TRADE UPDATE – QQQ & FAS
Took profits on QQQ and FAS. Bought late in the day on Tuesday. Holding FCX, JJC and EDC.
RUNNING FOUR DEEP
You know that fear has hit some outstanding levels when I had to force my hand to click the buy button during the last half hour of trading. Today's reversal was one of the scenarios that had me loading up on the long side. I did that out of respect for my research. I have a number of studies that were pointing to a reversal day below the August lows followed by a strong close being an ideal scenario for developing a rally through October. It didn't seem like it was a possibility until the final hour of trading. I would have preferred to see it rally from mid-day through the close. Has the market developed such a sense of vitriolic hate for its opponents that setups like today will be destroyed by Wednesday? It could be. Have the HFT systems become so in tune with how traders function that they are feeding off of tried and true reversal patterns similar to what was witnessed today? The SkyNet of the stock market, perhaps? A group of trading terminators that want to feed on everything that we've been taught, experienced and prospered with over the years. That's what it has felt like lately in the equity markets. It is only normal to question the stability and sanity of the market after such a wild two months of trading. I took on four positions today. Here is the reasoning behind each: QQQ - Simple. Strongest sector of the past couple of months should be the strongest coming out of the gates when a rally kicks off. No rocket science involved here. Your brain can hurt you. JJC - I have been speaking about the ghost of 2008 haunting global markets for the past couple of weeks. This is being reflected in copper with an abundant amount of weakness as of late. What if copper prices have become an indicator of global fear and panic instead of the reality of the fundamentals? Is any asset class immune from believing that a repeat of 2008 is upon us? What type of discount can be expect to see as a result of the fear of a repeat? How much is a strong dollar influencing copper prices to the downside? All questions that need to be considered. FAS - Financials are being assigned a substantial discount that is a small part reality and a great part fear. The reality of the situation is that earnings will decline as a result of the current credit environment. However liquidity and stability at the major financial institutions is nowhere near where we were in 2008. Financials are being...
PUTTING CASH BACK TO WORK
Invested 50% of cash during the last half hour of trading. At the close put on another 25% cash into long positions. 75% invested now. In QQQ, FAS, EDC and JJC. More on this later tonight.
A RISK ASSESSMENT MONDAY
Risk assessment Wednesday came on Monday this week. I decided to cut losses on TMV and pull out of FAS in the first half hour of trading. I managed to avoid the bloodbath that proceeded during the second half of the day. FCX I will hold. The position is small and I believe the upside is significant from here, with minimal downside risk. I am sitting with a good deal of cash in the portfolio. I'm not going to be staying in cash very long and will likely begin redeploying the cash into new long positions tomorrow morning depending on the market action. In keeping with the spirit of making sure everybody remains on edge, the S&P closed one point below 1100 at 1099. This is a completely fluid situation and my opinions are subject to change on a dime because of that fact. I can say this: I have been involved in market bottoms stretching all the way back to 1997. I am a contrarian at heart, therefore I have a need to zig when others are zagging. There are times when the trend is indeed your friend and going against the stomping herd can get your run over. It is important to use your own best judgment to assess when the proper time to increase exposure counter to the prevailing trend has arrived. If you allow somebody else to pull your strings, your staying power will be limited. And staying power is necessary during volatile periods such as these. I wish I could tell you that 1080 or 1060 will be the trigger. Unfortunately, I have to rely on market action to tell me when to begin putting funds to work. I don't want to rely on arbitrary levels as they are subject to failure. My trade on TMV - long yields - was just flat out wrong. I was way too early, which is another way of saying way wrong. This is a timing game AND a analysis game. When either are off, you are incorrect. It doesn't matter if you have a genius assessment on the future of an asset class. Timing is just as important a component in an assessment to go long or short as the fundamental reasoning behind your investment. One doesn't function well without the other. TMV was a case in point. I'm moving on. FAS was a very small loss. I managed the trade correctly from entry to exit. It's a good time to hit the reset button and begin looking at other ETFs to gain long exposure to the market. The QQQ, EEM (emerging markets) and JJC (copper) look...
