LESS CAN BE MORE
As I sat in a Del Mar restaurant having a glass of wine with a buddy of mine last night, we got into a chat with a couple of local Realtors. They were in shock when after they told us we had to buy real estate right now because rates were going up, I told her what I did for a living and that I thought rates were going down. She said I was the first person she had heard say that. She asked me if I would recommend putting money into the stock market right now and I said no. I told her to wait until December. She seemed comfortable with that comment. What was the difference?
The first comment about Bonds was contrary to the current will of the people whereas the second one was in line with what so many people think. People are so used to being comfortable being with the crowd, that they are afraid to be against it. There is no question being contrary at times when you are wrong, does make you look like a fool. This is especially true when some dumb ass who is wrong about 90% of the things in life happens to be on the correct side of a trade the world is in, and you are in the opposite side of. There is no doubt the world is in panic right at this moment with the US Stock Market. I think bigger picture, they should be. However, this sham of a rally has carried on for so long on bogus pretenses it has been surprising to me. At the moment we are about as oversold as we have been at any time in history right as I type this, so I would be careful about loading up shorts down here. We are going to get a violent counter trend rally up at any moment here. This will be what will make the bullish folks exhale and think the day has been saved once again. They may be right but I am going to short that bounce assuming one of my entry patterns is there when it happens. In situations like this I do not think you should try and buy the dip just like I don't think selling rallies when they are the inverse of this is wise. You just never know how far they will go. There is huge momentum in one direction when these types of things happen, and you just don't want to get caught fighting it.
I have not done much trading this week and I am fine with that. The setups I have developed over the years have not been there. Yes I have missed a lot of "action." I do not trade for action, I trade for money. I don't tailor my strategies for the once every 10 years types of events like we are seeing right now. Keep in mind we had only had 2 prior occurrences in the last 30 years of 7 consecutive down closes in the SP 500 prior to this week. This is hardly something to tailor an approach to. All you have to do is make 3 or 4 really good trades in a month to make all the money you need, they can happen the first couple of days, or at the very end, or any other time. I know they will come along, so I am biding my time waiting for them. I am going to let the game come to me. I hate that frickin phrase, but it is appropriate here. Often you have to make quite a few trades to get to the 3 or 4 good ones, but I know they will come.
If you are a philosopher type of trader, meaning you just trade on theories alone and not anything technical, be careful here. The moves are going to be big for the indefinite future in both directions. If you just enter at the market in something because you think it is going in a particular direction based on some theory, keep your stops close. You can get wiped out during periods like this. I will admit it is exciting to see this type of movement in either direction because it is opportunity, but don't let your emotions carry you away and into the poor house.
Here is one market that is off the beaten path a bit that looks like it could be putting in a low here, Coffee.
If we were to now move up and break this trend line, when we consider that we are close to a seasonal low spot, I think we could have a nice move up in this market. Trap patterns are just good for a couple of days then the premise becomes invalid. As a result this entry is only good for 2 days. If it does not go by then, another entry pattern needs to form. Other than that I am keeping the powder dry for the short trade in the Bernanke's coming once we bounce.