Monday, December 11, 2017

High Plateau Drifter: "The Pain of Entry"

In investing, entry into a new investment decision is fraught with anxiety and potential pain.

The objective in placing a sell order, or a short sale, is to be close to the top tick. But if your timing is wrong, you may miss out on an additional 10 or 20 percent future gains if you were long, or incur immediate losses if you are prematurely short.

Right now, common stocks are at nose bleed levels after eight years and eight months of advancing prices. Long bond prices traced out a basing formation at the lows in price from mid 2003 to mid 2007 highs, and post 2009 lows, have been rising in price (falling in yield) for the past 8 years. The rally in bond prices from late 2016 to the present looks weaker than the three major rallies of the past 9 years. Indeed we see a pattern of lower MacD crossovers (basis TLT) to the downside from January of 2015 through the present, with the most recent crossover signalling possible bond weakness (rising rates) arriving soon.

Thus it would appear that rates are headed higher, and that time is running out for this stock market rally.

But then how long can such trends indicating future weakness in a rising market continue? Interesting enough, no lesser authority than Jesse Livermore cited examples of smart short sellers taking a long position in a stock first, just to see how long a wrong headed rally can last. That is probably a smart move.

Investing is all about control of your emotions and testing your hypotheses. After all, it is easier to resist a premature short if you are long a modest amount of the stock or index. Present pain is a better signal than bearish conjecture about what the future might bring.

1 comment:

whydibuy said...

Do the opposite of what this tin foil conspiracist says and you will do well.

Has he EVER made a correct call? I think not. So he is a great indicator of what not to do.
Interest rates headed higher??
Odd, there are a growing number of negative yields the world over. I guess tin foil ignores reality and talks up his bear book of a impending plunge.