Friday, May 1, 2009

Stops? We Don't Need No Stinken Stops!!!

This morning I had a tough decision. It appeared the market wanted to rocket directly to 950. I actually thought it would. I thought about selling some of my positions or adding to my hedges with some FAS calls. But I went back to one of my 10 Commandments of trading.

#7 - Before Panic Selling, ask yourself if you didn't currently have the position, would you buy at that price?

It was SDS. I was thinking of selling as the market was going to 882. Then I thought, if I had no positions in the market, would I be a buyer of SDS at S&P 882? The answer was a resounding yes. Maybe not a big purchase, but I would be getting my feet wet.

It is important not to fall into the trap of "sell your losers" or "always have a stop". I don't believe in these rules unless you are in a position where you are over extended and you have too much risk. I hear brokers say these things all the time but I think they are wrong in most cases. It depends on your situation.

I also thought of doubling up, buying some puts, buying calls, selling calls, blah blah blah. My head was spinning and I was lost as to what I should do and what the market was doing. Soon, it hit 885 and I knew I had to get away from the computer, leave and be patient. Had I not done this, I may have pulled a retail investor move, bought some long positions, and as soon as the market started going down, sell the long positions and double up short positions, then when it changed again....

You get the picture. This is exactly what the MM's want. They want to throw out head fakes to suck in longs and shorts and squish them both. You have to recognize this and not get caught into the trap. You know who you are and you probably did it today. Impulse buying, panic selling.

So, by heading out to my boat for a few hours, I saved a lot of stress and came home to a beautiful red board.

I currently do not have a clear signal on where the market goes on Friday. My instinct says it goes down as longs do not want to hold going into stress test results and a weekend where the flu pandemic can escalate. So it should be a winning day for bears. But technicals are not really supporting that. They are not supporting bullishness either. But the VIX is at a critical point and may cross the 20 dma. The SPX is not near a key resistance or support but it may break out one way or the other.

Again, as I have been saying, this bear market rally is not over until the SPX goes below the 20 dma for 2 days. They we are definitely headed to 790 or below. Until then, play the waves and don't get over extended because the MM's will make you pay.


  1. Sounds like you were close to Permabear capitulation like I was today. I held my QID...

  2. Yep, I was close but I was able to recognize it and went back to my rules. Sometimes, just stepping away is the right move.

  3. Yep, today sure did appear to be the last short flush as I was seeing chatter to the effect of throwing in the towel - too much pain - can't take it anymore etc.

    By the way, in case you haven't caught the news yet, the May 4th stress test results have been postponed. It will be interesting to see how CNBS tries to come up with a positive spin on this one.,0,6530524.story?track=rss