Friday, April 20, 2012

Taking Risk

I have been warning, for some time now, that investors should be prepared for an imminent correction that will ultimately wipe out all of their gains of the last several months. For those who don't believe in taking opportunities on the bearish side of the market are only kidding themselves. Now more than ever is the market in position for it's most profitable investment of the year. It just takes a little courage on your part.

It's probably a good thing that I learned early in my trading career, not to shun, but to embrace fear. The old saying of "fear the unknown" in the marketplace is actually a disconnect between the the amateur (with only basic knowledge) and the seasoned veteran. What appears to be an unkown event to the rookie is seen as an opportunity for the senior. Courage is not the absence of fear, it's taking action in the face of it.

We're here to make money, and it takes a lot of self in this business. Almost all investors who became successful were able to take on the necessary risk in their life to enjoy the rewards. Don't forget that those same successful investors have also made every mistake in the book in their early days. Our job is to avoid making the big mistakes, and not get discouraged when facing minor set-backs. It takes approximately 10,000 hours of studying these markets to become confident and a competent investor. And along with a bit of luck, and patience, you become "World Class."

Bottom Line- Find your "theme" and stick to it, don't deviate from it. These markets will soon break the backs of many financial advisers, economists, and money managers of every description. The media is now beginning to turn slightly bearish, which is, a subtle early warning sign in itself. Now that all of the conditions have been met, the only question that remains is, can you risk a bet on your own conviction?

The S&P 500- Daily Chart 

The Russell 2000- Daily Chart

The U.S. Dollar- Daily Chart



  1. Miss the vids, D. Still reading the blog, though. You said the SPX wouldn't reach 1400 "mark my word" not too long ago, but most of your calls have been sound and I always look forward to your technical take.

    Decided to short AAPL via the QQQ's on the uptrend back test 10 or so days ago. I've only been able to move my stop down a few points, but that's ok.

    The risk situation here is so delicious. What has been wound will be unwound. Patience, patience, and more patience.

  2. Whattup Durden,
    Yeah I had to do some re-thinking on that original forcast. The Model portfolio though has done fantastic and is set-up for some juicy gains as well. I think it's about to get real nasty.

  3. Great write-up, as usual, Darah.

    Do you have any thoughts on gold and silver for the remainder of the year?

  4. Gold and Silver are at the mercy of the U.S. Dollar. It has been proven that neither gold nor silver can withstand a bullish dollar. I think the miners have experienced some serious technical damage too. Their weakness has even spilled over on the weekly charts. Plus, what will the metals do in the face of a dramatic sell-off in the market? We could bounce eventually, but the bubble phase will not emerge until a larger correction takes place. And I don't think gold has ever been able to go longer than 11 years(on average) with out a substantial correction.

  5. Don't be too confident about the metals and the /DX. Besides the 120 peak in 2001, the dollar index has gone essentially nowhere since the late 1990's. It's hit 80 how many times? Everyone knows where gold and silver has gone during the same timeframe.

    Silver, gold, DOW and US Dollar index since 1996:

    Sentiment is awful, there's no volume on the COMEX, inventories are at all time lows and the "bubble" hit pieces and top callers are back out in spades. Gartman sold, so you it's time for a 5% rally.

  6. The correlation was based on a short-term analysis. Think in terms of what the dollar will do in the coming months, not coming years. Then based on that analysis, how will the metals respond?