September 13th, 2010

Climbing Out Of A Hole

This is post 559 and I’m marching on to a personal goal of 600 posts by year-end. I neglected to announce the blog’s 5th anniversary on July 1 but hitting 600 posts will be momentous enough (the total number of posts since the launch actually exceed 900 but I deleted most prior to 2007; the ones I deleted were less focused, many dealt with the CNBC stock market game, etc.). By the way, all the posts are accessible in monthly sequence on the Archives link in the panel on the right. Click on some of the older ones, they make for interesting reading.

The reading really gets interesting late in 2007 with a whiff of some sort of correction beginning to be felt in the air. The postings throughout 2008-09, chronicle that horrible period [if you were a bull] and provide an excellent lesson in market timing and protecting your assets. My take away from the 2009 market is that you suffer a huge opportunity cost from remaining overly cautious, hedging your bets, waiting for the positive news and looking for confirmation. In the 1o years since I started trading full time, the past two years have been the first when I’ve underperformed my benchmark, the S&P 500 Index or, in the case of this year, am still trying to climb back up from a negative return (albeit a small one).

We could be facing one of those situations right now (click on image to enlarge):

The market is within striking distance of crossing above two critical hurdles: the neckline of the inverted head and shoulder reversal pattern at1128 and the convergence of the long-term trendline I’ve discussed here before (stretches back to 1998 and is the locus of many support or resistance pivot points) and the descending trendline connecting the October 2007 and April 2010 highs.

My market timing indicator gave an “all-in”, 100% invested signal back on September 2 with the index crossing above the 50-dma. I haven’t yet headed the signal and have watched as the Index having advanced further, crossing above 3 of the moving averages including the critical 200-dma and seeing the 50-dma turning up and struggling to cross back above the 200-dma (thereby negating the “Black Cross” from early July).

I’ve struggled against skeptics. At the end of August, one dedicated reader suggested I rename the blog “The Eternal Optimist”. My wife, one of my harshest critics, continually asks me to explain to her why the market should advance in the face of continued bad economic news (especially our inability for about a year to sell our house … she’s a real estate broker and see’s how week the housing market continues to be). The only way I can respond is to say “stay tuned, the media will tell you why something happened after it happens … and then will call it news.”

I told her that this time, when market crosses those hurdles with conviction increased trading activity/volume, I’m going to be one of them. As I’ve often said here, the problem isn’t knowing which stocks to be as much as it knowing how much to invest and when. There are more great stocks out there to buy (like there were in March-May 2009 if went back to the Archives) than money to buy them. What’s in short supply is guts to do it.

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  • Anonymous

    Guru, what's your take on $USD (us dollar)? up or down?

  • Joe

    Forced to have to make a choice, mine would be $US down. If you trade the currency, you'd have to go long UDN but it's not a very volatile and you won't make a lot on the trade.

    It's better trading derivatives that will be favorably impacted by falling dollar like commodities, exporters and foreign stocks.

  • Anonymous

    Joe,,SyHarding sees a repeat of 1992 this Fall,,bigtime low then up and away,,your views ??

  • Joe

    I'd like to think that Sy Harding is correct. I see the same thing but we have many bears to fight off before we can get this thing rolling forward.