TRADE UPDATE – FAS
In the pre-market, bought back FAS at 12.90. Put 10% of the portfolio to work here. I'll probably keep that size. Financials look to be at a point where the willingness to lead the second leg of the rally is becoming a very real possibility. I went over some of the individual banking names last night. My second run at FAS this month. I bought it off the October 4th bottom and quickly took profits a couple days...
THE FIRST DAY OF CONSOLIDATION
Today the market stayed right in line with the range I outlined last night with a low of 1190 and a close at 1203. One of the most bullish scenarios for the bulls will be a week long consolidation right below the 1220 level. This would set up a scenario where a legitimate test of this important level takes place during the final week of the month. The strength in technology continues to be very impressive and tells of good things ahead for the market. However, the financials will act as weight (again, this plays into the sideways thesis being correct into late next week) while their earnings are released into late next week. They should counteract one another well enough to keep us range bound until the earnings news comes to an end and fund managers can focus on how they cannot allow themselves to miss out on performance going into the end of the year. The affinity for risk should increase steadily throughout November. I am happy being in a 70% cash position. I have 30% invested in ZSL (short silver). This is a position I initiated in the pre-market this morning. I can't see myself taking on much more than this until late next week. I will begin looking at the long-side of the equity market again then. Short but sweet. That's all for...
TRADE UPDATE – ZSL
I've established an initial position short silver via ZSL at 13.77-13.80. I have been bearish on precious metals since mid-August. I believe that both gold and silver are headed much lower as they have no catalysts going forward. The same bearish opinions that I expressed in August apply now. We have experienced a very weak bounce over the past couple of weeks. A good opportunity to reestablish a short position in precious metals after covering my gold short a couple weeks...
PORTFOLIO UPDATE
100% cash. JJC was the last of the positions to go in the afternoon. I am considering either reestablishing my gold short via DZZ after taking profits a couple weeks back. Or possibly initiating a short position in silver via ZSL. I will begin looking at exposure to equities again late next...
5 REASONS I MOVED TO A 100% CASH POSITION TODAY
The reasons I've moved to cash are as follows: 1. We are about to hit a substantial news cycle involving an avalanche of earnings. Earnings will be good. Guidance, however, will be cautious at best and pessimistic at worst. I outlined the fact that corporate executives are scared - just like everyone else - last night. This will be a sideways catalyst at best and a negative catalyst at worst. 2. For the first time today I have seen bloggers and market commentators giving credence to the fact that last Tuesday may have been the lows for the remainder of the year. I continue to believe that they are the lows. The realization of this by the trading and investing population is a marked change in psyche and signifies that bearish perceptions are changing. It also, more than likely, points to a short-term high within 20 points of today's close on the S&P 500. 3. S&P 1220 is like the black plague for stock market participants. It lasts for generations and keeps coming back to haunt those who thought they wouldn't have to experience it again. The parabolic nature of the move straight to 1220, followed by the manner in which we bounced right off of that level late today, signifies that the market is aware of the importance of this level. The 1220 level marks the point where the markets become choppy. This lends credibility to a sideways at best scenario over the next 5-7 trading days. 4. The shorts have been rinsed from the picture. This allows the market to flow more evenly from this point forward. Without the buying pressure from short sellers, the market will rely on "real buyers" for future advances. They will come, but more than likely once earnings season is coming to a close. Again points to a 5-7 trading day period of sideways action at best, with the possibility of a move down to 1150. 5. Any upside taking the S&P above 1230 will be so far outside the normal range of expectations based on past models that it cannot be taken seriously in current market analysis. Bottomline: The best case scenario for the markets over the next 5-7 trading days is a sideways trading range that consolidates between 1190 and 1230. The worst case scenario for the markets over the next 5-7 trading days is a move down to...
TRADE UPDATE: TAKING PROFITS
Took a roughly 40% profit on EDC Took a roughly 15% profit on FCX EDC position taken last Tuesday. FCX position taken on September 29th. Keeping JJC (copper) for the intermediate term. 80%...
AN IMPORTANT RISK ASSESSMENT WEDNESDAY AHEAD
I developed the concept of risk assessment Wednesday to keep me from myself. When I say "keep me from myself", I mean all of the negative traits that I possess as a trader and investor. I have a tendency to become emotional, greedy and over-confident in my analysis at times. Risk assessment Wednesday keeps me an arms distance away from my faults. It is also a personal challenge of sorts. I am forced to step away from my analysis and look at the portfolio objectively from a risk/reward standpoint. As you can imagine and have probably experienced, putting your emotions and opinions aside in favor of objective analysis is easier said than done. You must separate yourself from yourself is the best way to put it. From a risk assessment standpoint the portfolio in its current form is vulnerable. The upside from this point over the next couple of weeks will be dependent on scenarios that fall outside the normal distribution of events for comparable periods. Meaning that we are most likely in for a period of sideways movement that lasts 1-2 weeks. We shouldn't get too much weakness. However, the chances for weakness are greater than any upside move that takes us to say 1250 on the S&P by next Friday. I'll be taking a good deal of profits off the table in the morning. EDC is up close to 40% since my purchase last Tuesday. Both FCX and JJC are up close to 10%. At worst, I think I will be able to reenter these positions around the current price point in the coming weeks. I also have a new trade that I may initiate in the morning. I will update on the website and Twitter if I...
IS 300 POINTS ENOUGH TO COAX THE BEARS BACK INTO THEIR DENS?
