Waking Up to Temptation

While many traders are just now catching  on to the notion that the market has no clue where it wants to go next, we have been looking for this type of action for over a month now inside 12631. When you see this type of “one day up, one day down, two days up three days down, three days up…” type of movement, your best bet is usually to avoid the mess by moving to a heavy portfolio cash position. Sure, if you are craving action then you can try to time each precise short-term inflection point. At first, that might even seem like a mere innocent cheap thrill to bide your time. Ultimately, though, most will fail miserably at day trading in real-time, despite hindsight proclamations, as day trading is anything but  a cheap thrill and is usually quite expensive.

My current take on the market is this: Due to my heavy cash position since the April top, I do not care in which direction the market breaks from here. If it breaks higher, then great, I will leg in if participation is broad and improving. If we break lower, I expect plenty of trapped longs to capitulate. I still believe we have some kinks to work out before we are off to the races for another sustained uptrend, while of course we will see bounces along the way.  All in all, I am pleased with how our members are playing 2012. It is very easy to wake up to the temptations of emotional trading in this type of a market, which is why approaching the market without ego enables us to not have to chase back losses at this point.

Oh, and for all of you Twitter folk who are hell-bent on “keeping the premium services honest,” here is my #Timestamped Weekly Strategy Session post inside the 12631 Trading Service from May 28th of this year, when bears were all-in short, and bulls were all-in long for the big bottom:

Three steps forward, two steps back; Three steps back, two steps forward…

I expect the price action over the next month or so to resemble the above pattern. Tempering your emotions in either direction continues to be critical, given the corrective nature of the broad market since April. Until we see at least a few explosive days higher with broad participation, I suggest not embracing the exuberance associated with oversold rallies.