Two roads diverged in a yellow wood…

July 29, 2008

The beginning words in a famous poem by Robert Frost that we have all heard since childhood. And as we all know, the poem ends “I took the one less traveled by, and that has made all the difference”. So you’re wondering as to why we choose to mix poetry with the stock market and simply, it’s because the markets have been on a downward trend for quite some time now, and quietly without much fanfare, the bulls have started to put together a potential bottom followed by a higher low. Thus, we have price action in the indices converging which will eventually lead us to a “fork in the road,” which begs for us to ask the question, “take the road often traveled or the one less traveled?”

We are currently long on one stock while short on three others, so it’s apparent where we stand in regards to market direction. We believe that the odds are that we’ll see much more action to the downside. However, there is the road that is less traveled, in which, if the market does finally turn the corner, will provide huge rewards.

We’re not about to cover our short positions (unless our stops are triggered), however it is worth noting that eventually the market tide will shift as it always has done, and to be stubbornly short or maintain an unhealthy cash position at that very time could cost you more in the long run then if you have never sold out of your long positions when the market first peaked.

Price action is beginning to converge as noted below and we could see a strong break out either to the long or short side. Our bias is to the short side as noted by our portfolio balance. However, today’s solid price action and volume confirmation does strengthen the bull’s argument.

A word to the beginning investor and trader…  

For those desiring to beat the market year-in and year-out as a trader/investor, it is imperative that as an overall theme or approach to your trading is to take the “road less traveled.” Let’s face it, if trading was easy, everyone would be millionaires or better, but instead the stock market holds barren those who’ve staked their fortunes and life savings on their belief that they can get by with consistently taking the road “often traveled.” Take the road that will make all the difference!

Here’s the NASDAQ and S&P Charts…