FundVision Classic Collection - Ed's

Author: Ed Parlier

In Reply to: Art posted by Art on November 06, 1998 at 13:50:02

Hi Art,

I'm afraid I can't help with the crystal ball. I took a break from my analysis here and find you all in the same funk. Is this a trend reversal or a bear market rally? I've drawn resistance lines all over my DWIX and SPX charts, so I wouldn't be shock if the market reversed on Monday, or continued to 9300, or broke resistance completely. I see where Bob has offered predictions of support, and I am always optimistic, but other analysts insist (as you suggest) that none of the fundamentals have improved since the last correction and we are more likely to break support into a deserved bear market as to resume the bull caused by investors' wishful participation.

The reason I write is that sometimes the catharsis allows me to see the direction more clearly. What did I learn from the recent correction and what would I do differently next time?

• First, I feel like I have been given a second chance. Not all corrections lead to an immediate retracement. So I feel fortunate to have not had to pay too dearly for my mistakes. The next time, I may not be so lucky!

• Second, I'll not be out of communication without cashing in most of my chips. When the first stage of the correction occurred, I was on an 11 day pack trip in the wilderness. When I returned, things seemed to have stabilized. Thank goodness I decided to exit the sideways market before it tumbled farther!

• Third, when price drops below 50 ema (or whatever exit point I choose in the future) I will pull the trigger, and exit (Say that 100 times to yourself, and maybe you will believe it!). In the past, I've waited too long to decide whether there would be a bounce--afraid I would miss collecting a few pennies, while I was risking lots of nickles.

• Fourth, the attraction of earning 5% in a money market is quite real when compared to losing 20% of my retirement to second-guessing the trend. I was not very happy to be in the money market earning only 5% in mid-August, but I was VERY happy to be in the money market in mid-September. What that teaches me is to stay on the sideline with most of my money until there is a definite trend. I can survive on 7% returns, but I can't tolerate 20% losses (:>).

• Fifth, when the market is volitile, invest in Fidelity Select funds whose trades can be executed in the morning instead of just close-of-busineess. By the time the trend reverses, I'm 24 hours away from being able to execute a trade with conventional funds. That heightens the chances of being whipsawed and lessens the chance of profit on each trade. Example: When I finally decided to get back into this market, half of my funds were in conventional funds (like Fidelity Dividend Growth) and half were in Selects. I gained one more day of profit with the Selects because of the 10 AM purchase than the conventional which were purchased at 4 PM even though both orders were placed at the same time. The same is true on the way out--by the time the decision to sell is made, Selects can be sold immediately, others give you another day of losses.

• Sixth, shorting the indices in a downtrend appears to be an interesting game. But my observation of other peoples success is that I will papertrade that strategy until I learn a lot more about cycles and patterns in the market. I like the concept of making money during a down market, I'm just not sure I can execute the strategy given all the mistakes I make trying to read an up market. I have enjoyed watching you all play the game, however (:>).

Hope my ramblings have not been too incoherent. Now I must return to determining a strategy for exiting(?) this rally(?).

Cheers, Ed