What are you doing?

What are you doing, right now? Sitting there by your computer, anxiously awaiting the Fed, be it 3 hours from now?

GO TO THE GYM.

That is precisely what this market is. Through September, a notoriously bad month for stocks, we have been given several 1%+ up days. However, those up days have seen breadth average at best, and wild cross currents that could cast doubt on the most staunch of permabulls. Fights like AAPL vs. FCX, Tech vs. Industrials, Small cap vs. Large cap, etc., are crowding the marketplace with enough evidence for both the bear and bull that literally no one knows where to go. And on a more macro scale, we have inflation freaks vs. deflationistas, both with smoking gun’s of their own. Or, we have those who see an accurate value on the S&P at 1400+, and those who see 30% EPS revisions, to the downside, coming around the mountain.

I’ve been a victim as well. Typically, my style is to capitalize on the hot parts of the market on up moves, capturing some % points here and there, and then locking in profits and protecting the downside via inverse ETFs. I’m not one for shorting, usually. Nor am I one for operating a “neutral” book. I pride myself on, and bank coin by correctly stipulating where interim market tops and bottoms occur. So since my return from summer travels, and initiation of this blog, I’ve been relatively numb, unable to formulate a thesis for any day, let alone a week. Today is no different, as again I’m handicapped by several stocks that just won’t fucking perform, despite the market being +1%. In fact, my best trades this month have been the hedges I’ve put on, correctly protecting myself from the downside action we’ve witnessed thus far this month. For that reason, proper hedging, I’ve been able to keep my losses at a minimum, the book only being down less than 1%.

I’m presented with a problem, though. If my style isn’t working, I need to adapt. More to come….

I sold SKF +5.61%, TZA +6.5% and DECK +2.4%

I bought more ENTR and bought into AGQ

I need to workout and take care of a few other things, then I’ll have a full post for you all

I’m just below 40% cash with 1 short, CRM at 3%, rest long.

You won’t find much argument among investors that the most important skill in trading / investing / gambling is the skill in avoiding over-playing. Several prominent economists and investors have labeled stock picking as easy or random, and one economist’s study even proved that industry professionals have not hardly an edge over just indices, but actually hardly an edge over a portfolio selected by thrown darts. (Link here) I put forth that it’s not stock selection that makes a trader successful, but the avoidance of stock selection. The knowledge, ability and self-control to remain inactive when times are tough or there is a dearth of attractive investments.

Stocks and poker are incredibly aligned. In both, the collection of information is vital to the decision making process. The winners are typically the ones with more information, the elusive “edge,” that allows them to capitalize on alluring opportunities and avoid the ones that aren’t. But, in both, the fail rate is absurdly high; because in both, contestants are constantly drawn to compete, confident that what they decide to do is the right action, even though it may not be. In poker, it’s the players that, even though there may be present some reasons to continue to play, have the ability to throw away cards because the end result isn’t “+EV,” or positive expected value. There definitely exists a corollary to stocks.

The most troubling fault of unsuccessful traders is that they constantly feel the need to participate. They often take on positions that do not present favorable risk vs. reward. Further, they continue to trade themselves into holes they cannot escape from, only securing their failure.

You can play the stock market three ways — You can bet something goes up, you can bet something goes down, or you can not bet at all. Mastery of the first two will make you money, but mastery of the third will keep you alive.

As a sidenote, my friend ChessNWine, a tabbed blogger here on iBC, is the best at this skill; a true master of self-control and risk vs. reward.

http://chivotrades.com @chivotrade facebook.com/chivotrader

While the market is playing tricks on your mind, fooling you into making this trade or that trade, that trade and this trade, Chivo has been outside, increasing his cardiovascular endurance and muscle strength. It’s a beautiful day outside, really. I always prefer the beach & the sun, a regular California kid. But there is something about the change of seasons that is alluring. The sun is shining but the weather is a brisk 68 with a touch of wind, leaving my sweaty torso nice and cool.

I do not care that some of my stocks, ENTR and ARUN, are catching sledgehammers to the face. Nor do I care that DECK can’t roll past $100. If this market is to rebound towards yearly highs and the economy roll off a recession like Money May, then I am well positioned in beaten down stocks, like ENTR, ARUN and SCHN. I will throw dynamite into the hibernation holes of the dreaming short sellers. As their caves come crashing and they rush for the exits, half dressed, I will rob them of the last of their belongings, bandana over my face and then ride off blazing a trail of dust behind me, well equipped with $100 bills.

However, should the market reverse lower, succumbing to the economy’s weakness and world-wide stupidity on behalf of polyteecians (sp), then I will quickly dispatch of these loser stocks and slay the high-hoping bulls in CRM and a handful of others.

Whichever the market decides, just know that Chivo will win, as that’s what I do, all day erryday (sp).

That said, I’m off to the grandeust (sp) of cities in the world, the capital of cool, NEW YORK CITY. See yooz (sp) Sunday night.

http://chivotrades.com @chivotrader facebook.com/chivotrader

On days like today, I require a good reliever of stress. I’m seeing my longs knife lower and the market trade sideways. While it’s not good, I know that I only entered the longs a few days ago, a little late to the party, especially in tech names. So it’s not entirely bad that they give back their gains from my entry, especially in the stocks that have rebounded so nicely, like ENTR, ARUN, MU, etc. At the same time, I’d prefer them to stabilize a bit more smoothly.

I also entered two small hedges this morning, TZA and SKF. While my gut is telling me to be long, I’m not impervious to the horrible economic data, the negative newsflow or the fact that we just put in four consecutive green days. Should we retrace a bit, I’ll be a bit protected. Should we sit here and consolidate nicely, I’ll take the hedges off.

I also initiated a short in CRM, my first short in a long time. I intend to build some short positions the higher we go. While my gut is telling me to be long right now, my mind disagrees. I cannot look at the necessity of five central banks rescuing the largest economic participant in the world economy as a positive. It reeks of Lehman and Bear. The EU banks know what all the banks hold, because they all hold the same shit, and no one was willing to lend to each other? Should the recently opened borrowing opportunities dry up or close completely, this market will be sub S&P 1000 in a jiffy. Not to mention that all this bank bailout business is for naught, if the economy doesn’t turn the fuck around. Seeing as how it’s all based on the job market, and the job market fucking blows, I’m not too optimistic. All that said, I wonder why my gut says to be long.