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Michael Davey's  Instablog

I graduated from the College of Creative Studies at UCSB with a BA in art, 1985. I received an MFA in painting at UCLA, 1992. So what am I doing trading for a living? I began trading markets with friend/money manager Cedd Moses in 1989. Moses was commonly ranked in the top 1% of aggressive... More
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Centrifugal Deforest
  • Choppy Toppy (just when you thought you'd had enough, you find a way to miss the little thing you were waiting for)...

    Over their, beyond the hill
    Lies the Picnic still

    So much self doubt out there tonight. I really have to chide you.

    Self doubt is almost as bad as conviction - even worse in other fields; just not as bad here.

    The right amount of self doubt as a trader is essential, typically. It saves lives. Superman is going to get hit by a bus at some point .

    But too much self doubt is not any advantage. Far from it. If you have such a condition, vacations are the best thing. However, if you find yourself still passionate (let's say inspired), even though slathered in doubt, you may not need a lengthy break. One should be working when inspired. That's where breakthroughs are born.

    If you're exhausted and defeated and have no such spark, absolutely, the only thing keeping you from certified self-destructive would be a mandatory, self-imposed break; certainly in this field. In this place (this special game of the 21st century whereby everyone is playing whether they like it or not, since it dominates our civilization; so you might as well play it, right?). In this place you do not want to impose self-destruction. It's bad for you - it's bad for evolution.

    Anyhow, I'm just posting to say something fresh and I'm even a little cheeky (Chichikov!) right now. If we were surfing, resting upright and looking out, I'd be pointing at something right now and personally I'd be moving to where I could take advantage of it, or at least paddle to where walls of water wont be face-planting and pummeling me then cartilage first into the coral.

    The Dollar's been holding like a rock. Like a stone under water.

    Trish has not done a lot for us with the stock market lately, but she has branded the US Dollar quite sufficiently now and this has possible negative implications for stocks. I say possible, because she cannot go a day anymore without very brightly mentioning the tight inverse-relationship the USD and equities hold, and just how sad and weak is the state of the buck. Therefore, if you fade Trish fully (and she is the genius here) it's possible the Dollar could de-couple that relationship and both Dollar and equities rally (not out of the question).

    If Trish is worth her salt, and I'll argue again that she is, then this weak Dollar may or may not punch-down once more, proving everyone right that the Dollar is pawned - before punishing them all at once. Just for being right when everyone and their ancestors were on the same side of the ship.

    It's the punishing them all part that I am more or less now convinced of.

    Maybe this is the first, next wave down then for stocks (assuming we don't see any de-coupling). If so, the first slice is usually the deepest (for the short term anyway).

    Yes, that last part is even meaningful. If I know little in the way a market behaves, I know that strong stocks and strong markets, correct sharpest (short-term) on the first real slice down (subsequent waves create higher-lows for some time after). And important, we haven' yet had a real slice down, presently. So far the market has been bought rather abruptly for several attempted declines in a row.

    This last decline though was different. There was real blood in the water late Wednesday and volume that hour was stronger than any force we've seen recently. On top of that is was the half-dozenth or so distribution day for the major indices in recent weeks. And, importantly again, the time-duration of selling was even briefer (encased inside of two hours between late Wednesday and early Thursday).

    Momentum, for now, has peaked (and it broke down on Wednesday). Even if prices are still able to make higher-highs in the next couple of days., which will get a lot of the party on one smart side of the ship - momentum has already changed directions.

    So I suppose I have a (fluid) script in my hand right now (though I'm not memorizing any text!). I might even be inspired a little myself just not and this is why I am up so late and psychological risks in sharing such thoughts; I'm not yet sure.

    Or perhaps I am about to get walled - just for saying as much.

    Goodnight.
    Oct 23 04:57 am | Link | Comment!
  • Looking Lower (shift to net short)


    What I really meant earlier today, when I alluded to conflicting cross currents and I didn't want to speak, was that the market was setting up for a dramatic late day reversal ;)

    I've got a special talent. Something causes me an uneasy feeling before the hammer actually hits and this has saved me from more than a few drubbings; as I am ready to scramble as soon as somebody sneezes. Seriously, I get irritable for no apparent reason, I start breathing irregularly, sweating palms while singing 29-psalms and my spleen begins to hurt. Friends and family nearby do not know what to make of me.

    I didn't want to say anything about it earlier, because this happens pretty much daily!

    For better of for worse, I am net-short now, holding fewer names (7 tidy-longs and 2 large-shorts) and I do not consider today's action anything less than...nasty.

    That's right. I'm as good as bear tonight. I'm in the lifeboat with the rest of you suckers now. I picked up several whole salmon from Whole Paycheck and I'm looking to gnaw raw on these amazing, tasty creatures while watching my favorite Herzog movie on HD.

    My downside target for this leg down is - Oh, piss off. Targets are for losers. I'm inclined to trust that some amount of downside is now in store, but I don't even like that much conviction. Let's just say it does go lower, for the sake of argument. It will go lower and lower and even lower, until it stops going lower and then it will go higher or sideways instead.

