Weekly Recap – Grinding It Out

This was one of the strangest trading weeks I can remember. I heard it described as a week with two Mondays and two Fridays. Regardless of what it’s called, it was another positive week for me. The S&P 500 finished down 0.54% for the week, while I finished up 1.1%.

I opened 3 new positions: Long: $JBLU 5.39;  Short: $QID Aug 33 Calls and $VXX Aug 15 Aug calls. I rolled my short $PCX Jul 2 Calls to Aug to get some more duration. The $PCX position is quite underwater and dead to me. I’m in “clean up mode” in the position, selling what options I can to further reduce my cost basis.

I’m still very heavy cash (for me) with a 17% cash position. I’ll be  looking to deploy some of that cash early next week. I’m neither very bullish or bearish short term. Just looking for more some upside and possible places to lay out some shorts. Longer term I’m looking for a trading range until the market can figure out the US Presidential election. When that happens, I’m expecting a rallye [sic] that will continue at least through the election, and possibly into the Inauguration. To be clear, I’m expecting a rally regardless of who the market decides will win the election. Typically the reduction of uncertainty will allow prices to be marked up.

Stay cool. Be safe.

I just wanted to take a moment to thank everyone for the opportunity to be February’s “King of the Peanut Gallery”. I really enjoyed writing, and I hope you enjoyed some of the posts.

While reviewing my charts today, I noticed this divergence in the Dollar index. Even if the Dollar does rally strongly, I have no idea what effect it will have on stocks. I can guess commodities priced in Dollars might see some downward pressure, but trying to sort out the various cross currents at this point is almost pointless. The Saudi Arabian stock market closed down 5.0% today (Sunday 2/27), but that weakness was not seen across all middle eastern markets that were open.

If the US market continues higher, while shrugging off a stronger Dollar and Middle Eastern political instability, I would read that as very bullish signal. I’ll be watching the overnight action closely, and playing this upcoming week very cautiously.

I’m trying to keep a cool head during this sell off. Yesterday I made a small change in my long term portfolio. I jettisoned my remaining one-third position in STX. There was no compelling reason to hold, and there was still a decent profit in the position.

I have no idea when this correction will end, but I’ll be watching The PPT hybrid for the all clear signal to take off the hedges and get net long again. I still sense a ton of complacency. I know the VIX is up huge, but this isn’t my first bull or bear market, and I’d like to see some people “stain their shorts” before I start to think this correction is reaching the end.

For those of you that are new to this game, this is not the time to be screwing around. If you plan to take advantage of the next up move, you need to survive the bad spells. Preserve your capital. More importantly though, you need to preserve your trading psyche. Don’t get beat up with a bunch of losses, trying to pick a bottom or going short into the bottom. Watch, listen, and get the feel of what the market is trying to tell you. Most importantly — be safe.

I missed the move up in February by being hedged. I took no new positions. I left some on the table. I’m now waiting out this correction, ready for the next setup.

Current market position: longs are hedged, slightly net short.

In case you haven’t figured it out by now, the major focus of my trading is on risk management and the psychology of trading. Yes, I use technicals to find low risk entries and to manage my risk. Yes, I use fundamentals to provide a “margin of safety” in my longer term purchases. For the most part however, I can only control myself. The future is unwritten, as Mr. Strummer once observed, there’s no use trying to game it. So what tools do we have to manage our trading endeavours? How about our words.

If you listen closely to traders and the words they choose to describe their operations, you can tell almost immediately how well they manage their emotions in their trading activities. If you want a great example of emotionless trading, check out ChessnWine. His trades are executed without emotion, and win or lose the tone seldom changes.

Cursing your loses or jumping up and down with exuberance at large gains sets the trader up for mistakes later on. Of the two, I believe cursing loses is the greater evil, since we all have a natural aversion to pain and loses can be painful without the proper mindset. Losses are just as much a part of trading as winning. Spend some effort controlling your language. Pay attention to what your words are saying about your relationship to your positions. It’s an easy and cost effective way to improve your performance.

Current market position: longs are hedged, slightly net short.

Not much going on around here lately. Just a vacation week and a lot of cold (and now windy) weather. No changes in positions. I’m not about to chase. I’m nowhere near nimble enough to pick off individual names at this stage of the game. I’d rather let my risk management guide my course.

Market position: longs are hedged, slightly net short.