There are no doubts about it, I'm bullish. I was bullish when I started this blog in January 2011, with talk of Nasdaq 5,000 when it was sitting at 2,700. I've remained bullish throughout, with tiny periods of bearish doubt when the markets have become overcooked. The long-term thesis here, however, has and will remain of a bullish variety until the markets tell me otherwise.
As those of you who have been reading the past few weeks certainly realize, I am also bullish for January. Despite today's near 200 point drop on the Dow that hasn't changed much either. I continue to believe January will end substantially higher than where we are now. In fact, I believe this week will end flat, in a worst case scenario. That means that we should see a turn between tomorrow and Thursday, at the latest.
I do understand, however, that my job isn't to become entrenched in my own ideas, regardless of how well the last 5, 10 or 50 ideas have gone. My job is to realize that there will come periods when I am incorrect and decide how to deal with those periods appropriately. Risk management at its essence.
During last week's review, I did have the markets basically being straight up for the remainder of this month. Today's hiccup certainly wasn't part of the road map. With that said, I have to start calmly entertaining the idea that my road map may, in fact, be completely incorrect.
Today I was brainstorming the ramifications of my idea of a strong January being disproved by the market and what that would mean for the remainder of 2014.
I came to the following conclusions:
1. If January does end up flat to down, then I would take it as meaning that the correction I had planned for mid-year (May-August) may, in fact, occur sometime earlier. Perhaps in the March to April time frame. A flat to down January would be a sign of market that is heavy to the point that it is perfectly content ignoring what is one of the better seasonal tendencies: a bullish January run following an extraordinary year previously. This would indeed be a signal of the market being comfortable with mediocrity during a point in time when it should be shining.
2. A weak January would also be a sign that the sharp, sudden and relatively short-term (less than 2 month) correction that I saw during the May-August window may be more of a shallow, rolling affair. I would guess between 5-7 percent on the downside, lasting around 2-3 months from March-April with June-July being a significant low. The reason for this assessment is that the correction would be occurring without the benefit of a thrust off of a major trajectory/resistance point. This is essentially a failure to ignition, with the resulting blast off (in this case to the downside) being that much weaker because of the failure.
Again, I'm expecting January to be significantly bullish. However, being that I have been incorrect since last week in my assessment, I have to at least begin entertaining "what if?" scenarios on the opposite side of my take.
That's the only way to play the game.
