Thursday, August 4, 2011

Market Meltdown Observatory

Personal Reflections
I am going to offer up some observations on the monster market drop in the next section. First I wanted to talk about me for a minute.

In the new year I wanted to become active in the markets. I enjoy trading and I have really met and learned from a great set of people. I was doing just fine; my year goals for return are only 10% so it's not a huge number (I am up 3% in my trading account for the year as of now). Around late May I noticed a change in the tape, I wrote about it on the 23rd:
Today was a bit more of a dangerous move down as buyers did not show up after lunch like usual. I am not looking for a usual 1-3% blip to get involved. Here is where charts are helpful but sometimes you have to make a call that lies outside the lines sort of speak.

My trigger was S&P50 at 1280 and it got there, from June 8th:
This morning I opened positions in both SH (S&P Short Fund) and PSQ (Nasdaq Short Fund). The market was about even and I figured a later day sell off might happen so I pulled the trigger. The S&P closed right under my target entry area of 1280. To be fair, I wanted a rally back to 1300 to open these positions, but it never shaped up this week. It still may by weeks end, but I felt like it was time to go on this one.

What is great about this trade is there are clear places to walk away. If the S&P breaks back over 1300 and holds, that would be step one out the door. A close over 1330 is step two (should leave) and if we arrive back at 1360, it's a busted trade without too much damage done. Otherwise it is in play along the new trendline down to the 1180-1190 area I have targeted.

I got closed out on the huge rally in late June to early July, and noted on June 29th:
I closed out my positions in SH (-2%) and PSQ (-1.2%) today. Minimal losses, and I had already set the exit point (S&P 500 over 1300) so it is what it is. I was wrong; I thought the market had been pricing in slower economic data as well as the problem QE 2's end would pose to cash flows into stocks. Even me, the perma bear, bear shitter, gloom and doomer, glass always half empty (a scientist says the glass's volume is .5 actualized, HA!) never spent a pixel on the Greek debt situation except in passing. I never figured the 100% sure bailout was ever worth getting scared over, certainly not a "second Lehman", geez cut it out already. This week the market recouped almost all losses since the big downturn a few weeks ago on Greek debt rollover news. Ok. I was wrong here and what can you do. When the actual traders get back next week and volume picks up, I expect the S&P to rocket to 1400 or more no doubt.

I never once believed in that rally. Not one bit. I backed off anyways due to set strategy but my gut was screaming at me to stay the course. I only played small spots after that on the long side. This missed opportunity bothers me to no end. I don't give a shit about the money I may have made, I felt something very strongly and I let it go. Maybe it was the 2 years of never ending market uplift or whatever. I will never be ok that I gave that one up.

Market Meltdown Observatory
There was too much going on today to make any sense of it. A list of observations for future reference and historical record:
-Some people know what they are talking about, the other 90% don't.
-Trend rider bulls are totally annoying, as annoying as the bears were near the end of the financial crisis.
-Technical analysis has rules and criteria; these should not change depending on how you are positioned.
-When markets were near new highs Wall Street cared not for Main Streets woes, now they want government action and FED help to "fix the economy". Been broken for years boys, you just got a taste.
-3.5% moves down "make no sense" but 3% panic buying moves up are "signs of a strong market". Symmetry is not just a concept.
-What fun is a market collapse if Zero Hedge is NOT AVAILABLE!!!!!!!?
-I think this is a correction of an overvalued, overhopeful market. This is NOT 2008 all over. Either this is a mimic of withdrawal of excess liquidity to get QE3, or QE3 is not coming.
-Fair value by metrics I use puts the S&P 500 at 950-1050. I have no idea if we get there (I would be a big buyer) but if your well being requires higher than 1200, you may want to rethink that strategy.
-We are not going to see another sub 900 S&P 500 print in my lifetime.

I had a bunch more but enough for tonight. As always Friday Night Fun night is on for tomorrow. I believe it is reader C-T's birthday as well so if you stop in (not many do) please request a birthday tune!

Have a good night.


Ultra Trading said...

I request some AC DC!

getyourselfconnected said...

Anything you want, how about "Who Made Who"?

Jennifer Hillier said...

Great post! There's definitely something to be said for trusting your instincts...

How about ZZ Top? Haven't heard anything by them in a long time.

The Sovereign Bohemian said...

Loved your post. I've been working so much that I am resigned to riding this one out. I lost a lot on my stocks today, but they are ones I will keep for years anyway. Wish I was making some deals though. Keep posting your could make me a rich man someday!

When I was at Sams Club the other day I bought some skirt steaks and baby spinach. This weekend I am going to make those wrapped steaks you posted about the other day.

I requested a song last weekend in a comment, but if you didn't see it, I would like to request again. Shooter Jennings..."4th of July". Keep up the good work. Thanks!

Small Business said...

Cool such an amazing post again.

GawainsGhost said...

Want to know what my mother valued that house at? $160,000.

The current list price is $174,900. The original list price was $219,000. This for a house that was rented at $1800/mo with a $1900 security deposit just a few years ago.

This is what I'm talking about.

Markets. Prices go up, prices go down. With the interest rate on a 30 year mortgage at an all time low, below 4%, why have sales slowed to a crawl?

Because nobody trusts the market. Everybody is waiting for the bottom.

When housing prices fall more in line with incomes, which have been stagnant for over a decade, then houses will start to sell.

If you're going to play some AC/DC, try "Kicked in the Teeth."

And if you're going to play some ZZ Top, try "Tube Steak Boogie."

I resubmit my recommendation for the Rolling Stones "Hand of Fate."

Budd said...

I thought it was a panic reaction due to the passing of beloved actor/football player Bubba Smith.

getyourselfconnected said...

Gawains, did the book arrive?

Budd, you may be right!

Watchtower said...

Mark's 'Rubicon' is on like DonkeyKong!

getyourselfconnected said...

1199 at the close, amazing! What was my target a while back on a drop? 1180? WEIRD!!!!!

GawainsGhost said...

I have not yet received the book.

Maybe it arrived today at the office, but I wouldn't know because I do most of my work at home.

I spend my mornings doing research, my afternoons driving around finding houses, and my evenings writing reports.

I told my mother to look out for it. She goes to the office every day.

And she has this habit. She wakes up at 4:00 AM, makes a pot of coffee and reads a book. Then goes to work. Which means she gives me work.

I'll let her read it first, just to get her opinion. Then I'll read it and offer my criticism.

CT-Hilltopper said...

It's No Good by depeche Mode.

Dave Gahan as a pimp does it for me.

And thank you for remembering my birthday!

Anonymous said...

I can tell you put your persona into your posts. Everything I have ever seen from your ideals, thoughts, movements ( both in an out of the markets ) points to you understanding of the situation (in full).

You know what's going on. You see it as plain as day.

Where everyone else still sees the confusing pattern of dots you see the full picture in the obfuscation.


PS: "The question is not how far. The question is, do you possess the constitution, the depth of faith, to go as far as is needed?"