Making money on the short side is hard work.
I've opened positions in varying combinations of ERY/DPK/FAZ/FXP/TZA/VXX countless times in the last several weeks, but allowed myself only compressed holding periods- anywhere from 1 minute to a few hours. In almost every instance, had I simply allowed the position(s) to resolve in the direction of the prevailing trend, I would have seen gains 5-10x higher than the minor profits I ended up with. Not once did I capture a sizable gain.
Not really sure what the 'problem' is (assuming there is a problem to begin with):
(a) Distrust of any spike down. Jumping aboard a spike down has resulted in being shaken out on (seemingly) immediate reversals so many times I can't allow myself to leave positions untended.
(b) In fact, to be fair, I would have to say that keeping holding periods short has saved me from a few sizable losses as well.
(c) I can't shake the sense that we are going down, but the market only seems to sell off when my hands are tied. Last night was a beautiful example of a premonition playing out almost on demand- however, all I could do was vicariously post the declines in the Asian indexes. I went to bed convinced the European/US indexes would open red- only to awaken to a significant gap up.
(d) An hour ago I was juggling the idea of opening VXX @ 28.42 and/or DPK @ 17.30. Didn't do it. Odds are 60/40 I'll regret it.
That's just the way it's been for weeks. The reluctant trader.
2nd- Agreed. The only thing I can say with certainty, if I didn't take profits after buying the Feb. low, and a few scalps recently, I'd be F...ing buried right now. 50-60K, easy.
ReplyDeleteAnd that was only being 40% long max.
ReplyDeleteThe corollary to all this, of course, is that it's much easier to make money on the long side.
ReplyDeleteAnd there's nothing wrong with sitting in cash waiting for an entry point. Prior to the advent of short ETFs, it was virtually impossible to make money on the short side in 401(ks). Cash or fully-invested- that used to be all there was. It's (still) possible to make a lot of money using only those two options.
Relative to craps- the high odds bets can be narrowed down to two plays-
ReplyDelete(a) pass line with odds
(b) if one gets bored waiting for a point, place come bets with odds
Everything else is for fun- ie, taking high-risk flyers.
I see the post-close report mentions the same points we brought up earlier:
ReplyDelete(a) The long bond was bid up even in the midst of this morning's rally.
(b) SPX 1040 was sold.
Main difference is y'all read it here way before the close, when it still mattered. hehe...
ReplyDeleteHere we go again-
ReplyDeleteES 1020
DJIA -33
Nikkei -0.66%
Still can't believe the FTSE was up almost +3% today.
That may be the problem right there- if I can't 'believe' it, I can't trade it.
ReplyDeleteAlright, here's a bonafide 'take,' based on Hulbert's comments this morning.
ReplyDeleteI'm not sure why more traders don't reference his column, as he actually has a pretty decent track record when it comes to contrarian sentiment signals.
(a) We sell off hard into Friday, which then becomes
(b) One helluva buying opportunity given a 90-day horizon.
Last night I posted (it was lost) that I thought the bottom for the ES was in for the year. Still feel that way.
ReplyDeleteMark- Alright! So now we also have a bonafide betting situation.
ReplyDeleteA bottle of Nadurra on the line.
No ----ing way is the bottom for the ES in for the year.
From our friend Doug Kass...SPX earnings in 2011 of $90.
ReplyDeletehttp://www.thestreet.com/story/10799430/3/kass-fear-makes-a-comeback.html
2nd- OK. How bout this? SPX cash holds 999 at the close for ANY day for the rest of the year.
ReplyDeleteFor those of you who have had sons...Harlan will be 3 in Nov. He demands to do EVERYTHING himself. Really quite different, and annoying, than my girls.
ReplyDeleteRing a bell??
Quite exciting times for my oldest, Kendra. She is in a soccer camp that is run by top national coaches from the Netherlands. How cool is that!!
All I can say is give Harlan his space and don't be critical. Some parents make the mistake of comparing one kid to others, which can cause damage to the one who doesn't "measure up".
ReplyDeleteNot that you would, of course, and not that I'm an expert.
Man, with the inability to gain any traction, there must be something wrong out there that we don't know about yet.
