Although most of my short sales in weekly newsletter EPIC Insights are based on technical analysis, I will also use fundamental factors to influence my decisions, as when I opted to short Whole Foods Market (WFMI).

A purveyor of high-end groceries, WFMI appeared to be a company that would be hurt by an uneven economic recovery as consumers decided that frugality trumps luxury. In the November 1 newsletter, I detailed my argument that the price of the stock was overly optimistic about how the company would perform in the future. Then trading at a P/E of 36 and having rallied 239% on a year-to-date basis, WFMI was priced for perfection. After I took my short position, better than expected earnings failed to offset a weak outlook and the stock price tumbled. By being properly positioned, we have enjoyed a 20% gain that was against the broad market trend.

With the market continuing its march higher, bulls have interpreted every data point bullishly. As housing numbers are finally showing strength, the possibility of sustained increases improves. Over the next three days we will now turn our attention to the other pillar of an eventual consumer-led recovery - employment.

Wednesday will bring our attention to the week's main topic, with the ADP employment change expected to show 150,000 jobs lost during November.

I often warn in my weekly newsletter EPIC Insights against trying to explain every price swing in the stock market. Given to bouts of irrationality, markets will often act in an unpredictable and counterintuitive manner. Therefore, those looking for precise answers are often left frustrated.

Instead, I attempt to ascertain the mood of the market based on broad themes. Generally, these themes will have a level of predictability that allow for informed investment decisions. Last week was not one of those times.

As we complete a holiday-shortened, data-intensive week, investors have a lot to be thankful for. Over the prior three days, data has been bullish as key economic indicators have either met or surpassed expectations.

Existing home sales bettered their forecast and increased 10.1% month over month. Some will argue that the spike was artificially inflated by tax incentives, but with existing home sales having surpassed 6 million for the first time since March 2007, the trend is clearly higher. As new home sales echoed this strength, we may finally be seeing stability in the housing market that will point to sustained economic growth.

After this morning's employment report, all of the hopefulness that surrounded an impending economic recovery is quickly eroding. With total jobs lost coming in at a worse than expected 190,000, and the unemployment rate finally jumping to 10.2% barrier, gloom and doom are reentering the scene. Those searching for glimmers of economic growth are once again scratching their heads and trying to determine when we will finally see the turn from contraction to growth.

As easy as it is to allow ourselves to become enamored with these short-sighted views, as investors we are better served to take a long-term perspective. Economic data is often revised numerous times and the likelihood of this number standing as a definitive statement of the employment market is virtually zero.

So far this week, the economic calendar has featured manufacturing data, pending home sales and factory orders. Despite better than consensus data and an oversold market, bulls have yet to sustain a strong rally. Compared to what is to come, this data will be quickly forgotten as our focus turns to the jobs market.

Wednesday is extremely busy with earnings from Cisco Systems (CSCO) and an interest rate decision from the Federal Reserve Open Market Committee (FOMC). Although this data is important, my focus will be upon the first piece of information released that day -- the ADP employment change report.

Today's release of the Case Shiller home price index (CS) shows that prices fell a better-than-estimated 11.3% year-over-year and actually increased 1.2% from the prior month. We can expect all the perma-bulls to climb atop their soapboxes and declare that housing and the economy have finally turned positive and the stock market will continue marching higher. At the center of their argument is the belief that a slowing rate of decline, where economic data is "less bad", equates to good news. I have never agreed with this view and a deeper look at the data explains why.

As first outlined in EPIC Insights, the 11.3% year-over-year decline is the lowest since January, 2008 and the month-over-month increase is positive, but the Case Shiller Index still remains 29% below its 2006 peak and 3% lower on a year-to-date basis. Examine other housing data and the story is the same. New home sales tomorrow are expected to increase to 440,000. This would be the sixth consecutive monthly increase. However, when you consider the average going back to 1963 is 688,000 and that 440,000 is where new home sales bottomed in every prior recession, the data is not encouraging.

When making fundamental trade recommendations in EPIC Insights, there are two main variables. The first is what we think a stock is worth. This number is under our control and allows for creative thinking to derive the fair value of the operating business. Regardless of what is occurring in the economy and the markets, we can create an estimate of value. While this part of the equation is of our own making, the other piece is not. That piece is what the market believes a stock is worth.

Since buying a stock represents an ownership interest in an operating business, one would imagine that market prices are dependent on evolving business dynamics. Although this is a piece of the puzzle, there are many more pieces. All of us have seen prices react to rumor and emotion as opposed to business development. Therefore, market prices do not always reflect true value.

There are many reasons to enter into a trade. Whether the impetus is a belief about long-term value or focuses on short-term price movements, people arrive at investment decisions in different manners. Seeing no need to delve into the merits of each investor's decision-making process, I will highlight one factor all should share. When you make a decision, it is extremely important to understand what dictated the choice so you can identify reasons for changing your view.

I often write about the need for patience and discipline when investing. As we consider our stock market strategy, we must always keep in mind that the market was invented and is operated by people. Over time it has become a Frankenstein-esque creation with a life of its own. Despite the amount of study and research an investor may employ in his decisions, prices constantly move in an unexpected manner that cannot be controlled or predicted.

