Monday, April 30, 2012

Day After Tomorrow.

Like clockwork, we had a red day today. Nothing serious, at least not yet. It just let out some excess steam before reaching the April 10 high. We are about 25 points away from that and I expect the retest will happen by May 2, Wednesday.  While the momentum is definitely weak, there is no sign of definite sell signal yet. But it looks so similar like last year which I have marked in a rectangle.

If this pattern is to play out we might see an overshoot of the last high. It may not be a bad idea to start laying the defensive bets now onward.

When the correction comes, it will be fast and furious and will not give us much time to take advantage. But at the same time, it is risky to front run, as I keep saying. So we will have to pick up sectors where there are definite weaknesses.

Copper is having a bounce but given that the demands in China are slowing; it might be a safe play to short copper. Oil is another one, because oil sells off every summer. Emerging markets are struggling.  Financials do not look particularly strong nor do Russell 2000. We will see what day after tomorrow brings. It does not have to be all in at one go.

For tomorrow at least, I expect the market to be up if not substantially.  If on the other hand, we do not end strong green tomorrow, it will confirm that the end is close. I would like to end today’s post with a quote from the famed investor, historian and economist Peter Bernstein. ( Hat tip to Joshua Brown of reformed Broker) :

“I have opted for more conservative ideas and not aggressive ones.”
"After 28 years at this post, and 22 years before this in money management, I can sum up whatever wisdom I have accumulated this way: The trick is not to be the hottest stock-picker, the winning forecaster, or the developer of the neatest model; such victories are transient. The trick is to survive. Performing that trick requires a strong stomach for being wrong, because we are all going to be wrong more often than we expect. The future is not ours to know. But it helps to know that being wrong is inevitable and normal, not some terrible tragedy, not some awful failing in reasoning, not even bad luck in most instances. Being wrong comes with the franchise of an activity whose outcome depends on an unknown future (maybe the real trick is persuading clients of that inexorable truth). Look around at the long-term survivors at this business and think of the much larger number of colorful characters who were once in the headlines, but who have since disappeared from the scene."

I am reading the above post again and again and would request you to do as well.