Hello Tom,
>>I have been following your posts with interest
Thank you, and may I say that I have not missed a single post you wrote.
>>I am reluctant to modify the system that I use given that it has worked well for me over a number of years.
This is understandable. I admire your consistency and discipline, two qualities I found to be extremely important to trading, and also found my lacking them extremely harmful to my portfolio.
I do not believe that the decline will be in the the form of a one day crash, so you could participate by taking the continuation signals, but given the overall volatility of the market during a severe bear (one that I predict will be more severe then any your system has ever encountered, unless you made some simulated runs on Dow 1929-32 or Hang Seng since 8/97 data) I believe that once the 200 DMA is broken and the market fails to cross it back up again, confirming that the long term trend has been reversed, a widening of the profit taking (going flat) range is advisable.
Bear markets have much shorter duration then bull markets, therefore making them more volatile then bull markets.
The market could give back two thirds of the last three and a half years' gains in two-three months, and most of the last 16 years' bull market gains in two-three years.
As for longer term investment, I feel that easing into BEARX and letting Mr. Tice do the work for you could save a lot of headaches. But if you're looking to build a shorts portfolio yourself then I would suggest the high flyers (DELL, LU, MSFT, AOL, YHOO) and everything with a Price/Sales ratio that looks like a P/E ratio (drugs, KO). I would avoid shorting CSCO (they are really making money from the internet) and AMZN (until the float grows or the T/A changes), and concentrate on stocks the mfs will be most likely to sell when the redemption become consistent.
Timing, again.
Friday's action confused my calculations. I thought we were headed towards OEX 550 before challenging the strong support at 520 again and the 200 DMA at 512 for the first time since '94.
The general idea was that the crash phase would begin on the first week of September, and the panic would take place on both sides of Labor Day weekend. For this to happen now, we need either:
a) the market would dismiss Friday's action and head higher this week, towards OEX 550-560, and complete my original scenario or:
b) we break the 200 DMA early this week to OEX 480, and make the dead cat bounce to OEX 510 next week.
The second scenario gives the market only 6-7 trading days to complete the correction up before it crashes, and this is a bit stressed and confusing. I hope the market will follow my original scenario, but looking at the weak internals (Russell 2000 extremely weak) and global markets I see more chances that it will continue down on Monday, and ruin my chances to make 50 fold on deep OOM puts I was planning to buy next Thursday.
ATG |
