This is bottoming action. There is nothing pretty about it. There is nothing about it that is meant to give you a sense of peace and understanding. The intention is to make you doubt yourself, whether you are long or short. It is the culmination of fear involving both bulls and bears.
Bears are in fear of mass government intervention causing them to wake up one morning to find the grim reaper standing over them sporting a beard and wearing a kippah.
Bulls are in fear of a lack of coordination causing contagion to spill over into the financial system, causing the dominoes to wobble, eventually toppling over.
I’ve learned over the years to simply stay out of the fight, choosing to simply watch from the sidelines. There are some traders who love this action. The only problem is that I don’t know of many traders who thrive off of trading this type of environment that have made it through any single decade ahead of where they started. It’s an action junkies game. And you will get exactly what you want out of the markets.
I find myself in a favorable position should my analysis with respect to the June lows being as low as we go for 2012 turning out to be correct. The advantage is that the current portfolios I manage are near the highs for the year while the market has erased nearly all of its gains. These results were born out of the belly of thorough analysis, attention to risk and good fortune. A powerful combination when all three come together as they have.
I’ve received a number of questions regarding the comments I made with respect to the new small-cap opportunity I have uncovered. It is a legitimate opportunity with the potential for a 300-400 percent gain over 12 to 18 months. I will not begin accumulating shares, however, until my trend indicators turn. Accumulating shares in this new opportunity will be a challenge, as it is not a very liquid stock. I want to be absolutely sure my long-term indicator doesn’t switch to sell, forcing me into a 100% cash position right after spending the time trying to weave my way through buying this new name without causing waves. Last thing I want to be is stuck as the market falls through its recent lows.
As for my trend indicators, the short and intermediate term is currently on sell, while the long-term is still on buy but getting close to a sell. It puts me in a precarious position really. My greatest fear is that the long-term indicator switches to sell while the short-term indicator moves to buy. This essentially puts me in trading mode and likely means that whatever positions I take will likely only last several weeks at the most. If this turns out to be the case, I may put this new opportunity on the back-burner. It remains to be seen, however.
In summary: While we are close to the lows for the year, choppy markets make for angry men. Since I enjoy keeping an even demeanor in all but the most precarious situations, usually involving stray cats, hobos or odd odors, I choose to hibernate during choppy markets. 70% cash is hibernation for someone as bullish I am. I can’t imagine going to 100% cash, but will do so if my long-term trend indicator does turn. I pray to the god of trading sanity and reflection that I am not forced into such a corner.
With that said, I am off to my quarters for a night of rest before joining you again tomorrow for more reflections on the vastness of the nothingness that lies before us.