Rev Shark: Reacting, Not Predicting
09/08/2010 8:08 AM
"Success always comes when preparation meets opportunity"
-- Henry Hartman
Success in the market is primarily a function of being prepared to act as conditions change. If you have an open mind, a plan of attack and you move aggressively at the right time, you will do very well, no matter which way the market evolves.
Unfortunately, too many market players think that market success is all about grand predictions. They position themselves based upon carefully thought-out macroeconomic theories and then just wait for the money to roll in. Occasionally, it actually does work, but more often than not, the market does not immediately cooperate, and when it finally does act as anticipated, the original positioning is so stale that there is barely a profit to be made.
My approach to the market is to be reactive rather than anticipatory. I don't want to make predictions and hope. I want to see how the market is acting and then move quickly to capitalize on emerging themes and trends. I'll be the first to admit that I have little interest in making the sort of grand market predictions that are so popular in the media. Those predictions are always entertaining, but I bet the majority of people who act on them lose money, because even when they do have it right, the timing is off. If you don't have the timing right, it is almost as bad as being wrong.
Right now the market is at a particular point where good preparation is extremely important. You don't need to be bullish or bearish; you just need to be aware of the conditions in place and be ready to act as things develop. Maybe we'll be big buyers, but maybe we won't. The market will be the guide.
First let's consider the big picture. We had a good rally last week that cut through some resistance levels, but we gave back a chunk yesterday during a slow and uninteresting session. We didn't do any major technical damage, so we are in pretty good shape for another attempt at those August highs, which are the key levels to the upside.
The most interesting thing about the action yesterday was that, although breadth was poor and plenty of stocks pulled back, many of the recent momentum leaders held up fairly well. It is a positive that they have relative strength but a negative because it doesn't offer easy entry points.
Speaking of winning stocks, the most important thing we can do at a point like this is make sure we have a good watch list of stocks that we want to buy if the market is cooperative. Being ready to act quickly is the real key to effectively trading. I've mentioned quite a few names here recently, and many of them remain on my watch list, including Ameresco (AMRC - commentary - Trade Now), China New Borun (BORN - commentary - Trade Now), Nanometrics (NANO - commentary - Trade Now), Entropic Communications (ENTR - commentary - Trade Now), Rare Element Resources (REE - commentary - Trade Now) and Amtech Systems (ASYS - commentary - Trade Now).
If the market finds some momentum, these are the first names I'll be looking to buy. If things soften further and it looks like we are going to test support at the 50-day simple moving average on the S&P 500 (around 1,080), then I'll keep stops tight and cut back my positions.
I don't have to know which way the market is going to move; I just have to be ready to act as things develop. It requires vigilance and fast action, but I prefer that over the prognostication that most market players think is the road to riches.
We have a positive start on the way, but it is very quiet out there and we have little news. The Beige Book report is due out later today, but I'm looking for another day of light volume.
At the time of publication, Rev Shark was long AMRC, BORN, NANO, ENTR and REE, although positions may change at any time.