Lose Your Shirt and Eat it Too

In the stock market, controlling your emotions is one of the key characteristics that separates profitable traders from the ones who are destined to keep blowing up their accounts. While the thrill and rush associated with big wins may be memorable enough to “keep them coming back,” you should be taking pride in consistently trying to hit singles and doubles, day in and day out, while quickly cutting losing positions. As I have said before, to think of trading as a sexy and glamorous profession can be a very dangerous thing to do.

One tendency of many traders is to exacerbate the euphoria associated with having a string of profitable trades, but to then also drown in sorrow after experiencing a losing streak. After a winning week, it is natural to want to celebrate. Similarly, in the face of losing a relatively substantial sum of money, market players have a tendency to become morose, often beating themselves up over the weekend and beyond.

I believe that you should actually fade the normal routine. Remember, the idea is to be as levelheaded as possible. Euphoria has a few perilous friends who are called complacency, hubris and laziness. On the other side of the coin, being too negative after a losing streak will likely reinforce emotions that are actually going to cause your losses to continue, namely a lack of confidence, and diminishing objectivity in your analysis.

Therefore, the correct strategy is to be more inclined to enjoy your weekends after a tough week, even more than after a winning one. Of course, after a string of losses, you should be self-scouting to see what happened and why. However, if you followed your trading plan and you just happened to get very unlucky, then that is precisely the situation where you need to do everything in your power to bring yourself back to equilibrium. In essence, the goal is too never get too high or too low. In the midst of a spectacular winning streak, perhaps that might be the occasion to stay in over the weekend and do research, instead of buying a luxury car.

I recognize that this notion is completely at odds with the traditional trading/gambling mindset. In the poker world, it is not uncommon to see players eating only Ramen Noodles after a scary losing streak, for fear of going broke. A few weeks later, you might also see the same player blowing obscene amounts of money at restaurants, retail shoppes, on girls etc. after being on a heater. Simply put, traders with that type of mindset are likely to go broke. By all means, enjoy your life and the downtime you have after the closing bell rings on Friday.

However, just because we are now competing against robots everyday in the market does not mean that we can neglect our own human nature.

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….You’re fucking fired.

Well, half of you guys are. Nothing irritates me more then underperformers. The saddest thing in life is a wasted talent. I sold out of $TQNT for a nice profit (I shouldn’t complain about that one, as it had a great run for me), as well as $CBI (no follow through to the bullish engulfing candle).

I expected $CREE and $VMW to perform better today, but I will exude patience with them, as they are merely lightly consolidating today.

I also bought a full position in $ATPG, which has a huge short position and looks ready to squeeze much higher.

All trades are timestamped in The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 30%

• LONG: 30% ($ATPG $NYT $CREE $VMW)

CASH: 70%

One of my top follows on the twitter stream is @vcutrader. Thanks to his generosity, I have learned infinite amounts of wisdom from him over in The PPT User Notes section (“chat room,” as is referred to by the steerage class), as far as macro and microeconomic fundamental analysis is concerned. In my mind, he deserves the ultimate compliment in the finance world: Great trader, great guy.

I am following him into his long The New York Times Company ($NYT) play. Over the past few years, talk about the death of the newspaper industry is well deserved. The overwhelming majority of the daily rags have lost a battle on two fronts. First, the shift from print to free online content has eaten into their revenue stream. Beyond that, their content has become more and more out of touch with the average reader. “Pinch” Sulzberger, who inherited The New York Times, exemplifies the mindset behind the turn away from straight news on the front page, towards an ideologically driven hidden agenda on the non editorial pages.

However, Steve Jobs and Jeff Bezos may very well be the saving graces for the newspaper industry. The e-reader growth story is likely to benefit the $NYT in a way that the stock market has not yet taken into account. Looking at the daily chart, the possibility for an inverted head and shoulders bottom formation compels me to take a position here.

As usual, timing is everything. I will obey my usual 7-8% trailing stop loss on this trade, despite my belief in the fundamental thesis. Keep in mind that @vcutrader is building a long term position here, so you should ask yourself whether you are in this for a trade or an investment, should you choose to follow.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 34%

• LONG: 34% ($NYT $CBI $CREE $VMW $TQNT)

CASH: 66%

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MARKET WRAP UP 09/16/10

The market continued its pattern of showing glimpses of weakness throughout the trading session before staging a final hour rally, as the S&P 500 closed today down just 0.04% to 1124. At the same time, we have yet to come close to breaking the key 1131 resistance level on the S&P from earlier this summer. Thus, we are building a string of doji days of indecision at the top end of the multi-month trading range. After hours, I see that $RIMM, $ORCL and $TXN are ripping higher on the back of impressive earnings. If the gains hold into tomorrow morning, I would expect these names to provide the jet fuel for the market to at least entertain the idea of peeking its head above 1131.

However, trying to anticipate a true breakout at this point remains pure guesswork. Even if we do break 1131 tomorrow, I would be skeptical of it, at least initially, as it could easily be a trap to lure in eager bulls, just like we saw in late June. Because of the choppy trading these past few sessions, sentiment seems to have turned mixed, although it is most certainly more bullish than what we saw when the S&P was hovering at 1040 in late August. Throughout this correction since last April, cash has been king in many respects, and I believe that is the case now more than ever.

The late North Carolina State men’s basketball coach Jim Valvano made famous the phrase, “survive and advance” during the Wolfpack’s run through the single elimination tournament to win the 1983 National Championship. I believe that motto applies to this market as well. The idea is to survive this tough trading range, making as few mistakes as possible, in order to emerge intact and ready to profit from an easier market down the road.

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Just kidding.

This market is too gay to have conviction either way (that rhymes).

Before we get the next explosion in stocks, in whichever direction, we need to see some frustrating compression, complete with both false breakouts and breakdowns. We have been seeing that for the past few days, and it can easily last into tomorrow and early next week as well.

The best strategy, as boring and unsexy as it sounds, it to have a high cash position and be ready to pounce when the big move comes.

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At this point, I am looking to take profits in some of my more extended holdings, and roll that money into names that are setting up behind them. However, seeing as the market is still printing dojis below the key 1131 level, I am going to force myself to keep a heavy cash position.

Today, I took profits in my $CMG position. I am currently stalking for new longs.

All trades are timestamped inside The PPT.

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TOTAL PORTFOLIO:

EQUITIES: 28%

• LONG: 28% ($CBI $CREE $VMW $TQNT)

CASH: 72%