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It's Brian Johnson again and here's a video on the current state of the markets and what to look for as we move forward. The markets pushed up one more day but I was collecting shorts. We're getting pretty over extended here and I feel the risk is in holding long as opposed to holding something short at this point. The DOW and NDX were both able to close above their 50 day MA's but the SPX couldn't quite do it. Be careful if you're trading to the long side.
If anyone has a time machine they can let me borrow, I'd like to zip back to February 5th and cover all my short positions. In the nine days since then, pretty much all my profits from the waterfall drop in prices have been gutted by the relentless upward push in the market. I'd really like to have those profits back. Maybe now that the Fed has made its surprise announcement that it is pushing up the discount rate, Friday might give me some relief. We shall see. As of this writing, the /ES is down nine points.
Prior to this drop, the S&P itself is exactly at the 61.8% Fibonacci level, as measured from the 1/19 peak to the 2/5 trough. This might represent a turning point, although the market has barely even paused to take a breath during this run-up. Since the interest rate party seems to have been declared over, this might be the sea-change we've all been anticipating.
Not surprisingly, the VIX has been getting clobbered. It has gone from about 30 to 20. Those who bought options during the early February plunge are probably hating life right now.
One thing I've been struggling with for the months is the opposing views that I have with the precious metals bulls. A lot of my favorite folks – including Gary Savage and Market Sniper – have been very clear in their bullishness on precious metals. I don't like having views opposite those of people whom I admire and respect, but I just don't see the bull market that they do. The $HUI, shown below, seems to be history repeating itself. It seems to me that precious metals are setting themselves up for a big plunge before long, just as they did back in 2008. I am presently short GDX (as of today) and SLV (as of yesterday).
Anyway, I've been doing a lot of soul-searching lately about my trading tactics, since the evaporation of my early-February profits has been distressing. I consider myself a nimble trader, but to have to flip from bullish to bearish and back again every few days just isn't my style. I'm a swing trader at heart, and this market is very hostile to swing traders right now. At a minimum, I think I'm going to hold a far small number of much larger positions, so I can "change horses" much more feasibly than before. This is a topic I've been pondering basically non-stop the past week, including when I'm skiing down a mountain. I am completely absorbed by this topic, and I hope I can see my way to a logical resolution.
[Here's another re-tread (edited)post from my blog. I wrote this post after Market Sniper offered some thoughtful commentary when I was lamenting this blown trade on HPJ. I also received some terrific technical help on a TOS program from both Viscous and Greg. Offering this 're-tread' is way to highlight the community hear and the cult of shared learning.]
It's not enough to find a stock in which to take a position, but it
is also important to manage the position to optimize results (maximize profits! minimize losses!!!). The literature tells us to
keep our losses small and let our winners run. Sound advice. However,
when faced with a loss, our head often counsels this way: "If you hold onto this stock, it will
come back!" Conversely, when faced with a gain our head has equally pathetic counsel: "Better to
sell it now…you know what they say, 'nobody goes broke pocketing a
gain.' Besides you big dummy look at those losers in your portfolio–be
quick before this turns into one of those."
It's worth
remembering that your mind really doesn't have a mind of its own; and it is quite adept at offering supportive rationalizations for any of your lesser inspired inclinations. You can go broke by failing to take a gain. How? Simply by hanging onto
your losers while tripping up your winners (selling them) after they've made it
through the first turn on their track to unknown price heights. All of this is a reminder that we must first master our own psychology–and poor disciplines rob us of the psychic energy that we need to trade successfully.
Enough sermonizing…….. Let's
take a look at one of my winning horses, HPJ that I shot dead just after it made its first turn in its personal Kentucky Derby. I identified it as a volatility squeeze (VS) play. To find targeted stocks, I'll set Keltner Channel and Bollinger Bands to 10 periods and filter for stocks that have the Bollinger Bands inside the Keltner Channel. I look through hundreds of charts. I'm looking for volume patterns coupled with attractive basing patterns. HPJ fit that bill.
HPJ popped out of this VS. When my gain was 97% I couldn't stand it any longer, and I sold the whole damned thing. It tripped (read consolidated); and I shot it. Why? Because my mind (which has no mind) got very chatty and started yammering about how HPJ had lingered a wee bit too long (to my eye) for a
follow through in volume on the initial breakout. I sold it. Within 15 minutes, the stock rocketed obscenely higher. I use this VS 'strategy' regularly. Because I had not codified this strategy , it was merely an idea rattling around in my head. Businesses don't confuse ideas with strategy, nor should we as traders. Failing to codify that idea into a cogent strategy was expensive.
It is important to differentiate
between hindsight bias and transforming 'coulda, woulda, shoulda's'
into learning vehicles. What would my learning be from this trip down
memory lane? Let's see how I could I could have managed this trade more effectively (as I have managed others like this) with a strategy. Here's the chart (It went on to more than $9.5).
(click to make larger)
Now
plenty of folks keep buying into these melt ups. I'm already in the position at a low risk entry, so I don't do that. My DNA is not wired
that way–not on these speculative stocks which can pop and drop rather
quickly. It's important to be in tune with your own risk tolerances and trading preferences.
The above playbook was soft in that it was rolling around in my head, not solidified by committing it to paper. Since I've committed it to paper, I've treated it as a core discipline with good results. I hope this post inspires newer traders to commit their learnings to paper and review and revise as necessary. As always all position sizes should be managed prudently within your risk tolerances.
Position: (1) Lamenting HPJ – the one that got away and went up, up and away | (2) Grateful to be part of a community and to have members who willingly teach and serve as sounding boards.
It's sad to say, but one of my great pleasures in life is reading the comments on Slope. It's great to pick up ideas, learn new methods, and feel the "vibe" of the market via Slopers. My week-long ski vacation has made it impractical to read any comments, let alone be part of the stream. (This has led to moments of mayhem, I realize, such as when people decided to change their avatars to twisted versions of your bedraggled host).
I imagine that within comments people mentioned the plane crash in Palo Alto, which killed three Tesla executives (one of whom was piloting the plane) and shut down power to all 28,000 residents and businesses of my fair city. The pilot was actually a decade-long employee of Ideo before Telsla; Ideo has been the next-door neighbor of Prophet for many years.
It really goes to show you how fragile life can be. One day you're an executive for one of the coolest companies in America, about to get rich off a pending IPO, and in a split second, your life is over. It also reinforces my refusal to go on small planes (let alone doing so in fog). It's especially ironic that, had I been in Palo Alto, the epicenter of technology of the planet, I would have been out of commission for the entire day, whereas up here in the mountains, I've got reliable power and connectivity.
I remain entirely short, which means the run from February 7th to today has alternately either stunk or been neutral, depending on the day. Today is one of the more neutral days, although we're edging down a skosh. I'm heartened that FXI is shaping up as I had hoped, as it is one of my bigger shorts.
I want to once again fall to my knees and thank my guest writers for stepping up to the plate and creating content for the blog. This little corner of the Internet means a lot to me, and I want to keep it lively. Thank you, everyone.
It's Brian Johnson again and here's a video on the current state of the markets and what to look for as we push forward. The markets spent the day in a high base consolidation so the more likely move in the short term is still up. I'm waiting for a break back below 1085 on the SPX to get more bearish on the markets again but I believe it's just a matter of time.
