Don't Make Bets Now

 | Jul 01, 2014 | 12:18 PM EDT
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Macro or micro? Sometimes the market just doesn't care. I've seen several folks playing macro themes. Their predictions haven't been wrong but it hasn't translated to great market calls. Trading and market moves do not have to link to the macro data in the shorter-term nature of the markets.

I think one self-declared guru on Twitter (TWTR) has been finding that out the hard way over the past several weeks. And it becomes more dangerous as time passes and your macro themes continue to play out. It creates a false sense of confidence and entitlement. My macro themes are correct, but my market calls making money? In fact, why are my market calls getting hammered? No, I was right; therefore, I'm entitled to make money. And the slippery slope becomes steeper and more slippery.

Traders can quickly begin to believe that they can force their opinions on how a market should react. Entitlement starts to rule trading decisions and an unbiased look at market action goes out the window. The other thing that makes this worse is when you have none of your own money at stake with these calls. Eventually, you'll feel the pain of being wrong, but it will be a delayed pain like when the effects novocaine begin to wear off.

While I have recently been cautious on the market at times, I have been avoiding the short side. I would like to sit here and claim victory for some recent long calls, but the truth is that I could have had a blindfolded monkey throw a dart at a bunch of stock charts and likely made money. Granted, if the pick was bad, I probably could have made money using a GoPro (GPRO) to film it all then charge for the content. Watching the action in GPRO or any of the 3-D printer's names is difficult for some. I know it is hard for me to watch Voxeljet (VJET) since I sold it way too early, although I still have some exposure to the space.

Overall though, this type of action is concerning to many trading veterans. It just is. We all know it will end and don't want to be there when it does. The problem is -- and we all know this, too -- it could end tens or even hundreds of percentage points higher. While experience can be helpful, it can also be haunting.

I ran my normal breakout scans this morning. Usually I'll have eight to 10 names on it, but when then market gets going, it will often double. This morning, there were 58 names on the list. After 90 minutes of trading passed, that number tripled! While some will point to this as a bubble or something of that nature, it could just be some beta chasing and market strength.

The market action tomorrow would normally be worth noting after a scan like this, but it's a holiday week with thin trading. As I said yesterday, it is a shortened week, so short at your own risk.

I'm not against taking profits and, maybe when GPRO hits $50 I'll think about a short, although I prefer to wait for the options. But, for now, you won't find me getting aggressively short in any manner. Take profits now; do not make bets.

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