Friday, February 10, 2017

Grind Higher

These are the worst type of trading markets for the counter trend trader.  The steady grind higher in the S&P, with very shallow pullbacks, and small up moves.  In most cases, you will not get a meaningful top in the equity indexes until you see the VIX start to go up as the equities go higher.  I would like to see VIX at least trade above 14 while S&P is within 1% of all-time highs before I get interested in the short side.  I tried a small short earlier in the week and took a small loss.

The market is too calm these days and it can wear out one's patience.  The key to trading these type of markets is not to lose too much money, which often psychologically makes you force trades to make back your loss quickly.  And when there aren't many good opportunities, like this market, that often puts you in a bad spot.

Once you get to a certain level in trading, when you have a built up a trading strategy and approach, the differentiating factor is usually psychological.  Not everyone has the same psychology, but usually traders, including me, are at their worst when down a lot.  The best way to overcome that is to not take marginal trades that have a tendency to put you in a hole.

Yesterday, Trump stated out of the blue that he was going to announce a phenomenal tax plan in 2-3 weeks.  Didn't he already say something vague like this before?  Of course, he finally gave a timeline, but it's not as if the market doubted that he would introduce a tax plan.  It was a matter of when, and how it gets through Congress.  The big question is whether the Republicans will agree to another Bush Jr. debt-financed tax cut which blows out a huge budget deficit or if they decide on a smaller tax cut, partially financed by getting rid of some exemptions.  I have a strong feeling it will be the Bush Jr. variety with no thought about long term consequences.  Republicans talk a good game about fiscal discipline, but they have never shown it.

The bond market still seems like it wants to consolidate for the time being.  I don't see any imminent signs of major bond selling.  The speculators are still leaning short, albeit to a lesser degree than a few weeks ago.  Until you see much more certainty on tax cuts, there will be a reluctance to sell bonds when above 2.50% 10 yr.

1 comment:

Anonymous said...

TrendRambo on Twitter: Domestic oligarchs generated massive amount of returns prior decades exploiting volatility they generated ( insider trading - broker calls - frontrunning - floor trading).- It was great - it was easy.They are old fat cats now. Their best interest is capital preservation. Also they only couple within their circles to amass more wealth. They engineered ZIRP and finetuned market mechanics for steady inflationhedge and superlow interest rates for endless LBOs to buy up everything that generates steady income and growth.