Saturday, August 13, 2011

Meta-Trader - Throwing the Gun

Welcome back Meta-Traders.

World markets took a wild ride this week. It was too much to summarize in just a few words, so let's take it day by day.

Monday was a bloodbath and the numbers were staggering, minus 550 points in the Dow, -79 handles in the S&P, and -175 points in the Nasdaq. As measured by the S&P, we lost about 5.5% for the day. I went the entire day without logging into E*Trade or starting eSignal market data.

From past experience, I've noticed that we rarely ever bottom on a Monday and we usually need at least half of Tuesday to work through situations like this. Besides, we had the Fed announcement on Tuesday, and that was sure to be newsworthy given recent market conditions.

Tuesday started out on firmer footing and we moved cautiously higher in the morning taking back about half of Monday's losses. The Fed news was a shocker - no interest rates increases until mid 2013! This was unprecedented - the Fed giving an actual date around monetary policy? There were 3 dissenting governors, who would have preferred the "exceptionally low rates for an extended period" text.

The interpretation was that the Fed, being out of monetary bullets, decided to Throw the Gun.

Stocks reacted with fear and confusion. Was the economy in such bad shape that the Fed had to take such extraordinary measures? What does this mean for interest rates? Wait, this means low Interest Rates and for a Long Period of Time. Which drives money into stocks, so why are stocks selling off? I knew this was my chance and the market was being plain stupid.

So I picked up some AAPL, adding a few shares. Just before the close I bought 1 the DIA Oct 100 calls in each account for about 12.70 or about $2170 per contract. Recall i'm nearly fully invested, with about 90% stocks and 10% cash, so i'm nearly out of bullet's myself! Tuesday closed strong into the finish and I felt the worst was over.

Wednesday started out flat to weak and continued to weaken as the day went on. Things continued to deteriorate and we closed even lower than Monday, wiping out Tuesday gains and then some. But we held the intra-day low set on Monday. Wednesday was a day to forget.

Thursday opened on a decidedly firmer tone with red hot Gold Market cooling somewhat with a 20% increase in Margin Requirements. Stocks were higher across the board erasing a good part of Monday and Wednesday's losses and closing above the their daily highs.

Friday brought an opening gap and pretty positive action although the week closed with a "Spinning top" candle formation which is sometimes a reversal signal. I used Friday's postive action to sell my DIA Oct 100 Calls for $14.0. I also sold my only Gold stock AUY - Yamana Gold which was showing a nice profit. Friday completed a "Close above the High of the Low Bar" formation which was positive. Thanks to Hubert Senters for that one.

So that closed out the week in Equities. I took some profits and took no losses. My overall portfolio swung from being profitable, to being underwater, then back to profitable all in 5 days time. I'm glad I didn't sell and hope I won't have to in the coming days.

Under what conditions would I sell? If my overall portfolio starts to show a -15% to -20% loss, I will flatten out. My philospohy is that you can recover from a 10-20% loss, but its very difficult to recover from a 50% or greater loss. I'll be monitoring the situation going forward and will only take action on a daily or weekly closing basis. This market is too crazy to make any decisions based on Intraday market swings.

Besides, I'm thinking this sell-off was a little overdone. US Corporations are sitting on record amounts of cash. There was a time this past week when Goldman Sachs (GS) was selling at less that book value. Sure the economy is slowing, and this isn't the 1950's and clearly not the 1990's either.

But stocks are still the place to be, particularly with interest rates so freaking low. The rate on the 10% year Treasury bond is almost the same as the dividend yield on the S&P 500 (2%). Where are you going to put your money?

Forex did us no favors this past week. My Forex portfolio continues to draw down, showing about a 16% profit for the year versus a high of 22% earlier in the year. The breakout-based systems from Asirikuy continue to get chopped up, getting caught in one false breakout after the next in the EUR/USD. Atipaq Full Portfolio and Atinalla No3 had small gains for the week, and everything else was flat to down.

My own FX-Regression continues to get chopped up and lost about 5% for the week. Suffice it to say that system has some room for improvement! I may be able to get to it this week since I have some vacation time coming up.

The COATL Demo portfolios are showing some pretty good gains. However they have some pretty large open losses too, about equal to the size of the profits. Its going to take some time to get used to these portfolios and how they trade.

That's all for now. Keep your powder dry and have a good weekend.

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