I though now might be a good time to re-post a video from last September (scroll down for Random Thoughts–Next update will be on Friday 01/08/16).
A Year Of Patience
You had to be patient in 2015. Not only did you have to wait patiently for your setups, but you had to wait for triggers, and once in, you had to let things unfold. The one good thing was that since follow through was scarce, many soon-to-be stinkers never even triggered. This kept a lot of capital out of harm’s way. It’s amazing that something so simple can keep you out of trouble.
If a setup did trigger, the market didn’t really seem to care about your urgency. Moves took time to develop. You had to sit patiently for weeks and sometimes even months. This led to quite a few “dead money” reports (see my Youtube channel).
A Year Of Being Selective
’15 was not the year to throw darts. The daily treasure hunt wasn’t easy. I’ve never worked so hard to find so little. Often after many hours of digging through the database you had to forfeit, taking comfort in the fact you thoroughly exhausted all possibilities and it was okay to do nothing-you’ll get another chance tomorrow. It reminded me of the ubiquitous “Free beer tomorrow” signs found in cheesy bars. It often seemed like tomorrow would never come.
A Year Of Ready, Set, Action?
Sometimes return of capital is more important than seeking return on capital. In ’15 you couldn’t force things to happen. You had resist the temptation to “invent trades” (Mauthe). It was not a year for action. It was a year where you were often better off doing research, enjoying a hobby, or spending time with love ones. Seeking action was a really bad idea. As I preach, if you really want action, have an affair—that way at least you only loose half of your money.
A Year Of The Comfort Of Permanent Income Hypothesis
Every time the market sold off in ’15, it came right back. This gave solace to the buy and hold crowd and worse, rewarded the buy the dip crowd. One has to wonder if this six year marathon can continue into year seven. The market was a bad teacher in ’15. Markets don’t always come back.
A Year Of Being Prudent
It was a year where you had to be prudent. You had to let the market take out your stops just in case it continued to implode and then watch in anguish when it didn’t. This is tough, but that’s okay. He who fights and runs away lives to fight another day.
In this business, you never want to “savour schedenfrade” (Schopenhauer) because you never know when it will be your turn in the barrel. However, it’ll be tough not to think “I told you so” when–not if–the market appears to be rolling over and actually does. Markets tend to reward bad behavior. Trust me, I’ve had many “rewards” from acting carelessly, making me think it’s me and not the markets. Having my ass handed to me always comes shortly thereafter. “Pride goeth before the fall.”
A Year Of The Church Of What’s Happening Now
It was a year that encouraged the trend follower to seek trading action elsewhere. Selling naked options and mean reversion made a big comeback. My feeling is, and always will be (trust me, I’ve been there and got the T-shirt): “that’ll work until it don’t.” This can make for a very brilliant but brief Wall Street career. As we say in the south, “the sun doesn’t shine on the same dog’s ass every day.”
A Year Of Being Bored
It was boring. ’15 was a year where you had to resist the siren call of daytrading, micromanaging, or the general urge to do something, anything! I bored you/my clients to death by preaching often to just sit on your hands, that cash is not trash, to take sell signals seriously, to be selective, to wait for triggers, and once in, to let things unfold. And, as I preached, ’15 was a year where you really had to plan your trade and trade your plan-I know, easier said than done but that’s really all you had to do.
To The Markets
They’re not going to make it easy on us. Bigger picture, we still have a weekly Bowtie sell signal working. This triggered last September but so far the market has mostly recovered. We also have a daily sell signal which triggered recently. And, once again, the market has gone straight back up. It looks like we’re in for more of the same—choppy whipsaw trading. It’s tough not to start believing that it’ll always come back. With experience though, you know that sometimes it won’t.
The Ps (S&P 500) and Quack (Nasdaq) have so far stalled short of their short-term highs which are not too far from all-time highs. Back the chart out and we’re hovering in flatsville for the year.
The Rusty (IWM) still looks the most ominous. It hasn’t made any forward progress since late ’13. It’s reminiscent of tops you’d see in the classics such as Edwards and Magee or Schabacker.
So What Do We Do?
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