Traders are only as good as their P&L (profit & loss statement). When the good times are rolling, there’s nothing we can’t do. But when we’re trading badly there is nothing worse. Like anything in life, it all comes down to timing.
Timing is everything, including this morning call. I have always written part of it on the floor, then finished at night, with a small update around 5 a.m. when I catch up with the markets.
I had a feeling the S&Ps were going to rally on Monday, but when they sold off late in the day I flip-flopped. After Monday’s weak close and the fourth consecutive down day, we reversed course and came out saying sell the rallies. Initially I thought the weakness in Asia and Europe would lead to more downside in the S&P yesterday.
But something was not adding up. Despite the Asian markets being down sharply and Europe down across the board the S&P really was reacting, as soon as Europe started to bounce. Below is an e-mail I tried to send to Vikram just before I left the house for the trading floor.
Danny Riley <*****.com> to
Vikram@mrtopstep.com 7:35 AM (6 hours ago)
I need to change the call part / dont send it out yet… they are going up today
As I said, timing is everything, and minutes later the e-mail went out and the S&P was up almost 11.5 handles at its high. Despite the the big push up, the ESU did eventually pull back from the highs and traded back up to the 1655 area. Then the MIM took over, 74% sell side and over $500 million to sell. Moral of the story: As hard as it is to switch gears, it’s sometimes best to stay with your original idea. When you start getting twisted up, so does your trading account.
The Asian markets closed mixed and Europe is down across the board. They say you’re never supposed to trade the last week of August. Maybe they should change that to the last two weeks in August. We all know it’s a chop fest and that most of the trading community is on vacation or simply not trading. We know of a $9bil fund and a $4bil fund that are up on the year and have basically shut down in order to hold on to the returns. Many funds have adopted that strategy over the last several years. Years ago a big futures hedge fund would trade all day regardless of how much it was up or down. Today they are teaching their traders that it’s better to hold on to the gains than keep rolling the dice.
When you figure out an indicator that works all the time, please e-mail me. In the meantime let’s talk about the MrTopStep MIM (MrTopStep Imbalance Meter). Volume has a lot to do with the way the meter works, but it worked perfectly yesterday. Yes, there are still some nuances to be worked out, but yesterday was a perfect example of how it worked on the close and how it followed through into this morning. Not saying it works all the time, but when it does, pay attention to how the futures sometimes follow through the next day. Very interesting stuff.
Our call: I am not afraid to say we have gotten a little chopped up in the last few days. When that happens, especially during a period of such low volatility, we know it’s time to take a step back, trade less and pick your spots better. Our call is to buy the early weakness and sell the rallies. Today should be a roller coaster. As for the August month end, the next to the last trading day of Aug has been down 13 of the last 16 occasions. I will ask Jeffrey Hirsch of Stock Trader’s Almanac to expand on that tomorrow.
As always, keep an eye on the 10-handle rule and please use stops when trading futures. Especially in a chop fest.
Lastly, please find an hour to look at the PitBull speaking at Amherst College. He has been my friend for a long time but I still love hearing him talk. “A Market Wizard Speaks: Marty Schwartz speaks at Amherst College, Spring 2013.” At Marty’s request, we are offering the full video free of charge to you and the world. Few people trade as well as Marty does. Even fewer are willing to share what they’ve learned.
In Asia, 11 markets quoted closed mixed (Shanghai Comp. +0.02%, Hang Seng -0.69%, Nikkei +0.21%).
In Europe 12 out of 12 markets are trading modestly lower (DAX -0.26%, FTSE -0.75%).
Morning headline: S&P Futures Seen Lower Ahead of FOMC Minutes
Total volume: 1.58mil ESU and 5k SPU traded
Economic calendar: Mortgage applications, existing home sales, API oil inventories, FOMC minutes and earnings from Target, JM Smucker, Lowe’s, Staples, American Eagle, Toll Brothers and Hewlett-Packard
MrTopStep Closing Print Video : http://mrtopstep.com/2013/08/mrtopstep-closing-print-08-20-2013/