BEARISH PSYCHOLOGY WAS PULVERIZED THIS WEEK
Is it better to be a fastball hitter or an expert at hitting curve balls? I'll start today's note with that question. It's a question that I've been asking myself following what was an obvious curve ball thrown at me by the markets yesterday.
If I was to go back and look at Thursday's trading session from a completely blind perspective, I can't stay that I would have done anything differently. Friday was essentially at the bottom of the totem pole in terms of probable events.
I'm not here looking for one day swings to take profits. I am looking for short-term trends to turn into intermediate trends that develop into outsized gains. These types of snap backs, fake outs or whipsaws are a part of the game. Nobody ever said that she would jump into the sack with you after her first bite of Filet Mignon (or Big Mac depending on your social status). It's not supposed to be easy.
The question now becomes how to handle the portfolio going forward? Although I was down slightly for the week after giving up some substantial profits from Thursday, it was admittedly an emotionally taxing week. I only recently took on bearish positions this past week. If I am feeling as annoyed at being a bear during Santa season as I am, I have to wonder how the majority of bears who got sucked into the Fed liquidity gap of last week and the weekend gap before that must be feeling? I can't imagine that many of them, if any, are still sticking around.
Days like yesterday, where hope quickly turns to despair for a certain group of investors, are the most significant of all. Every uptick from this point forward is akin to a 280 pound linebacker that can bench press a double wide coming at the bears in a full sprint. In other words, the game just became a lot more frightening for one team. Keep that type of psychological picture in mind should the squeeze progress further. That is what reversals are made of.
At the end of the day, risk is risk is risk. And regardless of any brilliance that I bestow through my keyboard and into your home or office, my job and yours is to manage risk. Without risk management any assessment that I make is subject to the market demons that appear 1 out of 100 incidences, devouring you from within and taking your kids college keg and beer pong money with them.
With that said, I know exactly at what price point my thesis is no longer valid. It is at that point where I will evacuate my positions and return to cash.
I never talk about the levels of my evacuation points from positions. I have a different methodology than most of formulating the price levels that I plan on getting out. It is different, in that my greatest concern in controlling my losses is where will my reentry be if the markets are faking me out? My mental stops are based around levels where I will not have a difficult time getting back into the position should the markets move in the direction I am anticipating.
The last position I want to be in is correct in my thesis and unable to reenter I position because I have no point of reference to re-initiate.
I'll be going into the analysis of where we are and what I am expecting further over the weekend.
