(a) JCP spiked up as much as +10% after hours on a better-than-expected earnings report. Unfortunately, I wasn't around to see it. The short squeeze has subsided, and I'm taking the position off @ 10.05 for a +5% gain on the trade. It may well be headed back up, but I'm not an investor at current market levels.
(b) The SPX closed on the cusp of the Khrushchev era today (1955). Should I have held another day or two based on my original thesis? Not in my opinion. First, the risk wasn't worth it (to me). Second, I had positions in leveraged funds when entries presented lower risk- I'd rather swing at a fat pitch for a double than hope for two singles. Finally, let's examine how a multi-day hold in RYJUX (Rydex Inverse Long Bond) would have worked out: Day 1 +0.73% (that's when I exited the position). Day 2 -0.7% (would have given it all back). Day 3 (today) -0.9% (a +0.73% gain would have turned into a -0.87% loss). I can't have it both ways. I prefer the low risk plays.
(c) If we accept the thesis that inter-relationships between asset classes have become distorted, what does that leave us with? Sentiment and reversion to the mean. On that basis, I decided to open three positions at the close: RYJUX (Rydex Inverse Long Bond), RYTPX (Rydex 2x Inverse SPX), and RYIRX (Rydex 2x Inverse Russell 2000). Why? The bond rally is stretched. The SPX has now rallied +60 points from its recent low of 1890 (based on futures pricing). The IWM (Russell 2000) continues to act weak. The three plays are related only in the sense that prices appear ready to reverse. However, they are higher-risk trades, and I sized down accordingly. The first scenario I consider when opening a trade? What if I'm wrong? In this case, I'm sized/stopped so that being wrong on all three plays should result in minimal damage. The gains will be small as well, but I'm also prepared to hold one or more of the three into Monday should the trades move my way.
(d) Dave Landry repeats one of the most enduring axioms re the markets in today's commentary: 'The market will often do what it has to do to cause the most pain to the most amount of people. It’ll often do the obvious but in the most un-obvious manner.' After almost thirty years of following the markets, I can vouch for that observation.
PIR's chart looks familiar. Me thinks it goes up soon.
ReplyDeleteSEAS - Rough sailing.
ReplyDeleteHmm..interesting. Thanks for the link.
ReplyDeletePIR - $15.40 Small starter position.
ReplyDeletePerhaps I should've bought more?
DeleteHa, ha, I stopped it's ability to advance! :)
DeleteSold xin at 3.81 didn't work out. Tiny position so no biggie.
ReplyDeleteBought back into GM if buffett is buying I am too
I'd add a bit at $32.68 if I was in for the long run like Buffett.
DeleteI meant $33.68
DeleteDUST - Bang!
ReplyDeleteBOIL/GAZZ - Drowning/gazzed - How much lower can she limbo?
DB - In the buy/danger zone, $16.33
ReplyDelete(a) It appears I'll be striking out on all three swings. Early indications are SPX +0.24%, IWM +0.41%, TLT +0.5%. Shorting is always difficult, although it can pay off big when timed correctly.
ReplyDelete(b) Losses are fine. I was reflecting on the importance of losses during the drive to work. It wasn't until my early forties that I began to appreciate the 'safeguard' aspect of losing trades (right around the time I began to appreciate the value of setbacks in life). Losses instill in us the discipline of learning how to manage trades that move against us. Whereas a string of successful trades breeds the kind of hubris that causes traders to lose their shirt when betting big.
(c) We have to be willing to take trades that move against us- there are no gains in the absence of risk.
(d) Were I to teach a class on trading, the curricula would be split 80/20 risk management/winning strategies. After all, there's no shortage of stock picks/winning strategies in the financial media (my philosophy, of course, is to short the picks and go after the dogs!).
(e) Remember Jack Flash? UGAZ briefly popped >15 at Thursday's 0730 window, simultaneously squeezing shorts out and sucking in new buyers. NGas futures plummet -3% overnight, with UGAZ now bidding 13.69!
(f) What about JCP? Up as much as 10.5x after hours yesterday (again, squeezing shorts and sucking in buyers). It's currently bidding 9.48, below my last entry point!
(g) Take losses immediately. And in this market, take gains when you have them.
GM should market a natty car with home fillup capability.
DeleteCapital Beltway (the "moat") is 50years old today.
ReplyDeleteTBT - Dang man, she's headed for a reverse split.
ReplyDeleteDB - Dirt Bag rolled over, what a surprise!!!
ReplyDeleteYou can't make this stuff up! The markets have just reversed hard on a statement by the Minneapolis Fed President re weakness in the labor market.
ReplyDeleteSo you were right, and my feeling strength was fake was right as well. Or am I wrong?
DeleteI think this kind of reaction at a logical stopping point (i.e., just above what should have been resistance ("fake breakout") and at 50 DMA) is definite reason for caution.
DeleteFEYE - Advertising on DC newsradio.
ReplyDeleteI peeled off a good chunk of my longs today that I added yesterday. Bought SPXS at $25.82 avg. I don't care what the news is. That's a hard reversal right at resistance so I'm betting this sticks. If not I'll be out with minimal losses as its a low risk entry.
ReplyDeleteActually, I guess the catalyst was Russia.
ReplyDeleteDoes it really matter? The only thing that matters in my opinion is that the market failed right above where all shorts would have been stopped out. Like Landry says....
DeleteWe'll see if this continues through the rest of the day though as this is an options exp day
"Market lower on tensions over Russia and Ukrane"
ReplyDeleteSamsung just bought "Smart Things home remote controllers". Home automation?
NVDA - Doesn't seem weak at all, getting it on.
ReplyDeleteFNMA - $3.93 here guys.
ReplyDeleteI sold the SPXS at $25.93. Got greedy for a few minutes there.
