Saturday, November 22, 2014

11/22/14 The Other Side

Prior to opening a position, I try to see 'the other side' of the trade.  Who's offering the position to me, and why?

In many (if not most) cases, I won't really know the answer until after the fact.  Which leads me to come up with a few thoughts re the past two weeks (in no particular order):

(a) It's often smarter to trade after the fact.  My initial foray into CAF/FXI (and to a lesser degree, EEM) was driven by the 11/10 open of the Shanghai-HK Connect.  I booked a paper gain of 2+% on CAF, but elected to hold well after 'reaction to the news' made it clear it was a 'sell.'  I allowed (my errant) conviction to overrule discipline.

(b) The chase.  With few exceptions, I won't chase prices.  Gaps up and parabolic rises are fueled by emotional extremes (generally panic on the part of shorts).  Friday's open was the latest instance.  It's certainly possible we see further panic on Monday, but opening on a retrace/retest is the lower risk entry.  My 'shorts' on Emerging Markets/US indexes (via EEV/HDGE) are a short term bet on lower prices in both on Monday.  They are also high risk bets, and I'm appropriately sized down.

(c) The next trade.  With respect to foreign markets, what is the next trade?  In my opinion, announcements from China (via the PBoC) and Europe (via the ECB) are extremely bullish.  Not because they signal economic strength, but because they undergird risk sentiment.  And it's sentiment (and not economic reality) that drives the market.  Traders who opened positions on Friday will likely be tested.  I'll be looking to reopen positions in Europe and/or Emerging Markets on any weakness.  No test, no trade.


Friday, November 21, 2014

11/21/14 Night Moves

China surprises with its first interest rate cut in two years.  Europe lifts as Mario Draghi vows again to put the pedal to the metal.  The cross currents are multilayered and (in some cases) counter-intuitive:

The $USD soars +0.6%.  The Euro plunges -1%.  Regardless, both crude and gold spike +1.7% (presumably on expectations for higher demand as stimulus kicks in).  DJIA +150.  EEM +2%.  XLE +1.7%.  Miners +3%.  Bonds marginally higher.

Had I held all positions into Friday, my gains would have doubled.  But that's water under the bridge.

Tuesday, November 18, 2014

11/18/14 'Don't Lose'

I'm not a Tony Robbins fan, and although I 'kinda' know who he is I've read none of his books.  Now, however, he's taken on the subject of finance- that one I plan to read.  Marketwatch includes an 'op-ed' piece by Robbins today which attempts to distill the results of his interviews with successful investors.  Excellent read:

Not losing is somewhat of a misnomer.  All investors make losing bets.  The 'key,' if you will, is to cut losses quickly.  Almost half of my trades turn out to be 'wrong.'  That's OK, as long as I immediately recognize/admit the error and take the dent to my portfolio (before the damage escalates).  It's the closest you'll come to discovering a 'secret' to financial success.

Friday, November 14, 2014

11/14/14 BRIC'd

Brazil slammed at Ibovespa open. Scaling back into EWZ (Brazil) @ 38.05 (-4% discount to Thursday's close) and PBR (Petrobras) @ 9.48 (-7% discount to Thursday's close).  Both now closing in on or printing new 52-wk lows.

RSX (Russia) on the watchlist, as are CAF and EEM (heading into Monday's open of the Shanghai-Hong Kong Connect).

Thursday, November 13, 2014

11/13/14 Comment Cleaner

Typical Sonoma County traffic jamb.

Monday, November 10, 2014

11/10/14 The Shanghai-HK Connection

The Shanghai Composite jumped +2.3% early this morning on the news.  Note that FXI (iShares China Large-Cap) barely budged today, but that's not where the 'A' shares are traded.  CAF ( the Morgan Stanley China A Shares Fund), on the other hand, jumped +3.64% and closed at the day's high.

Investor psychology remains muted at this point (despite an initial +560 point spike in Hong Kong's Hang Seng this morning, it settled to close just +194 points higher).  IMHO, today may have marked 'buying opps' in FXI, EEM (iShares MSCI Emerging Markets), and even CAF.

Sunday, November 9, 2014

11/9/14 A piece of plastic on a round revolving tray

(a) 'Modern Day Magic.' Odds are this will be the first time you've heard this. Made the playlist on Detroit's WMJC quite a bit in the summer of 1976. 

(b) 'I Don't Know Where To Start.' IMO the late Eddie Rabbitt's best composition. 

(c) 'Color My World.' There weren't many rock songs in the Sixties that featured the piano in a non-percussion role. An older cousin taught me this Chicago standard during a weekend stay in 1970. I did the same with my youngest son a few years ago.