Wednesday Reflections: Traders Focus on Patient--Not the Perscription

10/24/2012

It wasn't as green of a Monday in thought it would be. In fact, it was quite red as was tuesday. Many more bad earnings numbers as well as bad news from Spain prompted heavy losses across the board yesterday. Today, the markets finished slightly down despite positive news regarding US home sales, which increased 5.7% to a yearly, seasonally adjusted total of 387,000, the highest in 2 years. In addition, the markit US manufacturing index rose to 51.3 from 51.1 in september which is better than Europe or China. Any growth is better than none or negative growth.

I believe the Fed policy meeting had little to no effect this afternoon. Bernanke said operation twist is in wait-and-see mode until December. I predict Bernanke will use the usual economic upturn over the holidays to ease the country slightly away from quantitative easing. The fact that earnings numbers have been so poor despite this new round of quantitative easing is extremely, extremely unsettling. I want to believe the economy has some life as is shown in the housing numbers, but the economy is just out of juice. It seems pointless to continue unleashing money unless the economy is showing some sign of life. The fact that Bernanke disclosed he will be ending his tenure in 2014 is possibly another sign of weakness if not entirely political.

I thought the economy would have a pullback either when QE3 wasn't released or after it was released, which is the reason I held so much cash. It seemed inevitable that the market would gap and then the gap would partially fill as traders realized neither of the first QEs were ever very effective which is the reason we have #3 in the first place. The last couple of days is exactly the kind of pullback I was originally predicting, and the fact I missed on much of the QE3 gains and now lost on all of this pullback is very upsetting. I no longer have an opinion on whether the market will correct from the past couple of days or if it will follow the world into a recession. And as a famous trader once noted, “if you don’t hold an opinion, don’t hold a position.

It is difficult not to get emotional in times like these. I am still well ahead of the S&P 500 for the year, but I’ve lost 3.36% during October compared to the index at 1.91% (largely attributed to my MSFT holding which is down 9.35% over the last month. My choice to go so long in MSFT is a large, unacceptable, and novice mistake. I subjected my portfolio to way too much firm specific risk, and I would be fired if I was doing this for a living, thank god I’m not. Looking forward, I am going to hold on to most of my positions, and I will sell at the first hint of negative Macroeconomic news. In the future, I will focus on finding sold dividend stocks which can contribute to my portfolio while the economy bounces around and goes nowhere.