Friday, August 28, 2009

Woah is all I can say

Yesterday & Position Updates
What a day. I was quite surprised to have no real response pre-market from the slew of information we have had. Well as the market opened the response was clear. We dropped quite strong on good volume and it seemed the market was finally ready to complete the three spinners with a nice reversal day. We bounced off the support from the friday breakout open price that seemed perfectly acceptable. No real volume stepped in and we slowly grinded higher. I expected a small retracement to continue the sell offs we had seen during this entire week off any rally. It had all the making for a stepping day lower ....

My maximum painpoint was the 61-72% retracement, by the time this was hit something else occured that screwed up the rest of my day. The dollar took a HUGE turn, I mean HUGE. My EURUSD short position had nice gains build up and this had been the fastest way I have ever seen open profits disappear. The positioned ended up getting stopped out pretty close to the top (in the reds of course). There was really not much more to do for me - I had missed a chance to hedge at the bottom as I expected further downside.

I closed out my ES position at the close with a nice 18 point loss - keep in mind I have held this position for over 4 weeks so a close on that is quite significant. I also lightened up on some of my September puts as time decay is starting to get me. Combine that with a big loss on my FX EURUSD it had all the making for a bear cleanup day. Considering I was up a very large amount at the morning drop and then to close the day pretty big in the reds is quite frustrating.

Why did I close out my core ES position? Well to be honest, my scenario did not play out so I had no choice but to exit the position, I made the mistake of not closing out on the breakout and was waiting for signs of a failed breakout with a reversal - rather not make 2 big mistakes in a row. Yes I expect further downside but risks for another 20-30 push up just increased by a large amount thanks to yesterdays recovery. Regardless of volume the FX world has really questioned the downside yesterday with a new high on the EURUSD above last week Friday. This is something I could not ignore.

Well no real indication yet from our Globex crowd. Very narrow range overnight probably due to the long weekend in some regions. For today I would not expect much of a move either way, if there is a move it should be to the upside but contained within existing ranges. I would not be surprised to see a close at Mondays high today.

How to hedge
It seems the topic of hedging keeps coming up not only here, but also on other blogs, even Slopeofhope is talking about creating a new rule. As some of you know I have been talking about making a "how to hedge" post and it seems its long overdue. Yesterday was a prime example of how my hedging rules that I have created have bit me in the arse. One of my adjustments has been to not hedge on stepping days (trend days) - well yesterday had all the making of a trend day ... until it all faltered. So I need to rethink this strategy just a bit more.

6:43AM: Just another random thought. During this entire rally we have respected the upper range for every run up. Looking at what happened to some of likes such as AIG and even XLF and IYR before we had an almost parabolic run for the peaks and exceeded any resistance line while moving higher. If we are to see a real top, I mean one that is just filled with excuberance, I think we may see a break of this range. I will most likly hedge myself today off the open as I rather see my entire account balanced unchanged over the next few days instead of incurring more losses. We will have to see.


  1. I guess this is exactly what the market wanted me to do. I covered my ES position yesterday at the close. Looking back it was the right thing to do. Dicipline and following your plan.

    Looking back at now it sure does not feel like I did the right thing. What do you guys thing? =)

    Still have all my puts ..

  2. as the market was nice enough I am taking a bit of a risk here to re-enter my short position on ES. I just added 50% of what I had covered yesterday 2 pts below my cover point and have another limit order ready 3 pts higher in case we see another jump. This would bring me back to where I covered yesterday.

    After having seen the action here I feel quite confident going back to my existing short exposure that I had planned.

  3. Chris, thanks for coveering your shorts....I think that's why the market finally went down and I was able to make a bit of money...finally. Appreciate the sacrifice. ;)