Thursday, December 5, 2013

Risk vs. Reward

First off, I apologize for not having posted here for several days. Yes, there was the Thanksgiving holiday, but frankly my time has been primarily devoted to what has become a top priority: finding a new employer. During the last few months, I have been actively pursuing new opportunities and I will say that in many respects I'm working harder now than I did while employed! The job search is what you make of it and I've been spending a great deal of time trying to find an investment firm in the Boston area that could use my skill set. Let it be known I've debated whether or not I should even mention my situation here, not knowing the proper "blog etiquette" for this predicament, if it would be in poor taste or too blunt. But in the end I wanted to be up front with readers of this blog and let them know why I haven't posted on a more regular basis. Starting this blog earlier this year has been one of the best decisions I've made in quite some time. I love sharing my observations and analysis with you and it's been gratifying and educational to receive your emails. Granted, I would greatly appreciate any assistance that you the readers may have to offer (job leads, people to contact, suggestions, etc.), but again my main goal was to explain why there have been stretches with no blog updates. Okay, moving on....

Readers know that in early November I became cautious on the market in the short-term. The S&P 500 was then at about 1760 and several red flags were present or developing, not confirming the market's recent advance. The S&P 500 proceeded to rise to just over 1800 last week until pulling back some this week. I continue to see some worrisome divergences and non-confirming indications, but I'd like to make a point about risk vs. reward. Since getting more bearish in the near-term, I've watched the market (S&P 500) climb by a bit more than 2%, a nice gain in about a month's time. Yet given I was seeing more than a few worrisome signs (and still do), which to me could have resulted in a correction of 5%-7%, I'm not kicking myself about this most recent advance. Always exercise discipline and prudence, and ask: are the odds as I see it in my favor? Is the risk vs. reward skew favorable? What is the weight of the evidence saying? The 2% rise versus potential 5%-7% decline is a trade-off I'm always willing to accept.

I apologize (red face) but I need to run, I have some appointments today (now you know what for), but I promise to return this evening or early tomorrow with plenty of charts and analysis. Again, as I mentioned, this recent rally appears to be increasingly narrow and top-heavy with several breadth and internal metrics not confirming -- more to come.

No comments:

Post a Comment