Momentum Rules

My best guess on how the next few weeks unfold is as follows. We should see some sort of a correction next week in the 2%-4% range after which we should rally again. A bigger correction is not likely in the cards until after the seasonally strong period is over. I have not yet decided if I am going to position myself more aggressively for a correction next week.

I must admit to struggling with the market recently. Luckily it has been more of a case of missing out rather than capital loss. The size and duration of the rally we are seeing without a corrective move in between has been with little precedent. Hedge funds dominate the market and their risk on/risk off mentality is creating tremendous moves. I have made adjustments to account for this but it simply has not been enough. Luckily, my understanding of this dynamic has been enough to keep me out of trouble and away from a net short position.

2 comments:

bbarberayr said...

Tsachy,

take a look at the daily SPY chart for the last 3 years.  To me, the chart looks very similar to the bull period we had coming out of Sept., 2010.  It was another period where the market went pretty much straight up for a couple of months, had a 1 month correction, followed by another 3 months of straight up.

Even though the SPY and other large cap indexes have not show much of a correction, the IWM and TNA had pretty decent ones the last month and I wonder if we are now set up for another strong multi-month move upwards.

I'm not saying for sure this will happen, but I do have it on my radar as a possible scenario, especially since the "prudent" trading strategy would be to look for better entry points.

Tsachy Mishal said...

If I decide not to play the correction and we get it I plan to get slightly longer but even than I dont plan to be aggressive after a 6 month rally from the October low. Not worth it to try and catch the last few percent of a rally imo