Why I’m Bullish, Not Bull-Headed
The market put in a nice rally today. I
especially liked to see volume on the Nasdaq come in higher than Friday’s.
Friday marked the first distribution day in quite a while for the Nasdaq, and
it’s always nice when you can follow up a distribution day with an accumulation
day.
I’m not seeing any major
warning signs right now. The market, especially the Nasdaq, has been acting
very well the last few weeks. Regardless of whether you buy breakouts or
pullbacks, long trades are working, and shorts are getting burned.
It seems to me that some bears
are getting a bit more vocal now — probably because they’re losing money and still
want to sound smart. On TV and in print I’m seeing many people predict tops. Anyone who tried to pick bottoms between March 2000 and March 2003 knows how
difficult this can be. As far as I’m concerned, it’s a loser’s game.
Keep in mind that nearly
everyone you see or hear who is predicting a top is either in cash or short the
market. If they truly believe the market is about to head lower, then they
should be either in cash or short. The problem with many traders is that they
form an opinion, take a position, let their position influence their beliefs,
and then have difficulty admitting when they are wrong. Instead of taking a
step back and looking at things objectively, they look for reasons to justify
their positions. Maybe they’re trying to justify their position to their
investors, and maybe their try to justify it to themselves. It doesn’t matter.
In the end it just turns out to be an excuse for a big loss, or lost
opportunity.
Rather than trying to pick tops
or bottoms, I believe it is much easier to make money by:
-
Identifying what’s working in
the market, and what isn’t, -
Do what’s working, and
-
Recognize when it stops
working and change your approach. This is the whole philosophy behind the UUNWHI (Unofficial, Unscientific, Working/Not working Hanna Indicator).
If you take trades based on
your opinion, then the only way out of that trade is to admit your were wrong.
You must change your opinion to exit your positions. This can be difficult for
many people. If you create your opinion based on what your trades are telling
you, it is much easier to change that opinion.
I’m long and I think we’re
headed higher. I’m a bull, but I’m not bull-headed. If my longs start to
really stumble, and I start seeing decent follow through from shorts, then my
positions will automatically change, as will my opinion.
I could be wrong. Today might be the top. If it is, then my task at hand will
be to minimize my drawdown, and formulate a new plan of attack. Until my trades
tell me, I’m going to continue do what’s working, and that’s playing the long
side.
Best of luck with your trading,
Rob Hanna
P.S. To those of you whom I
owe emails, I apologize as I was out of my office last week. I will get to them
all in the next couple of days.