Today’s [tag]trading[/tag] was exciting. I didn’t have much time watching it, I just briskly reviewed it in the morning when it opened about 130 points below yesterday’s closing and later I could check it when the market was already closed. A [tag]300-point loss[/tag] was amazing. [tag]Dow[/tag] seems to be heading to a [tag]4000-point level[/tag] as Jon Markman mentioned once in his post.

When looking to to a [tag]chart[/tag] of today’s trading, seeing the market pushing its low limit to a 1997 level, this proves the [tag]strategy[/tag] [tag]buy & hold[/tag] to be wrong. If you ever applied such strategy, during this [tag]crisis[/tag] you would loose all you have been building for 12 years! And if you have started recently you may experience a loss of 50% or more (such as my 401k) and there is no prediction of how long your heavy bleeding [tag]portfolio[/tag] would remain locked in those losses.

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I think this is a great example and a lesson to every [tag]investor[/tag], that it is necessary to perform timing and when such similar crisis comes to a play it is important unloading [tag]stocks[/tag] from portfolio and move to [tag]cash[/tag] or [tag]money market[/tag] vehicles and vice versa. This is the greatest lesson every investor got the chance to learn from.

Another great lesson I have learned is that we should strictly follow the market. If the market says: Do not trade, then stay away. Unless you are a [tag]day trader[/tag], very experienced or [tag]lucky investor[/tag] able to feel the market’s pulses and be able successfully trading on both sides (shorting as well as be long) of course. In the history I know of only one [tag]trader[/tag] who was able to trade on both sides of the market – [tag]Jesse Livermore[/tag]. However even he refers to some of his trading periods as [tag]choppy market[/tag] which is wise to avoid.

Couple months ago, when I started learning about investing into [tag]stock options[/tag] I was also decided to start investing real money into [tag]cheap stocks[/tag] and trade [tag]covered calls[/tag] on those stocks. What a fool! I considered [tag]Citi[/tag] (C) to be one of those cheap stocks. I though I would just buy some hundreds of [tag]shares[/tag] of that stock and generate [tag]monthly income[/tag] on stock options. I somehow forgot that the stock might drop. At that time Citi traded at $7 a share (December 2008). By today it is $1.2, which is 93% loss! On my [tag]virtual account[/tag] I made roughly $300, but lost $1200. Is this worth holding such stock? I am not convinced about it much. I would prefer unloading such stock when it shows a [tag]sell signal[/tag] and wait for the market to tell me when to buy back.

Another great example is Almost Family (AFAM). In May 2008 it traded between $24 – $25 range. In June 20th, 2008 it broke up and rocketed up even though the entire market went down like a rock. It doubled the price literary within two months. Today it is trading for $18.92. You could make nice [tag]profit[/tag], but if you applied a buy and hold strategy, today you would be losing money. I entered a position of this stock in August 2008 when the market entered in to a rally (short live however) and I was impatient to start the new strategy as quick as possible. Later I realized it was wrong, but I forced myself to stick to my rules. Soon after, AFAM was sold on my rules. Today I can sleep in peace watching the stock falling incredibly down and being happy I am out of it.

There is a lot more examples proving that every investor should be watching her positions and [tag]actively manage[/tag] her portfolio instead of sitting on losses and apologizing herself that she is an investor, not trader.

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A week ago it seemed like the [tag]market[/tag] is already on the bottom and almost ready to turn over. However last week the market broke through its [tag]support line[/tag] and headed further down. It fell down without hesitating and some commentators celebrated its almost so called turnover on Tuesday last week probably in their hopes of turning market. It was just another fake created by proclamations of [tag]Obama’s administration[/tag]. No [tag]strong stocks[/tag] appeared that day and none of the leaders broke up. On a week-time-scale the market was unable to create new week highs and on Friday it even created the new low peak of this [tag]crisis[/tag].

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The [tag]stock market[/tag] is searching for its bottom and nobody knows when this fall stops. Once a friend of mine asked me when I told him that the market holds its support line what would happen if it falls below. Then we may expect a long journey to the bottom, was my answer. Here we go. This market is still not the one we want to be in. So stay in [tag]cash[/tag] if possible. It is hard to invest cash, since there is nothing to invest out there and the current [tag]money market[/tag], [tag]CD[/tag]s or [tag]savings account[/tag] earn so low [tag]interest[/tag]s that they are unable to match [tag]inflation[/tag]. However, it is better to have cash in any of the money market accounts or [tag]bonds[/tag] rather than loosing them on the market.