PORTFOLIO CHANGES FOR SEPTEMBER 29TH
I announced on Twitter the initiation of a position in FCX at 32.20 today. It's a small position and will remain that way. Not because I feel the position has excessive amounts of risk or lacks potential. But rather due to the fact that it's an individual stock. I'm not comfortable with individual stocks at this juncture of the market. I wanted to a way to play a coming move up in copper, I think FCX is an aggressive way of doing so, which is why I made the exception. I also took profits on the remaining portion of my DZZ long (short gold) position at 5.32. The position was initiated on August 31st at 4.33. Total profit on the trade was roughly 20% in a one month time period. I remain bearish on gold but am of the belief that it will rally with the market over the coming weeks. I should be able to put on the position at higher prices in November. I continue to believe gold is headed towards 1300 and is now broken over the intermediate term. Current holdings in order from largest position to smallest: TMV, FAS, FCX and 40%...
PORTFOLIO CHANGES FOR SEPTEMBER 26TH
Took profits on another 25% of gold short DZZ at roughly 5.30. The DZZ trade was initiated on 8-31. The remaining 50% of the trade will remain in the portfolio for the intermediate term as I believe gold is headed towards 1300. Bought more FAS at the close at roughly 11.65. FAS is now a mid-sized position. Initiated this position on Friday. Reasoning is here. The portfolio currently consists of a long 20-30 treasury yield position (TMV), a short gold position (DZZ) and a long financials position...
FOR THE FIRST TIME IN OVER 2 MONTHS…..
I've taken on long side exposure relating the US equity markets. I initiated a position in FAS on Friday at roughly 10.50. It's the smallest position in the portfolio for the time being. I may add in the near future. Depends on what I see, hear and smell in the coming days and weeks. In my article from 9-22 entitled "Black Clouds and Traumatic Memories", I briefly discussed a discounting mechanism that I believe is apparent in the marketplace currently and is receiving very little mention. The traumatic events of 2008 undoubtedly left lasting mental scars amongst the majority of professional investors that currently dominate Wall Street. The relatively short amount of time between the 2008 crisis and the current crisis - not to mention the similarities - are causing investors to face the same fears as they did in 2008. Given the flashbacks and propensity for survival amongst those who are making vast sums of money, you can be assured that fund managers are taking every step necessary to make sure that they don't lose a source of income that will be impossible to replicate should the market repeat the events of a few years ago. In other words, risk has been taken off completely and totally in the name of job security. Given this set of circumstances how much of a repeat of 2008 fear discount is being factored into the markets currently? Even more importantly, how much of a repeat of 2008 fear discount is being factored into the financial sector currently? After all, the financial sector is what was behind the events of 2008. The financial sector caused massive wealth destruction amongst those who thought that Lehman and Bear going down was an impossibility. The financial sector became the poster child for over-leveraging and lack of oversight or perhaps lack of understanding with respect to fundamental truths about markets. There is no sector that is as negatively influenced by this discount as the financials. With that said, the greatest potential for mispricing and therefore, most significant upside is in the financial sector. You can study the balance sheets of JP Morgan (good luck with that if you try, by the way), Goldman, Bank of America and Citi until your eyes falls out and bounce around your desk. It's not going to take into account the core reasoning behind all price movement: Emotionally driven aspects of human psychology that depend on monetary fulfillment in order to derive a sense of security to further cultivate the fundamental motivation behind all living things - procreation. A subject for another article. Once fear gives way to rationality, it will...
PORTFOLIO CHANGES FOR SEPTEMBER 23RD
I posted on Twitter this afternoon regarding a trade I initiated in FAS. I am looking to gain some equity exposure. I think exposure to the financials will provide a good vehicle once the market bounces next week. I will go into more detail over the weekend. FAS was initiated at roughly 10.50. I took profits on 25% of my short gold position in DZZ at roughly 5.20. The DZZ trade was initiated on 8-31. I am holding a majority of the position as I believe we are closer to an intermediate term beginning of a downtrend than anything resembling an end. Short-term there could be a bounce as the move down today was historic in proportions. Lots more this weekend, including the weekend chart review on...
PORTFOLIO CHANGES FOR SEPTEMBER 22ND
- I took profits on my short Euro/long Dollar position EUO at around 19.10. I initiated EUO on 8-29-11 at a price of 16.55. - I added to my position in TMV around 15 I currently hold DZZ, TMV and good ol' American cash.