NOV 21st: PORTFOLIO POSITIONING
I tweeted two allocations to the long side. One right at the open. One during the last half hour of trading. Here they are: This brings my cost basis on QQQ to roughly 55 and IWM to 71.20 counting the initial positions I took on Friday. I'm current 45% invested on the long side. I am looking to add further weakness, with the possibility of taking smaller positions in some leveraged ETFs. I have very obviously picked which sectors I think will outperform in the coming weeks. Small caps and tech have a tendency to do well in the December-January time frame. No reason to deviate from the seasonal tendencies of sectors as they seem to be working well...
NOV. 19th: CURRENT PORTFOLIO POSITIONING
On Friday I tweeted the following: The risk/reward at these levels, along with a variety of other factors I discussed earlier, make this point in the markets a favorable place to put cash back to work. I won't be as aggressive on the long side as I was in early October. The picture is simply not clear enough to put on leverage here. Being that I was in 100% cash, the levels we are trading at along with the pervasive doubt that has resurfaced, warrants taking on some long exposure. I wouldn't at all mind adding on further weakness in the coming week, with a target of 75% exposure. My plan is to hold IWM and QQQ into the end of the...
RISK ASSESSMENT WEDNESDAY: A LESSON IN CHAOS
During the first half of the trading day I tweeted the following: The FAZ trade was initiated on Friday. Small position, small profit. At that time, I didn't think for a second that we would end the day down nearly 200 points on the Dow. I should have known at the time that this market has figured out a way to condense an entire days worth of movement into the last hour of trading. It has been happening over and over again during the second half of this year. I left some money on the table. However, I am happy to be in cash here. There simply isn't an edge to this type of trading environment. In my earlier post, I illustrated why I think the bears suddenly have developed too substantial a following to see the market plunge the way some are hoping. Chances are great that if we do break out of the current consolidation to the downside, there will be a reversal given the current pervasive fear that exists. The last hour plunge that we experienced today was simply too dramatic. It wreaked of a market that wanted to instill the maximum amount of fear while inflicting as little damage to the pricing structure as possible. If the market really wanted to instill damage it would soiled the pricing structure to a point where the bulls would be afraid to look at it tomorrow. That's how real breakdowns in important market averages take place. For all the roaring, screaming and painful moans, we are simply at the bottom end of a clear consolidation pattern. In the meanwhile, the put/call ratio experienced a mean spike. And observational sentiment today was as bad as I've seen it over the past few months. I do think that the next great bonanza in the markets will be on the downside. I am reserving most of my ammo for that opportunity. In the meantime, I would be looking for a short-term low to appear here soon. If I do take a position, I won't be allocating anymore than 10% of the portfolio max. Especially if I decide to probe the long side. Be careful on either side of the trade. This isn't a market where you are rewarded for being a...
NOV. 14th: CURRENT PORTFOLIO POSITIONING
I tweeted the following trade during the final hour of trading on Friday: A small position for me is 10% or less of the portfolio. I have no plans of adding new positions over the coming week. I am fine remaining with a large portion of cash in the portfolio awaiting a move to the top of our current range. That should be around 1300 on the S&P. At that point, I will be happy to further put on short exposure. It's too early to become wildly bearish and too late to be outstandingly bullish. Cash is the call...
RISK ASSESSMENT WEDNESDAY: LIQUIDATION EDITION
I ended the day in 100% cash, spending the final two hours of the day liquidating portfolios. A necessary part of keeping risk under control. Moderate losses across the board. If you are going to play in the dragons lair (meaning leveraged ETFs), you had better be damn sure you know how to control your risk. The moments of emotional weakness you have and doubt as to whether you should wait it out may not harm you in the QQQ. But when you triple the volatility with TQQQ, it will eat you alive and dissolve you in pink stomach acid. The upside won't work if you can't control the downside...that's the bottom line with this method of trading. Here are the Twitter...
