Don’t try to trade like the Carnac the Magnificent
A: Clean air, a virgin and a gas station open on Sunday.
Q: Name three things you won’t find in Los Angeles. — The Great Carnac (and Ed McMahon)
Yesterday, I wrote this:
Market’s down this morning, but is trying to bounce back from the lows. Path of least resistance is probably lower, at least for today though. Remember when the market was just about to break out a month ago and I wrote this one, by the way? How to trade the market as it’s about to break out (Updated). We are a long way from those levels now. I’m likely to raise some more cash here as we’ve had such a great run and I want to be disciplines and flexible as always.
And I came back later and wrote:
As I’d noted earlier this morning, the path of least resistance suddenly seems to be lower today. I’m stepping back and am indeed raising a little cash today.
Sure enough, yesterday and today, the markets have been falling and the path of least resistance has indeed been lower. So I get a couple questions and emails from you guys asking me:
“Cody, if you knew the markets were going to fall, why didn’t we buy puts on the SPY so we could profit instead of just having raised cash before the sell off?”
I’d answer that by saying that yes, if I had known that the markets were actually going to fall 3% from the time I wrote that I thought the path of least resistance was down, then I would have loaded up on short-term puts and made a huge chunk of change in the sell off. But come on, guys, do you really think it’s that easy? Saying “the path of least resistance” is not the same as saying, “the markets are about to fall 3%”.
To be sure, there will be times to get bearish — long-time subscribers know that I went to 90% cash in my hedge fund portfolio back in early 2007 and at times was actually net short as the markets were topping and I had turned from a long-time tech bull to being a full-on bear about the stock markets, real estate, our economy and everything else.
That’s not what I see today and I’m not going to pretend for my own ego or for you guys that I was predicting a 3% two-day sell off in a market of thousands of stocks being traded by millions of people when I raised a pretty decent chunk of cash all at once yesterday. That’s not to say there aren’t times that I will indeed buy short-term SPY puts, but I’d have to be more overall bearish and worried about the broader economy than I am currently.
At any rate, stay tuned, I’ll be doing more trading today. More details in just a bit.
Carnac the Magnicent with Predictions about Snoopy and Taxi Driver on “The Tonight Show” — 1976