Wednesday, July 4, 2007

Riding the Bull

I've made this point in the past but I don't think it will hurt to bring it up again. There is a quote in the Jesse Livermore biography about an old trader who was advised by a young trader that the markets were severely overbought and that he should sell his position and wait for the market to pullback so he could buy in cheaper. The old salt calmly agreed with the youngster but refused to sell any of his position. When the newbie asked him why he wouldn't sell his reply was "I would lose my position and it is a bull market after all" Look what would have happened if you sold waiting for a pullback in either one of the two uplegs so far in the last year. We didn't get much of a pullback and if you were out you risked getting quickly left behind. Now notice that the Feb. correction was only 2/3 the % of the June/July correction and about 1/3 the time. The most recent correction was half of the Feb. correction. The corrections are getting smaller and smaller. The short interest just keeps getting larger as more and more investors try to pick the top. AKA we have a lot of fuel for the fire. Losing your position now could be very costly. At some point this bull is going to pull in the retail money again like it did in 2000. Maybe not to the extent that it did in the bubble years but they will start to chase this market. We need that to happen before this bull can die. Nobody ever said riding the bull was easy.