Since my last posting in late May, the DOW is up roughly a meager 250 points. If you are a buy and hold investor, you made a little money. If you traded the volatility, and traded it right, you could have picked up a substantial amount of coin. However, we all know that timing the market is a dangerous game and rarely do your profits coincide with the roller coaster rides of the technical charts - at least on a short-term basis. Before I go any further, let's examine some recent market history.
It was the worst May since 1940 for the stock market, dropping about 8% for all three major domestic averages. The Ithaca Experiment portfolio was up 15% for the month because it is both leveraged and short. Some people advised me to ring the cash register, take my losses, lick my wounds and buy then while stock prices were low, but I believe the market is going through more than a bad stretch. I decided to bide my time. June was another down month so my portfolio was up. Then July came and wiped out all of my gains from the previous two months from the substantial rally we experienced. We are now almost halfway through August and I'm back where I was three months ago.
There is a dichotomy in the market now. It seems you either believe that the market is going to retest the bottom of March 2008 or worse, or, you think that this is a generational buying opportunity for quality stocks. If you think you can cherry-pick high quality blue-chips now, by all means do so. Personally, I'm going to sit back in my short positions and wait. From what some market pundits are saying, my war chest will be significantly larger in a year or two from now if I am patient and bide my time. I'm from the camp that says we've already reached our highs and the next steps are much lower than this. There are too many headwinds now for the market to make another upside move, at least in my humble opinion.
I don't want to known as the boy who cried wolf or the broken clock that gets the time right twice a day, but I'm still singing my same tune of a double dip recession. In fact, I don't think we're even out of the Great Recession yet. I believe that during the last year the market has been propped up by traders with a technical bent, not anything based on solid fundamental analysis. I realize my short positions are down significantly in the year since I bought them, but with a long-term investment horizon, I still feel I will be vindicated in the long run. Wall Street tends to take August off, which is why the trading volumes are so low this month, but we are almost through the dog days and September will be here before you know it. By the New Year, I expect the market to be much, much lower. If it is not, I would have to reassess my position and consider going long.