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    Thursday, July 31, 2008

    Clarification


    I received an e-mail yesterday inquiring "where I thought stocks were headed?" Such a general question could be answered that stocks will go up and down, for tradable moves on the short and long side. On the surface, this answer seems evasive, so I'll clarify.

    There is a big difference between trading and economic analysis. My thoughts on the economy, the $USD, the national debt, and the credit contraction are somewhat gloomy. As a trader, however, I exploit attractive entries in either direction for the shorter term. That said, I refuse to pay up, or "chase" stocks higher as a result of the downward trend we are in (200 MA's). It's important to note that when going against the prevailing trend, the trader must only get long into weakness. Should we be in a trading range for several months, buying after run ups could seriously kill your returns. So timing is most important when trying to make money trading against the major themes. Personally, I take it one step further. I look for times where stock indexes could rise, but then only buy the strongest groups or index as determined by the slope of the MA's. This strategy has kept me far away from the "bottom picking" crowd in the banks and brokers, and happily so.

    Naturally, I 'm most comfortable lately when I get signals to short, with the recent trends. In this case, I still choose the standout groups, real estate (IYR) and financials (SKF). Typically, these are the "easiest" trades, in that they're the most profitable and usually put the trader through less pain.

    Specific trade ideas have been working pretty well lately, and accounts finished at all time highs yesterday. I continue to be long commodities, and added to the 2x gold etf (DGP) late yesterday (see ticker for exact time and price). I intend to stay long gold for 6-10 more days, as none of my positions are long term signals currently. With regard to the agriculture etf (DBA) and Corn futures, I have my eye on the exit, as a signal is near. When a signal occurs, I act, without considering how much I made or where I want to exit....I just close out the trade.

    Don't let the dearth of long term signals keep you from exploiting short term setups. Take the best signals available, even if they won't be "home runs". Just around the corner, I see potential trade setups in Treasury bonds (short), and stocks short (IYR, IWM, IYF), and possibly the JPY futures (yen, long). We MUST wait for the signals to enter, however, so until then I am uninvolved in these ideas! They are only potential trades until they trigger an entry, so be patient.

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