That’s Not How It Works. That’s Not How Any Of This Works

Random Thoughts

As you likely know, I have been hosting the TimingResearch.com weekly webinars lately. Since this will be the last show of the year, the show’s creator, David Kosmider, thought it would be good to do a little retrospect. So this week’s question is: “What are the most important trading-related lessons you have learned in 2014?”

I haven’t fully formulated my answer just yet because the market seemed to behave just about normal. It remained a bad teacher. It suggested that you just buy and hold forever for eternal sunshine. Unfortunately, Beatrice, “That’s now how it works. That’s not how any of this works.” You can’t look at a slice of a market and think that’s how it is and will be.

At a family gathering, a relative showed me his 401k portfolio on his Iphone. At quick glance, it looked like something that would pretty much mimic the Ps—S&P tracking funds, big cap funds, and little bit in small cap funds. He was excited about how well he has done since 2009. I suggested that he enjoy the ride but make sure he had a chair ready for when the music stops. As I have quoted before:

In Investing With The Trend, by Greg Morris, Jud Doherty of Stadion Capital said the following:

“Active management has underperformed since the lows of 2009, but this is to be expected. Anyone who has kept pace with the market the last few years should be questioned, because they likely have not many any moves that would (or will) protect their portfolio when the next inevitable bear market occurs.”

If I had to do it all over again, I wouldn’t do a thing differently. Yes, what appeared to be rollovers in ’14 did not materialize but so what, sooner or later they will. I hate to be redundant but he who fights and runs away lives to fight another day. That’ll make a lot more since on the next sell signal that pans out.

Now, let’s get to the markets.

The Ps (S&P) drifted higher, tacking on 1/3% in post holiday trading. Nevertheless, this action was enough to keep them at all-time highs.

The Quack (Nasdaq) did a little bit more than drift. It managed to tack on nearly ¾% and this is enough to put it back to 14-year highs.

The Rusty (IWM) had a decent day, gaining well over ½%. This is enough to put it back to all-time highs.

Like the overall market, most sectors remain positive, remaining at or near new highs.

It was good to see Biotech continue to bounce back, gaining back another 2% and change. So far, this suggests that the recent side was only corrective in nature. As usual, honor your stops just in case.

Gold stocks had a decent day, rallying off of major lows. Although they appear to be bottoming, don’t bottom fish here just yet. As a trend follower, you’ll always be a little late to the party but so what. It’s better to wait for confirmation than to try to be a hero.

Energies and Metals & Mining (overall) remain in serious slides. Other than that, again most areas still look pretty good.

So what do we do? Since the methodology requires a pullback, I’m not seeing a lot of new buy side setups. Therefore, manage what you already have. On the short side, don’t fight the tape. Trade only those issues such as the Energies that can trade contra to the overall market.

Best of luck with your trading today!

Dave