Wednesday, July 27, 2011


Sometimes I debate not even doing this blog so I can avoid the embarrassment of being publicly exposed to bad decisions, and now is one of those times. I mentioned the Bernanke 2000 was the place to get short since it was by far the weakest, and I talked myself out of following my own rules, and missed a huge winner. This is how I pay my bills, and missing trades like this just bothers me to no end. So, why in the hell did I not do this trade?

Here are the reasons in no particular order:

First, the Bernanke 100 below was making new highs for the year, and I like to have some consistency in a sector. I ideally I would have had sell setups in all 3 and just taken the weakest one.

Second, the very unusual bar where the close was kind of in the middle, not really a reversal bar, not really a smash bar, not really a doji bar. It is rare that bars like this are good entry bars. I studied them the prior night and found that the majority of the time the market went sideways or bounced from these.

Third, I got distracted by Washington DC, an inexcusable mistake. I had reasoned that there was no way the Repubs would do the right thing, which they are.

Lastly, the Bond Market read on a daily chart was unclear to me, and although this should not matter one bit, I considered it.

Let's analyze these dumb ass reasons so I can suffer the full pain of this blunder that cost me to miss about 25k of profits.

The first reason on the surface seems legitimate, and I am still not sure that it is not. Rarely do you see this type of disparate action between the stock indexes. This is the main thing that led me to believe in my theory that the Repubs would eventually give in and we would bounce. I just did not see a sell signal of any kind in the Naz other than some divergence at the highs. In my world I would have needed to get a bounce here to setup the sell entry, or a close above the highs that reversed the very next day. Neither of those have developed yet and they still may you never know. However, I was considering shorting the Russell so I should not have been looking at this. Such is the life of using some discretion, sometimes you just blow it.

The second reason is the one that is haunting me the most. The bar pattern stuff is always my Achilles heel. I always want to throw in some arbitrary opinions about what bars are best for entry and what are not. When you test them mechanically you find that although there are some edges, they are small and really should not be that heavily considered. I injected an amateur view on that mid close bar, and that is quite frankly inexcusable. This is what stops are for, some trades don't work. You have to take them and move on. I was way too busy trying to make an excuse for why I did not want to do this trade with the politics that were going on, that I threw good trading practices out the window. There is really no excuse at all for someone of my experience to make this mistake, but I made it.

Third, the politics are not something you should ever consider. I hate politics and for the exact reason that we are seeing play out right now. Every single one of these guys is lying. They are all talking about negotiating over how much spending will increase and calling it cuts. If it increases less than 7% they are calling it a cut. This is just infuriating and if I had my say I would say shut the whole thing down indefinitely. My wife has Fox news on constantly in our main viewing room, and I just can't escape it, so I get dragged into watching it from time to time, only to get pissed off and go back to my office. This has effected my thinking on this and it is never going to happen again. For those of you newer to trading, please learn from my mistake here. Read the sports page, but ignore the business page.

Net net, overall I made several amateur mistakes that I have shared openly that makes me look like a fool, and I feel like one. However, one of the things I do too distinguish myself from others, is talk honestly about what I do, and along with that comes discussing the bad with the good. This is probably the single worst decision I have made in 10 years, so there it is.

The moral of the story, follow your rules like I always preach even though I did not do it myself here and paid a big price. It is time to be short the stock market, if you are not already, sell any bounces, down we go now, how far I do not know. We will probably see a continued flight to Gold and the Swiss and Yen, so if you are looking at safe haven places, those are probably them although the premise of the Gold safe haven as readers know is bogus historically, it is what is working now and that is all that matters.


Konrad Sherinian said...

I missed this short as well - regretfully, taking out a major low (7/18) even makes a hopeless optimist like me somewhat bearish.

ledzepSteve said...

Sharing the good and the bad, the smart and the silly provides greater insights. Thanks for showing both sides.

Charles Hugh Smith said...

Chris, for goodness sake, don't be too hard on yourself--your blog is terrific precisely because you analyze charts before the "answer" is known, and then look at it after. You are practically the only trader with the guts and moxie to do this, so PLEASE KEEP BLOGGING.
I am long the UUP etf on the dollar and would value your views on the chart. Just on basic TA, it's looking somewhat bullish, but maybe I'm missing something...

jhjoyner said...

My sentiments are identical to yours except I had a sell signal for the DJ-30 but did not act on it because the SPX did not show the exact same technical divergence. Shame on me because the DJ-30 seems to lead the SPX in many cases, in my opinion.

You expressed my sentiments exactly. I also let the political situation influence me in addition to a chart I saw on money flowing into the markets.

I failed to act on a nice short term opportunity.

jhjoyner said...

Your sentiments fit me also as my technical model showed a sell signal for the DJ-30 but the SPX did not have the exact same signal. I should have known better because the DJ leads the SPX in many cases, in my opinion.

Was also concerned about the political situation as well as a chart showing money flow into the market.

Simply missed a great short term trade!

Chris Johnston said...

Charles what can I say, this was a very costly blunder for me and there is just no excuse for it at all. I appreciate the nice comments. It leads me to dial in my rules a little tighter to take out some wiggle room I have allowed myself.

As for the DX/UUP there is no buy signal for me there at this point but it is the flight to quality trade, stocks go down, DX goes up. There does appear to be some cycles coming due for a DX low coming up, but they are not here yet. Good luck with the trade I hope it works for you.

BearHoldingBag said...

In your defense I think that the debt ceiling debate REALLY DOES MATTER. I mean imagine getting heavily short yesterday only to have the dems and reps reach a good agreement today- the market would have been heading to new highs.

It's frustrating to let the news get to you but really how could you get short ahead of this major news event and sleep well at night?

I guess that's what stops are for. But still that's what frustrates me most- I saw the sell setup but was afraid to pull the trigger because at anytime during the night some debt ceiling agreement could be reached and the market could gap up 20 points against me the next morning. In that sense Dick Bove is right.

I think it's just as dangerous to be short right now as it is to be long. The news is usually gloomiest ahead of a rally.

Anonymous said...

When Charles Hugh Smith pays you praise it is indeed in high regard. Just the fat he is folllowing your blog is a compliment. He is one of the great thinkers and writers of our time and anyone who doesn't read his daily blog certainly should. He is both incredibly bright and incredibly savvy. Here's the site. www.oftwominds.com
Keep up the good work and remember losing via a missed opportunity is no where near as bad as losing actual dollars in a stupid trade where you didn't follow your rules.

Chris Johnston said...

Well between emails and a few comments here I woke a few sleepers up with my rant apparently, LOL!

Here is the bottom line to all of this. I let emotion get in the way of good trading practices and that is the lesson to be learned. With the size I trade, and the way I trade stocks and etfs along side futures trades, this mistake took probably about 65k of profits I would have made away and all because I was afraid of risking 2%. If you think about the absurdity of that you get my point.

If I traded on opinions this move would have been perfectly acceptable but I don't. I appreciate the comments and all of you reading here each day. I am taking a couple days away from the screen, since I am not in the right mindset after this blunder. Sometimes you need to walk away for a couple of days.

I wonder when the last time one of my competitors actually went on record and admitted such a blunder?

Now we are definitely in sell the rally mode lets hope we get one