I’ve had this post in my head for about a week now, although I’ve been debating whether to write it or not. The reason for my hesitation isn’t because what I have to say is particularly shameful (“I have a secret fetish related to capuchin monkeys………”) but it is one of those Earnest Trader posts which is prone to attracting stupid/obvious advice or, even worse, criticism. Part of the reason for Slope’s success, however, has been my openness, and I have no intention of changing that.
To come right to the point, even though we’re just a little bit into 2016, I have twice had “peak profits”, only to see the majority of them wither away. More specifically, I managed to put together a very handsome profit, peaking on January 20 (which happens to be the day I saved those two puppies in the park), only to see most of those profits get torched (see first green tinting below). A subsequent drop in the market allowed me to rebuild those same profits, step by painful step, to enjoy an even greater total profit by February 11th (second green tinting below) after which time the vast majority of those profits were, in turn, torched.
“Well, Tim, you should have just closed everything and waited for the bounce.” Well, thanks for that tip, Mister Genius, but there isn’t a person on this planet – – including you – – that knew (or even will know) when a market is about to reverse to explode higher. In either of those cases, the market could have simply kept withering away. If you’d like proof of how dangerous it can be to pick a bottom, kindly have a conversation with just about anyone in energy stocks over the past 14 months.
Psychologically, something I’ve discovered about myself is that FOMO (Fear Of Missing Out) completely dwarfs the fear of seeing profits evaporate. I never really contemplated this until late last December. Faithful readers will recall how I decided to not trade at all for the last week of December, pledging to resume again with the year start. It was absolutely agonizing. The handful of days I’ve highlighted below had to be among the most painful in my trading life, since Mr. Permabear watched helplessly as the market began to unravel, knowing he was 100% in cash. It. Was. Horrible.
So dealing with that “missing out” absolutely seared my soul. I contend strongly that, even with those central banker buffoons still running around, we entered a bear market on December 29, 2014, and whatever stupid interventions they conjure up will fizzle out faster than anyone dare imagine (witness the whole Japan NIRP thing, which has made Kuroda look like the hapless, foolish, erectile-dysfunctioned bozo that he is). Yeah, yeah, yeah. QE3. I’ve heard that for years. Whatever. Yellen is doomed.
The biggest FOMO memory for me was the collapse of the Russell 2000 during the financial crisis. To be sure, I did not totally “miss out”, enjoying something like a 400%+ gain in 2008, but by God, I did not take full advantage of what must have be The Most Obvious Top Of Human History.
Now I realize there is no shortage of indicators that can help one find overbought and oversold conditions, but these are simply guides and suggestions. I’m not sure if you realize this, but they don’t come with a money-back guarantee, and oftentimes they border on nothing more than noise.
I have thought long and hard (which, since I work alone, I have a lot of time to do) about adding some kind of new or modified trading rule, with some formal way of stating “If things ever seem to be really going your way, then close out everything and stop trading for at least a week.” But, let’s face it, how would you apply such a rule? When would you make an objective assessment that things were really going your way? What if things KEPT going your way? You’d go absolutely nuts, wouldn’t you?
Indeed, one of my existing rules from the same page states, “Emotional Awareness – use emotional awareness to your advantage, understanding fear often accompanies reversals in your favor and hubris often accompanies reversals against your positions.” But, quite honestly, I did not feel the aforementioned “hubris” on either the 20th of January or the 11th of February. I simply felt things were going well, and I carefully and diligently updated my stops (and, yes, did take some profits on positions that I felt were particularly stretched). Even so, though, the bulls took a machine guns to my beautiful profits.
I don’t have any particularly breakthrough insight or conclusion to this post. More than anything else, I am typing out loud (so to speak), since this has been very much on my mind. Make no mistake, if things DO push hard to the downside, I’m going to be awfully tempted to Get The Hell Out, based on what’s happened so far, but the trading gods are cruel gods, and you can bank on the fact that if I do cover everything, we’ll head down another 2000 points on the Dow.
I guess all I can really say is that I’m still confident that my ultimate goal for this year, the S&P cash index at 1577, is still firmly intact, and Shame On Me if we reach that level and I just sit around, greedily hoping that it falls more. That figure is based on a measured move, and I don’t have to assess how I am “feeling” to know whether to get out or not.
For the moment, at least, the bears got some relief today, and crude oil’s continued weakness should, I think, continue to be of aid.
And that, as Forrest said, is all I’ve got to say about that.
