If you recall from last week's missive, I said the odds were leaning toward a short-term sell-off in the market and as such, I planned to go short the market with a fairly large portion of my investable funds. On Monday, I began to ease into that strategy. Primarily, I wanted to follow the bear-biased SuperCycles. With the move higher in the market on Monday, I liked our short bias and put about 10% of my money into short plays.
Tuesday, the market traded higher, but was mostly flat by the end of the day. I had expected the market to move quite a bit lower. So... when it didn't, I did not add to my short positions and began analyzing what I would do if the market turned significantly bullish.
Wednesday, the market opened strongly higher.
I exited my short positions and reversed my trading strategy. The news out of Europe was encouraging. The US unemployment news was mostly positive. There was more good news coming into the market than bad. I began looking at the SuperCycles that were giving long-buy signals.
I went long the market early Wednesday and finished the week with the gains barely outpacing the losses.
Had I stayed bearish for the week, I would have suffered some significant losses. But I was willing to make a tactical adjustment in my trading strategy based on market conditions and our forecast charts.
As much as we would all like to have a clear direction in the market that is likely to stay stable for more than a few days, the fact is we haven't seen that kind of market for months. If you are not willing to tactically change your trading strategy to fit the current circumstances, you could find yourself seriously on the wrong side of the market. The old saying, "The market can remain irrational longer than you can remain solvent!" is more true today than at any time in history.
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