A watched pot...
Of course I see the carnage that occurs seemingly each day in the markets. How could anyone miss it? Even those items once perceived as near-sacrosanct sell off, and sometimes disastrously so.
But this market action is nothing new; in fact, it is more typical than atypical. This is so despite the markets' unwillingness to follow the script of typical seasonal patterns: strength from (approximately) mid-October to mid-April and weakness from mid-April to mid-October. The markets did begin to follow this pattern with the various indices commencing upward moves in late-October/early-November. But then came that reversal on the first trading day of the year (3 January) -- and the markets have since trended sideways to down. The past ~6 weeks certainly have been no picnic in the park!
To confound further the typical seasonal pattern, if the markets continue to sell off for the coming 1-2 weeks, then a good low likely could be put in. The markets could then rally - strongly, broadly, enduringly - from May until... (Lacking this near-term capitulative sell-off would mean more of this frustrating chop.)
A declining market environment provides an excellent opportunity to find new investments. For example, I seek stocks that, as the markets decline they decline begrudgingly, and as the selling pressure for the markets abates these stocks rise with alacrity. Imagine what those stocks will do when the markets turn and rally...
This understanding of market opportunities is only one reason of several why I never play the short side. Certainly it is not for lack of apprehending opportunities; even a long-side sale arguably qualifies as a short candidate. Market moves have been measured: in general, bull trends endure twice as long as bear trends (2/3, 1/3); thus, I can focus on one side or the other. Stated rather simplistically, either I make a lot of money in a comparatively small amount of time (bear) or I make a lot of money over greater amounts of time (bull). I choose to play the long side, but that decision is not necessarily apropriate for you. During bearish market environments (such as the past ~4 months), I seek new investment opportunities (as limned above). Or I do things other than investing, in a quest for balance in my life, such as travel.
As I strategize the markets' oscillations - i.e., fit each daily price bar into the larger pattern - I buy and sell everything I have recommended on this blog. I seek those opportunities that betray the likelihood of greater, and easier, gains to come. So the DNRs, XTOs, PKDs, and CBIs of the world are long gone (and quickly so), whereas I add to positions in RTSX, MW, RRGB, AMHC, and GOOG (to name a handful) albeit during pullbacks. Understand that, if the person is a long-side investor only, then he or she recognizes the market environment for what it is, and thus downsizes his typical investment position because declines in the general market should be mirrored in his or her specific long side opportunities; that is, they too will decline in price. However, their declines also should be perceived as part of a budding larger pattern, perhaps a short term base within an intermediate term uptrend, etc.
Consider, for example, Radiation Therapy/RTSX: I perceive the breakout above $20 as coming from a completed intermediate term cup & handle pattern. Now while the general market declines, RTSX:
1) Bides its time as it consolidates that breakout,
2) Waits for the pressure on the general market to abate, and
3) For the moving averages (primarily, the 50-day sma) to catch up.
In other words, the greater pattern is apprehendable to anyone who cares to see it: a continuing up trend into the future. I choose to purchase the light volume tests of the $20 breakout area. (Once resistance, now support.) As I mentioned in "Snap Decisions", things change, and even the best pattern can become (quickly) despoiled. So I allow the markets to tell me what to do, not perceive the market as a square peg and attempt to fit it into a circular opening.
Things change. This (market environment) too shall pass.
But this market action is nothing new; in fact, it is more typical than atypical. This is so despite the markets' unwillingness to follow the script of typical seasonal patterns: strength from (approximately) mid-October to mid-April and weakness from mid-April to mid-October. The markets did begin to follow this pattern with the various indices commencing upward moves in late-October/early-November. But then came that reversal on the first trading day of the year (3 January) -- and the markets have since trended sideways to down. The past ~6 weeks certainly have been no picnic in the park!
To confound further the typical seasonal pattern, if the markets continue to sell off for the coming 1-2 weeks, then a good low likely could be put in. The markets could then rally - strongly, broadly, enduringly - from May until... (Lacking this near-term capitulative sell-off would mean more of this frustrating chop.)
A declining market environment provides an excellent opportunity to find new investments. For example, I seek stocks that, as the markets decline they decline begrudgingly, and as the selling pressure for the markets abates these stocks rise with alacrity. Imagine what those stocks will do when the markets turn and rally...
This understanding of market opportunities is only one reason of several why I never play the short side. Certainly it is not for lack of apprehending opportunities; even a long-side sale arguably qualifies as a short candidate. Market moves have been measured: in general, bull trends endure twice as long as bear trends (2/3, 1/3); thus, I can focus on one side or the other. Stated rather simplistically, either I make a lot of money in a comparatively small amount of time (bear) or I make a lot of money over greater amounts of time (bull). I choose to play the long side, but that decision is not necessarily apropriate for you. During bearish market environments (such as the past ~4 months), I seek new investment opportunities (as limned above). Or I do things other than investing, in a quest for balance in my life, such as travel.
As I strategize the markets' oscillations - i.e., fit each daily price bar into the larger pattern - I buy and sell everything I have recommended on this blog. I seek those opportunities that betray the likelihood of greater, and easier, gains to come. So the DNRs, XTOs, PKDs, and CBIs of the world are long gone (and quickly so), whereas I add to positions in RTSX, MW, RRGB, AMHC, and GOOG (to name a handful) albeit during pullbacks. Understand that, if the person is a long-side investor only, then he or she recognizes the market environment for what it is, and thus downsizes his typical investment position because declines in the general market should be mirrored in his or her specific long side opportunities; that is, they too will decline in price. However, their declines also should be perceived as part of a budding larger pattern, perhaps a short term base within an intermediate term uptrend, etc.
Consider, for example, Radiation Therapy/RTSX: I perceive the breakout above $20 as coming from a completed intermediate term cup & handle pattern. Now while the general market declines, RTSX:
1) Bides its time as it consolidates that breakout,
2) Waits for the pressure on the general market to abate, and
3) For the moving averages (primarily, the 50-day sma) to catch up.
In other words, the greater pattern is apprehendable to anyone who cares to see it: a continuing up trend into the future. I choose to purchase the light volume tests of the $20 breakout area. (Once resistance, now support.) As I mentioned in "Snap Decisions", things change, and even the best pattern can become (quickly) despoiled. So I allow the markets to tell me what to do, not perceive the market as a square peg and attempt to fit it into a circular opening.
Things change. This (market environment) too shall pass.
posted by David M Gordon | 5:50 AM
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