Assertiveness And Selectivity
How low will they go? It seems that is
the question that this market is demanding from everyone. While I do not know
the answer, at least there is some decent volatility and price action on the way
down to capitalize on. Friday was a real snooze as Triple Witching dictated
price action vs. old fashioned buying and selling based on non-option related
strategies. I actually did not trade on Friday, but from the conversations I had
with colleagues, it sounds as though that were a good thing.
Naturally, the longer this downward grind continues, it puts us that much
closer to a level that "serious" money will deem appropriate for
allocation of capital. On the other hand, there will always be a point at which
the baby gets thrown out with the bathwater. In this case, you have to wonder
how much longer it will be before the "average investor," as the media
refers to them as, will simply say, "Screw this, I am outta here."
That will not only be a very bad sign from an investor confidence standpoint,
but also be the point where we can actually say, with a fair degree of
certainty, that a bottom is being put in. In the meantime, it is death by a
thousand cuts.
The strategy remains the same, assertiveness and selectivity. I am by no
means gloating here, but for the most part, I am finding the current environment
very navigable. It is further honing my skills as a trader. Never has there been
a time in my trading career where patience and selectivity has been more
important, and if one were to accuse me of being a cherry picker, I would be
proud. I have also learned to implement more frequently the concept of position
sizing. I will discuss this in depth later this week when my trading lesson is
posted, but for now, let me share a few words on the idea. Position sizing, at
least my definition, is as follows:
Varying your share size on a per-trade
basis, based on your assessment of the certainty of the trade playing out.
While this is no real secret or nugget of wisdom that you have never heard
of, if you employ it, you know the effectiveness. If you do not, consider it. As
we all know, there are probably only 20-30 trading day a year where the spigots
are turned on full blast. You need to be there with everything you have to fully
capitalize. The remainder of the year is a constant endeavor in taking the
temperature of the market in order to decide not only whether to trade, but if
you do, at what level are you going to play.
A great analogy is a professional blackjack player. A pro will vary his/her
bet size based purely on their assessment of how rich or poor the deck is in
face cards, low cards, whatever. Since I know nothing about blackjack, other
than this strategy, I cannot explain all the nuances. But what I can tell you is
that over the years, I have known three individuals who played blackjack
professionally, and are now very successful traders. Their stories about playing
in Vegas were not only entertaining, but very insightful. Take a page from their
book, seriously consider the idea of position sizing. The lesson should be out
mid-week.
Looking at some longer-term trades that are showing up on my lists, take a
look at the daily chart of First Data Corporation
(
FDC |
Quote |
Chart |
News |
PowerRating) below:
Not only is the chart beginning to look a bit vulnerable as it closed below
its’ 200-day moving average on Friday, but there are also some negative
fundamentals associated with this one as well. I will not get into all the
details, other than to say that these are the types of situations I look for in
my longer-term picks. I know that fundamental analysis sounds like some archaic
relic, but let me offer this: Given the hype-driven orgy of the ’90s, investors
and longer-term traders alike will come to realize that there is value in
objective fundamental analysis.
- Deteriorating technical picture.
- Deteriorating fundamentals.
To me, the more items I have in my favor, the more conviction I have on the
trade. A word of caution: This stock has repeatedly tested its 200-day moving
average, only to bounce off of it and retest the 50-day average. However, once a
break is made, it looks like it has room to run, other than perhaps minor
support at 37.60.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| 1007-1010 (confluence, resulting in choppy trading) |
1061 |
| 1002 | 1052 |
| 996 | 1046 |
| 988 | 1038 |
| 980 (confluence and contract low) |
1019 (contract low) |
| 969.5 | 1000 |
| 992 |
As always, feel free to send me your comments and
questions. See you in TradersWire.