Follow Your Long Term View

In this game, you have to learn from your mistakes and play to your strengths.  I've learned over the years what my strengths and weaknesses are.  And they are not conducive for daytrading.  Like a lot of newbie traders, I am bad at taking losses, which is deadly if you are daytrading.  But less so if you are position sizing smaller and looking at longer time frames.  

I thought about all the mistakes I've made this year and they all began when I tried to play for short term moves which were in the opposite direction of my long term view.  Earlier in the year, I thought Treasuries were short term oversold but knew that they were likely to go down more later, and lost.  I was a bit too early in buying the dip in SPX during the weakness in February, even though I knew the bubble was about to burst soon, and lost.  I thought the SPX would have a longer counter trend rally off the bottom in March and bought the dip in early April, expecting a short term bounce higher and lost.  In all those instances, my short term view of the market was the opposite of my longer term view.  

Its a lesson that was learned from previous experiences, but forgotten, since I was usually playing on the long side of SPX from late 2020, and my short term view was the same as my longer term view of the market for quite a while.  

My longer term view of the SPX is bearish, so unless things get really oversold and panicky, I am avoiding the long side.  Still haven't taken an outright short on the market, as I was giving the bulls the benefit of the doubt and giving them room to see how high they could take the market.  And they have disappointed me.

The price action this week has revealed a lot.  We haven't gotten an extension higher off the furious 3 day rally from Wed. 5/25 to Fri. 5/27.  Instead, the market has decided to go back down and test the lower end of the range for those rally days.  The less time the market spends at the recent highs, the less strength its showing.  The overnight rally on Monday that took SPX up to 4200 was quickly sold off during the regular hours on Tuesday and Wednesday.  We got a strong rally off the dip on Thursday despite the MSFT earnings warning and have taken most of that back today.  

In the end, the long term fundamentals of this market has not changed.  The Fed will stay on their rate hike course even though the signs of a slowing economy are growing.  Investors are still in hope mode, hoping that the Fed is less hawkish, that they are closer to their dovish pivot, hoping that a slowing economy and inflation peaking will make the Fed less aggressive in their tightening.  But none of the economic data this week will allow the Fed to make a pivot anytime soon, even though I do expect them to cave in eventually when stocks go much lower.  But here is the important thing:  stocks have to go much lower before they cave in!  If stocks stay here or go higher, the Fed will put on a brave face and act tough, because the only time they get nervous is not when inflation is high, its when stocks are low.