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A History Lesson

It's funny how many folks can't understand what's happening in the market these days. They use the 1999 analogy, which doesn't fit with the current trading environment. I think a better analogy comes from the 1995 to 1997 markets. That was the era of a reluctant rally that began in the third year of the first Clinton administration.

It also was a rally that no one believed in at the time. Market veterans will recall how the talking heads were predicting one top after another throughout that period. But the market just kept going up, day after day and week after week.


There were quick and nasty corrections along the way, in which the bears thought their time had finally come. But on every pullback, the public's growing appetite for equity exposure squeezed them into submission.

«I'm not saying this run will equal what we saw in the mid-1990s. But many traders these days can't remember a time when we weren't stuck in a bear market. They need to study history and see how momentum rallies can last a lot longer and go a lot further than they expect.

A while back, I noted how bear market geniuses had taken over the common wisdom in the markets. But in the diabolical scheme of things, it's the common wisdom that's always proven wrong at the major turning points. When we look back, we may discover we went through one of those defining moments during the past three months.»

Como o Alan Farley parece-se esquecer que o mercado permanece e actua quase sempre da mesma forma e as pessoas é que mudam. A grande parte, senão mesmo a maioria das pessoas que andam nos mercados nos anos 90 já estão fora do mercado.

Eu por exemplo entrei em Abril de 2000, no topo de um dos maiores bullmarkets de sempre, logo não sei o que se passou nos anos 90, nomeadamente em termos de sentimento uma ve que só posso analisar o passado através dos gráficos.

Também parece-me que o Alan esqueceu ou agora não se lembrar que o que aconteceu em 1995/97 foi uma correcção bearish dentro de um bullmarket que iniciou em 1982 e terminou em 2000.

Olhando para trás como ele afirma é isso que se vé, um enorme bullmarket. A não ser que se possa comparar aquela correcção bearish dentro do bullmarket com esta actual correcção bullish dentro deste bearmarket.

Só assim o entendo!

"If You Can't Beat 'Em, Buy 'Em"

By Alan Farley
Special to RealMoney.com
06/05/2003 10:46 AM EDT


"I guess you'd call me a reluctant buyer.
I've been skeptical of this rally for the last few weeks but have taught myself over the years not to fight the market. Every time the rally pauses, I wonder if this will be the pullback that turns into something bigger and uglier. But the selling keeps drying up after a day or two, so I hold my nose and buy more stocks.


Process wins out over conviction in my trading these days. I keep a watch list based on the patterns I see in my daily analysis. This list is heavily skewed toward the long side, and every time the market pulls back, it triggers buy signals on a few more stocks. It's a strange yet virtuous cycle.

I've sold short only twice since the start of April. Both times, I got my head handed to me. Like the proverbial child putting his hand on a hot stove, I've learned how painful it has become to sell short right now. This experience has affected my mind's eye, which in turn affects the types of stocks that wind up on my watch lists.

In fact, my newsletter has been 100% long for several months, except for those two short sales that blew up. I'm not getting any complaints, because the returns have been astounding. Still, I'm compelled to keep an eye on the short side, because the time will come to play hardball with the bears once again.

Now Is Not the Time

But for goodness sake, don't sell short right now. The top may come today, or next week, but this still isn't a good time for short-selling. If you haven't noticed, the market has been squeezing the shorts relentlessly to grind prices higher and higher.


But the shorts haven't gotten the message. They keep jumping in every time we get a downtick that lasts more than an hour or a day. They load up, feeling sure that Mr. Market is finally listening to their just cause. It's at this point the futures just sit there and set up the short-sellers for another big squeeze.

This routine has gone on for several months, but amazingly, the shorts haven't noticed they have a target on their backs. Perhaps we'll finally roll over when they have that much-needed epiphany and move to the sidelines.

Of course, there are ways to sell short in this environment and come away unscathed. Daytraders and scalpers can take advantage of the downticks, as long as they don't get too greedy and stick around like uninvited houseguests. Options players can extend their bearishness for a few months and probably hit the selloff nail right on the head. But the rest of us need to stand aside or become reluctant buyers.

I predicted this rally early in the move but haven't taken great advantage of it. In fact, I'm rarely holding positions more than two or three days right now. This is enabling me to take quick profits on the recovery rallies and unexpected bursts to new highs. Other traders are probably making more money, but I'm sleeping better at night.

A History Lesson

It's funny how many folks can't understand what's happening in the market these days. They use the 1999 analogy, which doesn't fit with the current trading environment. I think a better analogy comes from the 1995 to 1997 markets. That was the era of a reluctant rally that began in the third year of the first Clinton administration.

It also was a rally that no one believed in at the time. Market veterans will recall how the talking heads were predicting one top after another throughout that period. But the market just kept going up, day after day and week after week.


There were quick and nasty corrections along the way, in which the bears thought their time had finally come. But on every pullback, the public's growing appetite for equity exposure squeezed them into submission.

I'm not saying this run will equal what we saw in the mid-1990s. But many traders these days can't remember a time when we weren't stuck in a bear market. They need to study history and see how momentum rallies can last a lot longer and go a lot further than they expect.

A while back, I noted how bear market geniuses had taken over the common wisdom in the markets. But in the diabolical scheme of things, it's the common wisdom that's always proven wrong at the major turning points. When we look back, we may discover we went through one of those defining moments during the past three months. "

(in www.realmoney.com)