Sunday, December 13, 2009


So often we as investors get caught up in the daily movements of the market that we forget to step back and look at the big picture.

A great example are the posters who come on the blog repeatedly warning that the market is going to rally, get on now or risk missing the move, the market never falls in December, blah, blah , blah.

You know what I say? So what! Who cares! Let it rally, but it will do it without me. Why you ask? Well let me start off by showing you what markets don't do.

Markets don't go straight up. When they do they often come straight back down.

Here's is what markets do. They rally for a period of time and then they go through a period of profit taking to cool off.

I've noted on the chart that it's pretty rare that the market will rally for more than 20-23 weeks without a corrective move. This market is on week 22. That means it's getting dangerous to continue pushing the long side. The market is overbought.

Now certainly it can rally further. If it were to make it up to 1156 it would tie the second largest two leg rally in history (1904). But I have to ask what's the point of trying to catch the last few pennies?

Eventually it will correct. It's much safer waiting for the correction and buying the dip than trying to catch the last few percent of the move. If you get caught at the top then you just end up riding the correction down with no dry powder to use at the bottom. I dare say there are probably a few gold bulls that know what I'm talking about?

We already have multiple signs of excess speculation and some evidence the smart money has been exiting in preparation for an imminent correction.

Now I'm not saying one needs to be short, just that now is probably the time you want to do like the smart money and build up cash to use when the correction comes.

Folks there are times when the right move is to just sit and twiddle your thumbs.

Now is one of those times!