The End of Easy

By -

Hi Everyone – – today was the best trading for me since…….

glances at watch


glances at calender instead

…….a very long time. It wasn't that we had some kind of cataclysm in the market. Heck, the Dow was down just double digits. But, across a wide swath of (mostly small cap) issues, I had a good day, and I added to my positions.

One of my favorite areas right now is utilities. I have the largest single position I've ever had on anything in my life in the XLU. I'm short a very meaningful amount of this stock. I was pleased today that, even in the midst of some fighting back on the part of the bulls, XLU remain pretty weak. Here's one look at the utility index:


Let's face it, Utilities aren't exactly thrilling; we're not talking about red-hot investment banks or world-famous Internet companies. We're talking about utilities. Snore. But that's a big part of the appeal for me right now. A nice, steady diminution in value is what I'm after.

But let's take a look at something much more general – the Dow 30. There are a couple of points I want to make about the market, by way of this chart:


Take note of these features of the chart:

  1. The rise higher since March has been nothing short of sensational. The bulls have enjoyed an almost uninterrupted ascent higher.
  2. The strength and length of these thrusts has been diminishing, however. The lion's share of the push took place in the span of just about ten weeks, from mid March to early June. All the really easy money was made back there.
  3. There have been a series of successful "bases" made, which I've tinted.

The important point I want to make is this, and I've alluded to it before: the easy money for bulls and bears alike is gone for a while. The bears had their extravaganza last autumn. It was almost impossible to be a bear and not make money. The bulls had their time this spring and summer. It was almost impossible to be a bull and not make money.

As short as I am, I am not short because I think the world is about to plunge into the oblivion. Far from it; as I've said countless times, I am basing my trading on a long, slow, grind-it-out, frustrate-o-thon measured in years, not weeks. That's why I'm so bonkers about individual positions right now, as opposed to taking long-term index positions.

I think there's every opportunity for the bears to enjoy a nice slide in the market, but I am not that ambitious about how far down we will go. I think it's going to be very much a stair-step process, and an S&P 500 getting down to even 1040 or so – not even 5% from here – and I would look very hard at my positions to see if it's time to close them out and wait for better prices. I would at the very least tighten up my stops considerably.

My point is that bears had it easy last year, bulls had it easy this year, but I think the balance of the year – and the next few years to come – are going to be all about stock selection. Making money is going to be harder for bulls and bears alike. I, for one, am looking forward to it, because explosive moves in either direction just aren't my bag.