Here’s When You Have The Best Edge
Sorry to have not been
able to post my column yesterday, the fires here in San Diego forced
me and my family out on Sunday afternoon as a precautionary measure. Now,
assuming that the fires remain at bay, I will be in for the remainder of the
week.
Today I wanted to approach the article from a
slightly different perspective. Weekends — or more specifically, time away
from the day to day activities — clear the mind and allow me to look at the
market from a very different perspective. We all know that the markets have
been trading far differently than most of us are used to so we do not need to go
there. I will say only one thing on that though, consider this quote from an
email I sent out to my subscribers this weekend:
“The Intra-Day Set-Ups this
week were pretty much a scratch after accounting for commissions. Luckily, the
HVT trades managed to put a few bucks in our pocket. The important thing to
remember is that despite the laggard performance on the IDS’s, over a period of
time, they have performed wonderfully. Too many times as a traders we draw
dangerous conclusions from small sample sizes. Yes, it is true that you need to
monitor your progress each day or week, but ultimately trading/investing is a
marathon, not a sprint.
I have never met a trader who
has lasted that went for the throat everyday or more importantly gave up after
not getting results in a week or so. Instead my close circle of trader
friends/colleagues resemble the character Finch in the movie Rounders (a
great film). The classic quote by Ed Norton’s character, Worm, goes something
like this; “c’mon man, do you really want to do this, do you want to end up like
Finch?.” (Finch plays poker professionally) Matt Damon’s response; “But Finch
has not worked for almost 10 years.” There was no response from Worm, just a
look of disgust as he suddenly realized how poorly he played poker, always going
for the kill.”
One last comment regarding trading. For
HVT trading you need to make sure you take
full advantage of the opening hour, it always has been, but even more so now,
the time where you have the most edge. Make sure you step away from your screen
each day after 11:30 AM EST and come back at 2 PM EST, there are simply very few
reasons to exert yourself during the morning lull.
If you have been keenly observing the markets in
the last few weeks you know the market feels real heavy. However, there has
been no convincing selling. Sure, the markets took a few lumps this week, but
in the scheme of things, it is still hanging tough. This is constructive for
the bulls, but let’s be honest, do the “fabricated” earnings that were posted
this week really the earnings that will sustain a long period of higher stock
prices? Consider this quote from Warren Buffet which I have quoted from John
Mauldin’s most recent letter:
“Following Benjamin Graham’s
teachings, Charlie and I let our marketable equities tell us by their operating
results – not by their daily, or even yearly, price quotations – whether our
investments are successful. The market may ignore business success for a while,
but eventually will confirm it.
“As Ben said:
‘In the short run, the market is a voting machine but
in the long run it is a weighing machine.’ The speed at which a
business’s success is recognized, furthermore, is not that important as long as
the company’s intrinsic value is increasing at a satisfactory rate.”
—Warren Buffett, 1987
Chairman’s Letter
This objective approach to the markets has been
noticeable absent from the equity markets for some time now. It is the single
reason that I have none of my investments ties up in US equities. My only
longer-term holdings for the last year have been gold stocks and Japanese stocks
and FX. Have I missed out on one incredible rally since March? You betcha.
However, my returns from my stocks/FX have been comparable with FAR LESS risk.
That is my view and I ain’t changing my mind.
The years ahead will likely be a real slugfest as
the market comes to terms with earnings and high valuations. There will be some
spectacular rallies and likely some compelling sell-offs. If you keep your head
and look for stocks/ideas that make sense, you should do just fine. If you pay
attention to the cheerleaders and the analysts who have no shame, well, best of
luck to you. One last quote from John Mauldin:
“First, the largest component
of stock market return, up until 1982, was inflation. From 1802 to present, $100
would have grown to $700 million if you assumed all dividends re-invested. If
you take out inflation, we are left with a still impressive $37 million. If you
take out dividends, however, you find that your $100 is only worth $2,099!
Here’s the kicker: in 1982,
the stock portfolio would have been worth only $400. The bulk of the growth,
over 80% of current value, came in the last 20 years.
This data simply says that
conventional wisdom, which says equities get most of their value from capital
appreciation, is false. It is based upon recent experience, and a bubble
mentality.”
To reiterate from the one of the paragraphs
above, be assertive on the opening. With an FOMC
meeting today the market will essentially stop trading after the first ninety
minutes. Trading after the announcement will either be explosive or remain
consistent with recent afternoon sessions, i.e. narrow range. The key thing to
pay attention to are the comments regarding rate policy going forward.
| Support/Resistance Numbers for S&P and Nasdaq Futures |
|||||||||||||||||
|
As always, feel free to send me your comments and
questions.