This Is A Good Addition To The Toolbox
Well, where do I begin?
Yesterday’s action to me signaled the beginning of something…potentially. As I
mentioned, I never try to draw lines in the sand when the markets are trending
— it is best to simply go with it. I am not suggesting abandoning that plan.
However, for the last few weeks the market has seemed to shrug off the ever
weakening dollar as did the bond market. On Tuesday that weakness could no
longer be avoided. The dollar sold off to fresh all time lows versus the Euro
and new 52 week lows against other currencies as well. The S&P’s finally gave in
and were down nearly 11 points. So while the action was anything but climatic
you have to wonder just how much more will the market bear?
Luckily these questions need not be answered in
order to trade effectively, if you know where to be. Sure, you could have traded
the usual HVT candidates,
C, TXN,
IBM etc, and probably have done just
fine. However, I am after something that moves around with more fluidity than
those issues are currently. The mining stocks continue to be that
place. Strategically they make a lot of sense as an investment and are beginning
to show some viability as intra-day traders as well. Look at the 1 and 5-minute
charts of Anglo Gold
(AU), American Barrick (ABX) to name
a few.
The other place that I feel will be a direct
beneficiary of any further dollar weakness or geo-political crises will be the
FX market. Look at the charts below of these currencies versus the
dollar. First, look at the plunge in the dollar index (DXC), then look at the
currencies and metals relative to the move. You could not ask for better price
action. Yes, the FX trades are not HVT
material be any stretch, but these are direct plays on “uncertainty”, a traders
best friend.
In the meantime, FX and gold will continue to be
my barometers for how I play the stocks intra-day. These are the lead
indicators presently, not necessarily the S&P futures. So, while this may be
only temporary as a lead indicator, it is certainly working at present.
Yes, I was stopped out of my
JPY short at 107.95 for a 140 pip loss.
Luckily the EUR long is making up for that.
One note though, despite the JPY making
intuitive sense to me on Sunday evening, it was still a trade that was bucking
the overall trend. So, despite 10 years experience, I still make mistakes now
and again. Sure the trade could have worked brilliantly, but let’s face it,
counter-trend trades are a tough way to make a living.
Turning to the “rant” section, I cannot help but
comment on the latest ruling from the SEC/NASD (I do not know which one is
responsible) regarding the elimination of bullets/married puts.
Given that my livelihood has been made from
trading stocks short-term these little derivative products were a wonderful
addition to my toolbox in order to circumvent the antiquated up-tick rule.
short-term trader out there, but more importantly it is yet another glaring
example of how regulators are making the problem worse, not better, with more
regulation. There is nothing illegal about bullets, yet it is a gray area.
Gee, how do the FX and futures markets manage to stay in business without such
an insane rule?
to trade, the last thing we need is one more impediment, especially if the
market begins a downturn. Throw in the points below and it makes sense why
other markets are more appealing.
orders
tighter spreads. God forbid they penalize corporate criminals, mutual fund
timers or clueless analysts who schlep bloated, over-valued tech stocks on Jim
and Jane Smith, no, let’s stick it to the guy who was doing the trading by the
rules. It is no wonder that the futures and FX markets are becoming a much
better vehicle for traders like myself. I for one will be writing a great
deal more about these more “open” markets in coming columns.
| Support/Resistance Numbers for S&P and Nasdaq Futures |
||||||||||||||||
|
As always, feel free to send me your comments
and questions.