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.
Brought Me To My Knees, Pale…….
I know I've brought this point up before, but given today's action, it merits repeating: the bears have been outright cheated by what's happened in the FX market versus equities. What was supposed to have happened was equities were going to fall hard once the dollar finally got around to rising. Well (equities in blue, euro in black)…………
OK, "cheating" is too harsh a term, because the market promises us nothing. All the same, it's hard not to feel disappointed.
So what do we take away from the fact that equities have absolutely given the middle finger to a stronger dollar? What it tells me is that, given that…….
- + We have a strong year-end bullish bias;
- + An imminent short-term weakening in the dollar;
- + The "one-edged sword" we've witnessed
……..that strength in equities between now and year-end could be explosive.
I have no intention of scampering out of my existing shorts except for the one reason I will always accept: getting stopped out. I do intend to do the following, however:
- + Continue to augment strong long positions;
- + Take on a seriously large long precious metals position;
- + On the very last trading day of the year, substantially augment my best short positions (probably in the closing minutes of the trading year)
Personally, I can't wait for this year to be over, but I still need to do the very best I can every day. There are still seven trading days left, and the above is roughly what I think is in store for the balance of 2009.
So What Do You Do?
What does one do when he, as a trader, feels like nothing is working right? With the market reaching new highs on a daily basis, and with me so bearishly tilted, this is certainly a question I'm facing a lot.
It's hard enough addressing such a question in private. But since I've been doing this very publicly, it's far more emotionally challenging. It's especially hard since some of the nastiest, most hateful creeps on the planet get a real charge out of seeing someone like me struggle. Most people would just quit blogging if they got some of the emails I got.
But I'm not the sort who, as the saying goes, lets the terrorists win. So – back to my question – what does one do at a time like this? Here are some possibilities for someone bearish like me right now:
Action 1: Go entirely into cash
Advantage: Risk goes to basically zero. Emotional anguish ceases. No more risk of getting squeezed.
Disadvantages: Profit potential goes to zero.
Action 2: Buy stocks and increase long exposure
Advantage: Attenuate damage to portfolio in case of continued push higher.
Disadvantages: Entry is at high price – upside potential is questionable.
Action 3: Wait it out
Advantage: Most closely follows trading plan (after all, a "plan" is meant to be executed); just let the stops do their work. Profit potential still intact.
Disadvantages: Exposes you to continued losses.
Action 4: Completely switch – cover all shorts and go long
Advantage: Fully participate in any continued push higher.
Disadvantages: Very expensive to cover shorts at these levels (and likewise potentially expense prices on long positions)
Action 5: Trim Back
Advantage: Reduces risk if market keeps going higher
Disadvantages: Also reduces potential profit potential is stocks go down
I'm doing a combination of "2", "3", and "5". That is……
- Earlier today, I bought the fifteen securities I mentioned in my earlier post.
- I'm letting my stops do the work (and, make no mistake, they're doing their work; I've been boinked out of something like 20 positions).
- I have, in some cases, trimmed back my position (such as with XLU)
Today stinks – no doubt about it – just like most of the past two weeks have stunk. But I'm not the quitting type.
The Core Concern
It's starting to get to the point where I'm wondering if I should just go into cash and wait as many months (or years) as necessary for the market to get sane again. This is just unbearable.
I'm reminded of Abbie Hoffman's suicide note: "It's too late. We can't win. They've gotten too powerful." Surely Goldman Sachs comes to mind.
This morning, my overall positions went from a $40k profit to a $11k loss (and counting). These are "paper" profits/losses, but they are still very real. What seems to be the most fantastic opportunity for shorting in ages isn't going anywhere. The consumer confidence numbers that came in this morning were way, way below the worst projections, and yet the market is surging higher again.
If you look at the $INDU which has – incredibly – retraced 50% of its entire loss – it seems to be at the perfect place for the market to begin tumbling.
But consider this – – – when the NASDAQ in 1999, which also seemed like an insane market, seemed to be getting "tired"…….
It just went from insane to more insane…….. (note relative location of tinted area) and the right thing to do was to buy "parabolic" moves which seemed very risky but which turned out to be very profitable.
If I feel I can't trade a market using charts, then my skills aren't useful to me or anyone else. I cannot be on an emotional rollercoaster every day (Wednesday – horrible; Thursday – great; Friday – horrible, etc.). And I am not a momentum trader. Hoping that someone will buy a stock from me later at an even higher price – – – and having that as the only justification for my purchase – – – isn't my style.
At the very least, I'm certainly not opening up any new positions, and I'll just let the stops do their job. But it seems for every mile of rope the market is giving to the bulls, the bears are getting about half an inch – – and only on occasion. It's dispiriting in ways I cannot describe.
Endurance
I was going to title my post "Sigh", since that sums up how I'm feeling right now, but I know from experience that reading a blog where the writer is groaning about things is tiresome.
All the same, I'm in low spirits right now. I work very hard on my analysis. There are times that this analysis leads to a bonanza, and there are times – like now – where I feel like throwing darts would be more effective. It is profoundly unrewarding to spend countless hours analyzing, preparing, and trading with nothing to show for it.
Today, many assets tagged new highs (either lifetime or for the past year+) – – such as the Dow 30, the S&P, and gold.
Recently, it seems like any time a flicker of hope appears, the bulls just ramp things right back up again. The only silver lining in this entire scene is that the Russell, which is really my mainstay right now, isn't making new highs. And that's cold comfort indeed.
My principal fear is that late 2009 is becoming like late 1999. That is:
- Everything is going up, irrespective of reason;
- The less thoughtful the trader, the more money they make;
- An insane final rush-up in price may be in store, and may last months
I know there was a sigh of relief when Kemal_1, who is perhaps the most respected participant here, declared P3 underway. But days like today are a grind.
I don't mean to sound whiny. You don't take your time to come here for that. But the market has been so discouraging and confounding. I've tried – – I've really tried – – to find good bull setups that I really want to hang on to, but I'm not into "momentum" investing (e.g. buying stuff that's already been bid-up huge in the hope that the bidding up will simply continue). It's not my style.
I'm going to take a break for a bit; if I get my head screwed on right and have more to say, I'll be back.
