A Fresh Start

 | Dec 03, 2012 | 8:27 AM EST
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Beginnings could happen more than once or in different ways. You could think you were starting something afresh, when actually what you were doing was carrying on as before. --Rachel Joyce

One of the great things about the stock market is that you can have a fresh start any time you like. You simply move into cash and attack the market as if you just started trading that day.

It can be liberating to approach the market in that way at times, and I bring it up because the recent market action has left us in a situation where it is tough to have a strong market conviction. The market is holding up well but is handcuffed by this irritating fiscal cliff debate, and there isn't much action.

Unfortunately, it looks like this fiscal cliff is going to plague the market for a while longer. I'm optimistic that there will be a positive resolution eventually and we won't go over the cliff, but we will have to contend with a steady diet of political headlines. The market is already weary of this and isn't reacting as much to the news, but it still has an impact and makes for tricky trading.

The way I want to play this is to keep an open mind and approach trading as if I am starting fresh that day. It isn't helpful to dwell on where the market has been or what past news events have occurred. We are moving into the next chapter of market action and we have to be ready to deal with how it emerges.

The big challenge is the slow and choppy action. The fact that we are holding up and not pulling back despite the fiscal cliff actually makes things more challenging since it doesn't give the opportunity to buy dips. The only way to put money to work lately is to chase light-volume moves. It is working, but it doesn't produce a high level of confidence.

While I maintain a bullish bias and a positive mindset, I also have a very high level of cash. I want to buy but I'm being selective and not finding many setups or opportunities. That doesn't make me negative. It just makes me patient until things develop better.

If you were holding all cash and going to start trading today, what would you do? Would you rush in and put all your cash to work immediately? That is the question to ask. The answer is probably no, unless an individual stock is particularly compelling.

The market is ramping higher in the early going as Spain has finally formally asked for a bank bailout. This has been a stumbling block for a while, and while it may not sound positive that help is needed, it is a positive that they finally relented and have admitted it. It is sort of like a 12-step program where the first step is acknowledging you have a problem.

I'm anxious to attack this market and find opportunities. As long as we are flexible and have an open mind, we will eventually find some good trades. We just need to wait and let things develop. It may not be very interesting in the short term, but at least we can maintain a positive mindset.



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