Random Thoughts
I usually don’t do a Week In Charts on holiday-shortened weeks. I use the time to catch up and catch my breath. So, if you’re waiting on an email response, I’m working on it!
I was recently on Dave Keller’s Market Misbehavior Podcast. We had a great conversation and covered a lot of ground (scroll down).
One thing that came up was the fact that some of the most successful people tend to make the worst traders. They tend to settle for mediocrity in the markets. This is because in their current or prior careers, they have to take action. They can’t sit around and wait for the perfect client. “They have to take whatever train wreck comes along.” (Dr. J., psychiatrist).
What’s Up With These Markets?
Not much is up! In a word, ugh! As mentioned lately in my Trading Service and Dave Landry’s Market In A Minute, there’s virtually no follow-through. Even worse, nearly all breakouts lately have been followed by breakdowns. As mentioned in the podcast, to follow a trend, you must first have a trend to follow (Morris). Further, once you decide to get on the trend, that trend must follow through. And again, lately there has been no follow-through.
Less IS More
In times like these, other than a few selected shorts (keep reading), there really isn’t anything to do. Less is more, or at least, less will keep you from losing more. Highly motivated and successful people have a hard time doing nothing. They didn’t get to where they are by sitting on their buttocks. Yet, in markets, that’s often the thing to do.
Mediocrity is your biggest enemy in trading. The good news is it’s easy to avoid by doing nothing. Do nothing unless there is something to do. A setup would have to knock my socks off for me to take it in these markets. The good news is that those have been SLIM, and none lately (and SLIM just left town).
Channeling Livermore, when markets are chopping back and forth, let everyone else fight it out. They are laying the groundwork for your next venture.
Learn How To Short (for obvious and not-so-obvious reasons)
Since most areas are failing (or at the least topping out), now’s a good time to learn how to short. Now, don’t expect to make a lot of money, even if you’re right about the direction. Retrace rallies suck. For instance, we stopped out of our remaining longs and got short back in March, like good little trend following morons. We were profiting nicely until the market promptly decided to go straight back up. Unfortunately, we didn't hit the initial profit targets. All of our profits evaporated-and then some. It, spelled with a silent “sh,” happens quite often on the short side.
Okay, Big Dave, you’re not really doing a good job selling us on the short side. Well, make no bones about it, it’s not easy and often painful.
So Why Bother?
Obviously, the only way to make money in markets when they slide is to short them. There’s something much bigger, though. Those that are long-only-oriented tend to always see the glass as “half full.” If you play both sides, you’re going to be much better at seeing when an old uptrend is coming to an end, and a new downtrend is emerging.
Now, consider yourself warned. Shorting is tough. Have I mentioned that yet? Losses are theoretically unlimited, especially if you turn into the proverbial deer-in-the-headlights when squeezed.
Learn to short so you can see BOTH sides of the market. Don’t be super aggressive. I know it’s another can of worms, but consider deep-in-the-money puts as a substitute for outright shorting. Puts allow you to sleep at night by putting up far less margin, limiting losses, and giving you staying power. See my YouTube Channel for a plethora of lessons on using puts. Also, I covered puts vs. shorting several decades ago in my first book. You can get ALL my books free here.
So, Are You Short Now?
Yes. Again, since that’s all the market is offering, we’re short (I've mostly been using puts). We have two positions open: VIK and ATEN. Neither has achieved the initial profit target (although ATEN got close enough for a discretionary call: within 4 cents). I have taken some profits when rolling.
It’s Not The End Of The World…Just Yet
Now, I know I’m sounding a little bearish. The short-to-intermediate-term signs are there. As just one of many examples, not one of all thirteen major S&P Industry groups has upside Landry Light. And, most have a negative count. If you can’t sleep at night, watch the recent archives of my Trading Service to get a feel for how conditions have deteriorated. And, of course, continue watching The Market In A Minute daily.
