One of the hardest things for a trader to do, during a time such as this, is to do nothing. Assuming we have raised extreme levels of cash and feel comfortable with our last remaining positions, it is incredibly challenging to sit idle waiting things out. For me, it always feels counterproductive and my innate desire is to jump in and attempt to play the action any way I can. Luckily, I have resisted this desire which has kept all four limbs intact however it doesn’t mean the desire disappears completely.

Jesse Livermore used to say “You can beat a horse race, but you can’t be the races” and what I believe he was saying is that we must pick our spots very carefully and this is one of those times when skipping the races altogether has been the best play.

Regardless of what side of the macro-economic debate you fall on, there are some simple truths that one cannot deny. The markets have gone through a series of distribution days and remain technically ill. Financial companies which many regard as the backbone of our economy are teetering with many having already broken below long term uptrends that go back several years and in the case of Bear Sterns, decades. Fear and panic is starting to creep in, however with many longer term investors still enjoying decent gains for the year, massive ‘Joe Public’ selling has yet to take place. All averages remain under key moving averages and the most important of all, is there are no underlying charts that look promising at this stage of the game.

Shorting is always an option, but one I know many are not comfortable with however even shorting at such depressed levels feels like buying longs after such a rapid run.

So, as we usher in August, consider taking a break. Read that book you have been putting off for months, or go see that family member you haven’t seen since Christmas. The markets will be here when you come back and even if we get a few powerful bounces, chances are you won’t miss a whole heck of a lot.

It is never easy to sit idle and wait however that is exactly the point at which we find ourselves. Forcing trades or attempting to catch a bounce is playing with fire and will more than likely end up compounding your problems. Keep your capital intact and wait it out. At some point, this too will pass and we will once again be back to trading as we have in the past.

The futures are down sharply as we enter the first day of August on the heels of a selloff in overseas markets. The market may need another cleansing to weed out any last holders before it can actually gain its footing and set the stage for an advance. As I stated above, I feel much better being a spectator than attempting to play it either way.

Hang in there today and rather than become frustrated but the action, breathe deeply and enjoy the time off Mr. Market has so graciously granted us.

Until next time

~ Quint