One of the keys to being a successful trader is to quickly identify changing conditions and adjust. That is what makes trading interesting. The markets are always changing.
I am guilty like many others of not adjusting quickly to the changing market environment. In many ways, I am still in 2008 – 2009 bear market mode, expecting sharp selloffs coming frequently and unexpectedly. Volatility was high so I had high volatility expectations. That got seered into my brain. But the stock market has made a dramatic transformation. It is now a dull, low vol market that just goes up slowly and steadily.
Part of the problem is that we’re all still transfixed on the bad economy. That colors our thinking about the current stock market. We are afraid to go long for fear of a sharp drop. Yes, eventually the stock market has to reflect the economic value of the companies in it. But in the short term, the economy can be horrible and the stock market can keep going up. And odds are that the economy will get better, just because it got so bad. There is mean reversion for economies as well. The economy is cyclical. The economy bottomed in 2009, its unlikely that it will form a top in 2010.
Many are still focused on where we’ve come from in 2009, not where we are in the big picture. Sure, we’ve rallied over 70% off the March bottom, but if you look at 2009’s performance, it was 24%, not 70%. On December 31 2008, S&P was at 903. On December 31, 2009, it was at 1115. And if you want to go back 2 years, we were at 1468 on December 31, 2007. So you can say we’re still down 22% from the beginning of 2008.
How am I going to adjust to these changing conditions? I should have followed my 2010 view more closely, but I am stubborn like many traders. Starting from now, I will wait for extreme overbought conditions and other supporting factors to short. Not just overly bullish sentiment. And I will start to go long more often on dips. I will temper my profit expectations due to the lower volatility. Until the majority get much more positive on the economy (NOT the stock market), I think we’ll continue to grind higher with only brief dips.
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5 comments:
I agree with most of your comments,seeing how I already posted them on this blog and Capital Observer. Like I've stated, I'm in a market neutral position.
2010 is only 1 trading week old and some of the traders in here are already freaking out.
I also agreed with most of your 2010 predictions. I'd stick to them until you see evidence otherwise. I see a down day sometime next week but I believe it will be bought hard. Earnings are key the next few weeks. Especially the forecast co's make. My trade is going to be buy any dips. Compared to the height of the recession the economy IS s-l-o-w-l-y getting better. So you buy the dips....until, interest rates are raised.
Good luck.
Well I disagree with you and think you're way late to the party but what do I know. Imo I think the US is gonna be hurting for a while and I have not seen the market go up this much this fast.
what's your new target on the es to short.
Using your theory...if you are right, then the spx will hit around 1550 by the beginning of next year. Should definitely not be later than in 2011 sometime.
That would create a triple top in the market, and by 2012 employment will be at pre recession levels as forecasted by many economist.
Which will cause the SPX should break the 10 year range of 700 to 1500 to the upside and go to 2000.
This will happen maybe by 2014.
This market and economy has even converted the most diehard bears to get bullish. I think the above scenario makes sense since all of the skeptics have been thoroughly brainwashed and shellshocked into submission.
Since the last 10 years have been so bad for the market as the media reports, the next five years are going to be like 1995 to 2000 all over again.
Are you ready?
This time, I am getting long stocks and not selling till they are up 10000% as many internet names did in 1999.
Why would they not. There is a record amount of cash changing the same amount of stocks in the market.
This market will be all about greed.
As it was before, and I intend to fully capitalize on it this time.
I waited 10 years for this opportunity to happen. The first time around, I was too young and too inexperienced to make any sense of it.
Now that I'm older and wiser, I'm going to grab this bull by the horns.
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