The next long term trade
- Thread starter nitro
- Start date
When I said:
Generally, you want to go long things that are overperforming the market on the way up, and sell things that are underperforming the market on the way down.
However, having a spread between one instrument and another correlated one is a bet that the spread will widen/narrow. Depending on the ratio that you put on between the long YM and the short PG will dictate whether you are delta short or delta long. Then all that matters is what happens to the spread, not the market itself.
I am not sure if that is clearer or not...
nitro
It means that I think that the market is beginning to show signs of being way overbought. However, that is only a hypotheses, as by any measure the trend is still up, and it usually does not pay to fight the trend in the long term.
Generally, you want to go long things that are overperforming the market on the way up, and sell things that are underperforming the market on the way down.
However, having a spread between one instrument and another correlated one is a bet that the spread will widen/narrow. Depending on the ratio that you put on between the long YM and the short PG will dictate whether you are delta short or delta long. Then all that matters is what happens to the spread, not the market itself.
I am not sure if that is clearer or not...
nitro
Some of us think the markets top heavy but with virtually nothing to be gained in fixed instruments, any sign that the markets could give better returns could bring mom and pop in. Obviously when they get in the biggies will sell.
On thursday Volvo announced they will build cars in China. Soon all car companies will open plants there. How are the markets going to react when Americans realize their manufacturing is dissapearing worse than they thought. ????? How strong can a country's economy be without manufacturing ? Surely there will be deflation in wages.
On thursday Volvo announced they will build cars in China. Soon all car companies will open plants there. How are the markets going to react when Americans realize their manufacturing is dissapearing worse than they thought. ????? How strong can a country's economy be without manufacturing ? Surely there will be deflation in wages.
I personally think its a mistake and not because it cant happen the way you want it to Nitro. The reason its a mistake is that IMO you should be waiting to sell short the indices or the individual issues at hand when they begin to setup short selling technical patterns. You yourself said that right now the NDX and SPX as well as the DOW are in breakout mode. As flimsily as the volume looks and 100 other factors you hear day to day the fact is we are here in breakout mode. If the market falls down and your long so what the worst thing that can happen is you loss some money. By some I mean if your a true professional trader you have proper stops in place to prevent anything other than a loss that is consider normal in your trading plan. Now as for shorting. I love shorting, don't get me wrong. However, the time to short will be when indices are breaking down and individual chart patterns on stocks are all bearish patterns breaking to the downside. Its not the point in trading to get the best possible price in advance but only to catch the meat of the move when you are sure its time for that move and that the move has begun.
In reverse had you not bought this incredible run that we have had since Mar 14 2003 on that day when the indices really broke out to the upside. Had you not been in that day you still could have bought back on the retest of that breakout on April 11th 2003 and made plenty of money on all different stocks for that last 5 months to the long side. The advantages of which would be that the pullback in to April 11th 2003 would have been shown to set up 1000's of bullish patterns on individual stocks, it was a screaming time for the pro trader to get long even though they had missed the early breakout from March 14th 2003. This is how it most likely will happen with the short side whenever the market decides to end this up trend.
In reverse had you not bought this incredible run that we have had since Mar 14 2003 on that day when the indices really broke out to the upside. Had you not been in that day you still could have bought back on the retest of that breakout on April 11th 2003 and made plenty of money on all different stocks for that last 5 months to the long side. The advantages of which would be that the pullback in to April 11th 2003 would have been shown to set up 1000's of bullish patterns on individual stocks, it was a screaming time for the pro trader to get long even though they had missed the early breakout from March 14th 2003. This is how it most likely will happen with the short side whenever the market decides to end this up trend.
You are right, but not quite.
I am trading what I see, but not on the chart that I presented. On a daily basis, one gets a feel for what is leading what and how.
The SOX is 17% of the market. The financials are another 21%. I have begun to see tell tale signs of new positions being inititated in stocks like INTC on the short side. AMAT is trading extremely volatile at the highs, another sign that it may turn. The SOX is the real unknown to me, as I cannot tell how much of the cyclical (back to school, christmass) buying will hold the index (how much is this part of the year already priced in the stock components of the SOX?) in the coming months.