ReplyDeleteJust what is it that will get this market moving back into positive territory?
Earnings should be good and corporate America is flush with cash but won't hire because of the uncertainties surrounding healthcare, corporate taxation, energy regulation, etc., etc., subjects the White House and Congress just can't seem to get resolved. A huge WDC traffic jam holding us all hostage.
Well sheesh, at least FXI closed in the green.
ReplyDeleteCP- I hear you. I'm equally critical and demeaning of all of them ;) Did you read the Kass link I posted? I think it might answer your question.
ReplyDeleteI don't post comments from SOH very often, but this is from a "cool headed trader" that I think has value. If you look at the moving averages he is talking about, you will see his point.
ReplyDeleteIf you believe in the usefulness of TA, then to some degree by default you also have to believe the market moves by "Intelligent Design" ( or Bastardly Manipulation ). As a trend is exhausting itself - up or down, the market momentum flattens - Look at ANY rally or decline and you will the initial stage holds the 5 MA, then the 10, then the 20, then the 50. Once you star toying with the 50, the trend is about to reverse. That is what we have now.
"Another observation: Prior to any large advance or decline, there is usually "test" rally like today that basically fails. The conspiracy theorist in me believes this is both a signal AND a guide as to a rally or delcline is imminent AND the approx target. The trendlines it establishes are the targets for the real one that follows."
I did not edit this. Obviously.
I left off of my list, financial regulation.
ReplyDeleteMark, Kass' argument is along the lines of mine but has little to do with influencing bureaucracy, corporate America, or the market, unfortunately.
Little effect, that is.
ReplyDeleteSomehow I am finding that now it is much easier for me to "stay with the trend" (which is down now) than it was until May 2010, when the trend was up. Back then, very reputable people were finding very good reasons as to why the stocks should top out soon, only to see the buying pressure carry the stocks much higher. Right now, there may be many good reasons for the market to put in a short-term (or a medium-term) bottom, but until that happens, we have to assume that the trend is down.
ReplyDeleteRight now, I think the situation is particularly simple: if S&P rises above the 1040 support level (say above 1050, to be sure), then I close all my shorts and assume that a medium-term bottom is in. (if the markets drops below 1040 soon after that, then I re-open all my shorts again and even add to my short positions). Otherwise, I will keep *gradually* scaling out of them as the market keeps going lower. In other words, I don't think we should try to guess right now which way the market is going to move, and instead we should just OBSERVE how it behaves around the critical S&P 1040 level and act accordingly.
2nd / David - The more I look at the charts and compare them to the period around 1939 then it makes sense that the markets should go another 10% or so lower. Plus, we haven't really had that capitulation drop yet. I have a sneaky suspicion I will be cutting losses tomorrow and waiting for the bottom to drop out.
ReplyDeleteI do have to say, however, that some market rules do have a high chance of holding up in most circumstances. One such rule is that nothing moves in a straight line. The chart of IWM shows a clear pattern of lower lows since May, and all those lows are on the same straight line. Today IWM closed right on that line, and so a bounce in IWM is highly likely tomorrow. Since IWM cannot bounce all by itself, I would say that the whole market has a good chance of bouncing tomorrow. Hopefully, IWM opens with a gap down, my sell limit order for TWM at $25 gets triggered, and then IWM can rally all it wants. :)
ReplyDeleteDammit, man! My reluctance to trade my instincts is costing me serious money.
ReplyDeleteI could be taking DPK/VXX off the table in about 40 minutes instead of blogging about what might have happened...
Mark- You're on. I think SPX drops below 999 by the end of the week.
Actally, you win either way- if we continue to drop, you should get your 4.5% at no cost...
Futes have recovered to the point where we could open in the green.
ReplyDeleteFutes are now positive, and I no longer give a ---- about the phantom DPK/VXX trades.
ReplyDeleteLandry-
ReplyDeleteRandom Thoughts:
The market started strong but found its high early and begin to sell off in an opening gap reversals (OGRe) fashion. I'll talk more about this in tomorrow's chart show.
The above along with a plethora of sectors--even gold--heading lower suggests that the trend remains down.
