Börsipäev 6. jaanuar

Rev Shark enne töötute numbreid:

"There are two ways of meeting difficulties: you alter the difficulties or you alter yourself meeting them."

-- Phyllis Bottome

2005 has certainly proven to be a difficult year for the bulls so far. We have had three days of trading, and three days of poor action. It has been the poorest action since June, when the indices went into a steep dive. So how do we proceed from here?

As Bottome so deftly states in the quote above, we have a choice when dealing with difficulty. We can either try to change the difficulty itself (in this case the market), or we can work to change our thinking.

None of us is going to have much success trying to change the market. It is going to do whatever it chooses and we are powerless to alter the way it acts. That sounds pretty obvious but there are still many market participants who attempt to impose their hopes and desires on the market. They are convinced that their logic is so compelling that the market has no choice but to act as they think it should. The reality is that there are few beasts as contrary as the market and trying to impose our thinking on it is doomed to result in some pain.

The correct approach for dealing with market difficulties is to change our thinking. For the most part that simply means respecting the fact that the market may do things that some illogical to us. Most of us develop some sort of thesis about how the market is going to act, which is a good idea because it gives us some structure in which to operate, but we get in trouble when we refuse to change our thinking when difficulties arise.

The first three days of 2005 have proven to be a good illustration. Many market participants (including this verbose commentator), where looking for seasonal strength and cash inflows to at least hold the market steady. That has not been the case and momentum favorites and small-cap stocks have been slammed as profit taking kicked into high gear.

Rather than insist that the market recognize our thinking about what will serve as potential upside drivers, we know have to consider that our thinking was incorrect and be prepared for further fallout. That simply means being aware of the possibility and acting with caution until there are signs that seasonal strength may kick in.

I made the mistake of letting my usual defensiveness in protecting profits slip a little as the new year started. I gave too much weight to the possibility of seasonal strength and let some of my holdings dip further than I should have. Rather than insist that I am still correct about seasonal strength, which I think I am, I have to respect the market action and not let things slip any further.

I continue to think we have a good bounce on the way and that anticipation of some decent fourth-quarter earnings reports will help out, but the market action so far does not bear that out. Perhaps this is just a bout of deferred profit taking but until we see otherwise the burden of proof is on the bulls.

The market is showing a positive bias in the early going, which has not been a good way to start out recently. Asian markets were mixed overnight but Europe is seeing some upside action in financials and telecom.

We have weekly unemployment claims on the agenda this morning and retail same-store sales reports will be rolling in as well.

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