It has been a while since I’ve done a trading update, but I’m flying home to Austin on Friday night so it seems like a good use of time.
As per usual, lets cover my benchmark - the S&P 500. YTD the S&P 500 is up 12.27% on a price basis, 14.26% on a total return basis factoring in dividends. So far this year things are going great for the index. On my front I’m up 11.2% for the year so slightly under performing the index. However, I’ll point out that I only trade the S&P 500 futures so I’m able to make this return with no direct exposure to ‘fruit stocks’ (cough apple cough) and the vast majority of the time (81% of the time to be exact) I am trading from the short side (e.g. selling as an opening position and buying to close the position) so I have practically zero correlation to the market from a bias perspective. Here’s the equity curve for the year to date:
You’ll notice that around trade 200 - 400 there was a pretty significant draw down. This occurred when I, foolishly, changed a couple things in the way I trade. First I stepped up my size by 10X (e.g. go big or go home). If anyone tells you seeing an extra zero on your position won’t effect you punch them in the head. I can tell you with no hesitation that the mental adjustment is real and takes a little time. The second thing I did was try to make myself trade more from the long side. The best metaphor I can give you is like batting in baseball. You favor a ‘side’ and that is the way you hit the ball. Yes, your brain knows all the physics involved, has all the hand-eye coordination down, etc., but very, very few people can just walk up to the plate and decide to hit from the opposite side - it is a failing of the human mind / body connection. The same thing goes for the way I’ve built my trading experience. At some point I decided to focus on the short side and I stopped worrying about the long side. It made a big difference for me to develop that specialization but it has almost crippled me when it comes to trading on the long side. At some point I will get back around to working on the long side but, for the rest of this year its all about beating the index. Now lets talk about the market.
Here was the closing numbers today from a headline perspective after both Amazon and Apple ‘disappointed’ Thursday night:
Pretty amazing performance if you ask me. Last night before I went to bed the ES was down 11+ handles and looking like it was about to die. This morning it was like the market forgot all about Amazon & Apple and opened without much of any gap. Amazing performance. But under the covers the A/D (advance / decline) and Up Volume / Down Volume are painting a slightly different picture:
What you see in the chart above is that both the declining volume led advancing volume and there were more declining stocks then advancing stocks (-502). Granted this is the NYSE, but this type of divergence is unusual.
So, what does it mean? Well you have Tom DeMark calling for new highs, not to mention the election is holding back all sorts of ‘things’ I’m sure. You know damn well that the Obama administration has told every country, corporation, etc., not to rock the boat (e.g. announce funding issues, layoffs, etc.) before he’s reelected if they want to be looked upon favorably post-election by the Obama administration (sorry folks, he’s going to win a second term and its going to suck). So, between the Fed’s dumping $40B+ a month into the market and everyone on their best behavior until after the election, I think there’s a lot of pressure under the market to stay green. That’s my thesis at least.
As for my trading, I don’t really care as I will keep working that equity curve up and to the right.