DECEMBER 13th: PORTFOLIO POSITIONING
During the trading day today I tweeted the following: In addition to the silver long (AGQ) I took on yesterday, I added gold via DGP. I also took on emerging markets exposure via EDC. These are all dollar sensitive trades that will benefit from the US Dollar putting in a top in the near-term, which I believe it is close to doing. This seems like climactic buying that is leading to a blowoff top in the dollar (bottom in Euro). Likewise, it is influencing the gold/silver trade and emerging markets/commodity sector. My plan is to hold these positions into next...
A DISSECTION OF THE RECENT UNPREDICTABLE MARKET ACTION
An absolutely wild and unpredictable market to say the least. It's not easy to make large gains, medium sized or even small gains in this market environment. You have to take what you can get on any given day. The sharks are all hungry and the amount of fish remaining in the sea remains sparse. It's only natural that the sharks are now devouring each other in an effort to survive. As you can see by my previous post outlining today's activity, it was quite an active day of trading. Active, I should say, by my standards. I try to take on positions that will remain in the portfolio for at least a week, preferably longer. However, this market has forced traders to adjust their time frame consistently during the second half of the year. I'm reluctantly adjusting to the conditions. Adapting for the sake of profits. On a side note, it's going to be a spectacle watching traders adjust once the market goes back to trending for more than 1-2 months at a time. Everyone has become so programmed to sell 1, 2 or 3 day spikes and vice versa. Riding a trend is going to be a difficult task for even the most disciplined of traders. This will likely accelerate the trend as there will be a constantly flow of chasers on the way up or down. My reasoning for covering a majority of the short exposure in the portfolio (still holding a 50% position in FAZ) was twofold: 1. The ability of the S&P 500 to hold 1230 during the final hour of trading. 2, The ability of the Nasdaq 100 to reverse a majority of its losses, closing near the highs of the day. There is also the fact that the FOMC decision will be announced tomorrow. Recently FOMC days have coincided with lows in the market. Never mind the fact that this is also a triple witching option expiration week, making an already deceptive market potentially hyperventilate from over-deception. If the S&P had snapped 1230 and closed at say 1225 today, I would have been comfortable holding onto all of the short exposure in the portfolio. The last hour acceleration off of 1230 to close at 1236 was a definite bullish victory in the face of what could have turned into a rout. In order to get a feel of the market let's look at the charts of the UUP (US Dollar), S&P, NDX, and my newest long position in SLV (via AGQ): click chart to...
DECEMBER 12th: PORTFOLIO POSITIONING
During the trading day today I tweeted the following: I took off a majority of the short exposure today. My only remaining short position is in financials via FAZ. I took a 1.50 point profit on half of FAZ in the 40.80 range during the last hour of trading. I took a .10 cent profit on SQQQ in the 19.50 range. I took an average profit of .90 cents on TZA between 27.96 - 28.20 during the market and afterhours. A new position was initiated in AGQ (leveraged long...
THE 4 CHARTS THAT WILL WHISPER SWEET MELODIES TO YOU DURING THE WEEK AHEAD
click charts to enlarge
HOW THE ADJUSTMENT BUREAU WITHIN THE FINANCIAL MARKETS IS CONSTANTLY WORKING AGAINST YOU
Between kids, work, and decompressing at the gym, I get the opportunity to watch a movie once in a great while. The Adjustment Bureau, while being an average movie, involved a concept that I found to be fascinating. Essentially the premise is that there is a secret society of super-humans that belong to a bureau that makes sure you remain in line with your pre-determined path in life. In order to keep you on that path, there are ripples in consciousness that take place to adjust your behavior along the path you are supposed to be on. The more you deviate from the path, the more drastic the means to shake you into being on the correct path (good or bad) become. This is a fantastic premise to apply to the financial markets. In trading and investing, the market makes a conscious effort to create ripples in your consciousness to affect future decisions. Take for example the volatility both up and down that took place on Thursday and Friday. The effect of such a move on the consciousness of a bearish market participant is substantial. The ripple in consciousness becomes apparent the next time a large move down occurs. It will become more difficult for that bearish trader to allow his profits to run as he has seen the disastrous consequence of the last time he attempted such a feat. Bear in mind that allowing profits to run is fundamental to trading. It is the absolute correct way to trade. However, the market has now caused a ripple to occur causing you to doubt yourself and the most fundamental of trading rules. Whereas in the film The Adjustment Bureau had both good and bad intentions for a person, the Adjustment Bureau that functions within the market has only bad intentions. In fact, it can become profitable to investigate how the market is attempting to infiltrate your consciousness in order to throw you off the correct trade. When the market is constantly attempting to infiltrate the consciousness of one side of a trade, I know that odds strongly favor a large move occurring in the direction of those the market is attempting to manipulate. The ripples in consciousness occur on a daily basis and they are furthered through the mass of information that is at the fingertips of every trader on the planet. Every piece of information you digest places a small token within your consciousness that will effect future decisions. Every move that the market makes whether in your favor or against you also places a token with your consciousness that will cause ripples in consciousness that influence future trades. The good traders know themselves well enough and...
COUNTERFEIT MOVES IN FINANCIALS AND S&P REVISITED
Let's get right to the charts here to see the type of progress that has been made over the past week in two areas of focus. To get a better understanding, I will first post the original chart of each published last week. Starting with the financial sector represented by BKX click chart to enlarge Up next we have the S&P 500 starting from the view on December...
