September 7th

For a while, it was looking like this would be an ugly week for Monkey.  Things then turned in my favour and it was shaping up to be another week of sweet, sweet gains.  The market calmed down, however, leaving me with tasty, if not mouth-watering profits.  I'm not cribbing though.  August was a great month and September's started well.  Keep trading this way and the money will keep pouring in over the following weeks and months.

Almost all of my recent gains have been made by going long.  It felt natural, however, to switch back to the short side of things this week.  Markets are headed lower over the coming months, I'm pretty confident of that.  Using my recent  method of scaling into trades, I opened a Dow position last week by getting short at 11,610.  Stronger resistance was at the 11,700/750 level but I wasn't sure if it would get that far.  Initially, it looked like that wouldn't be the case and I was in profit early on. 

Hurricane Gustav changed all that, however.  New Orleans, according to one website, is "beautiful and beguiling, eccentric, exciting and enchanting" - just the kind of place that this cultured chimp would appreciate.  Watching the relieved news reports detailing how the city had emerged relatively unscathed from Gustav, I was left pondering more ignoble thoughts.  Is oil going to crash?  Will the Dow pop?  Very sad, I know. 

As it happened, oil fell much more heavily than I expected, plunging from $115 to a low of $105.  Blogger Felix Salmon pointed out that this was well below where oil was trading before anybody even knew a hurricane was imminent.  "Can hurricanes cause oil prices to fall?", Salmon asked ironically.  Anyway, the Dow soared past my limit order to add at 11,710 and came within touching distance of my next sell order (11,810).  I was down almost €600 at this stage.  That never feels nice but to be honest, I wasn't particularly concerned.  Oil has been plummeting for two reasons.  Firstly, a bubble has been bursting.  Secondly, demand is falling because of the slowing global economy.  The second, you might note, is not remotely bullish for equities.  With markets up against strong resistance levels, I was confident that any bounce would be short-lived.

That said, I didn't expect the bounce to disappear so quickly and was assuming that markets would finish the day with decent gains.  Accordingly, using the daily Dow contract, I went long for the purposes of a day trade when the Dow fell back to 11,700 (I was simultaneously short in the September contract).  I was up a few quid initially but the buyers soon disappeared, stopping me out for a loss.  My irritation was short-lived - markets sold off heavily, ending the day around 11,500.  It's very rare that you see an index gain 250 points or so only to end the day in the red ('gap and crap', as traders call it).  "The nuttiness of this market makes your head spin," one observer was quoted as saying.

I wasn't complaining.  A one-day turnaround of €1200, why would I?  I closed half of the position near the closing bell.  Since the, markets have chopped around.  I'm holding out for bigger gains while progressively lowering my stop, ensuring that my existing profits are protected.

I came perilously close to shorting IL&P this week.  I'd an order to get short around €6.70 (resistance area).  It was nearly hit before the bank sold off, falling by 10% within a day.  The buyers came back, however, pushing the price back to €6.70 within hours.  I pulled my order.  The way IL&P spent a number of days consolidating around that level left me uneasy.  Looking at the daily chart, IL&P was beginning to look like it was poised to break out.  On Thursday morning, it did.  As soon as resistance was breached, the bank roared ahead to €7.10, taking out a load of stop loss orders in the process.  A real breakout or a head fake?  I don't know but the price action justified my change of mind. 

Going forward?  Usual story.  Over the last fifteen months, traders who shorted when the S&P closed higher two days in a row and sought to exit under specified criteria would have been presented with 43 trades.  41 would have been profitable (quantifiableedges.blogspot.com).  Sell the rallies, bank the cash. 

Weekly profit/loss: +€460
Overall balance: €23,278

Comments

[NoTipsHere]

Good gains and good trading on the Dow, well done. Waiting for the index to go up and then shorting (or vice versa) is a good apprpach in a volatile/choppy market. I agree that the trend is still to the downside (50 day ma, 200 day ma) so if you play short more often than long you should do better. Of course good timing helps.

> I came perilously close to shorting IL&P this week. I'd an order to get short around €6.70

Well, just as well you didnt. Today (Monday) with the announcement of the Fannie & Freddie 'bailout', ILP is up +13% at 7.41. I would stay away from ILP even in non-choppy water anyway. AIB and BOI are more 'predictable'. ILP and Anglo, requires more luck in guessing. As for the Fannie & Freddie lift, I think its a bit weird. If anything, the US having to underpin these semi-governmental institutions with a blank cheque and making them 100% govermental is an indication of the worsening financial conditions. Its 6 tillion or so, half the US mortgage market. To me, thats bads news, as it means for banks as a whole more bad loans, likely, less cash flow, etc. It is potentially better news IF asset price drops should halt, but that an IF, and perhaps a big IF. I think the market as a whole may have overstated the positive aspect this move brings. Could be an opportunity to short again before better realism kicks in .....

Good luck ....

NoTipsHere

[Market Monkey]

Hi NoTips
Your scepticism re. Fannie/Freddie being a cure all for the market seems to be well-founded - yesterday's S&P fall was the biggest in 18 months.
Myself, am steering clear of things so far this week, very difficut to find an obvious trading edge, market hasn't a clue where it's headed at the moment.