Stocks Are Trending Higher and I'm On The Wrong Side!

I must admit that Ms. Market is getting on my nerves.

I happen to be on the wrong side of this market at the present time and I have more than once considered closing out all my positions in a "flailing my arms, stomping my feet" emotional fit.

And in a calmer moment I still may.

After all, it's all about capital preservation.

At times like these I find that it helps if I step back from the tick-by-tick market observance which all we traders do and attempt to get a different, perhaps wider, perspective.

Here are my thoughts:

• I hate being wrong, even for 10 minutes. (Ok, maybe even just five).
  
• While I may be "right" eventually, it's important not to be "wrong" for too long. It affects my emotional state, and life is just too short to walk around in a funk.
  
• It's not the losses that are really annoying since from the start of the year I have a loss in my personal aggressive trading accounts of about 1.6%.
  
• What's really bugging me is the fact that I am "losing" instead of "winning". Traders in general (and I'm no exception) are very competitive individuals who want to "win" in everything they do. (Anybody out there besides me drive "competitively" in traffic? "Hey, get out of my way. I want to get but somewhere, not spend my life in my car.")
  
• Turning away from the flashing screen I notice that my "serious money" accounts have nice gains this year which are about 10x as large as my YTD trading account losses. (This helps calm me down and reminds me of the fact that my total portfolio performance is meant to be enhanced by my aggressive trading but is not solely dependant upon it for success. There's that "gotta' win" trait popping up again.)
  
• Then I notice the calendar it I am amazed to discover that there have only 20 trading days have occurred so far in 2012. (There's plenty of time to still end up winning.)
  
• A look in another direction has my glance fall upon my aggressive trading account spreadsheet. Specifically, the cumulative comparative results portion. I am pleased to see that for roughly the past 9 months (since the market peak on 4/29/11 through this moment as I type) my aggressive accounts are up about +10.5% while the S&P500 is down about -2.7% for the same period. That is a positive relative performance of about 13 percent. (Yeah. But had I been long instead of short for the past 20 trading days the numbers would look even better.)
  
• Checking my screens I notice that even with today's rally (roughly +1.0%) the S&P500 Index has only gained about 12 points (less than 1%) since its close on January 19th. The market could keep rallying from here but for the moment it hasn't run away from me yet.

And that brings me to where I need to be. At a point from which I can more objectively attempt to answer the key questions for a market trader:

• Where does the market seem likely to go from here?
  
• What are the probabilities of a given move occurring?
  
• Can I (we) play the probabilities with a reasonable confidence that our trading will be successful. (There's that winning thing again.)
  
• Will establishing (or maintaining) a trading position entail an undue amount of risk. We do not always have to trade. Sometimes it may be best to step aside for awhile.

I do not have answers to share at the moment. But I will do so ASAP. For now I will be holding what I have with a keen awareness that there are only 12 trading days remaining until my February options expire. I can tell you that my nature is such that buying after a virtually non-stop, 6-week, 10 percent, S&P500 rally is not my first choice.

With the global economic data modestly favorable at best and modestly weaker than consensus estimates in the U.S., it seems that something else is driving today's surge.

That something appears to be hopes of an imminent (for the umpteenth time) resolution to the Greek drama. These hopes have triggered a surge in the European equity markets and in the EUR/USD currency pair.

And what does give us?

Yep, you guessed it. It's our old friend the "Dollar Carry Risk Trade" that has the market in a "Risk On" mode.

I expect that some form of "positive" announcement will eventually come out of the "Troika". But will the market celebrate the press releases or will it be, "Sell the News" time?

Judging from the past it seems the odds would favor a somewhat impressive but relatively brief rally followed by a change of direction as players take a closer look at the details.

This is one of the issues which makes trading this market so much like walking through a minefield. Even if they are all marked so we don't step on one, if one happens to surprisingly go off as we are walking by it would still leave a mark.

The odds are the European leaders will do all they can to come up with something they can at least claim is a success. Think back though to their pronouncements over the past 2+ years. (Wow, has this crisis really been dragging on that long?) And as the crisis matures, it could be that such a diverse group of human beings faced with numerous and often conflicting pressures (elections, hedge funds profit motives, not fully informed citizenry, etc.) become hardened in their stances. This could lead to the totally surprising result (at least for the market) of no deal.

An announcement that talks with Greece have failed would, in my opinion, trigger at least a good-sized decline.

But consider this: With low public involvement (trading volumes way down from previous Januarys' levels), high leverage, HFT trading, huge derivatives positions, etc. would another flash crash really be out of the question?

I am not predicting such, but the possibility must be considered as we attempt to manage risk while trading this market.

Have a good one
Curtis Bergquist
PRO Trader Manager

P.S. The The PRO Trader Service was up in 2011 and has beaten the market handily since the inception of our new management strategy.

 

Remember, you are in control your email alerts! You can receive alerts for more than 25 free research report alerts including: The “10.0” Report, The Insiders Report, ETF Leaders Report, and The Focus List.