In This Environment, the Danger Is Hope

Hope is the expectation that something outside of ourselves, something or someone external, is going to come to our rescue and we will live happily ever after.

--Dr. Robert Anthony

The most dangerous thing in this market right now is hope. We are clearly in the clutches of a bear market, the technical conditions are poor and the economic reports mixed at best. Despite this, the primary focus of most market players is wondering when we will bounce.

Some, like me, are simply looking for some sort of brief oversold bounce for quick trades and shorting opportunities, while others are looking for the climactic turn that signals that the worst is over. In either case, it is hope that drives us to ignore the painful and rather simple fact that this market is in bad shape and that a quick and easy recovery is unlikely.

I don't want to sound overly grim because if you have reacted as the market has broken down and have a lot of cash on hand, you are in great shape, and this poor market will eventually offer some very good opportunities. You just have to be very patient and very careful about buying into the premature hope that is going to occur as we struggle.

The reason that the stock market is so potentially lucrative is because over the years, they consistently have these big swings up and down. If you are defensive and protect your capital during the downswings, you will be able to make some excellent gains when the inevitable upswings finally occur. Just make sure we really are trending back up before you become a bullish believer again.

We have a rather tepid response to the employment report, which is roughly in line with expectations. Many were looking for worse, so we are getting a little support. The ECB raised rates a quarter point, as widely expected, but crude oil is staying strong, and that is the primary negative at this point.

We have a half day of trading, and it's going to be thin and whippy. It's a good time to keep time frames very short.

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James "Rev Shark" DePorre is the author of Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital made a Fortune Investing in the Stock Market. He is founder and CEO of Shark Asset Management, an investment management firm, and he also operates sharkinvesting.com, an interactive online community that serves and educates active investors. DePorre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here.