For about 2 weeks, I have wanted to put back some of the higher Beta long positions (Emerging Markets, Small Cap, Technology) that I took off on August 1. I am waiting for some form of confirmation prior to entering the trade.
Note, however, that a Bullish instinct or gut feel or desire is no reason to enter any position. Data-driven objectivity must trump subjective, squishy feelings...
I want to add to long exposure, if for no other reason that I expect an 8-12% rally from oversold levels. Ideally, I’d like to see markets more oversold and sentiment more extreme before putting on the trade, but we rarely get those perfect set ups. Trading (as opposed to investing) is more about laying out probabilities of risk versus reward; Investing is about valuations within the longer secular macro picture.
Our investing risk here is the downside of a significant earnings contraction in a possible recession circa 2012/13. The trading risk is missing the upside move of 8-12%. Indeed, the single factor most strongly opposing any buy is that so many people seem to fear missing the upside move versus fearing a significant loss...
I will be reviewing market volumes, internals and sentiment to see if I can find an objective trigger for the buys. Until then, I am watching and waiting, wanting to get long for a trade, but . . . [Ritholtz's ellipsis here] (link)
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