What I found so interesting while reading this article (although I had known about this concept prior to the reading), was how I had been slowly forming a more negative view of the market and found myself drifting toward a broad market bias. This is something that I try hard to avoid as I feel it offers no discernible advantage in my investing results, and may even be a hindrance due to the interference of my emotions.
Most people lose money in the markets (individual traders/investors), but some do find great success. So what separates the winners from the losers? If most people lose money in the markets, then we need to avoid behavior that appears to be that of the masses and start behaving more like the minority. If the majority of individual investors are emotional, reactionary, and fearful (the standard human tendencies in stressful environments), then we need to do the opposite of that and react systematically. We need to do our planning and thinking away from the heat of the battle so that in the moment of maximum activity we will act according to our non-emotional system and not allow our fear and greed to lead us to poor decisions.
With this confirmation bias stuff out in the open I think it is best if we simply focus on what avoids the most distraction and review our Top 10 holdings. I have spent quite a bit of time over the past month or more warning about difficulty in stocks going forward. While I still think it is a very mixed picture (at best), we need to continue to take the signals that are triggered by our system regardless of what the broader market averages are doing at the moment. Provided that the long-term trends are higher (they are), I want to be a buyer of strength in our core individual stock positions.
While we did have one buy signal in our Portfolio this week, it is important to review each position as there may be some interesting activity in a near future.
WFC (3/3) added on new buy signal
While I don't like the long term downtrend, according to my timeframe the trend is certainly in an upswing. An aggressive trader could consider taking off some risk at this point but since TLT is such a defensive and historically low volatility holding I don't mind riding our current position as long as the inflection level near $109 is intact.
I said last week taking a small, longer term entry around current levels is not a terrible idea and I have done so over the past few weeks in other accounts, but for true trend based systems this one is not quite there yet.
--The current environment gives everyone a little something depending on their market bias. We have stocks suggesting further strength ahead and we have others that continue to be entering new downtrending phases. There is something for the Bulls and the Bears depending on where you look, yet I find it much more profitable to simply focus on what we know and not on what we guess will happen. You don't need to predict the next move in the markets to be successful investors, in fact it may be highly counter productive to attempt to position yourself based on your preconceived views. Its better to let the market show you where the strength is and simultaneously where to stay away from as that will always keep you aligned with the positive price action.
Chart of the WeekRussell 2000 Index (RUT)
Fortunately we don't need to dwell on this battle. We simply need to focus on how our leading stocks perform and whether or not they provide the positive risk/reward setups we seek to be profitable and successful investors.