Even though the market remains oversold, I'm seeing a plethora of setups in a variety of areas including but not limited to Health Services, Internet, Software, Retail, Drugs, Leisure, Transports, and the Semis.
Futures are flatsville pre-market.
Taking my STT off today at some point. Can't pass up a 8% gain in 1 day.
ReplyDeleteactually i might just hold on to STT...the price i paid yesterday could just be right around the lows for a while.
ReplyDeleteTOF- Wow! Great trade. I can't find any reason (news) for it. Can you?
ReplyDeleteMark - STT pre announced next quarter above analyst estimates. This thing was trading at 10 times earnings yesterday. That's a bit too low given that they had been buying up competitors last year which will ultimately lead to nice EPS growth.
ReplyDeleteIts just one of many blue chips that are trading at 10 times earnings though.
Next test of 1,040 coming up. Similar to yesterday I doubt this one holds...even if I'm long.
ReplyDeleteGood Morning Guys and VB!
ReplyDeleteStill long PAL.
One of these dayz it's gonna have a big up, when we least xpect it, maybe today.
TOF- Right on man. My rules would dictate at least a stop. GL!!
ReplyDeleteIt seems like the action in world markets is starting to change slightly. Any early morning weakness has been getting bought, which is a change. And early morning strength isn't getting completely thrown away.
ReplyDeleteWe'll see what happens in our markets today.
bottom line...
ReplyDeleteDollar dropping Euro looks to go much higher.
Fisher on CNBC.
ReplyDeleteTreasuries weak, dollar weak. We must be headed down (sarcasm)...
ReplyDeleteYesterday on of my lost comments was.."Well, we're at 1040, shouldn't we short here. I'm not." Same applies today. Let's see if I'm wrong again :)
ReplyDeleteXLF green, FXI almost green.
ReplyDeleteKeeping an eye on AONE. I'm guessing now that TSLA shit the bed, AONE might be under a little extra pressure.
ReplyDeleteJJG - Sitting on top of the upper trend line.
ReplyDeleteCHLN - Gonna be a buy some day.
Bidding HEK @ 4.40.
ReplyDeleteChiseled out another $250 on VXX.
ReplyDeleteMake that 4.42. Daily PP.
ReplyDeleteVXX. 5/10/20 SMA all curling over. Is there a short VIX?
ReplyDeleteFirst daily dip was bought this time.
ReplyDeleteI feel a sudden urge to read a book and somehow conclude everyone around me are dysfunctional freeloaders.
ReplyDeleteUnlike yesterday, T's are weak.
ReplyDeleteMark - I know you're skeptical about PIR (shit so am I and I'm invested in it), but the company has clearly turned the ship around. Their balance sheet is excellent ($200 Million in cash and about $30 Million in debt) and they are only worth $700 Million. A lot of their competitors have collapsed over the past few years which means more market share for them. Comp store sales grew over 14% last quarter. And they are moving back into online retailing in 2011. The company is only trading at 6 or 7 times earnings after backing out net cash...they have historically traded at 15 to 20 times.
ReplyDeleteIf the markets have bottomed out here then PIR should outperform the markets.
I have 74 as an important level for OIL. Let's see how she reacts to that. Yesterday, not so good.
ReplyDeleteIt's incredible how equities are priced so arbitrarily and with seemingly total lack of precision.
ReplyDeleteTOF- Thanks. It's on my watch list. Let me know if you add.
ReplyDeleteCP- Tell me about it. PXP has traded in a 8% range yesterday, 4% today.
ReplyDelete"Making money on the short side is hard work."
ReplyDeleteToday it has been:)
Shorts are crying for their mommies at present.
Congratulations, Mark/tof...so far you've made the right call...
ReplyDeleteshark- It's a good thing I'm only a short in my own mind right now ;)
ReplyDeletePIR - They used to have some great stuff, every time I go into one of their stores I buy some trinket for a few hundred bucks and still enjoy most of them.
ReplyDeleteHaven't been there in years though since I simplified my life style but I'll make a point of doing so again after making a butt load of money off this market.
You guys wake me up when it's time to sell the next top.
From my observation in order to make money on the short side you've got to be a Johnny(HB&B?) on the spot.
