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January 9, 2010 Week-end Market Recap, Nimble + In Sync = Hefty Profits

January  9, 2010 Week-end Market Recap, Nimble + In Sync = Hefty Profits
reprinted from )
The SPX gained 17 points on Monday, then 11 points over the last 4 days. Notably, on Tuesday, Thursday and Friday the SPX pulled back only to close near the highs. That’s bullish. SPX also has been up something like 10 of the lat 11 Mondays. Did the money managers beat the rush and buy on Friday this time? Maybe. 5 straight up days..and up 12 of 14 days. Bullish. Due for a pullback? Yep. But the pullbacks have been intraday, with reversals to up side, characteristic of a bull market. So, we’ll be nimble, but not fading this market.
The NDX is more interesting: Basically sideways for 8 days with a pop on Friday. The $$s rotated out of tech on Wednesday late and ere-entered Friday. Before those 8 sideways days of consolidation, we had 6 strong days like the SPX just put on the board. The NDX can out of a volatility squeeze, popped, consolidated and is poised to move higher. In short, the NDX may again get the money rotation form the SPX early next week and renew its climb in the third stage of the expansion form the volatility squeeze. This started on Friday and is where I am ready to put more money.
Dow Industrials, Russell 2000, Dow Transports... all up. All at the same time. Dow theorists, we’re in a bull market. Everybody else, we’re in a bull market.
Sector rotation: I track these ETFs in a watch list...everyday, during the day:
Watching these gives me a view of the market. Copy them into a Yahoo Finance portfolio or into your own software and watch them. Every day. I set my watch list to show the change form the prior day’s close as well as the change from the current day’s open. These 2 views show where the money was going and continues to go form the get where the money is also flowing after a reverse during the day. For example, on Friday IOL, the crude oil ETF was up .33% form the prior day’s close, but was up .67% form the current day’s close. That means the market opened down and OIL got all of the .34% down back, plus another .33%. Ka ching. We watch the flow...and can stay in sync. So, what do we do about it? if we see $$s flowing in a certain direction and out of a sector, we can confirm how out stock in that sector is acting and cut back or add accordingly.
Here is what I wrote on my website last Wednesday: “Smarter market; we'll have to earn it today.” Please also note this post from the day before: Stupid market....huh?...humility is key. We're making money on anything, throwing mud against the wall...only thing we needed to do was show up today..its all working. Woody Allen wrote that 80% of success is just showing up. Some days its like that..some days the risk is in not being in the market. And some days you need to recognize you're stupid to think it was humility is the key.”
It was al about money flow. Money was pouring into the sectors we were anticipating and we were up way above the market averages for 3 straight days but hen it changed. By Wednesday tech was starting to sell off and $$s were flowing to the Financials. We adjusted and bought HIG and JEF...during the day, both already up big but still caught half the move.
Thursday the transition continued even harder and we were caught flat footed..I was down over 1.5% intraday as I had taken stops in some Tech (like SNDK), but bought back lower, not understanding the sector rotation was real and money mangers meant business. I finally got on board, accepted the stops on my repurchases and added to my Financials which were running hard (HIG and JEF). By the end of the day, I was down only .4% on a slightly up day..but made up 1.2% intraday as I got back in sync. Friday was even more interesting as $$s come back out of Financials and back into Tech. I saw this one coming,  sold down JEF and HIG to small core positions and added new small core Financials on the dip, BAC, FITB. Ka ching, up nearly 2% on a day when the SPX was up .29% and the NDX was up .74%. How did I do it?
I was in the right sectors and traded around core positions in the stocks I picked in the right sectors. By the end of the day Friday, these are my longs:
CASH (always a position, now 15%), AMSC, ANR, BG, BUCY, CHK, CLF, CSIQ, F, FWLT, HIG, JEF, MAS, MOS, MTW, NE, NTAP, RVBD, SBAC, SNDK, STX, TCK, TIE.
What to expect next week. I dunno. Really. We’re in a bull market, we’re clicking on all cylinders and the market si ignoring bad news. Ripe for a pullback...which never seems to come. So, no clue but the trend is up. So I tend do try to do the same next week as last: pay attention to money flows, accept profit stops when they come and not buy back until I see other buyers coming first (getting at this but it cost me about 1% on Thursday am).  we always make mistakes, lots..the key is to recognize, fix it and move on. Have a short memory during the day but beat yourself up later;)
What if I just bought and held through all this? I sure wouldn’t have made 6% on the week when the SPX was up 30 points for 2.7% and the NDX was up 49 points for 2.2%. the scramble was well worth it. Do we always do this much better. Uh, no. Sometimes we get out of sync. How do we fix that? We go to cash, sell down positions and figure it out. CASH does not go down when you are trying to figure out the whipsaws of this market. So, some weeks we’re the bug, some weeks we’re the windshield.
Happy trading and Don’t Take Losses. Go to more cash and figure it out, look for stocks that are working, not ones you hope will work.

Disclosure: Long all stocks but none of ETfs mentioned, in trading account