Disclaimer: I am not an investment advisor. When I describe my own trading activities, it is not intended as advice or solicitation of any kind.

19 November 2010

Trading Diary for Nov 19

On Tuesday, I closed a losing CiG trade at the open based on a view that the S&P Futures (ESZ0) were going to sell-off throughout the day.  It turned out I was right, and by the end of the day CiG had given a new Buy signal.  Following this signal with real money might have been psychologically difficult, since all Tuesday long the market was acting like the sky was falling; but that's the essence of a buy-the-dips strategy, and with paperMoney the buy decision was an easy one.

I closed that second long ESZ0 position on a standard CiG exit signal yesterday afternoon for a $900 profit.  I ended up with a $500 profit per $5500 in margin for the whole trade starting on Friday, which ends up being an overall above-average winning signal.  If I had gritted my teeth and held on instead of getting out Tuesday morning and getting back in Tuesday afternoon, the trade would be down $87.  Going with one's gut usually doesn't work this well, so I'm not sure whether to be proud of myself or not.  But I'm glad it worked out this time.

Yesterday's market was a perfect inverse of Tuesday's: everything was coming up roses, and nothing could ever stop the stock market's inevitable return to massive wealth-generating territory.  You know you're a contrarian if you read that last sentence and a little voice in your head screams "SELL"; in this case that was exactly the right thing to do.  At 9:05 CST, ESZ0 was back down to 1188.00, right back where it was when I dumped it on Tuesday.

I wonder if I'll get another buy signal today...

On Wednesday, results from a new Independent Investor Survey were released and posted on aaii.com.  Not surprisingly, the rapidly falling S&P markets over the past week soured the backward-looking investors' outlook for the future; the bullish percentage dropped all the way to 40%, a massive 17.6% drop from the previous week.  This was enough to move CS from "initiate sell" to "no initiate, no exit".  Meanwhile, the bullish MACO signal had evaporated on Tuesday when SPY closed below its 25-day moving average.  So that meant the trade went from being locked flat due to opposing Sell!/Buy! signals to being flat due to apathetic meh/meh signals ("meh" is an official trading term I just made up that means "no clear view either way").

Yesterday, however, SPY shot up past its 25-day again and closed above it; this gives a clear new "Buy!" signal from MACO, and CS won't change its opinion until next Wednesday.  I should have bought SPY on the open today, but quite frankly I forgot all about it.  This calls for another official trading term to be thought up: I'll call this "psychological slippage".  In this case, however, I saved myself a little money since SPY was about 50c cheaper than yesterday's close when I realized my mistake and opened the position.  I'll take it.

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