June 15th, 2009

The Waters Too Cold For Me

The lower opening this morning provided a short answer the question of whether, emotionally, I can take a 10-15% correction over the next couple of months. The answer came quickly after the opening bell; I started scanning my charts, saw the trendlines and moving averages and decided that too many stocks were bumping up against what could turn out to be overwhelming resistance at this late stage in the rally.

So I heard a voice say “When in doubt, sell” and I did just that. Could I be wrong? Absolutely. Will I regret it? Not likely since you only lose money when you buy, never when you sell. And becoming very conservative since the Tech Bubble Crash of 2003 has served me well, especially since January, 2008.

Today could be the first step to the long-awaited correction. To refresh your memory, I first speculated what that might look like on May 6 when I wrote about a NY Investors Group meeting I attended where the opinion was that “due to the negative economic and financial backdrop, the 200-MA’s would serve in this case as an insurmountable resistance; the market would reverse direction and continue back down.” I also wrote that when the Index crosses the 200-day moving average, rather than becoming aggressive,

My strategy will be to remain mildly cautious and go in the water only waist deep (up to about 60% invested). There could be one last hurdle to cross, a neckline at around 950 of what could turn out to be an inverse head-and-shoulder pattern. But first, we may need to suffer through the formation of the right-shoulder….If the pro’s can’t predict the future, I surely can’t. But I see this process possibly taking the summer (remember “sell in May and go away”) with the break above the neckline coming around Labor Day. In the interim, be prepared for the market to correct by 13% to the 800-850 area.

I had gotten in waist deep and, after thinking about it over the weekend and seeing today’s sell off, I decided the water was too cold. “It’s a wise man who can admit a mistake” [I don’t know whether anyone actually said it but I feel it’s apropros.] I sold and reduced my exposure to less than 25%.

What did you do today? What are you planning to do?

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