ReplyDeleteThe Johnny's have done well lately, it's time for them to cover and let the rest of us alone.
2nd - This may be your last chance to take a bite of CVS at these prices...
ReplyDeleteALY at $1.86, how could that not be a good deal???
ReplyDeleteChicken: RE: ALY > that is one gawd awful balance sheet. with negative free cash flow they could be done for in a year.
ReplyDeletethis is just first glance stuff tho
so if this market were to get as many people off the boat before making its true move, it would lift to above 1,050 and stop out shorts and make longs like myself that bought at the 1,020 levels feel confident, then it would make a sharp move lower.
ReplyDeleteTOF - ALY - Good point on balance sheet, I was only taunting 2nd's aversion to going long with a pick he had ridden previously. I didn't know his reasoning at the time.
ReplyDeleteTalk about maximum destruction, don't forget about longs waiting to jump on board above 1040 for the ride that quickly reverses at 1050.
Does anyone here have an opinion on RIM.to RIMM? I sold in February 2010 at $74.75 cdn$ and thinking of getting back in here at $51.00.
ReplyDeleteCI: RE > RIMM - Yeah, run, don't walk away from this one. Seriously, though, I think it could bounce short term as they announce a few new product offerings. Otherwise, AAPL and GOOG are going to gobble them up.
ReplyDeleteFrom Merrill Lynch:
ReplyDeletehttp://www.theglobeandmail.com/globe-investor/markets/markets-blog/merrill-sticks-to-its-guns-on-sp-500-forecast/article1631673/
TOF- I'm thinking GOOG here also.
ReplyDeleteTF: RIMM. The Queen of England stopped by and picked up a Royal Blackberry. Are you suggesting that RIMM will be bought out by GOOG or AAPL or maybe MS. It would be a good takeover target now. Do you know if HB&B are acting as advisors for a takeover?
ReplyDeleteMerrill Lynch - Makes sense, no wonder S&P is doing poorly. Contrasting this with what Bernanke/Geithner were saying about how Europe wouldn't cause a US double-dip, then down as goes foreign markets so does S&P? Maybe we should be into US economy dependent equities to avoid Europe's problems?
ReplyDeleteIt all seems like the same bowl of soup to me, China and India have wealth while everyone else is drowning in debt.
Speaking of China and India, they're going nuclear in response to CO2 emissions issues.
"As he pointed out in Merrill's mid-year strategy briefing last week, the S&P 500 has far more exposure to foreign markets than the U.S. economy does - fully 40 per cent of the index's profits are derived from operations outside the United States. The index is also over-exposed to commodities relative to the broader economy, which amplifies the influence of overseas demand, particularly from resource-hungry China. "
I see S&P did rise above the important 1040 level, and so I decided to close some more of my ultrashorts. I just sold 200 shares of SKF at $22.88. If S&P rises above 1050, I'll close all my remaining shorts, but will be ready to jump back in again if it drops below 1040.
ReplyDeleteIn case today is just another fake rally, I placed a buy stop limit order on 400 shares of SKF at $23/23.05.
ReplyDeleteIt sure is hot as hell...
ReplyDeletehttp://www.youtube.com/watch?v=U2FX2PMKlKw
"Today Americans are ruled by propaganda. Americans have little regard for truth, little access to it, and little ability to recognize it.
ReplyDeleteTruth is an unwelcome entity. It is disturbing. It is off limits. Those who speak it run the risk of being branded “anti-American,” “anti-semite” or “conspiracy theorist.”
Truth is an inconvenience for government and for the interest groups whose campaign contributions control government.
Truth is an inconvenience for prosecutors who want convictions, not the discovery of innocence or guilt.
Truth is inconvenient for ideologues.
Today many whose goal once was the discovery of truth are now paid handsomely to hide it. “Free market economists” are paid to sell offshoring to the American people. High-productivity, high value-added American jobs are denigrated as dirty, old industrial jobs. Relicts from long ago, we are best shed of them. Their place has been taken by “the New Economy,” a mythical economy that allegedly consists of high-tech white collar jobs in which Americans innovate and finance activities that occur offshore. All Americans need in order to participate in this “new economy” are finance degrees from Ivy League universities, and then they will work on Wall Street at million dollar jobs.
