I MADE a few quid this week. Not a lot, but a few quid nevertheless. So why do I feel like excrement? Well, if you were looking at profits of almost Euro3,500, profits that you fully expected to balloon further, only to end the week up Euro400, would you be happy? Especially if this paper profit was given up in the space of a few hours? Thought not.
The damage was done on Wednesday. I had "ve positions open, all short ones. It's rare I am so exposed to one side, but the nearterm bearish scenario I outlined last week had me angling for shorts and it was looking good when US markets were hammered on Tuesday, with the Nasdaq dropping by over 2%. Why? Well, you can talk about an economic slowdown and a crisis in the US mortgage sector and the potential implications for the global "nancial system in the event of an unwinding of the Yen carry trade. These were all factors, but my bearish outlook was founded upon technical factors rather than some half-baked fundamental thesis.
Anyway, I had shorted the Nasdaq 100 towards the end of the previous week. I'd been eyeing up a short for some time and was delighted that my patience was rewarded with a nice entry near 1760. I expected a prompt drop but it turned out I was a little early, with the index chopping around for a couple of days. The expected sell-off materialised on Tuesday and I took partial profits when the Nas touched its 2007 low (around 1710) on Wednesday. By now I was up over Euro1500 on this position alone and laughing.
I went short IBM around the same time as the Nasdaq short was initiated. IBM is a boring stock but it was a nice set-up, so I took it. By Wednesday, I was up nearly Euro1,000 on Big Blue.
I shorted Apple near $90 on Monday. This was near the top of the trading range of the last four weeks and, given the current market environment, I wasn't expecting Apple to break out. When the market tanked on Tuesday, Apple went with it and I was able to watch smugly as it dropped a couple of dollars.
Further weakness Wednesday morning meant I was up 700 or so on this position.
Tuesday saw Monkey go short on Blackberry manufacturer Research in Motion. This was a moronic trade, taken more for a desire for action than anything else. I'm usually very picky about my entries but I dived in willy-nilly here. I was up thousands in my other positions and, with the dollar signs "ashing in front of my eyes, got a little cocky. Still, my carelessness went initially unpunished and the indiscriminate market selling meant I was up another few hundred the following morning.
Flash memory manufacturer SanDisk has been looking awful for some time now. The stock has shown signs of life of late but the down-trend remains intact and Wednesday morning saw a beautiful short set-up present itself. I entered on a break of the prior day's low only to watch the stock reverse back up almost immediately.
In fact, everything seemed to reverse at the same time. After taking out their 2007 lows, the markets did an abrupt about-turn, catching the short sellers off-guard in the process.
This is known as a fake-out in the trading world and, as the recovery attempt gathered steam, more and more traders were forced to cover their shorts, fuelling further gains for the indices.
Wednesday's gains were not huge, but they were enough to wipe out most of my profits. IBM's reversal saw me stopped out at break-even. I had meant to take a partial profit near $92, but became so distracted by the gyrations in my other positions that I actually forgot to do so. Criminal, absolutely criminal.
I'd hoped to take some profits in Apple near its 50-day moving average. It got to within 50 cents of this juncture but that was as good as it got, with the stock joining the Nasdaq party after lunch. I'm currently down a few quid and worried that I'm facing bigger losses.
My stop loss is above $92.
I knew that I shouldn't have been in the Research in Motion trade in the "rst place, so I closed that one out at break-even.
I'm out of pocket with SanDisk.
My stop is just above Tuesday's high and another day of market strength will likely see me stopped out for my max loss.
With the exception of Research in Motion, all the individual trades made sense. There were mistakes, however. I should have taken profits in IBM - that was a terrible oversight.
I should also have looked for one or two long positions to hedge my overall exposure.
The Nasdaq short was handled perfectly. I had not yet covered my initial risk with Apple, so taking profits would have been premature.
The SanDisk set-up was a good one.
As I write, the momentum is with the bulls. Wednesday's reversal was a high-volume one, which has me worried that further upside is in store. I don't expect it to last long, but it may last long enough to stop me out of my remaining positions.
The current volatility is a little excessive for my taste. Traders need movement, but too much of it can be a bad thing. Over-trade this market and you're likely to be chopped to pieces. Smaller positions and wider stops are probably a good idea.
On a personal note, Market Monkey's trading odyssey is just over six months old. I hope to take a look at my progress to date and my hopes going forward in next week's column. That is, of course, if I haven't suffered heart failure in the meantime.
Weekly gain/loss: +Euro400 Overall balance: Euro 38,650
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