Traditional Wall Street Advisors love to recommend that market participants buy deep discount value and then stay patient and hold for the long term. Shark investing philosophy differs greatly from this trading style. We believe that individual investors should not squander their flexibility and ability to move quickly. We do agree on one thing, the value of patience however we employ our patience in a much different way. 

Over the past couple weeks the market flashed some early warning signs: extended charts with declining volume, intra day reversals and poor sector leadership. We recognized these warning signs and took appropriate action by raising some cash.  Now the market correction is playing out in the form of increased volatility and confusing action.

The media focuses on professionals and asks their opinion as to where the market will go next. Investors attempt to predict a turn or a coming crash. Aggressive traders seek to be on the right side of longs or top ticking shorts. All of this focus on precise timing is to be expected, however we always find it much easier to sit and wait for the market to tell us what it wants to do. This patience of sitting on your hands when you have already taken appropriate measures of caution is often the hardest and most challenging lesson a trader must learn. During times like these we must simply wait for the market to tell us in which direction it wants to go, never being overly anticipatory in attempting to predict the direction.

Today’s action was text book uncertainty where sector leadership was again mixed; breath was fairly good and volume increased. Some of the big cap momentum favorites have been taken behind the woodshed and are being accompanied by other recent momentum favorites such as Google (GOOG) and Chicago Mercantile Exchange (CME). Weak holders seem to be selling first and asking questions second.  On the other hand the indices held up well and we even had good relative strength in the Russell 2000 Small Cap Index. It was quite a mixed bag of action which is not unusual when market participants are feeling confused.

Unfortunately it is still too early to tell where we go from here. The technical picture is still positive and the selling could continue for some time before true technical damage is done. Many stocks continue to act well and for the time being we aren’t yet changing our longer term optimistic outlook.  It isn’t necessary to have a strong opinion about the market at all times like so many do on television. In most cases the best approach is to simply remain patient and wait for the market to make up its mind before deciding on what to do next.

Have a good evening.

Rev. Shark