I confess that yesterday's not-too-surprising announcement from Dubai that everything would be juuuuuuuuust fine had me a bit concerned, but it looks like the damage is here to stay. In particular, I am still madly in love with small-cap shorts. Even as most indexes and commodities are thrusting slightly higher, the small-caps have been reliably weaker. I have doubled my position in SDD, the ultra-bearish small-cap ETF. Below is the IJR, which nicely illustrates the set-up for small caps on the short side.
Slope of Hope Blog Posts
Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.
I enjoy non-fiction quite a bit, and the latest tome I'm going through is Sorkin's Too Big to Fail, which is a nearly 600-page book about the summer and autumn of 2008. Since most of us here lived through that time (some of us, tick-by-tick), it's absolutely engrossing. I'm only about 60% of the way through the book, but I'm really enjoying it.
I'm back in my beloved Palo Alto and ready for a new week (without holiday interruption!)
Dubai's pledge to pour in however many tens of billions of dollars are required to shore things up has had a rather temporary effect. The /ES is up precisely zero points as I am typing this, having been up more than seven earlier. And, as I grab a bite of breakfast, I shall share with you an amusing notion that popped into my head this morning from an Accenture advertisement I remember seeing………..
Here is what it looks like now after the breakout of the triangle. If you set up a stop right at the high of the daily candle and enter upon the break of the low of the daily candle, the risk/reward is totally phenomenal. While SPX was going through a sideway movement, this pair has made a whopping 1,000 pips move in a matter of 7 days!! In the mean time, EUR/USD has made only 20 pips price movement during the same time frame.
It's late Saturday night as I am typing this, and I finally have a chance to say a few words about Friday's very interesting session.
I got up very early Friday morning, at about 3:30 a.m., and I felt well-prepared for the day. I was thinking to myself it might make sense to dump half my SKF position and all my TWM position immediately at the opening bell, but that would violate my "30 minutes" rule, so I decided to hold tight.
As my post from Friday morning indicated, I expected a pullback on the /ES to about 1082, and then a fall. Well, we got a pullback all right, but it just kept on – errr – pulling back. So although my initial paper profit at the opening bell was huge, it started to wither almost immediately. I cried "Uncle" and got out of all my TWM (which I had bought Wednesday) and about 30% of my SKF positions. Both were handsome profits, but they definitely would have been better at the opening bell.
So holding on tight during Friday was quite interesting. As I said, my maximum profit was at the opening bell ,and by the peak of the bulls fighting back, 60% of those profits didn't exist anymore. So, at that very moment, the day was still sensationally profitable, but when it was two and a half times more profitable earlier, it kind of stings. But I am not in these positions to whimsically bounce in and out.
The kind of cool thing is that I decided at this pain point to actually take on a big position in SDS and another big position in DUG. The market started to turn back in my direction, but I had to get in the car and head to the airport. So, on that incredibly exciting market day, I had to walk away from my screens.
When it all ended, the /ES looked like the chart below. The tinted area represents what I consider the topping pattern, and the green tint represents my "didn't expect that" area. As you can see, the market slipped away somewhat from its push higher, although it still closed far above its night-session lows.
But here's the cool part of the story – – – – I didn't get a chance to see where my portfolio wound up until Saturday morning (!) So although I had a sense that, in the end, my profit for the day wouldn't be down 60% from its opening bell peak, I had no idea what the final tally was. When I finally got it, I was delighted – – – I was up for the day about 80% of what the opening bell profit was. That was particularly gratifying for me since the market actually didn't slip that much farther from its intraday peak, so it confirmed that I was in some really good positions. The bottom line is that it was far and away the best daily profit I've ever had in my trading career. So I was delighted at our little half-session!
It also just occurred to me before writing this post that I hadn't checked on my 401-k account. I believe I mentioned that I put 100% of my 401-k into the ultra-short (on the small caps) mutual fund with the symbol UCPIX. Here's a line chart of its progress, with a tint showing my short-term target.
Lastly, I took on a new position in DZZ on Friday (which is down about 1% from what I paid for it). This is the ultra-bearish-on-gold ETF. I am learning to fear gold on the short side a little less, largely because gold bulls I respect – Gary Savage in particular – believe we're in for a reasonable pullback. The other thing that is striking to me is the volume – – just look at that volume has been steadily pushing higher.
So, naturally, the big question is – – – what does Monday hold? I found it hilarious (and predictable) how the big web sites were all chalking up Dubai as utterly unimportant in the grand scheme of things (although if the news were bullish, I guarantee you they would be ringing the bell about what a vital indicator Dubai was). But remember this – – – in 2007 and 2008, the shots across the bow were things like obscure hedge funds no one had ever heard of blowing up. And what word was used again and again, as little bits of bad news crept out? "Contained" It was Bernanke's favorite way to explain away the subprime mess: that it was contained.
Well, none of it contained, and I'm sticking to my plan. I remain 100% short and plan to expand the size and quantity of my positions early this week.