Yesterday morning, I took an emotional hit as a trader. I received a notification that I had sold a stock. The problem was that the sell was some 9% below my purchase price and I lost money. No, I did not “bail out” of the stock and, no, losing the money was not the worst part, although that did bother me. Something else happened. The stock itself was climbing and had I not sold, I would have made money yesterday and today. So what happened?

I am not sure what happened, but somehow my stock sold at a ridiculous price and it bummed me out. My broker giving me 25 free trades yesterday because he could not bust the trade helped (he could not figure out what happened either), but watching the stock climb today made me feel bad again.

Either human error (me screwing up in placing the upside sell) or technological error (not unheard of in the world of computers) was the problem. My point is that sometimes bad stuff happens when playing with money. One “rule” all traders are exposed to early on is, “Don’t get emotionally attached to your trades.” True, emotion has no role in developing strategies for trading, in executing a trade, or in the outcome (win or lose), but when something happens in a well-planned trade you think you executed correctly, well … Giving advice is easy. Following that advice is not always so. In any case, I am better now that I let it out. Actually, I just smiled.   

  • Now that the Fed is out of the way for a while and the market did not go throw another “taper tantrum,” it’s time to get back to the idea of planning 2014’s investing strategy.

I couldn’t agree more. This year is over in less than two weeks and soon enough the analysts, pundits, hilltop screamers (sometimes they are the same), coworkers, and your ill-informed but highly opinionated neighbor down the street will be telling you what 2014 will bring re: the economy and the stock market. So, let me throw my two cents into the pot.

  • Make sure you enter 2014 with your risk management tool belt strapped on. Remember, the last correction of more than 5 percent was more than a year ago. And history shows that the type of one-way street we’ve seen in stocks this year doesn’t last forever.

I know, I know, the above seems counterintuitive to what I have been writing about. Yes, I believe 2014 will bring another strong year for the market because the US and global economies will continue moving forward, but I also know the market. And knowing the market means when it gets top heavy, as it has become, it tends to topple for a bit to correct itself. I suspect the market will find a reason earlier rather than later in 2014 to rebalance. I don’t think it will be really huge, but it could be 5% if the breathless media gets hold of a bone. Given that, be prepared with cash when the breathless media begins gnawing on a tale of woe.

Maybe it will be the debt-ceiling debate coming late February, or maybe Israel will begin talking about attacking Iran, or, maybe, we will have a weaker economic Q1. Whatever the “news” is that brings the market down, use it to buy up bargains. If the market is allowed to move just on fundamentals, 2014 looks to be another good year for making money.   

As to the rest of this year, more than likely, Santa will bring his annual year-end rally, if for no other reason than the economic fundamentals warrant it.

  • The government’s final revision to the nation’s GDP for the third quarter of 2013 was a positive surprise. The report showed the economy grew at a rate of +4.1% during the July – September period. This was well above Wall Street expectations for a growth rate of +3.6% and the first revision of +3.6%. The report was also above the preliminary reading of +2.8% and was the best quarterly pace since the fourth quarter of 2011.

As to a bit more about this year’s end in the market, look to another fundamental – consumer spending. Somebody out there is buying up expensive sneakers, inane t-shirts with words on the chest, and other discretionary sportswear products that, well, we and our children could do without.

  • Nike’s FQ2 profit jumped 40% to $537M as adjusted EPS of $0.59 topped expectations by a penny, while revenue climbed 8% to $6.43B but missed consensus. The sportswear company benefited from strong sales in Western Europe, and growth in North America and greater China. The performance in the latter market was particularly important, as sales had been soft there. With future orders rising 12%, Nike gave upbeat guidance.

The above points to a global economy improving and Nike’s forward guidance also gives a bit of insight into 2014, but let’s also remember, this is the holiday season, and folks around the world take time off to be with family and friends and to just relax. Traders and investors are folks.

  • We should expect to continue seeing light volume and not much selling.

Keep your home fires burning, but stay on top of the market for the rest of the year. Another option is to plop down in front of the home fire, read a book, talk to family or friends, and relax.  If you worked as I did this year, you deserve it.

Trade in the day; Invest in your life …

Trader Ed