THE MARKET MAY BE FEELING DEVILISH AND I PLAN ON DOING NOTHING ABOUT IT
I posted this chart of the Dow over the long weekend. A move over the 13,000 mark could extend all the way up to 13,200 to flush out the remaining shorts and add more bulls to the picture.
A 200 point move over the 13,000 mark would be enough to get the media going full blast on the bull market train. This in turn would translate to speculative, inexperienced money flowing into the market. You know...the kind of money that the market loves to dissect with a pitchfork and stomp into puree with black steel-toe boots while listening to the Ozzy Osbourne that would decapitate live bats. Speculative, inexperienced money has a way of bringing out THAT side of the market. It creates instability and in turn, short term tops.
So what is my game plan to deal with the devilish side of the market perhaps rearing its head in the coming weeks?
I plan on..........sitting tight. I'm not going to hedge. I'm not going to attempt to sell short stocks. I'm not going to move into cash. At most, I may trim a couple holdings. That is if they hit my price targets.
Being in buy and hold mode means not getting cute around short-term turning points. You deal with the inevitable downside volatility.
Why? Let me tell you why: If you get in the habit of attempting to pick off short-term turning points during a bull market, you will begin to think that short-term turning points are falling from the sky like Jeremy Lin references. Every point suddenly becomes a short-term turning point.
If I had been looking for a short-term turning points to hedge or liquidate, I would have been hedged or in cash multiple times by now, only to be forced to buy back my hedges or reestablish longs at higher prices. It's a game not worth playing in strong bull markets.
When it's time to get short or hedged the market will let you know. It usually does. You just have to be willing to listen. I was listening in late-July and sent out this note as the data became clear. Sustainable tops give away much in terms of clues that the tide is about to shift.
In terms of important clues in the here and now, there really are none. All signs continue to favor the bull.
