Today was kind of rough. I don't mean that I lost money. On the contrary, with the Dow dropping 240 points, my portfolio went up in value handsomely. The reason it's rough is because this is one of those times when I'm torn between (a) the prospect of the market bouncing strong; and (b) the prospect of leaving profits on the table by closing positions too early.
One of the symptoms of these times is that I get very jumpy with index puts, and I bail out of them and – – God, forgive me – – even buy calls. I was in 'n' out of index positions all day, sometimes for a tiny profit, and sometimes for a larger loss. It was pretty much a grand waste of time. Just leaving everything alone (which I did with my gazillion other positions) would have been the better choice.
Last Autumn, when the Chinese market was soaring (remember that?), the "rationale" was that their market would be strong until the Olympics. Well, sports fans, that's just a week away. When that's all over, what then? I've actually not touched China, long or short, in a while. The spread on the options is too wide, and the market is pretty weird to interpret. If I had to go long one country, though, it sure wouldn't be the middle kingdom.
One of the reasons for my skittishness about indexes is how a number of major indexes or ETFs touched their retracement levels today. The DIA is a superb example – – even moreso since last week it did a beautiful job touching its (smaller) retracement, shown below in red.
Energy has been sort of pausing at its fan line, but frankly I'm expecting a break down. The OIH could head to the 165-170 range given that prospect.
Of all the indexes, the one I find easiest to interpret and trade these days is the Russell. We are smack dab in the middle of retracement levels right now, which I always find to be an unhappy spot. I am far too uncomfortable with the general trend of the market to be buying calls, so I'm either going to be long puts or out of the position altogether. You can plainly see that, should we eventually crack the 645 level, we've got a ginormous head and shoulders pattern on our hands.
Looking closer, you can see we're precisely in between the retracements. There's a skosh of support in the 695 area. It would take something pretty nasty to provide the strength (errr, weakness) to get $RUT to break that lower level. We shall see.
The S&P 100 also approached its retracement level today, almost perfectly touching it. I keep getting the feel that, barring shocking news, the selling pressure is really going to abate. But I am not convinced enough of that prospect to close out positions; it's simply too likely I will leave profits on the table. I'd rather align myself with the broad trend, which I have almost no doubt is firmly in place.
My chart of the S&P 500 doesn't reveal any rock-solid answers either. We are diddling around the ~1260 retracement. I have seen 1170 cited in so many places as the obvious support zone, it makes me wonder what the market is going to do to prove us all wrong! It just seems too easy an answer.
I want to make one last comment on contingent stop orders. A fair number of people have written me about putting stops on their options positions – – that is, the option instrument itself. In my opinion, that is really the wrong way to go. Options are far too thinly traded, their spreads too wide, and their trading too volatile, to justify such an action.
I think by far the better choice is to have a contingent stop. For those who don't know about this, it simply means that if the underlying instrument does something or another, then your option order goes through. Let's say you have puts on AAPL, but your hypothesis will be broken if AAPL crosses above, let's say, $190. A contingent stop would simply assert that, should AAPL cross above $190, an immediate order will be created to sell your options position at the market (you could use a limit order, but I think that too would be foolhardy).
If you use stops – and I hope you do – I cannot recommend strongly enough making use of contingent stops as opposed to the "normal" stop orders. I am pretty sure most brokers offer this, but if yours doesn't, that probably is reason enough to change your firm.
I think I'm going to hang up my keyboard for the day; thanks for stopping by, and many thanks for the marvelous comments section and all the fantastic contributors there!
