Friday, March 10, 2006

Friday: Not What You Expected?

Well, not exactly what we expected either. From one point of view, Friday was a great day of respite - our long call positions got better and our short put positions got more chance to remain profitable. From another - I really thought we'd get a negative day with a Monday follow-through that would create a blow-off bottom.

Since this didn't happen, I think things may be worse than I originally imagined.

Naturally, I am going out on a limb here, but since the markets did not continue the bleeding it may mean that we're in the kind of a steady downtrend that doesn't get anyone excited but does get everyone very frustrated. This is the worst type of action - especially for the newer players as they are very prone to be stopped out on every rally.

As a trader, I like quick, stabbing sort of action that creates visible probability pockets. A slow grind is a mind killer and a bore, but more importantly, it is much more dangerous than a fast, bloody (or peachy, depending on whether you ever look at your charts upside down) move that culminates in opportunity-generating agony. Slow, grinding trends tend to last until everyone throws in a towel and by the virtue of being slow, the "towel" event takes a bit of time to occur.

Now, regardless of the type of action, the probability of Q's breaking through 40 remains unchanged and if anything, any coming rallies should be used for sizing your positions bigger. Having said that, the context of this trend dictates that it is important not to chase any prices - all moves lower have been showing to reverse quickly and if you don't realize this, your short positions will cost you a lot more than it should.
And if they cost you more, then you may not be able to afford to be wrong as is often neccessary.

As far as what our fund is actually doing in respect to the Nasdaq and our favorite market sectors, I'll post an update this weekend. Until then, enjoy the early spring weather!



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