August 17th

The last few weeks have been good ones on the trading front, offering opportunity and spondulicks aplenty.  This week was a much quieter affair - alas, no juicy one-day gains for the Monkey over the last few trading sessions.

No real harm was done to the account balance but nevertheless, it was a frustrating few days.  I was stopped out of my existing Dow position below 11,500, a steep one-day downdraft cutting short my profits.  It was a small position and, ultimately, a profitable one but it's always irritating to watch the market then resume its upward trend without you - the market roared ahead the following day and hit 11,860 within days.  Filthy stuff.

It was doubly frustrating in that I was looking to get on board at a lower price and was not far away from doing so when the market simply took off without me, climbing over 200 points in half an hour.  Falling oil prices and a surging dollar catalysed the sudden spike.  Just a week after penetrating €22,000, I might very well have been saying a toast to €23,000 had I gotten on the market train in time.

As it happened, the gains were short-lived.  Traders pushed the Dow past resistance in the form of the March lows but it turned out to be a so-called 'false breakout'.  By Tuesday, the Dow had slipped below that much-watched juncture once more.  It spent half the trading session pushing up against that level, in vain.  As the session wore on, the bears became emboldened by the bulls inability to pierce resistance and the market sold off aggressively in the closing hours, a trend that gathered steam on Wednesday.

Aspiring day traders would do well to study an intra-day chart of Tuesday's action.  Fundamental and technical analysts are often at each other's throats but one can combine the two approaches.  Anyone looking at the headlines would have been inclined to play the short side.  JP Morgan has been one of the better-performing banks seeing as it managed to limit its sub-prime exposure during the boom years - that is, it's been widely praised for not acting quite as dumb as the other banks.  Market watchers were pretty spooked by its $1.5 billion write-down and its warning that the mortgage market had "gone to pot" in July (ok, they didn't use that phrase but the message amounted to the same thing).  Goldman Sachs - the smartest of Wall Street banks, apparently - was having its estimates cuts by several analysts on the same day.  Both events suggested that the financial sector, which has rallied strong of late, is far from out of the woods yet.

Of course, the market doesn't always do what one thinks it should do.  On this occasion, however, one could see that weak rally attempts were continually rebuffed at the aforementioned resistance level.  The fundamentals and the technicals were coalescing perfectly.  For day traders, the obvious move was to take a sizable short position near resistance (11,720) and place a tight stop (say, above 11,750).  After it became clear that 11,720 was holding, the market sold off, hitting a low below 11,600 late in the trading session.  As it happened, we went much lower again on Wednesday (11,450) so any day trader who elected to keep a part of the position open would have had a windfall.

Me, I wasn't watching the markets on Tuesday.  Time constraints mean that swing trading rather than day trading is more practical at the moment.  That's not so bad - most of the time, the best opportunities occur on the longer time-frame, as the last few weeks have shown. 

I'm still looking to buy weakness.  My limit order to buy on Wednesday came within ten ticks of getting filled.  That was unlucky but I expect to take some positions sooner rather than later.  We continue to see decent movement and opportunities should arise, although I'm not going to force a trade if they don't. 

Despite this week's lull, August has begun nicely for Monkey.   Percentage gains for the year are finally in double figures so my next aim is to get up to €25,000 and then build on that.  A couple of judicious entries and no playing silly buggers, as Jack Charlton would put it, and that could come sooner rather than later.

Weekly profit/loss: -€108
Overall balance: €22,062

Comments

[NoTipsHere]

Hi MarketMonkey,

No harm not getting in on the Dow last week for swing (multi-day) trades as it was mainly sideways. There was a large downward move on Wed and a large upward move on Thu so there were some day trading opportunities if you caught the right side.

The Dow is now sitting close to what you have labelled as a resistance level at 11,700. I think that could be breached, although based on fundamentals, the market should go down. US Dollar is strengthening which could impact on foreign earnings of the dow components due to the currency fluctuations and in a weakening global demand.

> the obvious move was to take a sizable short position near resistance (11,720) and place a tight stop (say, above 11,750).

I think +30 is too tight in a volatile market. If you believe in a trade and a resistance level, you would need to give it a wider berth to breath the volatility.

Multi-day trading is not easy as overnight factors can kick in.

Good luck this week,

NoTipsHere

[Market Monkey]

Hi NoTips
Just a quick note to say that the 30 point stop would have been a day trade - volatility was low on that day and market was repeatedly rebuffed at same juncture, making it a low-risk trade, despite the tight stop. Certainly for a multi-day trade, one's stops would have to be much wider.