Friday, February 18, 2011

Calling turns

It is difficult to call market turns. As I have often written, calling top (or bottom) tends to be a low percentage play.

The stock market rolls on, frustrating the crowd of smart folks expecting a correction or worse. I have been in the bear camp since the beginning of the year. Thankfully, I didn't bet heavily on my belief, as stock market bears have lost their shirts with what seems like an unstoppable, almost irrational rally.

It is not so important to figure out why. I have mentioned that QE2 may be distorting normal flows. That much of that newly printed money is finding its way to the stock market. That and near zero short term interest rates on money market funds and equivalents, means folks don't want to sit in cash. Cash is and has been trash.

Many readers know of the 1988 book "Market Wizards" (link). I remember the chapter with the legend Paul Tudor Jones and his knack for calling market turns. What I remember goes along the lines of he often takes several small losses before getting the timing right and making a bundle. The headline is that Jones called the turn, when it was try-fail, try-fail, try-succeed.

I am not so ingrained a bear that I am willing to keep shoveling money into bearish stock market bets. The percentage play tends to be to wait until a turn is verified, then short the reaction rally. That may be what we are seeing in gold. There is resistance at the highs. Gold is now overbought. With that, it is difficult to go bearish on gold when the long term uptrend is so strong.

I was extremely tempted to add some small positions yesterday. Then I remembered what I wrote on the blog about sitting, and how much sense it makes to sit. So again, I did nothing. That's one way the blog helps me. It makes me accountable to my own thinking. Sounds simple, but when that itch to get in comes, logical thinking sometimes goes out the window.

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