Last Sunday night I commented that I had never seen a market that presented itself in such a dramatic manner.   The results have given me a reference point to recognize something like that if it ever reappears in my lifetime.  Personally, I hope I never see it again.

While the S&P 500 declined 18%, HEDGEfolios managed a 5% gain due to the fact that I was positioned so heavily to the downside with only 31% UP signals.

This weekend has been a very difficult analytical process, but maybe not in the way you might expect.  I have spent hours and hours going over the technicals.  Usually, I only go through all the charts one time and then just repeat the stocks I expect to change signals.  This weekend, I have completed 2 passes on over 3300 stocks and am taking this break to write this post prior to going through them one more time before the open.

What am I looking for?  Considering that I have been so hedged to the downside there is only one thing for me to do.  I am spending all my time with two main ideas….what not to go bearish on and more importantly, what to go bullish on.  I tend to be proactive, and not reactive.  Have you ever perceived that I was panicked?

As you may know from reading my portfolio management articles, I don’t place much emphasis on being a contrarian for the sake of being a contrarian.  I have been bearish in times (like April to July 2007) when it was really painful to do so.  Click here and here and here for some samples.  When I am different than market sentiment, it has simply come from what I have seen that differs from others and not because I am just trying to follow those goofy sayings like “be greedy when others are fearful….be fearful when others are greedy.”   I never understood the timing of that.  Seems to me people were fearful two weeks ago and one week ago…. so being greedy at the start of last week didn’t turn out to be so wise.

When I looked at the charts over the past two days, there was much devastation and yet, I also saw much more positive than I did the previous week.  When I did the fundamentals, even using my more conservative approaches, I saw quite a few stocks trading at unbelievable prices.    For example, when a company has more cash than its market cap and has minimal debt, you really need to give it deep consideration.  I have been called “Mr. Sunshine” by some of my closest friends and as you know, it wasn’t because I am always so optimistic!  Right Charlie????  However, even someone like me can give credit where it is due or see a few positives on negative days.

HEDGEfolios will likely miss part of a massive turn - I have a habit of sacrificing returns for confidence in longer term direction.  I am taking things one stock at a time as I always do.  It’s really easy to stay negative or to finally bail out if you’ve missed all the warning signs over the past few months.  In this business, you get rewarded for being rationally proactive whether that means increasing your downside hedges over the past two months or going in the other direction as you see real reasons to go long.  I am not advocating that you do what I do unless that means you are working your ass off.  Do your homework.  In times like this, do more homework.  Then when you cannot take it anymore, please take a break.  Spend time with your family or go for a walk or just do something that makes you happy.  Then….do more homework.

I need to get back to mine.  There are only 9.5 hours left before the opening bell.  I am going to spend them on my new effort to move towards Getting Centered.  I don’t call crashes or rallies.  I leave that up to other people that seem to be doing far worse than HEDGEfolios but spend a lot of time appearing on television to say how smart they are.

I am taking this one stock at a time and while some are improving, they are not all improving enough to warrant signal changes.   For the ones that do look good to me, I am going ahead with the changes just as I have done when the market was euphoric and I was going negative.  I expect the difficult market to continue, but I have been leaning heavily in the negative direction for weeks and I don’t think it is wise to continue at the same pace.