Still on the lookout for the Hulk.

Here is how an Incredible Hulk type rally can develop. It starts with some slight green on the screen...therefore the longs are not getting stopped out of their positions. Then some cash comes off the sidelines to start accumulating sending shares higher still. Shorts don't believe it and short some more but it doesn't work and stocks rally...this triggers stops from those short stocks. Individuals then stop calling the mutual fund companies with redemptions every day. Sellers stop selling because things are finally coming back. The trillions of $ on the sidelines starts to get itchy and coming in to buy. The fast money hedge funds see it going up so they are buyers instead of sellers. When does this scenario start to develop? It has nothing to do with news flow...we had a 1500 point rally a couple months ago when the news was still bad.

Looking for the Incredible Hulk

• As the meltdown continues - the S&P is now down 170 straight points (18%) and has been down 6 of the last 7 weeks, I am getting more and more invested for a counter trend rally (this week?). A hint of a potential rally appeared Friday as many stocks underneath the surface performed well despite another -100 day for the Dow. That being said...it is important to have stops in place just in case. There is a significant rally ahead...when and from where is the hard part.
• The reason I am accumulating on the way down is because I sense the Incredible Hulk may show up and things get so green, so fast there will be no way to get in without prices having already moved so much.
• I bought some April calls on the S&P 500 on Friday.
• The parade of bearish guests on CNBC is simply amazing to me. I know this is a scary time, I feel it too, but can every bear be so right for so long without being tested at some point?
• It is very weird seeing the majority not being able to imagine things will get better ever again. I am not being a Pollyanna, I see the negativity...and the reasons for it that is causing the incredible media coverage all over, I read it all day every day just like you do. I just wonder if the worst case scenario that is now so widely discussed is the most likely outcome of if prices at least reflect much of the reality already?

Nothing takes the past away like the Future

• People are at restaurants, at the movies, attending concerts, and getting gas...yet stocks have fallen to levels worse than the great depression...when we had soup kitchens and 20% unemployment. Many situations are simply no where near as bad as the stock prices on your screen suggest. There are times when the stock price is just plain wrong. How do we know this? Because stocks that were $120 or $50 5 months ago and have dropped to $5 or $10 were dead wrong at the levels just 5 months ago.
• Valuations on many stocks are lower that 72-73 bear market.
• Thinking irrationally now and shorting all these stocks at 5x earnings just because they go down every day is as crazy as buying the Internet stocks in 1999 just because they went up every day...thinking valuations don’t matter.
• I had this typed and ready to email around 2 pm on Friday (I did post in the chat room). The negativity is so thick, the panic selling is so crazy, and valuations are so low that I firmly believe prices have WAYYYYYY overshot reality for so many stocks that I am tempted to go “all in” on full margin here and yell from the rooftop to buy hand over fist (with a realistic yet loose stop -15%ish).
• Money will not be made buying WMT, JNJ or Mickey D's. The massive money will be made buying stocks that are down 75 percent that have the mother of all snap backs. There are hundreds of names that will survive, have little debt, sound biz models, and the valuation is insanely cheap.
• To give you a sense of how crazy some things have become. Dry bulk shipping rates (grains, iron ore, etc) for global trade have dropped from $233,000 per day in June to $3,100 per day this week. What on earth drops from $233,000 per unit to $3,100 per unit in 5 months? Maybe $233,000 per day was a bubble, but even if we assume $80,000 per day as normal…what drops from $80,000 to $3k? It is not rational and is not sustainable.
• Stocks that are $5 or less can be treated as call options with no expiration.
• After going through the charts this weekend for several hours…I have never, ever seen so many stocks that I want to buy at crazy cheap prices. I now believe we have seen the low for the year.

A Good Trade - Defined

Good Trade Defined - When making trades and reviewing your positions, it is important to remember that the results of any 1 trade can be somewhat random. I know that may seem crazy to some of you but there is simply no way any of us can know exactly which trades are going to be winners ahead of time…otherwise, we would never make the losing trades! The important thing to remember is the analysis and the execution of your trades over time. Nobody has all winners…how we handle the losers make a big difference in our performance. Ideally, when taking a loss it not only frees up our cash, but it also frees our mind to move on to much better opportunities. Sometimes, we just need to move on and get the loser off the screen. When taking a loss, it can still be a good trade…defined as: solid analysis and good execution (remember, they can't all be winners...selling at a small loss can be a great trade...saving you from further losses and allowing you to re-deploy the capital in better ideas. From now on...Change your definition of a good trade from “winner” to “solid analysis and execution.”