The Best Offense Is....

You did not really think I would finish that cliche aphorism in the first line of this post, did you?

Although, I do think that playing the market defensively is appropriate in the near term.

It is too early to go short. Traders are likely to get whipsawed doing so. It is also too early to be buying aggressively, as I feel more downside is possible. Therefore, I will stick with a large cash position, while nibbling gingerly on a few carefully selected issues.

Whether the consumer is broke, or whether the CDO issue will blow up accounts across the globe is really just impossible to determine with any certainty. Why try to figure out how a host of variables, all of which seemed to be inextricably linked (but truly are not), will affect the markets? By the time everything is truly understood (if ever), it will be too late.

Instead, I think it makes sense to watch carefully to see if the current leadership is maintained, or if new leaders begin to emerge. Also, if one has a strong feeling the market is going to move one direction or another, but is having trouble determining leaders to buy or short, I might suggest getting long or short an index, such as the QLD or QID. The moves will not be as large, but one is less likely to miss out entirely while trying to cherry pick good stocks. Hat tip to Bill Rempel for that simple trick.

Finally, it should be noted that my time horizon is not very long- typically I do not want to hold a stock for more than 2 months. If your time horizon is much longer, this is probably a huge buying opportunity.

Today, I picked up 300 shares of ANAD. As I am currently playing things very carefully, I did not establish a large initial position. I will add more shares if the stock continues to hold its ground. What I'm looking for here is a quick percentage move which will allow me to book some gains while the market figures out where it is going.

ANAD had a nice move up after a good earnings report last week. With earnings as a catalyst, and the large volume gap up from a sound base, I feel this one may keep moving.