This Week’s Battle Plan

    -Jimi Hendrix

This week I had intended to show you which methodologies have the best
edge over other methodologies. But, based upon what happened in the
market on Friday, I’ve decided to discuss something more important…”listening.”

Friday

Friday may have been just another day in a bear market. Or, it may end
up being one of those rare days where the market puts in a
bottom…and it “told you” it was a bottom.

First, I will tell you, I have no idea if the bottom is in. That would
be predicting longer-term price, a game I don’t ever play. I’m
challenged enough trying to figure out where prices are going over the
next one to three days. I’ll leave the longer-term guesses to the guys
who are blessed with the clairvoyance to see the market six months,
one year, and three years ahead. I’m not smart enough to do that.

But, there are times when the market “tells us” where it is
heading. We just need to “listen.” The market did this in
late September and early October. After selling off from the 9/11
attacks, it began ignoring negative news. And from there we got a very
strong three-month rally. All you had to do was ask “what is the
market telling me?” Terrorism hits our nation, threats are being
made every few days, and the press and economists beat into our heads
that a deep recession was inevitable. Yet, the market rose. And what
led the rise? Consumer stocks and technology stocks. Two sectors that
should not have risen if the doomsday scenario was going to be played
out. Yet they did. And for those who “listened” and asked
“what is the market telling me,” terrific short term gains
were there for the the taking.

Now, lets jump ahead to this past Friday. We have obviously been in
one strong downturn. The past three months have seen the market get
hit hard. Nine out of the past 10 days we have had intraday 100-point
losses. And, before the markets open on Friday, a car bomb blows up
outside the US consulate in Pakistan. This news should have been icing
on the cake. The market should have been decimated. And, early on it
was. It did what it was “supposed to do.”

But…

And this is a very strong ‘but.’ It came back. And it came back
strong. In September and October, it did the same. The market said, I
don’t care about terrorism, I don’t care about the recession, I don’t
care that these guys are being paraded all over CNBC telling us how
bad things are…I’m going higher. And on Friday, this market said to
us for the first time in a very long while that it wanted to go
higher. It said, I don’t care about the bomb in Pakistan, I don’t care
about the earnings bomb (du jeur) at Sprint, I don’t care about all
the risk that’s involved with an upcoming weekend of unknown events.
It said it’s going higher. And from the bottom of the morning, a three
standard deviation bottom, it rose. It did what it wanted to do,
not what it was supposed to do!

Yes, in my opinion the market spoke on Friday. And I’ll act
accordingly. But, I go into this (and every) trade with the assumption
I’m wrong. And, this means I have stops in place. As Hendrix said,
knowledge speaks, but wisdom listens. The market speaking on Friday
is the knowledge. The entry and stops are the wisdom.