Patience Rewarded

I’ve been talking and writing lately about letting the market prove itself to me before I start investing hard earned money.  That strategy and patience has been rewarded.  Everytime the market has tried to rally, within a day or two we get a sell off and a reversal.  Monday we rallied 400 points.  Today we gave back more than half.  It’s a pattern we saw last week after last Monday’s 900 point rally.  Wednesday the market lost 700 points. 

The credit markets are stabilizing and credit spreads are tightening which is a positive development.  I believe if that trend continues, the panic will continue to subside which may help prevent severe drops in the equity markets.  If this happens and we see the markets stabilize and just move sideways, then we may be able to put some pairs trades on where we short weak areas that should be going down and go long strong areas like healthcare that are starting to perform well.  That could be very soon.

For now, the pennant is forming in the markets.  This is where the market fell and now the moves are becoming smaller and smaller.  Picture a triangle laying on its side.  These typically will break down and continue the pattern before.  Since the pattern before this consolidation was down, it’s wouldn’t be surprising to see the next leg be down.  In other words, we need a rally soon or even the bulls will toss in the towel.

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October 2008
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