Struggling with Myself

I struggle with myself on days like today..as every bone in my body tells me to sell and not chase this momentum. So I am not chasing, but I am not convinced that shorting this market is the right strategy and has been pretty vocal about the reasons why on a number of financial sites and in my blog.

Unfortunately, this also precludes me from being involved in some very interesting situations, as they all moved without getting down to entry points that I identified as low risk. So alas, I am watching some of my favorite names soar today…without me. As luck has it, I was travelling yesterday, otherwise I probably would have taken the advantage of yesterday’s rally, but over the two days the move is just above my threshold. So I will have to be patient. This market will continue to be volatile and over the next few weeks we will be rewarded with a better entry point.

So for now, the strategy that worked for me is to rotate constantly from overbought to oversold sectors, especially those that got crushed for reasons I don’t agree with fundamentally. My techno-fundamental discipline is paying dividends in this market…and I feel comfortable with my risk adjusted performance. I will never be the highest return guru, as my risk discipline will not allow me to pyramid my trades, chase latest M&A rumors, or do smilar things that amateurs do.

To revisit some of the areas I am focusing on right now, as we get ready to kick off the earnings season:

1) Oil at $65 a few days ago, was pretty close to the bottom of $60-$80 band that I believe to be a decent and realistic range for crude over the next 6 months. My US$ bear bet continues to play out, although I am long oil/nat gas and other commodities as a proxy for the US$ short.
2) I continue to believe that the right way to play Nat Gas rebound, is via exposure to Coal and Nat Gas E&P companies, rather than commodity itself, but one could take a small position in natty straight up.
3) Looking to take a few positions in semis and apparel manufacturers ahead of earnings (see my post from last weekend What To Expect From Third Quarter Earnings ). Semis is now becoming a bit of a consensus trade, so be careful!
4) I am seriously looking at Healthcare today, and over the next few days, I will be making a number of trades...I am going to overweight HC, and plan to dedicate a separate post to it later this week.
5) China and Brazil – again, in the next week or so I will outline my favorite picks.