Seeking Alpha
Long/short equity, registered investment advisor, portfolio strategy
Profile| Send Message|
( followers)  

Good Morning. One of my favorite trading clichés is "opportunities are easier to make up than losses." The idea here is that you don't always have to be in the stock market game and that you shouldn't ever "force" a trade. You see, sometimes it is better to watch the way an "opportunity" plays out, perhaps learning something about the environment or the way a stock is trading in the process, than trying to jump on every little move.

Yet, at the same time, investors must also be ready to act when opportunity knocks at their portfolio's door. For example, I spoke with a lovely woman from Birmingham, AL yesterday afternoon who asked me if we might be able to assist her and her husband with their investing endeavors. She said that she had been reading my morning missive for a few years and that while they had acted quickly in 2008 after they heard that Lehman had gone under, they weren't ready for the big opportunities that presented themselves after the crisis ended.

One of my oldest friends and colleagues in the investing business tells a similar story. In late 1989, my buddy Rick had grown quite negative on the market environment and by the end of the year, he had told his clients to "get out." This turned out to be a great call as the first Gulf War quickly ensued and he wound up looking like a hero to his clientele.

The only problem, as Rick readily admits and laughs about to this day, is that was his "last great call." Although his "call" did help clients avoid a bear market, Rick wasn't ready for the opportunity that presented itself later that year. And as I recall, the DJIA wound up moving just a bit higher from the 3,000 level on the Dow where Rick had gotten negative on stocks. But what's a few thousand Dow points among friends, right?

The point this morning (yes, I promise there is one) is that at the beginning of a move it is nearly impossible to tell whether or not THIS is going to be the trend that winds up making the year. I will readily admit that I was not terribly excited about our models turning positive in March of 2009, in July 2010, in December 2011, or even on November 21, 2012. And yet, with the exception of the most recent signal (the jury is still out on this one), my angst toward each and every one of those buy signals turned out to be unwarranted.

The key is that each of those signals occurred after fairly substantial - no, make that ugly - declines. As such, the signal issued by our models, which are designed to tell us when the odds favor the bulls, the bears, or neither team, came when things still "felt" bleak. Therefore, it isn't terribly surprising that I wasn't jumping up and down about the tremendous opportunities that wound up ensuing after each of those signals.

In fact, if I'm being honest with myself, I'm not sure I've ever been excited about an opportunity after a bearish period or a severe correction. It's just human nature to get caught up in all the the-sky-is-really-falling-this-time sentiment that tends to follow a big dive in the stock market. And although my stomach is pretty seasoned, I'm not sure I would want to rely on my intuition to tell me when a really big opportunity is knocking.

Okay, I will admit it; I AM guilty of "talking my book" here this morning. However, in reality, what else am I expected to do each morning as we wait for the politicians in D.C. to get their acts together other than talk investing philosophy or strategy? But the point is that being ready for an opportunity in the stock market is tough. And it is for this reason that I rely on models and indicators and not my gut or my head.

To be honest, the only way that I am aware of to be ready for the really big opportunities is to be ready for ALL the opportunities. In other words, if you want to get the big moves right, you've got to be willing to get a bunch of the little moves wrong - that's the tradeoff.

So, will the current uptrend, which is now in its third week, be the start of a really big move? And correspondingly, is right here, right now an opportunity to get in before the bulls start to romp? Frankly, I don't have any idea on either score. But the way I play the game, when my models tell us the odds favor the bulls, I listen. And when they tell me to "be ready" for the next opportunity (as they are now) I listen. Because, in short, you just never know when a really big opportunity is knocking at your door.

Turning to this morning ... A WSJ report that budget negotiations between the President and Speaker Boehner have "progressed steadily" over the past few days and are becoming "more serious" has improved the mood a bit on Wall Street. In addition, improving business sentiment in Europe is pushing those markets higher this morning. As such, the S&P futures are pointing to an up open on the NYSE.

On the Economic front ... We'll get NFIB Small Business Index, Trade Deficit, and Wholesale Inventories this morning.
Thought for the day ... The secret of success is to be ready when your opportunity comes. - Benjamin Disraeli
Pre-Game Indicators
Here are the Pre-Market indicators we review each morning before the opening bell ...
Major Foreign Markets:
- Shanghai: -0.42%
- Hong Kong: +0.21%
- Japan: -0.09%
- France: +0.82%
- Germany: +0.77%
- Italy: +0.93%
- Spain: +0.26%
- London: +0.16%
Crude Oil Futures: +$0.54 to $86.10
Gold: +$0.40 to $1714.18
Dollar: lower against the yen, euro and pound
10-Year Bond Yield: Currently trading at 1.640%
Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +5.75
- Dow Jones Industrial Average: +50
- NASDAQ Composite: +12.13
Positions in stocks mentioned: none
Source: Daily State Of The Markets: Will You Be Ready When Opportunity Knocks?