Wednesday, May 16, 2012

In Waiting Mode.

I am in waiting mode and do not have any new thing to say or discuss today. SPX closed below 1330 and as I have said before, I would wait for it to close two consecutive days below 1330 to decide whether to take short position again. However I think we are due for bounce.
Given the lack of any clear direction and not waiting to risk capital by taking hasty positions, I thought I would share some investment thoughts. I would like to share with you some parts of an email from Joe Fahmy which I received today. Joe is a highly successful trader and I like what he has to say. In fact my investment philosophy today is almost similar to Joe’s.  So while we wait for the market to show its hand, let us read together what Joe has to say. I am sure you will like it.

·         I’ve been trading for 16 years. For the first 12 years, I would do very well during market uptrends, only to give back a good deal of profits during the corrections. I made one simple adjustment over the past 4 years: When I see potential warning signs, I now go to cash and SIT OUT! If I’m wrong, I could care less because I’m confident that I’ll make the proper adjustments and get back in the market, even if it’s at higher prices. I stopped worrying about “the fear of missing out” (which is the downfall of most traders) and I got more concerned with respecting risk and playing defense. MY NUMBER ONE PRIORITY IS TO PROTECT CAPITAL…PERIOD!

·         The market is healthy 2 to 3 times a year. When I feel we’re in an uptrend, I trade companies that are both fundamentally and technically strong. When I see warnings signs, I get out!

·         I’ve studied some of the best traders who ever lived, such as Jesse Livermore and Gerald Loeb. They believe that you should only be in the market when probabilities are in your favor, and that the LESS you are in the market, the better. According to Harvard Business Review, since 1886, the US economy has been in a recession or depression 61% of the time. I realize that the stock market does not equal the economy, but they are somewhat related. Again, I only want to be in the market when I feel it’s healthy.

·         90% of what we’re taught about the stock market is flat out wrong: dollar-cost averaging, buy and hold, buy cheap stocks, always be in the market. The last point has certainly been proven wrong because we have seen two declines of over -50%…just in the past decade! Keep in mind, it takes a +100% gain to recover a -50% decline.

·         95% of individual traders lose money over ANY 10-year period. Why? I could write a book on the many reasons why I think this happens, but one reason is their inability to sit out (trust me, I struggled with it for years). Many traders not only lose money by trading choppy markets, but more importantly, they lose confidence. Since 80% of anything in life is psychology, protecting confidence should always be a top priority for traders.

·         I rarely short because I believe shorting is very difficult. In his Market Wizards interview, William O’Neil said: “I have only made significant profits on the short side of two of the last nine bear markets.” In other words, if one of the best traders of all-time finds the short side challenging, then who am I to try and re-invent the wheel?


I could not agree more! One of the reasons I am extra cautious now to take the short side is risks are more and that is why it is a bad trading / investment strategy to make up your mind after reading all the doomsayers. You know who all I mean. Like Joe, I have realized that fear mongering is an extremely good marketing strategy. But as the saying goes, “ do what works for you”. If someone out there thinks that the world will end tomorrow and short the hell out of the market, who am I to argue with him.

In the morning I posted a US $ chart showing a possible double top. US $ is facing a multiyear resistance and it may not be able to break that resistance in the 1st attempt.

 Now it is weak across the board.

So we wait for opportunities and keep our patience. Join me in Twitter (@ BBFinaceblog) to stay up to date with the market moves. Please forward / re-tweet the post. My only motivation as of now is to have more readers and your re-tweeting  might help.

Thank you for reading