I’ll probably miss the rebound rally - whether it happens today or in the near future and especially if it starts in the middle of the week. As I wrote yesterday, the slope of the decline during last week’s selloff was not what I was looking for and I am expecting a rally towards at least 1510 on the S&P 500 whenever it decides to show up. Today’s positive earnings and lack of negative economic data is giving the bulls a chance to benefit from the weak conviction of short sellers and it will be the first real test to see whether they are going to take their short term gains or whether they are going to maintain pressure on the stocks. If they give in, I suspect we may see The Mother of All Short Covering Rallies.

If it sounds like I am cavalier about missing rallies, in this case I am. I don’t play the volatility game very well and prefer to focus on a mix of fundamentals and technicals that attempt to smooth out whipsaw actions. Last week in the middle of the hysteria, I made relatively few new downside bets - not because I am a permabull - but because I already had 64% of the HEDGEfolios universe pointing in this direction. However, I did take the opportunity to change a few DOWN signals to UP - especially if they held up well last week or if they were participating in an acquisition. Just as I didn’t “react” to last week’s decline, I am not going to react to a big rally. My signals are based upon what happened last week, so whatever occurs today or the rest of this week will be considered when the trading week is over. I may miss a few points in either direction, but I also avoid the turnover costs and stress that often cause investors to make poor decisions.

When you are going through volatility in your portfolio, it is the best time to evaluate your asset allocation, diversification, and portfolio beta. Check your feelings. If last week was too painful for you, I suggest that you look at your portfolio and address these issues. If there is a rally, check your feelings again - did you feel regret over selling last week and did you wish you had loaded up? Your answers will give you insight into the portfolio management decisions you need to make to ensure that it fits with your investor profile.

To the extent that I miss the eventual rally, it really is not part of the longer term approach at HEDGEfolios. I have no idea how to analyze the data of a rally in advance. So I choose to wait for the trading info to determine whether its quality and breadth is worthy of a response. Jumping in front of an anticipated rally is all about speculation.  I am less concerned about missing the next rally, than I am about avoiding the next selloff.