Rick Pendergraft advises investors to do one of two things: “If you are a long-term investor, ignore most of the news unless it affects one of your stocks in particular. If you are a short-term trader, take profits quickly and take losses even quicker.”

Buying an inverse ETF that profits as the market drops is also a sound way to insure against losses…

This from Investor’s Daily Edge:

As choppy as the action has been over the last few weeks, you have to be nimble and adapt to the conditions.

The weather in the Midwest can only change so much, depending upon which season it is.  It isn’t going to snow in July and it isn’t going to be 90 degrees in January either.  The same can be said for the market these days.

So you shouldn’t expect the indices to wipeout all of 2008’s losses in the next few months.  If you look at a monthly chart of the S&P 500, there are two things to take note of.  First, the S&P failed to close above the March 2000 high and has moved lower since last October.  The second item is the crossover of the 10-month and 20-month moving averages and how the long-term trend is clearly to the downside.

The last time these two trend lines had a bearish crossover was in early 2001.  There were bounces that lasted a month or two during the bearish years of 2001-2002, but the 10-month moving average kept things in check except in March ’02.  We have already seen one rally squelched by the 10-month this year (back in May).  We are significantly below the 10-month right now, but the 10-month RSI is reaching oversold levels, so we could see another attempted rally in the near future.

Personally, I am taking a more aggressive approach to closing trades.  As an example, I opened a put trade on the Regional Bank HOLDRs Trust Monday morning and turned around and closed it Tuesday morning for a triple digit gain.  I could have kept the trade open to see if the RKH went lower, but with the volatility we are seeing (especially in the financials) I felt it was prudent to take my gains and run.  By the end of the week, the RKH had bounced back as high as $111 after dropping as low as $102.

If you are a short-term trader, take profits and losses aggressively.  If you are a long-term investor, ignore most of the news unless it directly involves a stock in your portfolio … If you are a long-term investor and have not taken action to protect your portfolio from the downside move, you need to act now.

Either buy an inverse ETF that gains in value as the market drops, or buy some insurance by purchasing long-term puts on the Spyders or QQQQ.

At the time of this writing, you could get a December 2009 123 put on the SPY for $12.50, or $1250 since options are priced in 100s.  Should the S&P drop all the way back down to the 800 level as it did in 2003, these options would be worth at least $4,300 each.

If you purchase multiple contracts, this could go a long way towards offsetting the losses from the rest of your portfolio.

Source: Wall Street’s Mood Changes With The Weather, But The Seasons Are Still Predictable

Greetings from Delray Beach, Florida.I’m writing to you this morning from a beach house that sits about two blocks from the ocean.

The windows in my little red-tiled bungalow are filled with palm trees; all the furniture is made of wicker (or maybe bamboo).

It might sound like a vacation, but it isn’t. (Then again, it isn’t exactly tough being asked to stay in places like this.) On Friday, it’s back to Nevada, and then more traveling shortly after that.

When you’re used to going 110 miles an hour almost all the time, as I am, it sometimes takes a change in routine to make you realize you’re exhausted. That realization happened for me on Wednesday, after a day’s worth of plane travel.

Taking time out to walk along the beach, or do a little hiking in the mountains, or even something as simple as finding a quiet spot in the park and stretching out on a blanket is no small thing. Whenever I forget how important it is to step back and relax, it’s only a matter of time before I’m rudely reminded again.

Occupational Hazards

It’s vital to be able to “step back” from life once in a while. The same is true in business, and it’s true in markets, too. For traders and investors who watch the markets closely — who follow all the zigs and zags — it’s very easy to get overly caught up in the game.

I was reminded of this, too, by an excellent quote from the latest issue of Grant’s Interest Rate Observer. (Grant’s is one of my favorite reads; definitely an acquired taste, though.) Here it is:

Professionals in the change-anticipation field fare little better than the amateurs at divining the big turns, possibly because the experts overreact to the little turns. They labor under the occupational hazard of the itchy trigger finger.

That statement is so, so true. I think of the trouble as being “too clever by half.”

When it comes to exploiting the “big turns,” there’s an aspect of humility plus wisdom that’s hard to pin down. It takes humility to spot something big and obvious without getting too fancy about it, or getting too clever in the analysis. It also takes humility to take a shot and be wrong, maybe more than once. And it takes wisdom to put all the pieces together the right way.

The Importance of Sitting Tight

The other hard thing is that, most of the time, the biggest profits aren’t in catching the turn anyway. Real fortunes are made with traits like patience and grit and fortitude… sticking to one’s guns and not getting put off by setbacks.

Jesse Livermore put this so well in Reminiscences, he is worth quoting at length here. (Still planning to get you that report of selected quotes, by the way.)

After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at their very level which should show the greatest profit. And their experience invariably matched mine — that is, they made no real money out of it.

Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance.

The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Old Turkey was dead right in doing and saying what he did. He had not only the courage of his convictions but the intelligent patience to sit tight.

The Weekly Perspective

One of the ways I try to “step back” on a regular basis — when I don’t have time to crash for 10 hours and skip the 24-hour news cycle in an ocean beach house, that is — is by looking at weekly charts.

There is just something great about a weekly chart. Because each bar represents five trading days, and because the full width of the chart covers months or even years, the day-to-day “noise” just gets filtered out.

Looking at nothing but short-term charts can make you feel like the white rabbit from Alice in Wonderland after a while. I’m late! I’m late, for a very important trade! Weekly charts are the cure for that malady. If you can remember that the biggest and strongest trends are more like slow-moving glaciers than zippy little sports cars, you’ll probably be better off.