On the Financial side, we have for the first time the Fed Funds futures beginning to price in non-zero probabilities of a rate hike come the beginning of next year, not terrible news if it interest rates stay below 5%, but the market has a way of WAY overreacting on the first turn of the trend (that is the basis of pullback trading.)
Finally, take a look at the CRB index. If in fact it is inflation that the fed is worried about and will raise interest rates at the first sign of inflation, then this market has at most one more major leg up.
That I know there will be a rundown is not that important in the sense that I am defending myself against a rise - remember, part of the trade will be long YM. The key is the ratio.
nitro
I am trading what I see, but not on the chart that I presented. On a daily basis, one gets a feel for what is leading what and how.
The SOX is 17% of the market. The financials are another 21%. I have begun to see tell tale signs of new positions being inititated in stocks like INTC on the short side. AMAT is trading extremely volatile at the highs, another sign that it may turn. The SOX is the real unknown to me, as I cannot tell how much of the cyclical (back to school, christmass) buying will hold the index (how much is this part of the year already priced in the stock components of the SOX?) in the coming months.
On the Financial side, we have for the first time the Fed Funds futures beginning to price in non-zero probabilities of a rate hike come the beginning of next year, not terrible news if it interest rates stay below 5%, but the market has a way of WAY overreacting on the first turn of the trend (that is the basis of pullback trading.)
Finally, take a look at the CRB index. If in fact it is inflation that the fed is worried about and will raise interest rates at the first sign of inflation, then this market has at most one more major leg up.
That I know there will be a rundown is not that important in the sense that I am defending myself against a rise - remember, part of the trade will be long YM. The key is the ratio.
nitro
Nah, I am primarily intraday these days... the comment in my 2nd post merely related to the fact that you did not want to take an outright directional position...
The high beta stocks will be the best to be short in if the indexes finally become weak imo. Why would you want to be short a low beta stock in that case?
Being a "working" trader, I don't always think about how much I can win, but how much I can lose. High beta is a double edged sword. If I am wrong and I am short in a high beta stock on a rally, I will get singed.
In addition, PG wasn't just pulled out of a hat - it was chosen because if you look at the chart, it has failed at these levels miserably severeal times.
In spite of all that, it may be right to be short something like INTC against YM instead...I don't know...But that trade would certainly have a different risk profile than L YM/ S PG.
nitro
In addition, PG wasn't just pulled out of a hat - it was chosen because if you look at the chart, it has failed at these levels miserably severeal times.
In spite of all that, it may be right to be short something like INTC against YM instead...I don't know...But that trade would certainly have a different risk profile than L YM/ S PG.
nitro
Yes,
I agree with you that it would be more prudent to wait for the formations to form.
However, there are two styles of trading, e.g., those that sell the neckline of a H/S top when both shoulders and the head form, and those that sell the formation of the right shoulder at the "top" on the way down (with a natural stop at the high of the head.)
Your way is certainly safer, and perhaps much more profitabe over the long run...
nitro
I agree with you that it would be more prudent to wait for the formations to form.
However, there are two styles of trading, e.g., those that sell the neckline of a H/S top when both shoulders and the head form, and those that sell the formation of the right shoulder at the "top" on the way down (with a natural stop at the high of the head.)
Your way is certainly safer, and perhaps much more profitabe over the long run...
nitro
Yeah,
IMHO, the "mother of all numbers," the unemployment number, can only get back to "even" at best. In the coming years, unless there is a major "new new thing," America will not only continue to lose jobs overseas, but with productivity numbers going up, even if some of those jobs stay home, where is the incentive to hire?
nitro
IMHO, the "mother of all numbers," the unemployment number, can only get back to "even" at best. In the coming years, unless there is a major "new new thing," America will not only continue to lose jobs overseas, but with productivity numbers going up, even if some of those jobs stay home, where is the incentive to hire?
nitro