"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
Sun Tzu

Wednesday, June 18, 2008

Position review: IBM and MON

A little review of two of my current swing trading positions. One of them (MON) develops quite nicely, the other one (IBM) shows signs of weakness and I expect it to trigger my stop soon.

Let's start wit Monsanto:

I opened that position end of May when MON showed increasing momentum. Very positive signs: long term uptrend (12 day MA > 50 MA > 200 MA), encouraging volume action and (important) supporting fundamentals (bull market in agriculture).

The longer term picture also looks very positive. After breaking out of a 5 month consolidation, MON might be ready to run. Bottom line: Fundamentals and Technicals line up perfectly. My next step, though is to start scaling OUT of the position, since the crowd (who is usually last to buy) now gets in. Guess I will sell some MON around 150.

Another LONG position, which I feel way more negative about it is IBM. Entry looked great at the beginning end of May:

Since then, IBM broke its uptrend and started to move sideways. I also don't like volume and momentum action. From the fundamental point of view, IBM might suffer from the slowing global economy. I will sell this position with a small loss around 122.5.

Sunday, June 8, 2008

Dominant Trading Themes: a Major Shift Occurred Last Friday OR Trading the Usual Suspects

From time to time, I reflect about what I call “Dominant Market Themes”: even though markets are influenced by various themes each day, one can identify a major topic that drives general market direction. As I wrote earlier, these themes are tied to psychological characteristics such as fear or hope.

The last weeks were dominated by “hope for an economic rebound later this year”. IMO, last Friday indicated a major shift towards “fear that the US will fall into recession much faster and harder than expected, driven by domestic (housing) and international (oil) issues.” This being said, I will trade the usual suspects predominantly from the SHORT side (financials, housing & consumer discretionary) and keep closing my LONG positions.
I’m afraid we are entering a dangerous downward spiral with housing and oil taking its toll on the consumer, who will shut down spending and thus accelerate the slide. Falling equity prices will contribute to the elimination of wealth, a classical “reflexive” phenomenon, to speak in Soros’ terms.
Unfortunately, I was not able to act on Friday. If oil runs above 140 on Monday, fasten your seat belts for the equity markets.

Wednesday, June 4, 2008

Scaling out of my Lehman SHORTS

Since I had a nice gain on my Lehman SHORT position, I started to scale out to book some profits and manage the risk (Something to think about: trading is not about managing profits. It's about managing risks). The stock become quite volatile and every news can now have a big impact on the stock price. The remaining 50% position keeps me in the game in case Lehman should melt down ("Let the profits run"). Please note that I wouldn't open any SHORT positions at this point. If you're not in yet, wait for the next opportunity.