A Market That Will Make Traders of Us All
Wednesday, February 18, 2009 | Teeka TiwariRating:
Denial is not just a river in Egypt; it’s the number one enemy of all stock market investors. As Americans gaze at the smoking ruin of their portfolios, the temptation will be strong to soothe themselves with some well-worn stock market aphorisms, i.e. “The market has to come back some time,” “we’re due for a bounce,” “they can’t go down forever,” etc..
While all of the above are true, they do not tell us what we ought to be doing right now.
Just how so we repair the damage currently being perpetrated upon our collective stock market wealth? It seems that most folks are attempting to invest for a turn in corporate earnings, but a quick look at the current economic fundamentals tells us that this is an approach that, for the time being, is deader than disco.
It appears that this market would make traders of us all.
A new market reality demands a new investment approach. In the absence of earnings visibility, we are going to see the market psychology undergo a wholesale conversion from a Buy & Hold bias to a Trading bias.
The intermediate term Buy & Hold approach looks to be cooked until corporate earnings come back online.
The long term (think 10 years) approach still remains viable if that's your cup of tea, however only for the right kind of names.
I don’t know that I’d lose any sleep being long Harley Davidson (HOG), Coca Cola (KO), or Wal-Mart (WMT) if I have a 10-year time frame. For long term “I don’t want to think about it money,” the best way to go is to simply dollar cost average each month into a basket of big blue chip names that have seen this sort of adversity before and lived through it.
Regardless of what the next few years bring, I feel confident that Coke, Wal-Mart, Harley Davidson and several select others will still be standing and will be well poised for the next bull market.
But short to intermediate term money is going to be made through trading, not investing ... and the difference between the two approaches is quite dramatic.
The key to success in these types of markets is to remember that they move in waves. You’ll have rip roaring moves to the upside that will have you fully teased into believing that the new bull market is upon us. Then sickening thuds like we saw yesterday will re-convince us that the only direction is lower.
Forgive the shameless plug, but many members of my Completely Automated Sector Hunter service have shared with me that the system is really helping them profit from all of the volatility. Many of the members report using the sector based alerts with great success both on the long and short side. Some of the more courageous ones have even been substituting options for the stocks and ETFs that the system recommends, and they have been generating some astonishing returns.
I've spent a lot of time this week on the phone with many of these people, and it's really gotten me even more excited about the March 6th release of the NEW Sector Hunter. I won't go on and on about this today, but in case you haven't yet done so, ensure that you're on the receiving end of my March 6th invitation by joining my VIP Inner Circle.
OK, shameless plug complete.
This week has started out pretty volatile, and you should look for more of the same over the next few days.
Later today, Team Obama is set to announce a new foreclosure initiative that aims to help people keep their homes. It looks DOA to my eyes, but the market may rally off it. If so, there could be another opportunity to lighten up some longs and get some more shorts on.
One final note of caution:
To survive in this market, you must teach yourself to be mentally flexible.
It can be difficult to break free of old investment habits. Think about it: We have an entire generation of investors who've made money in the market through the Buy & Hold approach. Shaking off this mental affliction will not come easy. The new mantra for this market should be SELL & HOLD, i.e. sell short and hold those short positions!
When “Sell & Hold” supplants “Buy & Hold” as the prevailing market wisdom, we can probably start sniffing around for a turn. Until then, look for us to be mired in much of the same ongoing roller coaster (with a downward bias) action.
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Teeka Tiwari
Chief Investment Officer
ETF Master Trader
