There are times when a trade is taken that goes absurdly wrong before you even get a chance to cherish the poor judgement that went into the decision to make the buy. It’s at those times that I have found it better to cut and run than sit with the anxiety of knowing that your entry was so far off. EDC was a poorly planned trade that I misjudged. After one day of pain, I decided to press the reset button and look elsewhere for my risk exposure. Not to mention the fact that copper made a move down today that was last on my expectation list. In fact, it qualifies as a definite “should not be happening” move that I will be watching in the days to come. Emerging markets and copper are highly correlated. One more reason I decided to drop EDC.
I believe we may have another week of sideways, rangebound movement ahead of us. I plan to slowly accumulate throughout, with an eye on S&P 1200 as the point I want to be buying. Today I added large amount of QQQ at 56.45. 30% of the portfolio went into the Nasdaq 100.
On my shopping list for future longs is TNA and more FAS.
I did take profits on ZSL today. It was a roughly 10% gain on the position in a week. I am keying off gold for the ZSL trade. Gold held the exact technical point that it should have today. A bounce in gold will result in a bounce in silver. I may hit silver again if the decline in ZSL takes it back into the $13 range.
Generally speaking, it looks to me like all the major averages are resting near the highs of the range that started in August in preparation of a breakout to the upside. All the meanwhile, a vast majority of investors are piling into either cash or shorts expecting that we begin falling again. It’s classic behavior when a market is at a major turning point, as I believe the early October bottom was.
It is at points when investors cannot fathom the upside that the greatest potential for gains is possible. Wrapping minds around the bullish case has become an impossible proposition here. It is reflected in the angst we observe all around us in the form of an overall mood of depression when it comes to anything related to the economy or business. I’m not sure if the seeds have been planted fundamentally to give us a new bull market rivaling anything we saw in the 80′s or 90′s. But the environment is ripe for stock prices to catch up with corporate profits and balance sheets, which are both doing better than ever.
According to what I am seeing investors have at least one more week of sideways action to accumulate into before we begin the second leg of the rally that began on October 4th. That second leg should be a lot more steady than what we have experienced to date. Notice already that the volatility we have become accustomed to since August has dissipated. This is the first time since the August swoon commenced that we have seen a six day consolidation around any price point. That by itself marks a significant change of behavior. Never mind that it is occurring near the highs of the near three month range we have faced.
Bottomline: We are in a seasonally favorable period following a disastrous third quarter that was largely brought on by boogie men that turned out not to exist. I have been saying since September that the psychological conditioning and trauma of 2008 have served to exaggerate the downside volatility we have been facing. Investors are beginning to pick up on the fact that their risk-averse behavior may be unwarranted when looking at the current circumstances from a reasonable point of view. Indices are confirming this by consolidating right below important resistance areas. Meanwhile, investors are piling into bearish bets and further piling into cash. Look out above.