Breakout

Permabears on the prowl! Tips on trading a hated bull market

Phew! That was investors rubbing the sweat off their collective brows after Monday’s welcome relief rally, with the Dow (^DJI) gaining nearly 1%, and the S&P 500 (^GSPC) gaining back 0.8%. After a volatile and downright painful in some respect trading week, stocks have caught a bit as better than expected retail news and possibly cheaper, high-quality stocks have brought investors back into the fold.

But don’t tell the permabears that. The “I told you so” crowd has been beating their chests as off late, with Barron’s joining the chorus with their latest cover story on overvalued tech names.

Trader and hedge fund founder Jonathan Hoenig of Capitalistpig.com has a bit of advice for investors who might be swayed by the permabears. “No one knows what will happen in the market… We haven’t even had a 10% selloff in the major indices, so I’m trying to stick with technique more than prognostication.”

Hoenig is being careful here watching the price action and breadth of the market, noting that he’s not seeing a full bear market on the prowl at this juncture. “When markets sell off, we see indiscriminate selling,” he says, and not just in the high-beta names like biotech and internet stocks. So far we haven’t seen the wholesale selling you see in deep corrections, or bear markets. Hoenig suggests investors should “tune out the noise… tune out what people think about the market, and focus on what’s happening in the market.”

Indeed, many strategists and traders look at market sentiment as an opportunity to profit by doing the opposite of what most analysts are espousing. “Often times the chatter if you will, the message board postings, headlines, those are great contrary indicators. The time everyone is telling you ‘I told you to sell,’ often times that’s the time to buy,” Hoenig advises.

As for your portfolio, Hoenig recommends to “hold onto the winners, cut the losers, and try to ride out the storm so that ultimately when the market does turn around, [you’re] well positioned with strong stocks to take care of the rebound.”

More from Breakout:

Consumer names to make or break earnings season: FactSet's Butters

As commodities surge take a look at industrial metals: Hoenig

Relief rally Monday: WebMD on fire; Goodrich gushing higher; Citi catching a bid

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