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Tuesday, October 14, 2014

Bear Market of 2014

Its here and now.

A flashy conversational item, like 'bull market' this or  'bear market' that, is not how i operate. I try not to get myself boxed in this one-way thinking. There is always a bull market somewhere, besides by the time certain type of price action is apparent - its usually too late to bet on it. Risk premium is available to be captured (both on down and up-side) before and ONLY BEFORE all information is available. Once move is complete - the game is over, then the reasons of why and who crawl from under whatever rock they where hiding, and become easy to understand in hindsight. This is theory.

In fact and as I observed in real time, this market has been acting weird since spring. It all started in April, when growth stocks, small caps and previous year market leaders shit the bed. I was not expecting this, as I assumed that treacherous range since 2000 is over and market taking off for another one-in-a-generation 20 year bull market. Long term bull market is a wonderful thing. Stocks can be analyzed on fundamental and economical basis, can be held for months (even years), as economy improves, wealth increases and society flourishes in general. I think we are overdue anyway, but its just my opinion. If and when that bull market comes, stocks still are not going to go one way all the time. There has to be periods of digestion, sideways ranges, rotations and corrections along the way, but in a general climate of growth ala "rising tide lifts all boats". Hah, you wish...

Short summer rally was mostly led by big mega-cap stocks, while small caps lingered and growth stocks generally lagged, although some had a double-digit rallies. That didn't bother me much, as I was heavily invested in biggest stocks via System 12. Personally I have mixed thoughts about so-called growth momentum leaders. Most of them are overhyped pump-and-dump scams, companies without profits, only meant to benefit insiders and bankers thru inflated IPO's and secondary offerings. A true 'stock of the future' is hard to find, as they are not widely followed until many years into expansion cycle, while price slowly climbs on no news and lackluster volume. I am always on lookout for one, but with no such luck lately.

May-June rally was nice, but not enough to rekindle animal spirits and market pretty much died going into summer vacations. Startling evidence was delivered by CSI  (Composite Score Indicator - my latest and greatest creation), as it fired a 'Sell all 11s', followed by 'OFF' sell signal across many ETF's and especially 9 Main Spiders on and right after week of June 30th. Of course I didn't know it at the time, I only started CSI testing back then, so its all in hindsight. (Damn thing was so complex - it took me all summer to organize, test and put it to work). Nevertheless, I was alert to sudden softness and while August drop didn't hurt me at all, my portfolios made very little progress on following rally.

I noticed a very careful selling in a beginning of September by some clever operators, and it wasn't unexpected at-all (at least by me). Working thesis was as follows: almost every year there is a 'sell Rosh-Hashanah - buy Yom Kippur' phenomenon, as some heavy hitters sell out most of their active portfolios in order to not to be distracted during high holidays. That was followed by Sukkot, culminating with full lunar eclipse on full moon during last weekend - a truly spectacular display I observed during early morning hours. Knowing about all this coming up, and taking into consideration 31 days wash sales period, and getting confirmation from MADI (My Advance-Decline Indicator) over a month ago, I assumed that they front-running all this shit in order to be ready to buy in October. I lighten up for a while too, then started to accumulate what look good and strong. The problem was - there wasn't too much to choose from, still I waited to see some improvement...  Well, we are here, but I don't see any buying. Quite the opposite - its a full blown panic, a carbon copy of 1987 or 2011 (minus the crisis).

Hopefully, the bottom is within reach, but hope is not a strategy. To be sure I don't get swept away, my account is 50% cash, but I was 150% long like a split second ago, so there is no 'ata-boy pat on a back' for Bergamot. I have tools and methods to buy all this crap back and more, as well as some levels that will take me completely out of the market... one day at the time... This year has been a complete fucking disaster for actively managed BCM account, putting my own equity curve firmly into Bear Market territory (extra Marc Faber).

So far its my 3rd worst year ever... shiiiit

...it ain't about how hard you hit, it is about how hard you can get hit and keep moving forward, how much can you take and keep moving forward. That's how winning is done!

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