Oct
22
2008

  I Love It When the Market's Down!

I figured my current asset allocation before I went to lunch yesterday-- and to my surprise, I'm only 2% in equities, and that's not even my choice! We're holding what WAS a fairly large position in TRAMX because Terry insisted. Well that's down over 50% in a year, and he can't say I didn't tell him so. I argued against his pick, and vehemently argued against the amount he wanted to invest, but in the end it's what he wanted.

So with that excluded, I don't have any liquid assets invested in equities. I've got 68% in cash, 24% bonds, 5% commodities (gold and yen, I'm lumping foreign currency in with commodities, although really it's just another form of cash). And I do own some (2%) ETFs, but they're SHORT the market. So their price goes UP when the market goes down.

I was out and about until late afternoon yesterday, but when I got home and logged onto my screens, the market looked relatively dead to me. But there was a very clear flag pattern in both the SPY and DIA indexes. So I drew it on my chart, and waited for the breakout. I didn't guess correctly last time there was a flag breakout, so I learned my lesson there. First WAIT for the breakout to happen, then react. Don't try to anticipate the market action. And I'm also going to wait for turn-around confirmation before taking the opposite side of the trade. I lost money a few weeks ago anticipating a snapper that didn't arrive.

The market was down for the day from 2-3pm, and I figured there'd be a reversal in the "contra-hour" (3-4pm) as so often happens. But it's 3:40 and the lows just keep getting lower. Which tickles me. The sooner the market hits bottom, the sooner I can start buying in. Let me tell you, it's D-U-L-L holding most of our assets in cash. But prudent. I love all the "traderspeak" on Minyanville and other forums, I just keep repeating to myself, "The first rule of making money is not losing money." And except for our GLD holdings, which have been waaay down lately, I'm not losing money. Which in this market, is the new "making money". And GLD being down doesn't worry me, since the only way out of the "financial meltdown" is inflation. And when the deflationary forces subside, inflation will rear its ugly (yet necessary) head, and GLD will rise. I've actually started looking for a bottom in gold, I'm fully allocated, but the prices look like they're going to get too good to pass up.

Oh what a slide the market's in! My screens are updating in realtime as I type here. It is soooo tempting to buy now at the close in anticipation of a rebound, but that's how I lost money last time. Good trading is all about discipline over conviction (another of the trading-speak mantras). So even if I "know" there's going to be a bounce, if the charts don't prove out a high probability of there being a bounce, I should restrain myself and not buy. Which I'm doing. Since the slide could last a few sessions. Or it might not, but if you make a bet just on a hunch it's gambling and not speculation.

Now, in the last 15 minutes, there is finally an uptick. It's like watching a suspense movie, how far will it go? It's up, it's down, ouch! a gap. Well I'm going to wrap-up, it's nearly 4pm and I'm going to take a walk with Terry.