Another Day

Posted on Friday, September 12th, 2008 | In Market Commentary

Contributed by: Joe Drake (http://www.itrade4real.com) -

Stocks are getting smashed again this morning. After reviewing my recent trades, I am comfortable that I executed properly and according to my system. However, I do have one regret. The one theme I have believed in most (lower equities) has been working, and without me on board! Asset deflation across the board is a trade we need to consider at every opportunity. That said, I am not fond of chasing markets lower for entry on the short side. If I get a signal to short stocks in the next day or two, I will take a half-size position, combined with a much larger stop (twice my regular), so as to keep total portfolio risk at 1%.

Let’s keep an eye on the Japanese yen. If might be setting up for a long side trade in the near future, and serves as a synthetic short of US stocks. The action has been foretelling of lower equities here, and also consider the yen has been gaining ground against the $USD the last few weeks, in the face of a much stronger dollar index. There are many explanations, such as the unwinding of risk appetites (carry trade), but recall that I am unconcerned with the reasons. The fact that it’s occurring is all we need to know, and trade accordingly.

My strategy in difficult times is to observe patiently. The great trades will come again, but I must have adequate capital to exploit the opportunities. These setups rarely occur immediately after getting smoked, so understand that the markets don’t know or care how much you made/lost. I simply review, digest, and continue to stalk the themes that are working.

Links I like:

From Fitch, via Toro on mortgage resets.

Warren Buffett is no philanthropist!