3 “WHAT-IF” SCENARIOS RACING THROUGH MY HEAD ON A LOOP
Two weeks ago I presented a case for the market beginning the process of forming the second counterfeit move below the generational trajectory dating back to the 1930s. I think that this counterfeit should be complete within the next week or two, with May seeing some of the positive momentum that marked the first quarter returning to the market.
There is immediate attention being paid to the potential for European Crisis Games Part 8. All the meanwhile, the market seems to be in a kind mood allowing those who are worried the luxury of cheap protection, whether in the form of options or the various leveraged ETFs that are out there. I somehow doubt it will be that simple. They don't ring bells at market tops and there is a lot of bell ringing here.
Tops are indeed a process. If we are at an intermediate term top here, this one will be no different. It will likely jostle around until July when it decides a direction. I am trying to resist the temptation to believe that we are headed for another August-September swoon. However, my mind keeps going in that direction as if I am Pavlov's dog and the market keeps ringing a bell.
I have to keep my mind open here. Here are some "what if "scenarios that cross my mind in brief flashes of brilliance:
- What if this is a year marked by shallow pullbacks such as the one we are experiencing currently, followed by a move to slightly higher highs? This chop and pop scenario will keep a lot of people off-guard and insure that a majority of investors keep biting their nails waiting for the bottom to fall out.
- What if we encounter a V top? That would mean that the recent top is as high as the market goes. My mind immediately counters this by thinking that there are too many chicken littles out there waiting for the sky to fall for this scenario to be plausible. We have a bunch of jaded fund managers out there that run at the first sign of trouble. That is not how V tops are made. I don't like this scenario.
- What if we consolidate within a wide trading range for the remainder of 2012? The market essentially trades like it did in 2004-2006. That was a stock pickers market. I remember that because for nearly two years I had a terrible run that cost me a hedge fund that I liked quite a bit. At that time, I couldn't pick the right stock if it was floating in front of me with a sign on it that said "THE right stock" in bright red with flashing gold stars.
I hate sideways markets. I don't think I would have a run of that type again due to greater risk control measures I have in place. Difficult to tell if that is where we end up. Way too early to say. My least preferred scenario.
In the meantime, I'll continue holding small positions in the current portfolio names YELP, CIS and SYNC. I have been accumulating shares of a small-cap name for most of this week. The slimy little sucker is a hard stock to buy, as it has a low float and tightly controlled shares. I'll be releasing my research on this company over the weekend. I think it is a terrific opportunity.
All for now.
