Old Monkey's on a bit of a roll at the moment, building on last week's sexy profits and finally getting his percentage gains for the year into double figures after a one-day gain of €700 on Wednesday.   

That made up for being stopped out of the remainder of last week's long bet on the Dow.  The index stalled just shy of 11,600 and took me out of the trade when it dipped below 11,440.  No huge harm done though - only a fantasist dreams of getting out of a trade at the very top.  I protected most of my gains while giving the trade room to work, that's all you can do.  The downturn continued over the next few days, with the Dow heading back down to 11,200.  That was good for Monkey on two counts.  Firstly, I'd have been irritated if I'd been stopped out of the position only to watch the index reverse back upwards immediately after.  Secondly,  it gave me a chance to get back in at a lower price.

As it happened, I got in almost at the very bottom (11,220) - sweet.  The market took off the following day, rising by well over 300 points after the Fed left rates unchanged and unleashed no real surprises in its accompanying statement.  Mind you, the market had been strong in the lead up to the Fed announcement, with oil's dipping below $120 boosting market sentiment.  The Fed decision was merely the icing on the cake, with the bulk of the day's gains recorded in the early hours of the trading session.

Nice as it was to buy in advance of the market's strongest day in over four months, I was kicking myself for not taking a bigger position.  Over the last few months, I've been scaling into positions, usually buying in €2 increments (that is, every 1 point move in the Dow equals a gain or loss of €2).  That can lead to one building up a sizable bet of €5-10 per point whilst increasing the odds of the trade going in one's favour. 

Fair enough.  It's worked well over the last few months and it's a pretty good system.  I should have bet bigger this week though - the market was never likely to dip much lower, I could see that.  A bet of €3 or €4 euro per point would have been more appropriate.

Still, I made up for it by managing the trade like a pro, not taking profits until the closing bell with the Dow trading around 11,590.  A one-day gain of €700 euro - I shouldn't whinge.  The urge to bank money is a strong one but you have to know when to let your profits run.  I did just that, using my head instead of my stomach to manage the trade.

My remaining position is a small one and most of my gains are already locked in.  There's strong technical resistance around 11,700/750 (50 day moving average coinciding with the March lows).  I have my doubts as to whether the bulls can get past that level in the coming days but I'll give them a chance to do so - better to manage one's position professionally rather than trying to predict the market to perfection.

I continue to see this as a bear market rally and am looking forward to getting short when the opportunity presents itself.  This was the sixth 300+ point one-day rally since the bear market began late last year ands I expect that this latest rally will peter out, just like all the others have.  In fact, there have been some technical warning signs of late (Brett Steenbarger notes that the number of new 20-day highs has not been expanding even as price goes higher, signalling that the rally may be losing steam.)   

Still, I'd be a buyer in the event of near-term market weakness.  I've a ton of reasons of thinking that the July lows mark a definite intermediate-term low and expect a classic bear market rally, mirroring the double-digit bounces we saw in January and March.  After that, expects the sellers to come out once more. 

Weekly profit/loss: +€505
Overall balance: €22,170

Comments

[NoTipsHere]

Hi MarketMonkey,

> one-day gain of €700 on Wednesday.

Well done. You stuck with your strategy and got a good ride on that up-day. Yes, I agree that it was a pity that you hadnt had more on it, but once you start to get around the 22k level as you are now, perhaps you can go for those bigger bets risking a 500 loss for a possible 2k or more gain.

There was another big +300 pts upday on Fri 8th, so perhaps you got on that too.

> There's strong technical resistance around 11,700

Well, I mentioned before that I didnt think that level would prove to be much of a resistor and yesterday's trading proved my hunch (guess?) right, as intraday yesterday there was a nice rise to 11,867. Perhaps you were on that 'elevator' too.

I gave a prediction that we would trade in a trend slightly upwards from that recent low of below 11,000, and that's what has happened. Hence better to be long than short in such a market. A similar upwards trend occured between early Mar08 to the end of Apr08 taking the market up to the dizzying and unexpected heights of 13,000.

My tip would be to be long more often than short for the moment, but watch 12,000 and 12,500 could be a resistance point. If news comes through of recession in the US, the market could react downwards and then a trader needs to be shorting.

Keep up the profit-taking!

NoTipsHere

[Market Monkey]

Hi NoTips
Been a much quieter week for me, got shook out of my remaining position before the upmove. Was not happy to have missed the move but market has been weak over the last day or two so am hoping to get back in at a lower price.
Would not be too quick to dismiss the aforementioned resistance - March low was at 11,730. Market hovered around that area for latter half of Friday before breaking out on Monday. It looked like a good breakout, going over 100 points higher, although volume wasn't great and we went below that level once more on Tuesday morning. Spent most of Tuesday popping up against 11,720 without being able to pierce it and sold off aggressively late in the session as the bulls caved in.
At the moment, it's looking very much like a false breakout. Anyone day-trading should have a look at a 15 minute chart of the last few days action, it's a good example of support/resistance battles playing out.
Like yourself, I'm still inclined to the long side for now. If I do get long, I'll be hoping for another breakout attempt. We'll see.
Good trading,
MM