This is a day late, but since I have an unwritten rule that I won’t be the gazillionth person to pile onto mass hysteria, what I was working on yesterday afternoon wasn’t “OMFG can you believe this 400 point move!”, so I’m still going to post what I started then.
My writing was interrupted by a call to help a friend move another friend. We started late, but all went well. Two apartments, three friends, started at 6pm, finished at 12 midnight using a 24-foot UHaul and killed 36 beers. Some kind of mathematical poetry in there, I think.
Got a few things to talk about today. First, the morning action and how easy it is sometimes for good traders to get whipsawed out before a big move… and how we must Endeavor to Persevere, keep our chin up, and follow our plan.
(Or not- sometimes it is best to know when to say when, as I think W.C. Fields said– “If you fail, try again. Then quit- no use being a damned fool about it.”)
My first position this morning was long the Qs. That’s right, LONG.
My StrategyDesk screener was sitting there with Dell at the top of my “prospects” list early-on (after about 0945, the list had anywhere from 5 to about 20 stocks setting up at any one moment; I order the list by volume when it gets long, and work on the ones at the top). Dell was set up, but just wouldn’t break to the downside.
I generally keep a chart of the Qs open for reference, and noticed that as Dell was failing to break to the downside, the Qs had actually set up and broke out– for a long entry! My old friend the OGRe (Opening Gap Reversal):
At this point, I was comfortable that the Qs were heading to close the gap, and I might as well change my scanners over to start watching for other long setups. However, I got straightened out pretty quickly as things rolled over and headed south violently on the 1055 EST bar:
Typically, after gearing up for shorts, then going long on a reversal, when that long is then stopped out, it’s easy to say “Forget It!” out of frustration. However, it’s often on that stop of an entry taken on a reversal that the big moves take place with very few people on board, most on the sidelines from having been stopped out. And as we know, the market loves to make its big moves with as few people on board as possible.
I was stopped out of my long, and once again went back to watching for shorts, especially given the suddenness of the move at 1055. It was at this point that Dell broke short as well:
I did manage to get short here. I know there were many stocks which made bigger moves, and I did cover too soon (trailing stop too tight and thinking “it’s almost out of steam”… old and still-too-frequent errors). However, I read the play correctly, I positioned correctly, and I caught a chunk of the Big Move. No regrets.
On the 200-point gap- I’m still waiting to hear an even close- to- reasonable explanation from the talking heads. After all the bragging by the exchanges after the turn of the century how they had massively upgraded their systems and no volume known to man could bog them down… “the computer that calculates the average got logjammed” … um, nope, not buyin’ it. I’d find it much more believable to read that the multi- hundred- billion- dollar hedge funds (that cross most of the market’s volume via super-fast, super-powerful computer-generated trades) had unleashed a massive “sell program” which, in a matter of seconds, completely constipated the exchange. Supposedly no one can “lean on the market” with quite the weight of a Jesse Livermore in his day, but these guys can certainly walk bids and asks around a “bit”. Not manipulating, mind you. That would be wrong. Just the, ahem, unintended effects of lots of big trades.
And then there’s the arbitrage question: if the stocks which constitute the Dow were falling, and the “computer that calculates the average was logjammed” and got behind, how many billions of dollars were made in a matter of five minutes by computer programs buying those 30 stocks and simultaneously shorting the Diamonds or the Dow Futures as the spread between the combo of those 30 stocks and the index which is supposed to represent that combo got farther and farther apart, only to snap back together in one near-instantaneous 200-point leap?
On the latest CNBC “competition”- what do you do when you’ve got everything to gain and nothing to lose? You go for broke, of course. That’s why these marketing shams never reveal anything about actual trading.
How to win something like this? It’s not SKILL! Get a bunch of people together. Get a list of very volatile, low-priced stocks. Have each person pile his or her entire “fake money” stash into one or two of those stocks. Chances are very good that someone will “make” a boatload, and hey, there’s no downside. This is putting Fooled By Randomness to work. You could even agree that if someone out of the group wins, you all go on a cruise or something. I’m sure that’s how many, many people are “playing” this thing. It’s just a game, after all. They would never do that crap with REAL money.
This is also why contests like this end up crowning some clown as a “brilliant investor,” when all they’re actually doing is crowning the one who got lucky. In life, sometimes it’s hard to tell the difference. Many of our major institutions are run by lucky idiots. Fooled By Randomness, again. Read it.
Favorite Talking Head Quote of the Day- some “expert” was being asked what he thought about the prospects for China as an overseas investment, what with the falling of their stock market and all.
His response? “Stock prices falling is just an equity market phenomenon. We believe China’s economy will continue to be strong and therefore China itself will continue to be a good place to invest even if their stock market falls.” Or something to that effect. My only thought was, “And how, Mr. Fancy Pants, do you propose that people invest in China, if not via their equity market??”
That’s “all I got” for the moment. I had a long day at work, and I’m hurting, exhausted, and a little hung over from the moving adventure last night.