Friday, July 17, 2009

If I was the market and could screw the most amount of people what would I do?

Ok let me share some more philosophical thoughts with everyone here. This is not meant as a direct comparison to me - but I am taking what I have experienced in the past few weeks and combine that with the overall theme of the market to inflict the most pain to everyone - bull or bear.

Ok lets start this a bit closer to the end. We had an amazing bear market rally - the biggest we have ever experienced to the disbelief of many bears and even to the bulls that never thought we could run this higher - if you remember my longer term outlook on the right hand side under must reads you can see that I would have NEVER EVER thought we could make it this high. But here we are. Even the strong bears out there are regretting not having seen this move ahead of time for the MANY easy gains that were had on the long side - and boy were those gains easy to be made. The perfect channel without any violations for week after week. No double bottom tests, no fake breakouts to the downside - just up up and away.

So a smart bearish investor (not me but in general) sits here patiently and patiently until the right time comes. We make a new high at the 950-965 range - a range that any bear knows must hold for their case to remain valid. This range has a much longer term significance so a smart bear knows that this cannot be exceeded or this is more then just a bear market rally. So he waits patiently for a confirmation. We hold the key range of 965 and sell off lower. As we approach key support ranges we of course make a stand for the rally and slowly creep higher on lower volume and many divergences. This bear is finally waking up and getting ready to fire off some positions. As we fail to make a new high we stop at key resistance that had been previously established and the bear finally makes its move [this is in reference to the 92X attempt after we had made the top]

[Chris: of course I did not wait patiently and have been shorting way too soon during this rally but lets leave that out for a second - remember this is meant as a story]

Now - the bear got in at one of the best possible places for his position. He waited for the confirmations of a failed attempt at a previously key support/resistance level and had assumed minor risks for great gains to be had. Of course concerned for more upside the bear is cautious but is given a present with a nice drop right away. NICE - things are finally moving. As time goes on the bear has a chance to continue to increase his short exposure as prices move lower. While its a bit slow with some whipsaw in between position and money management allow the bear to continue to add to positions and make profits - finally. After 4 weeks the bears system is finally paying off and the bear looks back and analyzes what happened. Great gains for 4 weeks - great entry and an abundance of open positions that are all in the money and showing signs of even more downside as many break support and fail at attempts of a rally.

However, being the smart bear that he is he decided to put in some bigger protection for his bearish positions. The week closes very bearish but of course more upside risk lingers so the bear hedges with a fairly large exposure to the upside just in case. Being out of hibernation the bear spends the weekend enjoying bee hives and rolls around in the green grass that seems to be getting greener by the minute.

A new week starts and to the bears surprise no more upside seems to occur. Many who entered protection were stopped out of this protection as it seems that we will not move much higher and this is just a weak attempt at a rally.

[Chris: of course I got taken pretty bad this week when I got stopped out of ES due to the GS schenanigans].

As the upside seems very limited and controlled the bear decided we are finally ready to enter the next stage and continue lower in prices. Well he thought wrong. What occured was one of the biggest and strongest rally we have seen during this rally. 4 weeks of hard work had been wiped out in what appears to be a humoungous stand of the bulls. What is so frustrating about this is that the bear had waited months to make a move - week after week easy trades on the upside went by but the bear held true to his belief that we are in a recession. He did not care what he missed on the upside as he assumed the downside will be more profitable. So after weeks of sitting [Chris: or loosing money for me] the bear had a chance - took it and got taken for everything he had.

Now, after such a move one has to wonder. We had seen the easy trade on the upside pass by us, we had a chance to make money on the downside and everything got taken in such a short time frame that it seems 4 months had been in vain. Now what appeared to have worked for the past 18 months is now in question. Look how easy it is to make money on the upside? You could have gone long at any point this week, at the close, at the open, during the day and had minimal risks and came out on top. Wow - why is the bear not doing it?

After all of this frustration to bear gives up - the doubts that have been in his mind all along seem finally confirmed and whatever system and strategies that had been used in the past are not working anymore. Of course we are all in it to make money so what do we do? I think its time to make some money right?

So the bear now has a different hat on - the hat to make money regardless of his views. So now I am waiting for the first chance for prices to drop to get in on the long side for the upside that seems so easy from here. How high can we go? No idea but all I know we will go higher and higher ... so I want to profit from it. Any retracement will be bought, if we drop lower its quite ok as we have all the way down to 870 to average on our positions knowing it will bounce from there. So we keep on buying as the market drops - more and more as the market has shown us quite clearly that there is only upside to be had.

Or is it so?

As some of you remember I had made a long post a while ago about who needs to sell? I still believe that is the case - that there are many large institutions that hold HUGE amounts of inventory with high risk that need to be sold. So how do you manage to get buyers into place? You convert the bears, and you get in the last bulls that were waiting on the sidelines. And you ensure that they have only ONE thing in mind. That is buy - no one should be having any desire to sell or go short. Looking back at what has happened in the past 3 months or even 5 months when you consider the beginning of March - I think we can make a strong case here that most people at this point in time want to join the buss that seemed to have given such easy profits. I mean look at this week - how can this not be ignored? Incredible strong move in price and even good volume behind it - 4 weeks of drops wiped out with a snap.

Be fearful when others are greedy - be greedy when others are fearful. Is there any fear in the market at the moment? Nope - everyone is ready to make money and of course make it easy. The easier the better and one has to admit - after seen the past few months the money is definitly very easy on the long side.

As a bear - when you have doubts left and right and when your system is put in question, when it will be almost impossible to press the sell button - thats the time you should stick to your belief. As I had mentioned in the comments I do think we have put in a top here - not a top in terms of price but a top in terms of final move. As a result I have increased my short exposure again. Keep in mind we have NOT yet broken the long term key resistance of 965. I now have 25 points of pain - and even if we get there we shall have a chance to average down and get back out on a retracement. The bull or converted bear now has a lot more pain to assume. All the way down to 870 for the bullish case to be declared void. So tell me? what would you rather have? 25 points on the upside or 70 points on the downside as your risk profile?

The market has done one thing very good this week - incredibly good - removed any desire for anyone to short. I mean look at this rally. There has been no selling, no profit taking (so it seems unless you consider those huge volume spikes at the close buying).

Sorry for the long post. Again this is not meant as trade advise - its more a random collection of thoughts. So take it as that - not as an objective technical post but as some random words from an emotional trader =)

No comments:

Post a Comment