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Rebalance

11/27/2015

2 Comments

 
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This month whipsawed me hard. A rollercoaster. I was on top of the world and fell off hard. Drawdown immediately following massive profit is a sinister thing. It starts off slow.
The way the universe works is that most of the time things are in a state of equilibrium.
Most of the year I was chopping up and down around a certain amount of cash. Up some days, Down some days. Mostly just a grind financially and emotionally.
However, in August seemingly out of the blue, things changed. The market cracked and I was positioned for it.
The rapid influx of money into my account was unbelievable. All of a sudden I had vindication for being Bearish all this time. My thesis was proven correct and I thought the market breaking surely had to be the big event I should’ve been waiting for all this time. I correctly backed off my shorts at the bottom but unfortunately ended up hopping back in short too soon. What followed the August crash was a series of intense and violent whipsaws that proceeded to grind down half of the gains of the swoon… That was a tough period for me but I managed to get through it pretty well with the bulk of my capital and confidence in tact. The short-squeezes did hurt though. Because the crash happened seemingly out-of-the-blue I decided it was prudent to always have a short line on in case another catastrophic event occurred overnight. It did not. What did occur was just as it has been for years. Every time it looked promising for Bears to get some continuation, the Plunge Protection Team would step in and ramp the futures 100pts in the middle of the night creating a long running short-squeeze the next day..
Fast forward to November, squeezed hard I knew the rally had gone on ridiculously long. The Bulls had miraculously managed to grind us all the way back up to the scene of the crime where the breakdown occurred. The market started showing signs of rolling over and I began betting big. Seemingly it cracked, stocks and oil fell for an entire week and I had once again made huge profits on large short positions. Once again my confidence was through the roof but this time, my vision was clouded and I made a grave error. I reduced my diversification and put on large, concentrated short bets in equities and oil. Both markets would proceed to whipsaw and completely reverse, engulfing the entire prior weeks price range.I should’ve been fine except my sizing was too large and I lost the money twice as fast on the reversal. Next thing you know I am right back to where I started with around the same amount of money that I had before the August crash... I did do one thing right. When my account was above the level I have deemed significant, I took out a little bit of money and locked it in as cash in a different account.

Anyways, same levels as before, same capital as before. I guess you can’t be too surprised to have a flat account when the markets traded flat for a year. But I had that money in my grasp several times and I wish that I had played it better to hold on to those gains. It’s a lesson in greed, position sizing, keeping a clear, focused, and disciplined mind. If you lose your discipline, you will lose your capital.
It reached the point where I stopped myself, changed my strategy. I am focusing on defensive measures now. I no longer am playing with that intra-day hedging strategy I was attempting before. It ended up being my downfall as thinking I was safe with a hedge, I would end up taking on too much risk, take out the hedge at the worst time for a loss and then end up getting whipsawed into a loss on my core short position also. You simply cannot complicate this game needlessly. The market is complicated enough as is! A simple, basic strategy that you can stick to will always ultimately prevail in the end.
Now I am positioned how I want to be positioned, but with small position sizes. I am playing for a long-term macro move. I am playing for my thesis. Looking at the YTD performance of all these asset classes my thesis is certainly playing out. It is just taking a much much longer time than I ever anticipated.. Moving forward I will respect risk and size my positions with an amount of leverage I can withstand. The market never stops moving. Trading this market is a marathon. I would like to swing it, catch these long term trends but I must persevere the highs and lows of the interim. I just have to realize that attempting to get rich quick in this business is a recipe for disaster that opens up a myriad of other issues. There are some things that I could change. Some outside influences I could remove. I need a healthy, disciplined, and focused body and mind if I am to make it as a trader. The only way I get there is to start making some changes in my approach and technique.
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2 Comments

Worn Out

11/25/2015

0 Comments

 
I'm getting frustrated, tired, worn out. Im sick of pointing out how shitty the global economy is. How the strong dollar will wreck havoc on so many markets. It is blatantly obvious that we are headed into if not already in a global recession.
2015 has been the year of violent whipsaws. The same as 2014. It's been two years now of horrific violent chop. I've been rich and poor probably 5 times this year. I have it in my grasp, get over-confident, start betting big, then next thing you know the moneys disappeared... 
There has to be more to this game. Clearly I am missing something. Not playing it correctly...
The problem with this game is just when you think you've got it figured out, the market humbles you.
Swing trading short hasn't been working. I just keep getting whipsawed. Day-trading isn't working. I just end up selling low and buying high. If I have learned anything, it's that you simply cannot predict short-term price action. Sure you can get lucky once in a while but in the long run day-trading is a zero-sum game. Perhaps trading in general is a zero sum game...
You win, you build up fantasies of being rich, plan on it. Then you lose and those dreams get flipped upside down and extrapolated the other way.
Just two weeks ago I was on a high. Now I am the lowest I've been since before the August crash.
Trading. Life. Nothing is easy... 
Through the highs and lows: It's all one big grind.
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The S&P is up 0.4% YTD
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The NYSE is down -4.5% YTD
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The Dollar is up 9% YTD
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Oil is down -36% YTD
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Treasuries are down -1.5% YTD
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Treacherous Whipsaws/ Jig is Up

