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The Intelligent Trader's - Long and Short of It
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From: Robert A. Christy Editor/Publisher, ‘The Intelligent Trader’ http://www.intelligent-trader.com http://www.christyinvestments.com
Date: July 13, 2009
The Numbers
The numbers this week tell us that the Defense is on the field and that risk has risen in all three markets. This week is a short one with most folks leaving early for the July 4th holiday. We’ll keep a keen eye on the news this week as tensions continue in Honduras and in North Korea.
Bullish Percent
Sector Bullish Percent
This past week was not a good one for the markets. Each of the three major indices is now in a column of Os and telling us that the Defense is not on the field. We have officially moved from the Capital Appreciation phase to the Capital Preservation phase.
From another technical perspective, each index broke below the neckline of a head and shoulders formation. When combined, these breaks are pretty strong bearish signals. If you toss some weak fundamental economic news like higher than anticipated and low consumer sentiment, the news is pretty ugly.
I know there is no such thing as a guarantee, but signals are just that – signals. As I write this, I am short the S&P 500 and 10 year bond ETF.
Most investors think the most important thing that they do is picking stocks. In fact, studies show that the average market participant spends 80% of their time trying to get the investment right. They couldn’t be more wrong. The reality is this, 80% of your performance gain (or loss) comes from market direction and sector selection.
When I began trading in earnest, I searched high and low for any edge that I could find. This led me to create what I now call my 5 Step Process. When the market is rising, I want to be a buyer of the strongest sectors and a short seller of the weakest.
I spoke a couple of weeks ago about an investment condition where investors try to catch falling knives. This may be the kind of market that we are getting into for the balance of the summer. Investors trying to catch falling knives equate falling prices to buying opportunities.
When we’re on Defense, no one knows exactly how far down we’ll actually go. Some stocks may go down a little, but others like Bear Stearns, Lehman, GM, go all the way into oblivion.
If you’re long a few names, make sure you have an appropriate stop loss in place. Also, if you have a pretty decent capital gain, you might want to book a few of those and place the proceeds into a money fund. Another thing to consider is using put options. A few weeks ago, we bought September 420 put options as insurance on our Google position.
The thing that I can’t stress enough is that we all need to have patience. No one knows what the market will do next and it’s futile to try and predict it. We’ll take our cue from the indicators and not worry about calling the bottom.
Like I said a while back, the best way to catch a falling knife is to wait until it hits the floor and then pick it up.
That’s about it for now. Let me here from you if you have any questions.
Robert Christy
P.S. The currency market (forex) is the place to make money this year. If you’d like to know more about how you can participate in this, just send me an email and I’ll send out the information to you.
P.S.S. Please fee free to forward this to your peers, friends and anyone you think would benefit from its contents. They will thank you for it - and so will I!
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Robert Christy is a professional currency trader, stock trader, money manager, author and speaker. Mr. Christy is the President CEO of Christy Investment Group, Ltd., a fee-only registered investment advisory firm. He is also the Managing Partner and Portfolio Manager of Crabapple Capital Group, LLC and the editor/publisher of The Intelligent Trader, a subscription based long/short trading service. At the time of publication, Mr. Christy may from time to time write about stocks in which he, Christy Investment Group Ltd, Crabapple Capital Group, LLC or The Intelligent Trader has a position. In such cases, appropriate disclosure is made. Under no circumstances does the information in this column represent a specific recommendation to buy or sell stocks. Mr. Christy appreciates your feedback and invites you to send it to rac@intelligent-trader.com .
Robert Christy The Intelligent Trader
The Christy Investment Group P.O. Box 625 Alpharetta, GA 30009-0625
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© Copyright 2009 Robert A. Christy, The Intelligent Trader
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