The velocity of the lift up over the past week should be of concern to any current and/or aspiring bears. While bear market rallies are often times ferocious in their ability to run over short sellers and cause those sitting in cash to scramble in an effort to gain exposure, they also have a tendency to last longer than most would expect. The market, in its infinite wisdom, knows that it is not going to change the record amounts of bearishness we are seeing here in one weeks time. The market also, in its infinite wisdom, knows that bears will continue to take shots regardless of how far up we go. The issue is of duration. It is not velocity that changes the minds and emotions of market participants. It is duration. A sustained rally is what changes minds. A sustained rally causes people to forget about the past ills and embrace a more hopeful future. The wounds after just one week are still very raw. So now market participants must answer the most important question of all: Why then has the market rallied up so far in such a short amount of time knowing that bears are going to continue taking shots? It has more to do with future surprises than any other factor. The markets are preparing to take the most unexpected course of all. That course is a rendezvous with the upside that will perhaps even surprise those who are intermediate-term bullish, myself included. The fundamentals will become apparent in hindsight. I have not experienced one market bottom in nearly two decades of playing in this sandbox that has had a fundamental reason behind its move out of the gate. The fundamental reasoning shows up many months after. If you are to wait for the bell to ring, you will be getting in when the opportunity for profit is questionable at best. Today we saw the total put/call ratio on the CBOE close at 1.21 despite a 300 point + move in the Dow. This was confirmed by the commentary I saw during and after the market closed. Most of which centered around concerns over volume and attention to issues that the markets have already digested. You could see the eagerness with which the bears attacked any weakness during the day by the ferocity with which the market kept coming back. Attention continues to be focused on protecting or profiting from the downside as opposed to profiting from the upside. Given the seasonals, sentiment and price action, there is a high probability the worst is behind us. I will continue to look for opportunities to add...
POSITIONING GOING INTO NEW WEEK
Just wanted to give an update as to my current positioning and intentions going into the new week. I do believe we put in an important low last week. I reacted promptly on the day of the reversal putting to work 75% of the cash in the portfolio during the last hour of trading on Tuesday. This was updated on Twitter during market hours. @Zenpenny1 if you don't already follow on Twitter. I took some quick profits on Thursday in order to move my net exposure right around the 50% mark. My current positioning allows for riding out some of the rough patches that may come. I have every intention of holding onto the current portfolio positions for the intermediate term...meaning the next 4-6 weeks. Possibly longer based on market action. Going into Monday I am holding EDC, FCX and JJC. EDC and JJC are ETFs and FCX is Freeport McMoran Copper. EDC is a 3X bull emerging markets ETF. JJC is a copper ETF. Both JJC and EDC are concentrated positions. I believe that opportunity exists in emerging markets, the banking sector and technology. Emerging markets and banking possess great opportunity because of the level of dislocation that has taken place over the past several weeks. The pricing for these two sectors have moved far away from any kind of truth. It is more a product of panic, fear and unjustified concern over past boogie men more than anything else. When such dynamics exist, the opportunity for profit is substantial. I like to look for substantial areas of profit that are gloomy and dark...emerging markets and banking both qualify. Copper is a further play on emerging market reemergence as well as economic stability. The selloff in copper was based on false expectations of recessionary conditions hitting the global economy. It will become increasingly apparent going into the final months of the year that recessionary conditions just don't exist. FCX is obviously a more aggressive play on copper and remains the smallest position in the portfolio. Not comfortable owning individual stocks for the foreseeable future. I prefer ETFs for the time being. The remaining cash in the portfolio will be used to buy dips in technology and financials. Most likely in the form of TQQQ and FAS. A few positions, in a few different markets is really all you need. I'll make updates when and if things...
THE TWO THINGS BULLS CANNOT ALLOW IF THEY WANT TO MAINTAIN CONTROL
It's important to remain in your comfort zone when attempting to ride an intermediate term trend. If you are overallocated then the potential exists for emotional micro-fractures, which eventually turn into raging gushers should the market fail to walk down the path you expected. That's precisely the reason I took off the QQQ and FAS position in the morning. I had a decent profit and wanted to get into my comfort zone in order to be able to ride what I believe is a developing intermediate term uptrend. I am close to 50% invested of capital. One of my holdings is a 3X leveraged ETF (EDC) so my actual exposure is quite a bit higher. What we have had over the past two days is a very real confirmation of the reversal day that took place on Tuesday. The price action is further confirmed by the sentiment picture and seasonals...both of which point to higher prices well into November. Furthermore, there seem to be few that are properly allocated to the market at present. This all changes as the month wears on and the S&P moves over 1200. The market will begin forcing buying action as the uptrend continues. Doubt will turn into belief. The first month of the rally (October) should be fairly choppy, allowing for a good deal of opportunity to buy the dips. The second leg of the rally through November should see the markets become smoother in terms of trend. The bears have had every single opportunity available to them to take the markets lower. Everything from global recessionary fears. Rumors of bank collapses. Sovereign debt crisis. Governmental crisis. Emerging economy slowdown fears. Collapsing commodity prices. CDS spikes. Reallocation into safety assets. The fact that we are more or less unchanged over the past two months despite all of these developments is a positive for the bull camp. All the meanwhile, the headlines have become gloomier. The sentiment has become downright panic stricken. I came into this week expecting to see a break of the August lows based on the setups in the major averages. I promptly got of the way on Monday morning, moving to a 95% cash position. I did this out of uncertainty as to whether the bulls would be able to withstand the type of selling pressure that would come from a break of the August lows. The potential for a waterfall type of decline was great. Crashes nearly always start from points where bearish sentiment is extreme and oversold conditions persist. The deception mechanism of the market breaks and the bears have their way. I reluctantly bought the reversal on...