11/22/2015

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If you have been following my work for a while you know that all indicators point towards a recession & subsequent Bear Market. The signs are there and are  too blatantly obvious to ignore.
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Corporate Earnings Have been Declining Q/Q for an entire year
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Emerging Markets topped out & have been on the down-slide ever since the Dollar broke out and started running Aug 2014
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The Dollar is holding strong. The weakness in junk bonds shows that the credit market does not believe in last weeks rally .
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The former undisputed leaders, Biotech are looking weak & could be forming lower-highs
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Zooming out, we see a chart that looks an awful lot like the classic parabolic-bubble
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The IBB Biotech etf looks very similar to the chart of DDD before it's bubble burst & has been declining ever since...
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It is amusing seeing Industrials attempt to catch a bid & breakout.
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The BDI made a fresh All Time Low last week. Container freight shipping rates fell 70% in 3 weeks. It is clear that global trade is grinding to a halt.
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Industrial Commodities in Free-Fall
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The Dollar continues to outperform relative to equities in this Deflationary Environment
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The NYSE looks like it has already topped out.
It is clear as day when looking at the data that many things are going awry in the global economy. If everything was roses, we would not see earnings decline. We would not see freight rates plummet. We would not be seeing commodity prices get crushed & emerging markets going through nightmare scenarios (Venezuela, Brazil, Russia, etc...) 
The Credit markets are not buying the optimism of equities. There is a good chance that the equities markets have already topped out, with that August crash being the first death-blow to the over-grazed Bull. When you take out four companies (FANG) the S&P would be down 7% this year. The market is being held up by fewer & fewer stocks participating. The narrowing of breadth such as this is a very troubling sign. 
I believe that we are in a primary downtrend. The trend remains lower. However, October was one hell of a Bull run & last week was a massive rally, no doubt helped by Fed jawboning. The counter-trend rallies have been violent & everyone is getting whipped around. Discipline is crucial in this roller-coaster environment.
I believe that THE Trade is to hold short equities for 2-3 years & that is the strategy that I am attempting to put in place. However unfortunately, in these early stages of the trend bending down, coupled with the insanity of the day-to-day equity algo-casino I am getting whipped around.
Despite the resilience of equities. Bulls have had many chances to break us out higher & have failed every time. There has certainly been no shortage of Fed intervention  or Financial Media cheerleading. The fact that all major indices are essentially flat to down YTD despite massive whipsaws & huge drama indicates one thing to me: The Jig is Up!
All signs point towards lower in the weeks & months ahead...
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0 Comments

The Pivot Point

11/15/2015

0 Comments

 
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Last week was brilliant for the Bears. Retracing to the bottom of the range the market has been stuck in for the bulk of the year, we sliced through the 200dma like butter making the recent exuberant short-squeeze 'suckers' rally look like a textbook Bull-Trap. 
​We see the dollar forming a Bull-Flag, attempting to break out from it's range to the upside, Long-Term Bullish trend still very much in tact. 
Interestingly, Treasuries are also flagging out inversely to the dollar in what appears to be a Bear-Flag.
Junk Bonds look just atrocious, in free-fall, no doubt being jabbed by the weakness in oil
Oil Finally began to break down after months of exhausting back-and-forth price action.
The Small Caps still look very weak & it is clear as day that investors are fleeing the high-beta names in a desperate search for more stable securities to grasp onto as Bearish sentiment slowly creeps into the psyche of investors.


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I chose to close out my equity & oil shorts on friday at the daily Pivot-Point. Last week was a truly brilliant week for me but what is key to realize is that these macro moves take way longer to play out than you could ever anticipate. Trading is a marathon, not a sprint. The market will offer endless opportunities to make money every day & survival is paramount. I think that Bulls could bounce it at the pivot or at least put up a choppy sideways battle for a while. I suspect the battle of the Daily Pivot-Point to be a fierce one with so much on the line for the longer term fate of the markets. That being said I am poised to hop back in very quickly if I see something that I like.
Of all of the markets, the flags in the Dollar & Treasuries look the most interesting & actionable going into next week. When we see the Dollar Soar & Treasuries Gored: The Bear Market will have sunk in it's claws for the kill...
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Bearish Developments

11/8/2015

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Despite the unbelievable resilience of major equity indices, there have been some pretty major Bearish Developments.
My long-running Bearish Thesis has been that we will see upwards price pressure on the US Dollar, which in turn will put  downwards pressure on mega-cap multinational corporations as well as commodities; specifically crude oil.
The implosion of the crude-oil bubble which found it's peak in the midst of George Bush's, Saudi Arabian terrorist event inspired 'War on Terrorism' will spread like a shock-wave through the malinvested energy patch. Many cost-extensive  shale oil & deepwater drilling operations will soon find themselves bankrupt with many investors once prized junk grade 'high-yield' bonds worthless.
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Dollar Break-Out, Weak Treasuries, Weak Junk Bonds, Weak Oil: Equities Stubbornly Resilient
The destruction of all economically-sensitive commodity prices is no coincidence.
 Indeed, as the data continues to confirm each week: The global economy is slowing.

Chinas Imports & Exports are collapsing.
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Like a ship riddled with canon-fire, the BDI continues it's epic descent into the fathomless depths of the red sea.
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The Magic Ratio I discovered earlier in the year peaked July 2014, when the stock market theoretically should have topped out. Indeed, this ratio shows that despite the resilience of the stock market whether it be from TINA, PPT Manipulation, Asset Managers running around like decapitated chickens, it doesn't really matter. The US Dollar has been outperforming equities for a year and a half now. I expect this trend to not only continue but intensify immensely once the worlds largest asset-price bubble bursts.
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    R. J. Sullivan IV

    Equity Research
    Portfolio Management
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