled.
Folks, I hope you get my point I am sharing in this missal.
In today's marketplace, there is now a Pavlovian response (a proven theory regarding psychological conditioning to act when stimulated) to hear or reading something and putting your money into that situation without the foggiest idea of the risk involved. Risk / Reward, is a simple formula, but you need to know the facts before doing the computation!
Investing your money should be a serious thing, it's your future. Investing Wisely is or should be something that you think about, do a great deal of research / analytics, and ponder the risk / reward formula, before making investment decisions. I read a line in a financial Blog recently, it said: "Whoops, after thinking about it for a time, I guess I made a mistake." I believe that you can both avoid most all 'mistakes', and that you can still (even in this crazy world / economic environment) consistently make money if you use your head or find someone trustworthy who does.
Now I would like to offer yet another quick piece of advice.
My advice is don't ever chase the market when the risk/reward ratio is high, stay in cash and be patient, there will be another more solid investment coming soon. I have identified all the Inflection Points (about 11 of them) since coming out of retirement in late 2007. I have invested in all of them. These are just words, I have no documentation. In April, I shorted the market and that group of securities that have been documented. I made some trades in early July. Those are just words, I have no documentation. I passed on shorting in August and passed on going long in late August / early September. Both of those moves in the market had only a one day of lead time. That means that my Conformations were all positive during day one and on day two the market spiked, and therefore, I decided to pass. Please re-read the first sentence of this paragraph one more time.
The below Chart illustrates rallies that followed massive bear markets. A 'massive' bear market is defined as a decline of greater than 50%. Since the Dow's inception in 1896, there have been only three bear markets whereby the Dow declined more than 50% (early 1930s, late 1930s until early 1940s, and during the very recent and on going financial crisis, which began in 2007).
This chart also adds the rally that followed the dot-com bust, 1999 - 2003 during which the Nasdaq declined 78%. You will notice that the current Dow rally has followed a path that is fairly similar to that of post-massive bear market rallies. The initial surge of the current rally, beginning in February 2009, has lasted nearly 300 trading days and has recently begun to trade flat /choppy ever since.
If this rally were to continue to follow the post-massive bear market rally pattern, the current choppy phase that we very well may have just entered would continue for another 200+ trading days. That's just short of another full year! There are about 260 trading days per annum.
I have been complaining about a "no trend market" for a couple of months now, and you can see on the dark blue line just what I meant. I also mentioned above that I believe because of the Cyber World / Information Age that this chart may be quite accurate.
Within my daily and on going research / analytics I look at many such charts and read many articles, but I do not and will not let my head be filled with much if any of that / this stuff. The Stock Market will tell you all you need to know to be profitable if you will just listen. So, take heed but don't stick your head or your money in the sand.
Sharing information and data, and 50 plus years of experience are something that I enjoy doing very much. It permits me to be a bit introspective and enter into my own work and methodology just as if I were you. It also helps to sort the good news from the kind of gobble gook that is being so freely disseminated in today's cyber world / information age.
As you read my stuff, you might want to think about what you want financially over the coming years, that's important! Then think about what path you are going to follow. You can take the easy path or decide to spend the necessary time to find a responsible approach to investing your money.
I have hopefully made clear the path that I follow and have followed for many years. It works very well for me, and I would be pleased if you allow it to work for you!
This is serious stuff -- for you folks that are truly interested in making money.
My Bottom Line:
* Patience and Discipline - waiting for my list of Fundamental, Consensus and Technical - "Conformations" to all fall into place is part of the necessary process for Investing Wisely!
* Inflection Points historically have occurred about three - five times per annum. We have had 5 clear and meaningful Inflection Points so far this year.
* Four weeks ago I said: "The Market is now (very possible) setting up for another meaningful but likely (short in duration) Rally!"
* Now it looks just the opposite. One of these days this choppy and bifurcated market (late April 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.
If you would like to have:
* An Email from me at the time I Sell / Cover my specific Recommendations exclusively for SafeHaven readers.
* Information about my Work / Methodology / Services, or of my personal and professional background.
* My performance record while contributing with SafeHaven.
* My on going Research / Analytics Commentary, 2 -3 times each week you may want to become a "Follower" of my personal / private Blog.
--- just send me an Email, and I will respond promptly ---
Thank you for your time in reading my "stuff" and continued interest in my work.
Smile, have Fun - Investing Wisely,