BEARISH PSYCHOLOGY WAS PULVERIZED THIS WEEK
Is it better to be a fastball hitter or an expert at hitting curve balls? I'll start today's note with that question. It's a question that I've been asking myself following what was an obvious curve ball thrown at me by the markets yesterday. If I was to go back and look at Thursday's trading session from a completely blind perspective, I can't stay that I would have done anything differently. Friday was essentially at the bottom of the totem pole in terms of probable events. I'm not here looking for one day swings to take profits. I am looking for short-term trends to turn into intermediate trends that develop into outsized gains. These types of snap backs, fake outs or whipsaws are a part of the game. Nobody ever said that she would jump into the sack with you after her first bite of Filet Mignon (or Big Mac depending on your social status). It's not supposed to be easy. The question now becomes how to handle the portfolio going forward? Although I was down slightly for the week after giving up some substantial profits from Thursday, it was admittedly an emotionally taxing week. I only recently took on bearish positions this past week. If I am feeling as annoyed at being a bear during Santa season as I am, I have to wonder how the majority of bears who got sucked into the Fed liquidity gap of last week and the weekend gap before that must be feeling? I can't imagine that many of them, if any, are still sticking around. Days like yesterday, where hope quickly turns to despair for a certain group of investors, are the most significant of all. Every uptick from this point forward is akin to a 280 pound linebacker that can bench press a double wide coming at the bears in a full sprint. In other words, the game just became a lot more frightening for one team. Keep that type of psychological picture in mind should the squeeze progress further. That is what reversals are made of. At the end of the day, risk is risk is risk. And regardless of any brilliance that I bestow through my keyboard and into your home or office, my job and yours is to manage risk. Without risk management any assessment that I make is subject to the market demons that appear 1 out of 100 incidences, devouring you from within and taking your kids college keg and beer pong money with them. With that said, I know exactly at what price point my thesis is no longer valid. It is at that...
QUICK THOUGHTS
I made no changes to the portfolio whatsoever today. I remain long (short ETFs) SQQQ, TZA and FAZ. Today marked a significant breakdown. What is more important is that the breakdowns in a majority of the major averages occurred from the exact structural levels where they were supposed to hit the proverbial brick wall. When markets respond to bearish price structure with such enthusiasm, it heavily increases the odds that the move is indeed real and will likely continue over the short term. Although we may see some strength in the morning as dip buyers attempt to step in, I don't think it will be significant. Keep in mind, there remains a lack of short exposure amongst major institutions currently. In order to build that up they may be forced to chase an illiquid market down. Unless we blow away today's down move and rocket to the upside over the next few days, money managers will begin turning into net sellers over the short-term. Offense will turn to defense. The markets will suffer. My thesis with this short trade is that the markets will pull back deeper than most expect and begin the classic Christmas rally at a later date than most expect. The 20th-21st seems to be a logical date for the bulls to begin a run. Perhaps even later. It really depends on how the market transpires into next week. I'll have some detailed charts outlining everything I am observing this...
RISK ASSESSMENT WEDNESDAY: INCREASING BEARISH BETS AGAINST A ULTRA-BULLISH CONSENSUS
This isn't an environment where traders are rewarded for being tepid. This also isn't an environment where you can afford the luxury of reaction. It's an anticipatory environment that requires a bold decisiveness in trading to capitalize on the madness that 2011 has been. Sorry, but if you are waiting for confirmation of any trend then odds are that the trend is about to reverse. You have to be willing to step in front of the train. At the same time, you must remain alive to play again should your timing in stepping on the tracks happen to be off. The proverbial fine line. I'm walking that fine line here. Anytime I increase my risk exposure as I have recently that fine line between being aggressive and reckless comes into play. I am an aggressive trader by nature. When I see that odds are stacked in my favor for a particular trade, as I believe they are here, I have to take on a position to maximize my chances of profit. At the same time, I plan an exit strategy in case of error to make sure I can fight again if I am incorrect. Finding a balance between aggression and proper risk control is more of an art than a science. The reasons I am comfortable taking on this type of short exposure here is due to the following factors: 1. I have a clear consensus to bet against. 2. I have a catalyst at work 3. Price action and technical data confirms my bet against the consensus. The clear consensus I speak of is the firm belief that December is the season of entitlement for the bulls. Despite the bleak fundamental headlines, this December seems to have taken on that same aura of entitlement, with popular opinion recently turning to the idea that there CAN'T be much downside from here because it's December. The thinking is that if an investor is to buy here, then the risk of loss is very little as the market always picks up the slack during this month. Short sellers are covering. Investors are getting long in anticipation of the rally only getting stronger as we get closer to Christmas and New Years. What is left below the market is a hollow expanse that is begging for one swift wind in order to make its presence felt. The catalyst that I speak of is the ECB and European summit being held over the next couple of days. Again, a popular belief exists that the ECB and European summit will mark the conclusion or at the very least, the bottom of the European...
DECEMBER 7th: PORTFOLIO POSITIONING
During the trading day today I tweeted the following: I am comfortable enough with my current thesis to add another 3X short ETF to the portfolio. This time focused on the small cap sector - TZA. I am now full in terms of short equity exposure. Currently holding SQQQ, FAZ and TZA. I am considering allocating towards a short commodity leveraged ETF tomorrow morning. If and when I do, I will post it to Twitter in real time and here later in the...