Wednesday, July 1, 2015

Change of Plans

In order to make the big bucks, you have to have conviction. I had a lot of conviction that the big gap down on the Greece news was a BTFD opportunity. But the price action on Monday and Tuesday have lowered my conviction considerably. I still believe we'll eventually rally from this dip and make another run towards 2120. The sentiment is too pessimistic considering the small dip. But a selloff that goes beyond a certain point, and without an immediate bounce, usually means further selling and lower prices in the days ahead.

On Monday, you had a big gap down, and although well off overnight lows by the cash open, you were still down over 1% from Friday close, and yet, the market could only gain a few points off that fear open, and immediately sold off the initial bounce, trading lower all day, and even breaking 2060 support. Then on Tuesday, you had the good news gap up on Greece coming back to the table looking to make a deal, but that was immediately sold off, and we closed weak.

Now today. Word of a possible deal. Again. Another reflex gap up higher. Now considering today is the first day of the month, and with automatic equity inflows coming in, this gap probably holds, and we could rally some today. But if we can't break above Monday's intraday highs, then it tells me odds are that we'll have to test lower ground before bottoming. I don't think this selloff will last too long, because we've already had a bit of derisking going into Monday. But we should be weak into the middle of next week, where I will be looking to buy a dip around SPX 2040.

As for Treasuries, the action is quite weak considering the news and equities. I do eventually expect Treasuries to sell off in earnest when the equity market bottoms out and rallies. That selloff should take us to around 2.57-2.60% 10 yr yields.

 Taking a blog break for the rest of the week. Hoping for crescendo selling to buy next week.


Unknown said...

how do you have conviction, but at the same time not stubborn/impose your opinion on the market? I'm struggling with this

Market Owl said...

There are some trades where it takes a heck of a lot of things to go against me to break my conviction. These are usually longer term trades. For example, if we get to 2.57% on the 10 year later this month, that is a long that I will take with a lot of conviction, because I view it as both a short-term and long-term buying opportunity.

With this S&P long trade on Monday, I only considered it a short-term buying opportunity, and definitely not a long-term buying opportunity. So right off, I know that my trade has to work out quickly or else its not going according to plan.

There is such a thing as a time stop. If I don't get the move I expect within a certain amount of hours or days, then the odds of the trade being successful go down significantly.

Unknown said...

thank you for the reply. sounds like you're trading multiple time frames. how do you reconcile conflicting signals from short vs long term trades? for example, your system says buy long term, but at the same time, it's a good point to sell on short term. do you take both trades, but on different accounts?

Market Owl said...

I usually just follow the short term signal. But if I really believe in a long term trade/signal, I will just ride out the short term fluctuation.

MM111 said...

cnbc fuck 'em. It went the other way and the market tanked big. Glad I was on the right side :)