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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (7579)	2/19/2007 1:29:05 PM
From: John Pitera	Respond to of 33421

Art Cashin -- Sage words on Not shorting the trend -- Friday Feb 16th Experience And Caution – In Tuesday’s Comments we wrote about cocktails with a friend and veteran trader who was concerned that people were buying into all kinds of assets with little, or no, concern about risk. In the same Comments we cited some items from a Wall Street Journal article that morning which was headlined – “A Little Too Calm”. Here, again are a few of those items: This has been a period of unparalleled calm across a broad sweep of financial assets. It has been 143 days since the Dow Jones Industrial Average posted a 2% decline -- the longest such stretch in nearly 50 years. Bonds are quiescent, as is the dollar against the euro and yen. Economic volatility is remarkably low, too, which helps explain market behavior. During the past 24 years, there have been four quarters in which gross domestic product swung five percentage points or more from one quarter to the next. In the previous 24 years, there were 37 such swings. The less the economy zigs, the less investors zag. The danger is that economic calm has led investors to forget about the possibility of storms, and possibly take too many chances. The concern about the calm and the risk embracing the nature of today’s markets is most pronounced among veteran traders. Decades in the trenches exposes you to unexpected and often unpleasant turns. We worried that maybe it was pervasive among just the small cadre that we see and work with each day. Were we guilty of “Confirmation Bias” – the habit of seeking out those facts and opinions that reinforce our own current thinking. That’s why we were intrigued by the following comments in Thursday’s Gartman Letter, by our friend Dennis Gartman, who is one of the most respected veteran traders on the street. In discussing Wednesday’s rally, Dennis wrote: SHARE PRICES ARE CLIMBING EVER HIGHER, and our proprietary Int'l Index has made yet another new all time high, rising another 0.7% in the past twenty four hours. We stand in awe, and we note that some of the brightest and savviest traders among us continue at every turn to see the market as over-bought, as bound-to-collapse, as driven higher by insanity, as illogical, as "irrationally exuberant" as it were. Yes, all of these are true, but the market continues to rise and the "smart guys" continue to sell it short. We had a series of interesting conversations the other day with a long standing professional traders, all of whom continue to sell the market short, and all of whom are losing huge sums of money. We were amongst them until recently, refusing in recent days to recommend selling the market. When asked by our friends/clients when it shall be safe to sell stocks short our comment was consistent: It will not be safe to sell until such time as the Dow has traded 100-125 points lower on the day and remains there by 3:30 in the afternoon. Then and only then might one consider selling.... or it shall not be safe to sell until the broad market indices have closed below their 50 day moving averages... or until such time as the markets trace out a weekly reversal to the downside. Until then, one must consider that the trend is upward and that weakness is to be bought rather than strength sold. This has been a difficult lesson for the best of the pros. For some, it has been an impossible lesson. Dennis is right about the emotional and financial cost of “fighting the tape”. ,Most of my circle of friends have opted for “the third option”. You can go with the trend. You can go against the trend. Or you can sit on the sidelines. That’s what many of the veteran traders I know are doing. They’re leaving money on the table by not being in a rising market but they are not losing money by fighting the tape. Sitting out a market is not easy for a generation that was told when they broke into Wall Street – “Trading is like shaving, if you don’t do it once a day, you’re a bum”. But they learned one other lesson better – the *first rule of trading and investing is the preservation of capital.* At any rate, it is evident from both my circle and Dennis’s observations that veterans are more than a little anxious about current levels and conditions. With that as backdrop, we watched a fascinating interview on CNBC about 5:00 a.m. today. The “guest” was Jon Moulton, the Managing Partner, of Alchemy Partners. He too is a veteran of the hedge fund/private equity world. I thought the interview was so good I hope to get a transcript and share some of it with you in the future. If I heard correctly, he suggested the takeover/private equity game is still heating up. There’s lots and lots of available cash and lots of ways to leverage it into more. He responded to a question that one or two takeovers of Dow components is no longer unthinkable. But at one point I thought I heard him say it’s like people walking a plank. A few will go too far and fall off. Veterans – go figure. Consensus – Rough week weather-wise, Bernanke’s offstage, Monday’s a holiday and Lunar New Year looms. All would suggest a dull day and early getaway by many. Holiday Greeting – “Gung Hay Fat Choy” is Happy New Year in Mandarin (I think or maybe it’s the #28 combo).