The Lonely Trader

When is a correction a correction?

In Journal on August 23, 2015 at 14:47

When is a sell-off just a sell-off? When is a sell-off a correction? When is a correction a downturn? And what defines a “bear market”? People offer various benchmarks, approaches and assessments. A decision-making framework that incorporates differentiated approaches and data sources is probably the best way to make one’s way.

The linkages between approaches and assessments available to the little people — typically via social media and financial news portals — are tenuous in most arguments. And even for those with access to real information (usually very expensive for us little people), there is some disagreement about which benchmarks to use.

It seems to me that context is what really matters. Call me Captain Obvious. When the context is understood and the facts are clear, the experts inevitably find the vernacular to cogently express the state of the markets. By the time this happens, it is usually too late for most of the little people like me to step out of the way…but I’m getting ahead of myself and probably not making much sense besides.

A myriad of technical and statistical benchmarks suggests that this sell-off is not yet a correction. A Twitter or StockTwits expert might say that “confirmation” is needed. And from a fundamental perspective, macroeconomic indicators in the US suggest we are quite safe from any near-term “downturn” — which in my mind puts brackets around any correction.

As a little guy, I try to keep things in perspective. Forgive me, but this is where I start to get a little pedantic. There is no doubt that the markets have sold off. And there is some evidence (by accepted measures) that the markets have entered a correction. A sell-off is merely a rapid and widespread decline in prices. The generally accepted definition of a “correction” is a 10% decline across major market indices (or even one). Confirmation can appear in any number of signs, most of them in the realm of technical wizardry but weakly supported by statistics. The simplest definition of a “downturn” is a decline across multiple indices of 20% or more, with a bear market usually defined as a downturn that lasts about a quarter or more.

So I’ve established (with myself) that I see a sell-off that also meets at least one criterion of a correction, but in a context of fairly sound fundamentals. While I don’t subscribe to any hard benchmarks in determining market stages, I appreciate them. Nothing I’ve seen gives me a clear path to agreeing with pundits, gurus and “fund managers” in the social media suggesting we are “poised” for a bear market. But real life rarely affords us the opportunity to clearly define anything.

As a correction is confirmed, common sense dictates the steps I should take to protect myself or to adjust my short term strategies. And this is where I need your help: Are strategies effective at protecting portfolios during a correction essentially different from those that are effective at protecting against a bear market? Is it just a matter of time, or is it a matter of scope as well?

We need more #twitterrage toward financial journalists

In Blah blah blah on August 23, 2015 at 12:15

Twitter is a good tool — no, a great tool — to survey the fauna of the self-serving, conniving, life-ruining asshole variety. Journalists, especially. Financial journalists on television, in particular. Even those who are celebrated as “speaking truth”. Even so-called “reformed” and former Wall Street insiders. They have not changed. They are still the same people they were on the Street, albeit more successful. (Interesting fact, in and of itself.)

These financial journalists in particular keep their lives very well compartmentalized. The clean, snappy images they cultivate are far removed and very different from their persons. The trail of human wreckage in their wake is astounding. The currency they offer is too attractive for the sell-side (and the buy-side) of the financial services industry to pass up — and they use this currency as a lever to further their own image, as much as to provide “content” to us, the unwitting consumers in need of an “information edge”. As the printers of this currency, they remain at their posts, wreaking havoc with impunity on the people who work for and with them as much as on us, the unwitting content consumers.

It’s really too bad that the social rules of Twitter militate against naming these people, their offenses, and the consequences. The *vast majority* of these people would reveal themselves as complete frauds, if the observer does a little homework and is able to see behind the veil. The prettier ones are worse than the rest, in many cases. No big surprise there, I suppose.

Sorry that this is not a positive message, with motivational cliches and such, but there is so little that is truly positive and useful in the Twitterverse (and in the broader universe of social media). I wish we would more often and more forcefully call bullshit so that the real wisdom would become more accessible. But that’s not who we are. I get it.

Monday Update

In Journal on August 10, 2015 at 18:31

So I’ve learned something in the last couple of weeks — there really is no point in closely monitoring implied volatility in my watchlists until Monday evening or Tuesday. The weekly bars will remain the core of the price/pattern analytical framework. The triggers, of which implied volatility % is key, will be monitored on Monday, Tuesday, and Wednesday. (Wednesday is the last day I allow for trading in a one week time period.)

The Sunday Watchlist is gone. I’ve changed the page name to “Weekly Rankings“, which will be updated as and when I pull numbers and drop them into my model. I’ve said before that this is a work in progress — a live work in progress.

Posting only the ETFs here — I need to see where this market goes tomorrow before I post the Equities.

DUST 8-10-2015 9-13-54 PM

I need to get closer in on DUST. The ETF took a little dive today — closing at about $29.64. The spreads are pretty monstrous. Need to see some tightening tomorrow. And hopefully I can get a decent strike around the 2SD range.

XBI 8-10-2015 9-33-56 PM

I’ve been saying for months that this ETF needs to tank. I was wrong for months. And the trend is still in tact, by the way. Need to see much more downside before I will think a reversal is in place. Currently trading at about $239.53. The 50 DMA is sitting at about $208. Short call spreads look good, but every damn time….


Get every new post delivered to your Inbox.

Join 186 other followers