Hi all. Well here we are, half way through what is statistically the worst trading month on the calender only to find ourselves with the DOW punching past 10,000. I'm pretty sure many of us here have closed all positions days after the opening of this month due to sentiment changes and the negative start to trading. I certainly have lightened my portfolio due to market scepticism, but luckily most of my stocks are still active and will continue to work for me like good employees.
What is making this market rally painful for many is the fact that it's historically the most despised rally in probably all of trading history. Normally when a market is rallying everyone is talking it up, everyone becomes bullish, there is no correction on the horizon with only blue seas for you and your babe from there on. However, it's those kind of rallies that must be traded with caution because when they bust they do so with massive amounts of casualties. Why? Because all those bulls that were hard core, one eyed, one way trading got caught with their pants down when the unthinkable occurred.
Remember the end of 2007. Those that traded on with denial were burnt badly. The market could not possibly keep going down back then because the public would not accept it. But it did just that, as markets are not fuelled by sentiment or comments but activity and money flow. Removal of money forces a market down - it doesn't take much. But it takes a lot of effort for a market to rise.
Is this going to a denial market for you? Are you going to sit back and say "this cannot keep happening because the world's finances are fundamentally dead"? For the very reason that sentiment is quite negative and the market is rallying shows a massive divergence between sentiment and activity. That has to be a very healthy sign for me.
So even though I lightened my exposure due to the various factors, such as 'October crash' I'm now prepared to dive in and buy stocks that now maybe appear over priced compared to what they were 6 months ago. I'm also prepared to buy back stocks that I have sold in the last few months but have now since gone up accordingly.
The trend is there. Don't trade with denial. Trade with the direction. The Dow is well above support and the golden cross is still very active giving a nice green light to trade.
If you're sceptical but want to dip your toe in the shark infested water then promise yourself the following; You will take all profits if the DOW falls below the support line or if the golden cross becomes a crucifix cross. You will close all loosing positions if the DOW falls below the support line or if the golden cross becomes a crucifix cross.
Denial is what I believe is the enemy of virtually all traders, including me. It's one of the hardest obstacles to overcome when the market swiftly moves against you.
