In a series of posts since October 24 (See "Getting It" of that date), I have presented several scenarios: one or two posts for the bearish notion that the correction from August to October was not sufficient, even though it was over. And later and most recently several posts outlining the bullish notion that most of 2004 and 2005 has been a sideways correction which would lead to a large rally akin to the 1935-37 and 1985-87 bull markets.
Having more than one outcome scenario may make it seem to others like I don't have the confidence of a real opinion, but in my personal experience it helps me enormously to analyze both the bullish and bearish chances and the opinions of others to see if they make sense. I see so many people get married to an outlook and stick with it when it's clearly wrong. And I have done that myself. So if I can see the rationales behind opposite market opinions and actually put them into words, I'm more than halfway home to a plausible market approach. For me. Naturally, this doesn't guarantee that my final decision is going to be correct, but I gave it my best thinking and analysis, given the resources and understanding that I have at my disposal.
In my Portfolio Ideas posts, and in other sections, I have explained what my porftolio approach has been since early 2003: basically long the stock market through stock pickers of various types and in various sectors. Then I used ETF's and stock index futures (and lately QQQQ) to augment returns on the upside during intermediate term moves and futures or inverse or 200% inverse mutuals to hedge the core long positions to a variable extent during declines. I sold out the long "augmentation" group in the past ten days and got to about one-third cash in the total portfolio.
The 1935-37 bullish scenario is very seductive, and it has kept me long until now in funds of excellent stock pickers who have handily beat their benchmarks during a sideways to up market. But sentiment and value measures are overcoming my "hope" that we are going up right away. Value and sentiment are not geared to a large rise as they were in 1935 and 1985, and the last two years really do appear to have been distribution. I can and will get into all the indicators and data and cycles for this another time. For now I will simply say I have decided we have more down ahead. It could go up into New Year's Day as it did last year and as the Dow and SPX seasonal says. Last year it did so when sentiment was similar to now. But I am starting to build a more hedged and possibly an eventual outright net short position as of today. I plan to leave my core longs alone as they showed an ability to weather previous bear phases remarkably well. Most of those I have identified in the Portfolio Ideas posts and charts from the beginning of this blogsite. What I want to do is keep the above average and sell short the average or worse.
That's my st0ry, and I'm going to try to stick to it unless I am very wrong. In fact I hope I'm a bit early, as I was in selling the "augmenters", so I don't have to sell on the way down.
Bythe way, these are just my personal thoughts. I work for myself and my family only, am not an advisor, and this blog should be considered a personal diary of market thinking which could be completely wrong.
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