ReplyDeleteBack on $25.89
DeleteJJC - Poked below the lower trend line y-day and today is green.
ReplyDeleteEPAM - Looks like nice iH&S
Looks like I'll be selling the SPXS. It was worth a shot!
ReplyDeleteSold at $25.82.
Delete"Potential $50B of sequestration cuts coming to DOD"
ReplyDeleteUmm, how many $1m beachfront homes is that?
I was incorrect in attributing the market drop to the Fed. The catalyst was an escalation in the Ukraine/Russia conflict.
ReplyDeleteTurning bullish in front of Monday. Plan to open RYTNX at the close. Rather than close RYJUX, I plan to hold through the weekend.
From gored bear->angry bear->bull in the span of six hours. That's how one changes on a dime!
Added a small position in UGAZ @ 13.73.
ReplyDeleteWow. Wish I was more aggressive in ENSV. I did pick up a 7% position yesterday but that's not enough to make today's move mean much.
ReplyDeleteI over reacted to today's move, sold out of 3/4 of my LEJU at big gains since I opened, but down around $13.3. I put a little back on at $13.40 but now have 1/4 what I originally had. I bought EJ to help compensate in some way.
Sitting with about 65% cash right now and wishing I had more. Contemplating taking a big position in GM. Will probably do it in piece meal if I do. I think Uncle Warren is right on it. Granted he only owns a 2% stake in it.
Just picked up more EJ at $11.57/11.58. No one ever said this game is easy and if they did they're standing in front of a major smack down by the market.
DeleteSince trading is 90% of my income this investing stuff is important for the financial well being of our family. I've had a roller coaster year. I started the year off well with a huge position in BALT but let a really big gain slip down to a solid gain, at which point I sold. I then focused on TZA after a massive upside move in the RUT after a huge 2013 made me think that index would have a lot of trouble for many months. That helped put me up about +15% by late March right before my daughter was born. I decided to move to cash around then to take my mind off things and figured I would wait until panic hit the streets especially in the small cap space...and it did. Unfortunately, brief forays into LNKD / XCO and a few others turned +15% to -7% within a few weeks.
I got sucked into the panic and figured switching tactics to large caps was a wiser move. I spent a lot of time gauging investor sentiment after that point. It started becoming very clear to me that everyone else was doing the same thing (i.e., avoiding small caps and focusing on blue chips). We've all been around the markets together for at least 6 years. We all know the power of consensus thinking. I figured there was going to be a really good move coming in the most hated sectors so I took a near all in position in YELP right near the bottom and rode it up to about $66 or so which put me back into the +10% to +15% area. Since then I have had a few big scores in ACHN and LEJU as well as a few hits from BALT and others, but I am now up around +33% for the year. I feel like I've gotten really lucky with timing and it just feels like any wrong move can cost you a lot despite the market being up about 5% or so and near all time highs. So my skittishness right now is primarily a function of being up a lot (i.e. Protecting gains) + my main income comes from investing (i.e. protecting gains) + fearing what everyone else fears (i.e. No significant correction or test of the 200 DMA for 2 years or so – which if everyone knows it then why should we fear it, really?). I guess I'm just posting this because its cathartic and so that you know where I'm coming from with my trades the past couple of days.
Another reason for my caution: I know the law of averages have to catch up with all of us some time. For the most part, I've been lucky enough to be bullish this entire run since March 2009. I've read dozens of investing books but two written by Adam Smith in the 70's (Supermoney & the Money Game) stick out to me clearly - parts of these books talk about investment "whizzes" that made tons of money in the 1950's/60's bull markets...just regular joes that become millionaires on the back of a raging bull market. Their egos got the best of them though and they quickly turned those millions back into thousands. I know what a guy like Jesse went through in the 08 bear market, reversing massive gains. While I highly doubt we have a nasty bear market, I'm trying my best to keep an open mind to the possibility that what has worked for the past 5 years may not work for the next 5 and that protecting our gains is more important than continuing to make gains.
DeleteLet's revisit Landry's comment: 'The market will often do what it has to do to cause the most pain to the most amount of people. It’ll often do the obvious but in the most un-obvious manner.'
ReplyDeleteIn hindsight, it appears max frustration today was to suck in new buyers, then shake them down along with weak hands prior to resuming a short squeeze on Monday.
Alright guys, have a great and safe weekend! Mark too! :)
ReplyDeleteYou too man! Any drink of choice this weekend?
DeleteI've been talking a lot with an old buddy of mine from college about businesses / etc. He's the guy that brought the whole NIZ thing up (the one that LGP took advantage of and sent the stock soaring this week). He knows it really well because he's based out of Allentown, PA (right near Bethlehem where Lehigh is located). We've been talking back and forth about business ideas in part because of the NIZ opportunity and also because I'm contemplating moving away from stocks and into something else. I love stocks and think they're the best way to make money but a large part of me fears the inevitable draw downs that come with it. Ever since the FMD debacle last summer I've been on a heightened state of alert. He's been investing in real estate for 15 years and is on top of his shit. I think he would give Barry Construction a run for their money...although he's a landlord instead of a construction company.
ReplyDeleteI love this stuff. The NIZ concept would work even in San Francisco, which could truly become a world-class destination if City Hall could get its ---- together. I hate driving into the city, and usually can't wait to drive home. That would change if SF cleaned up its infrastructure, streets, and parks. Many US cities fit the same pattern- ghettos dotted with wealthy enclaves.
DeleteI must have missed something. NIZ?
DeleteNeighborhood Improvement Zone.
Deletehttp://www.nytimes.com/2014/03/05/realestate/commercial/tax-program-aims-to-reverse-decades-long-decline-in-allentown.html?_r=0