Thursday, February 4, 2010

Oh, Prince Smokin' Hot Charming! Take Off My Rose-Coloured Glasses & Kiss Me...

And then, he became a frog!


Some time back, my colleague and I were discussing market timing and he indicated how we can be really right about the market and yet be wrong for a long time, citing people who called the global financial crisis two years too early.

Here I am, dealing with several prince turned frogs again. And I'm really at fault here for being greedy at the wrong time. BAC was a huge hit for me for a while and I was really loud about that too. It was definitely my most impressive Wake the Neighbours trade - aside from Harry Winston - an especially loud position.

Now, if the market doesn't turn around with tomorrow's employment data, I think I might be wrong for a long time. People will be hearing me cry instead of sigh. I have to watch this data announcement very carefully. How will prices react? Will prices be able to climb back up and hold at a good support level? Or does it appear that people are selling the news? It'll take time for the accumulation at certain price levels to occur. For now, I still consider my positions being well supported, with the exception of NYX. NYX keeps breaking lower and lower.

I do trust my intuition. I saw first hand that the US economy was getting back on track during my visit in December and it made me very bullish. People want the recession to be over already. And there are signs that growth might be around the corner. I also know that there are sectors that are still very much undervalued.

What is my definition of a sector being undervalued? It is not as rose-coloured as it would seem. I define an undervalued sector like this. It has a lot of market cap growth potential, either because it is trading below book value or because its Price/Sales ratio is below 1 - or both. Moreover, it would have to have healthy cash levels. If it has a positive ROE, that's even better. It would also have been one of the most beat up sectors. Basically, its share price would have no place to go but up - in theory.

The big question now is: are we getting into another Buyer's Market and should I temporarily close my trading legs for an even better opportunity?

It's very true that when you can buy with discipline, the profits naturally follow.


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