Thursday, February 25, 2010

Strategy Shift


I've traded poorly this last week and today was sloppiest yet. That said, the continuing lack of volume and traction following rally days, aside from exciting near-reversal sessions like today, have caused me to switch-up the attack here.

As long as it works (going forward, since today I was caught between two approaches), I'm going back to selling strength instead of adjusting neutral or net-long as the market begins flashing strength (which is how I'd been positioning since the market stopped making lower-lows early in the month).

While one could argue the downside is not following through either, I think that depressants are growing here, the volume on down-days is running clearly ahead of the anemic volume during rallies (implies no institutional commitment) and a market which works sideways-to-down in such a slow, deliberate fashion is apt to begin cascading lower before any substantial rally can begin.

In short, I'll short and sell-long on strength, looking to retain the better longs (since I need stronger longs should my thesis of a weakening market be ill-timed, wrong or irrelevant) and sell sell sell the weaker names and indices as they rally (especially if any sense of a buy-panic is present).

This is why I played rope-a-dope today as the market recovered. Yes, if we had managed a major-volume reversal I would have responded (I will definitely respond if we get something of a follow-through session...a significant gain on rising volume, three or more days following fresh lows in the majors). Otherwise, on a day like today, then in the morning I'm a net-buyer (or net-covering) and in the afternoon I am a seller.

Total Position: ~2.33-to-1 net-short, 78% invested

Currently Long (according to size): NTGR (7.3%); BEAV (6.9%); NETL (4.9%); ULTA (3.9%); CISG (2.9%)

Currently Short: TWM-long (Russell 2k Dbl-short, 11.6%); MS (8.1%); JPM (6.5%); GS (6.3%); FWLT (5.65%); CSX (5.2%); EPV-long (European Index Dbl-short, added today, 5%); DST (4.1%)

Futures Accounts: 10% Mar SP500 short, from 1089.25; 10% Mar Russell 2k short, from 622.10; 20% short Mar NDX, from 1795.00

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