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The way this market has gone over the past few weeks, even the most energetic cheerleaders for the bull case are probably exhausted by now from the “1 day up, 2 days down, 2 days up, 1 day down” pattern. In a similar vein, ardent bears are growing weary of looking for a breakdown, given the market’s propensity to bounce back just when you think the bulls are toast. If nothing else, a market like this serves to toughen you up against letting your emotions get to you on a daily basis.
You can also see the power of a heavy cash position in this environment. I know I have been repeating myself, but a consolidation within an overall bull trend is an ideal time to raise cash and let the messy price action sort itself out. Just because we are correcting does not mean that shorts are the easy trade, by any stretch. While a few stocks are acting well, I have news for you: There will almost always be a few stocks acting well. The better spot to get involved, though, is when there is a broad group of energetic breakouts to the upside. Otherwise, you are taking on much more risk than you realize, as even those needle-in-a-haystack studs are prone to failure in a corrective market.
We are bounce today on an options expiration Friday. Recently, the market has seen a string of distribution days on heavy selling volume. Each exuberant one/two day bounce seems to suck in more hope for continued upside, but hope is not sound strategy to profit as a speculator over the long-term. I would need to see some strong upside confirmation next week in order for me to embrace the bull in the short-term. Other than that, my main focus is not getting caught up in a bias at this point. I want to keep most of my powder dry to be in a good position to pounce on the next opportunity the market offers where risk is relatively low and rewards are presumably enticing.
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Dammit 😉 “…but hope is not sound strategy…” http://youtu.be/HqVBKO_QM3o
Great post Chess! Thanks