Adjustment Time
Naturally it is no surprise that the
volatility has contracted quite a bit over the last week or so. The challenging
part for myself and many traders is making the adjustment back to trading the
markets as they resume their normal ebb and flow. For the last two weeks of July
the market offered so many opportunities you could trade significantly larger
share size, be a bit "sloppy" on your entry points and STILL have the
trade pan out in a big way. As humans it is so easy to suddenly forget that that
period was an anomaly and we have now regressed back to the mean in terms of
volatility. I was certainly guilty of this. Up until yesterday, I was still
preparing for battle each day as if it were two weeks ago. While my results were
certainly respectable, it was a very inappropriate approach. After I made the
adjustments suggested below, my results were enhanced.
The point is simple. The markets are now back in full summer mode, so make
the following adjustments:
- Reduce share size on a per-trade basis, unless an unusual opportunity
presents itself. - Be incredibly selective on your trade setups. Marginal setups will produce
marginal to negative returns.
Well, it is Fed day. Up until last week nobody really cared, but now that the
economy appears to be in a precarious position, Wall Street wants Easy Al to
break out the Band-Aids again. Regardless of the outcome, Fed announcements are
not nearly as, dare I say, "easy" to trade as they used to be. Like
all things in trading, they change and you need to adapt. I have yet to figure
out how to play the announcement, and do not plan to today, barring either some
completely unexpected outcome or radical policy change. So sit tight, let the
knee-jerk reactions play out, then wait for quality setups in the aftermath. If
volatility picks up, make the necessary adjustments.
The financial stocks continue to trade well, and with the Fed meeting today,
they should remain volatile. Also, there was a story in Sunday’s New York
Times which indicated that an analyst at Salomon Smith Barney was let go for
writing a negative research report. While we do not know the whole story, or if
it is true, it just highlights that nothing may have changed as a result of
recent attorney general inquiries. More importantly though, the parent company, Citigroup
(
C |
Quote |
Chart |
News |
PowerRating), may be active if this story gains momentum.
Intraday Setups:
Shorts:
(
AXP |
Quote |
Chart |
News |
PowerRating),
(
MSFT |
Quote |
Chart |
News |
PowerRating),
(
SPY |
Quote |
Chart |
News |
PowerRating),
(
VZ |
Quote |
Chart |
News |
PowerRating)
Longer Term Setups:
Shorts:
(
FDC |
Quote |
Chart |
News |
PowerRating), the US dollar
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 954 | 996 |
| 941.50 | 970 |
| 939 | 961 |
| 916 | 954 |
| 910 | 946 |
| 908.52 | 937 |
| 900 | 930 |
| 892 | 917.25 (key) |
| 884 | 905 |
| 868 |
As always, feel free to send me your comments and
questions. See you in TradersWire.