Economists who were once respectable took money to contribute to this myth of “the New Economy.” "
http://www.counterpunch.org/roberts03242010.html
UNG seems to be stuck in the range between 7.80 and 8.20. Right now it is at the lower part of the range. I just bought 500 shares of HNUZF at $5.80 and placed a sell limit order on these shares at $6.30.
ReplyDeleteAre we having yet another one of those "fast, furious and prone to failure" rallies that only occur in a downtrend? I will place a sell stop limit order under my ultrashorts after today's close, so as to avoid closing them in case the market gaps down tomorrow and has a major down day.
ReplyDeleteLooks like yesterday was the capitulation day in MON...
ReplyDeletetof- Nice 1% move in your buy-and-hold portfolio today...
ReplyDeleteOIL poked through 74 at the close of pit trading. Let's see if it holds.
ReplyDeleteI just bought 50 shares of GLD at $117.38 (increasing my total position to 250 shares). It has pulled back to the lower trendline and supposedly such moments provide good entry points during a major uptrend.
ReplyDeleteJust checking in to say I think we close below 1050 but above 1040. Maybe up 50-60 pts on the dow. I sold a little early today, had some PAL, PGH (not early there) and GSS.
ReplyDeleteLoaded the UNG wagon for hurricane season and this swarthy weather. We've been languishing in the 60's until a few days ago and suddenly Mark, David and 2nd started pushing the hot air north. Supposed to be in the 90's today.
Just like the NW, from 60-90 in a day or two....
2nd, what do you think of VXX here?
Maybe FXP too.
---- it. TZA @ 8.35...
ReplyDelete2nd - yeah not bad. i have decided to keep my SPY index fund because the risk of that position is not that great as compared to my PIR and STT positions. I plan on keeping my STT position because I got lucky and got a 9% move in one day and am willing to risk the downside on it. Also, Fin Reg passing should hopefully provide another leg up to $39/$40 where I see some decent amount of resistance and where I will be looking to sell.
ReplyDeleteFor PIR, my position size is probably too big but I still like the risk/reward profile on this one...if the markets continue to rise then this should rise faster. Also, my stop out position keeps rising with the 200 DMA rising. I could have stopped out yesterday on this but I prefer waiting a day or two to confirm that the stop should be taken.
looks like i lost another post. anyway, 2nd - i think i'm gonna hold on to my SPY, PIR, and STT...although if the DOW gets to 10,000 then I may be forced to sell some. My PIR position is a little too big so I may sell some anyway. But I do like the risk/reward on that, with the 200 DMA moving up so my stop out point is well defined (i like to give it a day or two before stopping out to make sure it's not just a head fake) and if the markets continue to rise then PIR will rise faster.
ReplyDeleteUNG @ 7.43.
ReplyDeleteFF- Ah, I see you did too. Easy stop if we're wrong.
ReplyDeleteYou know what? I like it enough to have just doubled my position. (UNG)
ReplyDeleteMark, $7.43 is a damn good price for UNG -- did you steal it from somebody? :)
ReplyDelete:)...Ah, you know me David. 7.73...I do like the way PXP has traded today. Did you hold this whole time?
ReplyDeleteSPY right @ R2. Let's see if she can get through it. Oil is helping.
ReplyDeleteMark, I chose to trade PXP via options. I have a small initial position (200 shares) that I opened at $25.60.
ReplyDeleteA while ago, when PXP was in the toilet, I sold short 3 June $22 puts on it for $1.05 each, which happily expired, lowering the cost basis of my initial position to $24. Back then, I also sold short 2 July $19 puts on PXP for $0.95. When PXP got to $24 a couple of weeks ago, I sold 2 July $25 covered calls for $0.95.
So in a couple of weeks I expect to reduce the cost basis of my original PXP entry by another $1.80, bringing it down to $22.20.
Sold half of my PIR at $6.29. Markets near 10k make me want to take risk off the table. I think the move goes up to 1,070 to 1,080 though if the trend of highs 40 pts lower than previous highs holds.
ReplyDeleteNice job on PIR, TOF. Gutsy move.
