Saturday, July 12, 2014

Middle of the Desert

" You can beat a horse race, but you can't beat the races."  - How to Trade in Stocks, Jesse Livermore

It is a trading desert out there.  With no oasis in sight.  Volume is low, and volatility is low.  I am sure there are some traders who are doing well in this market, most likely the permabulls.  On Thursday, when Portugal was falling apart and the market was nervous about another European panic, 9:30 AM ET happened.  End of panic.  As soon as the US markets open, all the foreign anxieties are thrown out the window and the markets can go up as they please.

It is such a strong market, that I was waiting patiently for my levels, ES 1943, to get long, a small amount, because we are still in nosebleed territory, and the market left me in the dust.  It is almost as if the algos are all programmed to lift all offers on any big gap downs, and blast the market higher off the opening bell.

When markets are volatile, traders and investors get emotional, and that increases predictability of price movement.  When you have low volatility in an uptrend, traders and investors are comfortable, and act calmly.  Without much emotion, the price movements are less predictable.

Sure, you can say that if you just bought and held stocks, you would have made money.  But indicators of bullish excess have been flashing warning signs for the past month.  Yet I have resisted shorting despite this, because the uptrend was too strong and because of memories of past shorting horrors.  And if you can't go long or short with conviction, it is hard to make money.  No conviction, no money.

So I had to go back to a blog post I made 3 years ago to remind myself that you can't make money everyday, there will be dry periods, with little opportunity, where it is best to just do nothing and wait to strike at the optimal entry.  Trading isn't a normal job with a salary.  It is more like seasonal work, you will have a set period of time when there is a lot of opportunity to make money, and then it will be over.

The markets will be good for trading again.  In fact, the higher this stock market goes, it builds up that much more potential energy for a bear market, and more volatile conditions.  So as much as 2005 and 2006 were dead for trading index futures, 2007-2009  made up for it in spades.  Now I don't see another financial crisis, or a big bear market, but the seeds of low volatility and high stock prices sets up better trading conditions later.

Trading is a habit.  Trading begits more trading.  Sitting in front of the computer, with hands on the trigger, trading is a temptation even when there isn't much potential there.  Over the years, I've noticed that just taking positions and holding on to them is much more profitable than trying to make money on intraday movements.  In the future, I will incorporate more position trading and reduce intraday trading.  Of course, if we get very volatile markets, then I will reduce the position trading and increase the intraday trading.  Right now, this is a position trading market.  Intraday trading this bore of a market is death by a thousand cuts.


Anonymous said...

It is likely to be a good time to buy equity now until SPX is testing 2,000

Market Owl said...

I'm sure there will be a little 3-4% dip sometime between now and September, probably coming due to nervousness about end of QE. That would be when I would strike on the long side, around SPX 1880-1890.

MM111 said...

FTSE been weak all day. Maybe this is the turn...

Market Owl said...

Market is topping out here. I think we see SPX 1900 before SPX 2000. All the good news is out, I see very few bull catalysts, earnings don't matter anymore, it's a liquidity based market, not an earnings based market. And the end of QE is coming in 3 months.