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KRS Capital
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Global macro trader. Currency war vet. Game theorist. Ex-capital markets & FIG investment banker in NYC. Son of Dartmouth. Half-man, half-amazing.
My company:
KRS Capital
My blog:
The Pivot Point
  • On The Coming Correction 0 comments
    Apr 7, 2014 12:14 PM | about stocks: SPY, TLT

    "I've said it before and I'll say it again. Life moves pretty fast. If you don't stop and look around once in a while, you could miss it."
    -Ferris Bueller

    "There is no training, classroom or otherwise, that can prepare for trading the last third of a move, whether it's the end of a bull market or the end of a bear market."
    -Paul Tudor Jones

    Just before New Year's Eve 2013, we wrote the following re: our 2014 outlook for S&P futures (here):

    S&P's continue their march higher since the Fed's nano-tapering announcement on December 18. Market breadth has improved considerably since then, so we see no reason why this rally cannot continue through year-end. With that said, the relatively advanced age of this bull run has us concerned that a correction may be in order come 2014. We remain long S&P futures.

    Despite remaining long S&P's into the new year, we clearly felt that a correction was due. As we continued to "read the tape" throughout January 2014, we wrote the following re: our interpretation of the month's market action (here):

    S&P futures entered a correction last week. As we noted in our first post of the new year (here), we expected the S&P 500 to enter a period of consolidation through price and/or time and as a result have remained safely on the sidelines as we "read the tape." Our patience was well-rewarded this month as the S&P has declined 50+ points from its December 31 high, a decline we were able to avoid in line with our analysis. With that said we expect the S&P to decline further from current levels, so we would not initiate new long positions on this morning's bounce. Instead, we are stalking this market with the aim to initiate aggressive long positions once we have determined a bottom has been reached.For the record, we do not believe we are near a bottom in S&P futures yet.

    We believe that Friday's downside reversal off new all-time highs in the S&P 500 has ultimately proven our caution throughout the first quarter of 2014 prescient. While we were able to take advantage of this bull market in S&P's on the long side through the end of 2013 and step aside near its top, we will not pretend as if our execution was flawless. Just this week we reversed our short-term negative bias on S&P's ahead of Tuesday's open (here) and were long S&P's into Friday's open. We exited our long positions near the top Friday morning for substantial profits (which we alerted our Twitter followers to (@krscapital)), but we then initiated new longs at lower levels, believing the initial decline to be a head fake ahead of even higher prices. As we quickly realized the initial decline was merely the tip of the iceberg, we rapidly moved to sell our long positions for a loss before reversing to a short position, which we covered for profits ahead of the pit session close. While we are disappointed that our short-term negative bias could be swayed by new Fed Chair Janet Yellen's rain dance last week, we look forward to making back Friday's losses, and then some, over the coming weeks and months on the short side as supply overwhelms demand.

    S&P 500 Index

    Good luck and good trading,

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SPY over the next 72 hours.

    Stocks: SPY, TLT
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