ReplyDeleteThe shorts are getting totally killed today. That makes me want to re-open some ultrashorts at the end of the day...
ReplyDeleteWhat's your plan, 2nd_ave?
Outside shot at 10,000 today, but I'd be surprised.
ReplyDeleteScrew it...sold the rest of my PIR at $6.31. Dow at 10k ...that was quick.
ReplyDeleteNow 95% in cash in my trading account and 45% in cash in LT account.
ReplyDeleteFYI - the trends since the April highs were that the rebound after the drop would be a little more than half the drop. That is, the first drop was from 1217 to 1110 (107 pts)...subsequent bounce was to 1,171. Half would have been to 1,163. If the same holds on this one then it should bounce to 1,070. That works in with the same thing as I stated before, that each high was about 40 pts lower than the previous highs (i.e., 1070).
Screw it, selling everything. made $4k today excluding commissions. that makes a bit of a dent into the bloodbath I took on WATG/GCI/GOOG. Up about 16-17% this year...not sure how given I started buying dips right before the flash crash.
ReplyDeleteI can't find a single stock that has an imbalance on the sell side.
ReplyDeleteactually, i've decided to keep my positions in SPY, STT, and NLS simply because if this is a new trend then I'm early and if not I will sell those positions at S&P below 1,030.
ReplyDeleteWhere's that Leprechan that always pops up and shouts out about how bad the economy is and how the dark ages are upon us?
ReplyDeleteanyone long that has sold today has come to regret it as it has been a steady march higher. best day for the markets in a long while, probably since 6/15.
ReplyDeleteLast week, I took profit on 200 shares of TWM at the average price of $23.80. I have just re-loaded these shares at $23 and also lowered the buy stop limit order for 400 shares of SKF to $22.50/$22.60.
ReplyDeleteAs I wrote last night, the rally in IWM and in the broad market today is not surprising, considering that IWM closed yesterday exactly at the declining line that connects all the lows it made since early May.
Err, I meant Munchkin...
ReplyDeleteDavid Rosenberg said that a good indicator of a change in trend is two solid up days back to back. So if tomorrow we get another solid up day, then I close out all my shorts.
ReplyDeleteTell us before you take your shorts off, I'll decrease my long exposure.
ReplyDeleteOK, CP. :) In fact, to make your life easier, I have just placed a buy to cover stop limit order for 1000 shares of XLF at $14.40/$14.45, and for 500 shares of XHB at $14.60/14.65.
ReplyDeleteDavid Rosenberg is an economist, right? Why is he talking about intraday swings in markets? Same question applies to any economist talking about "death crosses" and other technical mumbo jumbo.
ReplyDeleteTOF: "two solid up days in a row" is a pattern of daily prices, not intraday prices. David Rosenberg is also managing investments (or at least advising) and makes regular comments about longer-term market trends.
ReplyDeleteSo far Rosie has been spot on....
ReplyDeleteAs you will recall he said T's were the buy just before the highs in the yield (TBT@$87.30) and TBT went to over $102. I should be so good.
Yes, he's "Chief Economist & Strategist" at Gluskin Sheff. I should also be so good.
As David notes, he doesn't discuss intraday noise, he discusses longer term and recent data trends in his daily newsletter 'Breakfast with Dave'.
He also debates: www.ritholtz.comhttp:///blog/2010/07/smackdown-rosenberg-vs-epstein/
sorry, read TBT is TLT, my mistake.
ReplyDeletegotcha guys. still though for a long term strategist what's he doing worrying about 2 day moves?
ReplyDeletealso, hasn't he been bearish all through the rebound? i know it's long term but jeez at some point he should have gone long to help his clients out.
The rally in IWM futures today stopped exactly at the same level at which the yesterday's rally failed:
ReplyDeletehttp://quotes.ino.com/chart/?s=NYBOT_TFS.U10.E
This begs for at least some retracement of that rally...
I just bought 200 shares of TWM at $22.80 and placed a sell stop limit order for them at $22.80/$22.75. This is a small bet on a gap down tomorrow.
ReplyDeleteTOF,
ReplyDeleteI think you need to read his newsletter as your impression and reality seem to have some divergence going.