Where The Compelling Ideas Are
If there was ever a market that was trading more technically, it would have
to be this one. For most traders, technicals usually only make up part of the
equation, momentum and dynamics tend to play more of a role. However, in light
of a lack of the latter, technicals rule. It is certainly not easy to make such
a 180 in terms of one’s trading. Human emotion and old habits are not easily
overcome. It takes time to make such a radical adjustment. The good news, in my
opinion, is that this 100% technical market will have run its course in the not
too distant future. Â
With Iraq potentially behind us in one aspect in the weeks to come, more
participants will step in, adding back that dynamic to the market that most us
are more akin to working with, mainly interaction, or rather, the proper
observations of crowd behavior and dynamics.
Yesterday I was on E-Trade’s morning market show and was asked by the host;Â
“Given how slow it has been, and that you are mainly trading the first hour,
what do you do with the remainder of your day?”
A few years ago, the answer was easy, go home or do anything but hang around
the office. Now that I am a bit older and have grown as a trader, it has become
abundantly clear just how important it is to maintain solid performance in my
non-trading accounts. Respectable total returns can be generated over a long
period simply by compounding small gains. Generating those small gains time and
time again is no small feat as we are all aware. But frankly, the other reason
is just the sheer enjoyment of fishing for compelling ideas based on macro and
technical merits. Â
I spend most of the non-trading hours reading research reports and studying
charts (I am a really fun guy, lol). However, when the day comes to an end, I
feel that I have gained an edge over the next person. I have been fortunate, and
my accounts over the last few years prove that.
The sad thing, if one can describe it as such, is that most of the compelling
ideas (longer-term) I see do not involve the US, other than short sales. Yes,
there will continue to be some incredible trading rallies to the long side, but
the fact of the matter is, we are in a bear market. For most people, especially
when overseeing your IRA or 401(k) and such, shorting is not possible. Long is
the only option. So what do you do? Consider what many have never considered,
look abroad.
There are many compelling economic and macro trends in place that make the
long side of the market quite compelling. Have you seen the charts of markets
like Argentina, Brazil and China? How about commodities, or as I have chosen,
playing commodities by purchasing shares in Australia, Canada and New Zealand
(commodity-based economies), or purchasing their currencies outright?
You may be thinking why muddy up the waters by putting your fingers
everywhere? It is not true. All I believe I have done is looked at areas which
are experiencing more robust growth. And where there is growth there is
liquidity. Money always flows somewhere within the world, in the ’80s it flowed
to Japan, in the ’90s it flowed here. I believe we may be seeing the flow
diverted elsewhere currently.
Look at the charts below. The money is going here, not the US. Not to sound
so negative on the US markets, but these are facts, presently.
I suspect that in the years to come, these markets will
outperform ours. History always repeats itself, and if you go back and look at
ALL previous business cycles and bubbles, the outcome is always the same.
Now back to trading. While the above scenario may have
an impact, it by no means diminishes the possibility of some great trading
opportunities in our markets going forward. The difference now is that the great
trading is defined by pockets of prosperity. As I told my wife a few months ago,
my income stream has become pretty lumpy. Small gains, small gains, small gains,
boom, air pocket in the market…huge gains, dead zone for a few weeks, nothing
going on and repeat the process again. We are in the dead zone now, do not fight
it.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 854 | *1044* |
| 845-47 | *1020* |
| 837 | 1006 |
| 832 | 989 |
| *819-21* | 985 |
| 814-15 | 980 |
| 802 | 975 |
| 796 | 969 |
| Â | 955 |
| Â | *933* |
As always, feel free to send me your comments and
questions.