Sunday, October 05, 2008

Trend with the Wind

While I haven't been updating here lately, I've been trading very actively. Unfortunately I left this page last time with a long-side list only and the market coughed-up the greatest decline in 7 years, but the list was in fact useful on days (or half-days, as in Friday's case) when the tape action was firm.

On the short side, I've stayed focused on commodity-related names, larger-cap technology and Ultra short index ETF's (TWM, QID, SDS, SMN, etc.).

Where do we go from here? Well, I just try to keep it as simple as possible and I respect any given day's trend when it is clear and one-sided. I continue to keep trades very short-term, increasing my position size late in the sessions and then backing away at the close.

I've mentioned before, when the market cuts to a new low in an environment like this, there is no floor and no telling how ugly it might get; hope and greed give way to fear and panic and the size of the air pocket beneath is always debatable, but potentially very severe. It's not necessary to get caught up in intellectual analysis of why any of this is occurring. It's a natural process for a market. But it is wise to respect the potential for disaster when there is no support underneath. Then, at the same time, rallies can be quite powerful, even if short lived. You've got to be ready for that as well.

There are not enough groups acting well enough right now to post a list of eligible longs, but it should be noted that the Financials (banks especially) continue to act best and these have been very good traders on the counter-trend bounces. When the market firms I'll be keen on new long lists of leadership groups and stocks, but at this writing there is not enough strength to go by and I'd just as soon stay focused on shorting until something better develops on the long side.

If you cut out the confusion and clutter and merely pay attention to the tape, it's really not that difficult to trade right now. I'm keeping trades very short, I'm zeroing in on the action of the day and I'm much more aggressive in the final 60 minutes of trading than at any other time; since the really dramatic days have had a succinct tendency to intensify in the last hour, and in the same direction of that day's trend.

I know this is not a lot of help to longer-term investors. But seriously, we have not had an envirnment for long-term investing in a very long time. If you get an October crash here, then you can start focusing on long term investing and it would make some sense. Or perhaps Shanghai on this pullback represents a reasonable long-term play.

We could be close to an intermediate term rally here, but we might not. So while short-term maniacs like myself have a reputation of being over-aggressive and risky, it is the long term investor who remains the gambler now.

No comments: