Why You Should Trade Around Core Positions
The markets were hit
with just a slew of news yesterday, mainly in the form of comments
form Fed Chairman Greenspan and Fed Governor McTeer. Each ones comments had a
different affect on the dollar, and as a result each one had impact on stocks.
Gold stocks suffered another decline which began in earnest effective January
1st. It is kind of funny to see all the retail hype about how the gold stocks
were among the best performing mutual fund sectors of 2003. I recall fondly
with a sheepish grin at my first job out of college answering the phones at a
Boston Based mutual fund company how all the callers would consistently chase
last years performance despite the standard line, “past performance is not
indiciative of blah blah blah”. I suspect the recent sell-off in the gold
stocks is a function of the “smart money” taken some of it off the table.
However, a quick look at the charts shows that unless support holds, further
downside may be in order.
Watch the levels at the 50-day ema (blue dashed
line) for potential intra-day trades (long and short). However, I can tell you
this, the gold sector is not trading very well currently. There seems to be a
disconnect at present between the intra-day direction of the dollar ($DXC) and
the XAU, pretty standard lead indicators. Again, my speculation about smart
money pulling some off the table can easily change the dynamic of a sector if
the amounts of stocks being moved are significant and consistent. This is a
just a hunch.
^next^
The comments by the Fed officials though sent the
FX markets into a frenzy as well. Frankly, the best seats were on the
sidelines. It is next to impossible to position on the heels of Fed comments,
although many times there are short-term trade opportunities, rather, it is best
to wait and let the market digest and draw its own conclusions, then latch on
for the ride. One thing is certain; the comments on Monday by ECB President
Trichet and the comments by Greenspan yesterday seem to have left the EUR
groping for direction. Many players are now not so sure that the ECB won’t
intervene or make further EUR-negative comments. This is the first pull-back in
the EUR in sometime that has not been immediately bid back up.
For now, I maintain two small “trading” positions
in the EUR and CHF (longs) with pretty tight stops (stopped out after writing
this). The other positions are based on much longer-term analysis, and yes,
while they got beat up pretty good today, the trading positions since the
beginning of the year have offset this draw-down. This is the primary reason to
trade around “core positions”, it minimizes volatility and draw-downs.
Support/Resistance Numbers for S&P and Nasdaq Futures |
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As always, feel free to send me your comments and
questions.