I got an email this weekend from JM, a subscriber who asked:
Do you think it is safe to start establishing smaller size positions on dips like in the 1st quarter of this year (Jan-Mar 2012)? Thx, JM
The Jan/Feb/Mar rally was pretty nonstop, and he’s asking if the bounce from the November low looks to have the same kind of potential. Here’s what I responded with:
Great question, and I wish I had the answer. All I can say is what I’m doing, which is not making those kinds of buys just yet. I am wanting to see a pullback first, and all we’ve gotten so far after this big lift from mid-November is a pause/rest. While the latter isn’t a bad thing, it’s not (in my view) as good as the former (a pullback).
Once we’ve gotten a pullback, it will not only offer better prices, but I think it’s likely that it also sheds some needed light on the resolve of the bulls. The first bounce was impressive, no doubt, but I think it was combined with short-covering. After a dip, we will see better if the bulls are truly intent on defending the November lows, and that would give me greater confidence to start accumulating shares on the long side. I think that’s somewhat likely, and it would make me intermediate-term bullish.
Back in Jan/Feb/Mar, waiting for the pullback didn’t pay because we never got one. And this time it may be the same, but my expectation is that since both bulls and bears combined to produce the first bounce from the November low, that we’ll see some kind of a battle before one side is declared the clear winner. That’s not a prediction, simply my expectation – which is subject to change based on the price action (as it should be!).
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