Because of so many random moves, the stock market appears determined to deliver one thing to investors- frustration. At times, everything we have predicted will happen and it will seem that years of hard work have finally allowed us to master investing. Unfortunately, those periods will be short-lived and quickly followed by times where we stare at our computer screens and wonder what else can go wrong. This constant shift from investment glory to investment despair affects everyone. The key is determining how to manage the process so we can maximize gains and minimize losses.

As the calendar shifts from September to October, we face a three day focus on the job market. Wednesday will bring employment into focus with the ADP report showing the economy lost an additional 200,000 jobs in September. This would register as the smallest decline since June 2008 and is well below the 736,000 jobs lost in March. Thursday brings the weekly report with initial claims slightly increasing to 535,000 and continuing claims increasing to 6.17 million. Friday ends the week with the September employment report.

As reported Friday, the economy is forecast to have lost an additional 180,000 jobs with the unemployment rate increasing to 9.8%. While the unemployment rate continues its eventual rise above 10%, many will highlight the fact that 180,000 lost jobs is the fewest in over a year and well below the peak of 741,000 jobs lost in January.

Determining the fair value of an asset is both art and science. While traditional metrics such as Price/Earnings (PE), Price/Book (PB), and dividend discount models offer the appearance of precise mathematical answers, these methods are widely used and do not often provide investors an edge. Over the years, I have often used nontraditional metrics as a way to determine fair value targets and identify trading opportunities.

When I first joined the trading desk at Goldman Sachs, I gleaned impressions of how profit-seeking traders looked for opportunities. All of my studies indicated that when expected gains outweighed the risk involved, you took a position. While this was true in practice, there was more I needed to learn. Steady dependable gains were necessary, but there was also a constant search for something more-optionality.

Optionality involves a trade where the expected payoff far exceeds the capital involved. When we find a trade that pays us three or four times our initial position, it morphs a dependable solid position into the opportunity to make great returns.

Option markets live for volatility. Approaching events where the outcome is uncertain, option prices increase in anticipation of the unknown. At times that increase is unwarranted because the news will fail to drive prices widely. Other moments, the unknown sparks wide swings that allow for profits.

Research in Motion (RIMM) reports earnings after the market closes on Thursday afternoon. As a favorite of the momentum crowd, RIMM is subject to large price swings.

Country singer Kenny Rogers has been called many things. Somehow I do not think stock trader is among them. However, some of the famous lines from his songs can be applied to investing. While selecting stocks and deciding what to buy is extremely important, knowing "when to fold them" is just as important.

A key premise that distinguishes me from other professional investors, which I have employed to my advantage in the time I have been writing for EPIC Insights, is that the discipline to sell stocks is extremely important. Many have been so hammered by the dogma of buy-and-hold investing that they never think when the proper time to exit a position is. By constantly assessing and measuring the risk of our portfolio, I have built a track record that clearly shows that adhering to a specific sell discipline is just as important in creating long-term wealth as is deciding what to buy at what time.

At the risk of sounding simplistic, markets are complex. When we combine ownership positions in different operating companies, fiscal and monetary policies that alter the path of the economy, and the never-ending rollercoaster of investors’ emotions, price movements often take on a life of their own. Investors who follow the daily swings are left questioning what factors affected the past and how they will influence the future.

Often, this is a fool’s game. We can never know the true driver of illogical price movements and are better served allocating our time to broad themes. From a high level, three main factors affect stock prices—the macro environment (predominately the economy and interest rates), company fundamentals, and investor emotions (shown through technical analysis).

One of the most controversial topics in all of investing is how to handle positions that have moved against you. Some investors are strict believers that any position showing a loss indicates your initial theory was incorrect and therefore, after a predetermined drop (most use a 10% to 15% loss as their trigger point), the position should be sold. Others take the opposite view and argue that if they liked a stock when the price was 15% higher, they should love it now, and are compelled to buy more shares. I land somewhere in the middle.

When we determine the value of any stock, it is an inherently imprecise process. We may do mountains of research and number crunching to derive a fair value target, but it is only that- a target. As new information becomes available, we must continually reassess our initial theory and determine whether the stock is one to hold.

Long ago, I was taught that everything has value at a certain price. If you perform enough due diligence and think creatively, you can construct a trade where the upside is reasonable and the risk contained.

Following such advice, I have invested in some odd companies over the years. When others were buying hot technology stocks, I was looking at tobacco and chicken producers. Such an approach has yielded some interesting discussions with clients, but positive gains have justified the approach.

With the summer ending in the next few days, most have turned their attention to end of season parties, final vacations, and preparing to send their children back to school. Although I will be partaking in many of these activities, my thoughts are never far from the market.

The recent rally has stirred investors' hopes, but the next couple of months could bring rain to our parade. Historically, September is the worst month for stocks. Also, many large market crashes have taken place in October. Finally, considering the damage done to portfolios and the economy last fall, I am concerned that unexpected events could trigger wild price swings.

When making recommendations in my weekly newsletter EPIC Insights, I have always been wary of our risk profile. The portfolio has done extremely well during sell-offs and rallies and I have no interest in surrendering gains by blindly diving into untested ideas. For that reason, one of my favorite approaches is to construct a pair trade. By being long of one instrument and short of another, we eliminate market direction and trade the basis between the items.

With pair trades, you look for two items that should trade in the same direction yet have experienced a temporary dislocation. By betting on an eventual return to normality, pair traders will make money regardless of the direction the market takes.