"I'd say my investment philosophy is that I don't take a lot of risk. I look for opportunities with tremendously skewed reward-risk opportunities. Don't ever let them get in your pocket -- that means there's no reason to leverage substantially." ---- Paul Tudor Jones
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So where's the skewed reward-risk opportunity right now?
You tell me, because I don't see it.
Line In The Sand. At 1163 on S&P 500 cash.
[click to enlarge]
That's the area I've mentioned the last few days as Ned Davis' key support level.
Do you buy them there with a close stop underneath?
Is that a great reward-risk set-up?
No, but maybe we try it anyway. Ok, but you go first. Please.
Yes, the market is massively oversold, but I'm sick of that riff.
Sure, the 'Smart Money' Commercials have been buying, but short-term they are getting chopped up.
And no question, the Stochastics, and McClelland Oscillators are saying "sold out."
Yeah, and without a doubt, Ned Davis' crowd sentiment index is saying pessimism is "extreme", and Lowry's Reports is saying a rally is iminent.
...and on and on....
But listen, it all is eventually distilled down to one salient and unwavering point....
.....PRICE.
Right, that's where it all begins and ends, the alpha and the omega.
PRICE.
And price action is telling you that you need to be cutting losers relentlessly, that you can't be averaging losing postions, that you should be protecting profits..... if you have profits to protect.
It feels like something is ending here.
Maybe it's the end of the cyclical bull that began in October 2002, but more apparent is the possible end of the bull move in Material stocks like US Steel.
This long-term chart of X says that the trend line is still viable, but we know better than that.
I am lucky. We have a client involved in the domestic steel business at a high level.
He sees a slowdown coming.
He sees the China story unraveling -- they've gone from marginal buyer of last resort to exporting demon.
Sure, these stocks could bounce and inevitably will. A short-covering rally will blow in like death on the Bears who are reeking of hubris and homicidal bravura.
Oh my, they've got the scent of blood in their nostrils and they'll get reckless, but it feels like they're on the right path.
I've seen this Commodity movie before and I know how it ends.
Now we must gather ourselves and prepare for what comes next in equities.
But first I want to tell you about another movie, or more properly, a videotape.
And this videotape is in my head, playing almost constantly the past several days. And this is the plot time and place ----
---- Mid-2001 in the 2nd Year Of The Great Bear Market.
You remember those days don't you? Of course.
You come in each morning and power up your systems. The futures are green and the TV Monkeys are chattering about how oversold this thing is and......
.....magically, it opens higher. But then it comes in ...Boom Boom Boom! They take them down.
....day after day. Open them higher, then Boom Boom Boom! They take them even lower. This can't go on.
But it does, day after day, after day.
Then, in an act of providential mercy, one of those violent, crunching, short-term, ass-kickin' counter-trend rallies that happen only in a Bear market arrives and eviscerates the shorts..... but more take their place......they're like some alien life form.
and it starts again...... Boom Boom Boooom! take them down.....
.....and on and on........
So I keep seeing this tape. I'd like to erase it, but I can't.
Probably not wise to do so anyway.
Is there where we're headed? I honestly don't think so, but I certainly hope not.
Stephen
......
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