THOUGHTS FOR THE WEEK AFTER GETTING RUFFIED BY THE MARKET
This was a confusing week for investors on multiple levels. We had confusion coming out of Europe for essentially the entire week. The G20 meeting provided its fair share of drama. Per the usual, for all the drama that was on display, very little in terms of concrete resolutions were reached. There seems to be a soap opera playing out behind the scenes, whereby global power brokers are essentially telling the leaders of the EU to stick themselves in a room and resolve their differences or they will be grounded for the next decade. The backroom dealing, bargaining and shenanigans are what is driving an attempt at a resolution. What we are fed on a daily basis is the glossed over, vanilla version of the facts.
Equally confusing was my trading during this past week. It is rare that I flip-flop between being a bear and bull in a single week. If there was a week for it, I suppose this one was it. To understand the problem, you must look at where it originated from. I came into the week with an understanding that there was a good chance that the model I had been using to determine my actions over the past month had a better than even chance of breaking down. I outlined these thoughts in my investor email that I published on the site last weekend.
Early on in the week the market began departing from any conceivable path that I had laid out. The departure happened to be on the downside. All of the interrelations between asset classes began to confirm the breakdown. This led me to believe that the rally was in jeopardy. Bearish bets ensued.
It began to become apparent that I may be incorrect when confusion out of Europe, followed by weakness in key sectors failed to derail the markets to the point that it should have. I covered my bearish bets on Thursday with small losses across the board.
Now here's the key point of this review and the setup for my trading next week: On Friday something very bullish occurred. After rinsing out the short sellers, myself included, over the past two days, the market opened down and was extremely weak during the first couple hours of trading. The bears had everything working for them, including the fact that it was Friday ahead of another weekend of uncertainty with the news wires consistently bringing in conflicting information and speculation from Europe. Bears had every single reason to be able to topple the bulls and close the Dow down 200+ plus points. S&P 500 should have been well below 1240.
Instead, what occurred was a rally beginning around mid-day. Technology seemed to be leading, behind a strong semiconductor sector. You could see in the price action that the bears kept trying all the way into the final hour. However, the reversals kept coming. The fact that the bulls were able to hold 1250 on the S&P 500 to close the week was a huge victory. It classifies what we have seen as a normal pullback after a sizable rally in October.
During mid-day, upon witnessing the persistence of the bulls I initiated long positions in TNA and TQQQ. I tweeted the following around mid-day on Friday:
Small positions since they are leveraged ETFs. It brings my portfolio exposure up to about 80% invested if you take into account the leverage of the triple ETFs.
The bottom line here is as follows: The bears had every opportunity this past week to derail a market that has experienced an extraordinary rise over the past several weeks. Everything that a bear could have hoped for occurred 1. Bond yields tanked 2. The Euro tanked 3. Financials tanked 4. Uncertainty out of Europe 5. A market that is a lot more hollow underneath than it was a few weeks ago due to the disembowelment of short-sellers.
It was all there. What did the bears end up with? A completely standard pullback within a bullish trend. Not good if you are a bear. Very good if you are a bull.
Back to the bull side after a brief encounter with confusion.