IS THE MARKET SITUATION *THAT* SERIOUS? THE ANSWER IS HERE
During tumultuous times in the market, I have a habit of waking up every few hours to check futures quotes. You can imagine my glee when I awoke at 3:30 a.m., picked up the IPad and saw that Dow futures were down 250, the Euro had plummeted and talk was once again of the pessimistic variety. Needless to say, I didn't go back to bed and my first words of my morning were restricted to four letters only. A lot of experienced market prognosticators today have been expressing their sense of dismay and surprise at how difficult this market has become. I don't know if what we are experiencing is the symptom of a failing economic mechanism or merely a cancerous cell that is contributing to the overall problem. The difficulties that come from days such as today cannot be understated enough, however. They not only prove devastating to portfolios, professional and retail alike. But they serve as a means of deteriorating confidence in the system itself further. It becomes a self-reinforcing cycle of non-participation and liquidity gaps that create further volatility. If I look back on Tuesday during the last hour of trading, I could not see one single item that begged of me to reduce exposure. The warnings were anecdotal at best. Investors are helpless against these types of violent gaps down after seemingly bullish foundations are established in the marketplace. All one can do is react to the situation in as beneficial a manner as possible. I outlined in my morning thought that I would wait until the last hour of trading to make a decision to liquidate or hold tight. I jumped the gun, after seeing the persistent weakness throughout the day only get worse with two hours left in the trading day. I liquidated positions during the last two hours of trading, ending the day with a 100% cash position. I had an investor contact me today wondering what my next move would be? I couldn't answer the question. A sign that I should probably step back until I see concrete information that will keep me from getting whipsawed yet again. I rarely do chart reviews during the week. However, the current situation is critical enough to warrant looking at the two indices that matter: S&P 500 and BKX. click chart to...
PORTFOLIO UPDATE
I added a long position in silver to the party today. During the last half hour of trading today I tweeted the following: Medium sized position. Wouldn't mind making it a large position if it acts well. I discussed silver in the chart review over the weekend here http://www.zenpenny.com/wp-content/uploads/2011/11/SLV.gif The strength we are seeing in gold is very real. I'll be the first to admit that I didn't expect to see the metals perk up so quickly following their bombardment in August and September. The fact that gold has rebounded so fervently is a positive that should not be ignored. The pullback may have been much less destructive than most initially thought. Given the scope of the nightmare in Europe and the liquidity parade that will be unleashed as a result, you can bet that the bullish case for gold will be marched around the block until investors become dizzy. Silver should be a beneficiary on the periphery of the bull run in gold. Now holding AGQ, TNA and...
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....
MY TEACHER TOLD ME I SHOULD NEVER TELL A LIE, ESPECIALLY TO MYSELF
The targets and scenarios I share on this website serve as my yardstick. They are a measure of the accuracy of my analysis. During months, like October, when my analysis all comes together so beautifully, the trades just come together in an effortless fashion. I know that I am right by the manner in which the market confirms my targets, ranges and velocity with which I am expecting the moves to take place. When the market moves outside of the ranges I am expecting, I have found it safe to assume that I do not understand the current market conditions. When I do not understand the current market conditions I absolutely have to get out and rethink my analysis. Believe me, I have tried in the distant past to sit through markets I don't understand, hoping that in time I will gain an understanding by sitting through losses and allowing the market to morph into my "understanding field". It doesn't happen. If your analysis is off (read: you are losing money), then you do not understand the current market environment PERIOD. It really is that simple. My becoming bearish as a result of several very convincing indications of market weakness was incorrect. It doesn't matter if the market starts dropping tomorrow, the analysis was still incorrect. Why? Timing is as much a part of the picture as any other component. If I understood the market here, I would have timed it appropriately. With that said, I cleared out of all my positions today. I am back to 100% cash. I tweeted yesterday that I was expecting a move to 1250-1260 on the S&P today. I got a move up to 1250 in the morning and then the reversal that I was expecting. What made me realize that the market was deviating from my roadmap is when after mid-day it just kept rising and rising and rising.It ended the day over 1260. The 1260 level was the extreme of the upside range I was expecting. The fact that it ended over that level is one more sign that I should step back. I'm back in cash. The trades were all very small losses overall. I am certainly happy about that. As far as managing the trades goes, I couldn't have done a better job. Sometimes that's as good as it...
BACK TO 100% CASH
Exited all positions. .10 cent loss on FAZ long from this morning. Breakeven on MOO short. Time to hit the reset button. Today's move up not a part of the gameplan. No harm in reevaluating with minimal losses across the...