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Waiting for the [tag]stock market[/tag] can be frustrating, however it is quite normal thing. Every experienced [tag]investor[/tag] knows this period and many of them were waiting long time for their [tag]best stock[/tag], which made them their [tag]fortune[/tag]. Read the Boik’s book “How Legendary [tag]Traders[/tag] Made Millions” if you want to know more about other traders during market like this. [tag]Jesse Livermore[/tag] talks about this waiting time as well. Sometimes it happened that Jesse had to wait several months before a [tag]winning stock[/tag] opportunity came to him. He wasn’t the only one. [tag]Nicolas Darvas[/tag] was another [tag]successful investor[/tag] who realized he would rather wait than [tag]investing[/tag] in [tag]bad stock market[/tag]. Jesse Livermore was able [tag]making money[/tag] literary in good market as well as in bad market. Nevertheless he had periods when it was better sit tight in cash and wait. Darvas was the type of investors investing only in bull markets.

This week was hectic and the market was trying to bounce up several times. However only [tag]poor stocks[/tag] were behind those attempts. Most of the leaders didn’t show up and we are back in correction. What’s worse the market probably falls further down as you can see on this chart:

As you can see, the market is attacking its long term [tag]support line[/tag] and it seems it will break it down. Unfortunately, this is not the market anyone should be investing money in. The [tag]dollar cost averaging[/tag] or any other strategies based on [tag]bargain hunting[/tag] will be or may become a disaster to any investor’s [tag]portfolio[/tag].

What to do in this market, though? The best way to do now is to wait. You can work on reducing your debt, [tag]saving more money[/tag] and [tag]study the market[/tag], strategies and [tag]stocks[/tag]. Make yourself ready and prepared for the next upturn.
Some time ago I wrote that I moved all my cash from brokerage account to a savings account and in February 2009 I would move it back and start investing again. Well the market doesn’t look like a friendly buddy and I made my decision to leave my money on the savings account for another 3-months period. I do not have enough money to invest into CDs, bonds or any other money market vehicle yet. Most of them require an initial investment $5,000 or more and my investing account is about a half of that sum. With such a small investing account I need to move it to savings account to accrue some interest (at least something, since on the brokerage account there is no interest or very little one).

What is your accomplishment for this waiting period?

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On Tuesday a huge sell-off sent markets under pressure. Wednesday’s trading relieved that pressure a bit, but will this attempt survive? We will see next week.

Yesterday and today’s [tag]gains[/tag] returned the [tag]stock market[/tag] back to [tag]rally attempt[/tag]. It still is attempting rally and it may fail as it happened couple times ago. It still is not the right time for buying new [tag]stocks[/tag], however this attempt may be the bottom bounce, which puts the market into the [tag]confirmed rally[/tag] and we can start investing again.

The market returned back above its [tag]support line[/tag] today. If it sustains on that level and continues growing, we may be at the bottom finally and the worst things are probably behind us, even though [tag]economists[/tag] and [tag]investing[/tag] columnists may be saying something different. The [tag]economy[/tag] may still be in bad shape, however experts say that the stock market can predict better or worse times six months ahead. If this is our case, we may see our [tag]economy getting better[/tag] in about six months from now. Or the rally is a fake as many others prior this one and it will fail again. We need to wait for the upcoming week or two to see whether the rally sustains and turn into a confirmed rally or not. The [tag]volume[/tag] was weak and only a few [tag]leaders[/tag] could be seen gaining today. Still a [tag]weak market[/tag].

Tip: It is not time to [tag]start investing[/tag] yet. Wait for the [tag]market[/tag] to confirm itself. This rally attempt can still fail next week. I would stay out of the market, watch potential [tag]winning stocks[/tag], add them to a watch list and wait. There always will be plenty of opportunities to [tag]buy winning stocks[/tag] when the rally confirms itself.

The rally attempt ended as soon as it begun last week on Wednesday. We are in correction again.