29 SEP 2009, Tuesday

1. YES!!! And so it begins. Above is a sure sign that bullish sentiment may be reaching extremes. When the stock market starts getting front page coverage because it's either up or down alot...the move is usually nearing it's end. Now, sure this is on the Business section of the NY Times and it would be better to see it on the cover of Time, Newsweek, etc but just look at the size of that headline. Heck, I'll take it! A sign is a sign.
2. Well, as the market has been going steadily up this past 7 months (which I'm glad for those that rode it all the way down have now recovered some), I had been stressing defense. In other words, develop an "out" point if it starts going down again. Well, from the low to the recent high the SP500 has gained 62% in 7 months. Folks, that's a 106% annualized rate of return. Now, I don't know what it's like where you live but no tree grows to the sky in my memory and this is one very stretched move with little support underneath it because it was such a straight up move. Up 7 months and it can always keep going up but the risk increases (click to see other multi-month runs).
3. Half way back to the lows? To the lows? Lower? I just am getting that Wiley E. Coyote run off the cliff kind of feeling. Know what I mean?
4. So, now I will pound the table and say it again. Just this time with more authority "DEFENSE, DEFENSE, DEFENSE!!!" Develop an out point. It may even be wise to just scamper to the sidelines for awhile such as into a money market fund of US TBills or an intermediate bond fund of US Treasury Notes (3-7 year duration) to avoid what could be a nasty down swing. Especially if you need the money in 3-5 years, you don't even want to see a normal bear market of down 20% (back into the low 800's on SP500) because you may not have time to recover in that short a period of time.
5. Think up, build a plan and be ready to execute it without hesitation...none, no hesitation at all! If you do reduce stock exposure; do you reduce by 33%, 50%, 75%, 100% from your current allocation? And when? Personal questions to be answered by you! OK, so you reduced your stock exposure by some percentage and now have cash tucked aside in a safe fund as previously discussed. Super! Let whatever is left ride and answer the next question. When will you use that safe cash to increase your stock exposure again; after a market decline of 10%, 15%, 20%, etc? Again, a personal question to be answered by you! But now you're thinking and building a plan. Some will choose to ride every up and down of this rollercoaster. I've got no problem with that because hopefully you've thought about it and that has become your plan. Cool! Work your plan...just don't ride it down only to panic and sell near the bottom as most do.
6. As for me.... I'm not wired that way. My focus is to minimize the losses to the maximum extent possible which leads me to my next point.
7. I'm ready to go on the offensive to the downside again. I've got my bear suit out and have been brushing the dust and lint off of it. I'm ready to put it on at ANY time now because the pieces of the puzzle seem to be falling into place. I am in serious watch mode again.
8. Sure, I put it on briefly in the June timeframe but had to take it back off during that July rip to the upside. That's OK. I had a plan and it didn't work out so I had to change it in order to stay in tune with the waves of the market. Simple enough. You just can't fight the market because as it's said, "The market can remain irrational longer than you can remain solvent."
9. For those wondering...How do you take advantage of the downside? Now's the time to do some quick research for yourself. Look at some Inverse ETF's.
10. Questions? Drop an email or call...but do your homework now because...
11. The Bear has broken out of the jail he was being held in and had some fun with the ladies. But now he has hooked up with some of his old buddies and is looking for some payback.