    End of target.

    I'll try to be more or less in-line with this (letting you heroes make the calls and such). I'll give you bears this, though - There was something altogether worse about today's higher-volume failure than anything we've seen in, well, weeks!

    Seriously, I didn't like it.

    But I want to make this clear: I've shifted beyond neutral and into net-short territory for the primary purpose (thus far) as to afford taking on new entry-stabs long as new set-ups develop. In this fashion, I can initiate, add or re-load leadership longs without worrying so much about the overall market; as I will try my best not to get too far again into net-long camp until I think the bull is back, or at least until I perceive selling as tepid (since this is a bull market I am aloud to get a little in front of the trade, going long, as that is trading with the larger trend. When I make fun of you geniuses for getting ahead of the trade it is because you are anticipating a change in the larger trend AND going against the larger, existing trend, and that is wreckless if not stupid).


    If we see but a brief correction, then I've managed to accumulate leadership names for a new swing higher (simply covering short hedges then once the market improves). Whereas if the market continues taking lives I hold onto my short position(s) and simply play damage-control with the longs (dumping accordingly and trying again until it is clear these set-ups are mostly failing).

    These new set-ups usually have a reasonably close benchmark underneath, which makes the risk vs. reward favorable. For example, an extended leadership name can be bought slicing down to support (buying near previous highs from earlier consolidations, near key moving averages, or by using other entry-tricks of the trade maniacs like me have accumulated) and I can use that level as a benchmark then for stops (normally I use benchmarks on a closing basis, unless volume is heavy enough to clearly signal a breech; in that case I don't wait for the close to unload - i just take lumps and move on).

    I'm heavy into SRS now, so there will be no nodding off during the session tomorrow. Someone once(!) said the next shoe to drop is commercial real estate. Well, the previous generation of SRS fans are long dead and buried now, but I tip my glass now in their honor.

    If you're going to drink that much vodka it is better not to sleep on your back.

    -Total Position: ~1.5-to-1 net-short, considering levered TWM and SRS hedges
    -54% invested     overall
    -Pure-longs = 31%

    Currently Long (according to size): RKT (5%), HRBN (4.9%), WATG (4.6%), OWW (4.5%), ININ (4.3%), HMIN (4.2%), CHBT (3.4%)

    Currently Short (according to size):
    -TWM-long (Russell 2k Dbl-short, 15.7%)
    -SRS-long (US Real Estate Dbl-short, 7.6%)
    (Note: inverse-ETFs TWM and SRS represent being dbl-short their respective index).

    Futures Accounts: Short 30% Dec BR Pound, from 1.64785 ave.
    Oct 21 09:16 pm | Link | Comment!
  • Retail Hell (a trader's guide)
     
    More »
    Oct 09 02:17 pm | Link | Comment!
  • Roubini and the Patty Hearst Affect
    Monday, October 05, 2009
    Roubini was on CNBC earlier this morning. I missed most of it but he was suggesting the better-than-expected bounce in equities is overdone and the market is set-up now for disappointment; that unemployment is too high for a robust recovery; that consumer confidence, ISM and other recent data is suggesting a U-shape at best, or else double-dip recovery.

    Nothing surprising, but that last part is very interesting, as it suggests Count Roubini may actually get bullish when once the market finally retracts. That could end up laughable - that Roubini becomes bullish in a bear market, fixating then on an economic recovery, whatever shape he thinks he sees.

    I'm not going to suggest the bear market will indeed resume (I won't suggest it will not either), but here is a great example of why predicting the future is ill-advised in this business; even if that is part of your job description. Psychologically, Roubini is ready and willing to turn bullish on equities - he just needs them to go down first!

    Perhaps this is a bit like the Patty Hearst affect - the idea that one can grow fond of their captors. That bears become more bullish once incessant incessant incessant bull-pain suffered, is finally alleviating.

    We'll see.

    Back to now, the market has pivoted nicely off of Friday's early lows, but the major indices have a bit of ground still to make up to manage higher-highs.

    Leadership growth had declined less than the averages (which is bullish), but so far very few names have vaulted to higher-highs. RINO, an exception, has powered 32% from Friday's low to today's intraday high.

    Meanwhile, salivating bears are pencil-pointing to a smathering of negative technicals, which draw but one (encore) conclusion - an ensuing failure is looming.

    A shocker I know. But I'm noting here that bears may not be so confident now on the way down. This idea is new, and, well, we're not really going down yet either. But it will be worth monitoring when/if the bear resumes. Will bears become less bearish once they finally get a break?

    Fortunately for me, I am still an idiot. And while I did re-trim smaller on the strength today, I see no reason to get overly conservative, or short even, until leadership begins behaving badly.

    Lower-highs en mass would be a concern, if this remains the case once the market reverts lower. A smash to lower recent-lows would slow me down even faster. But in the meantime I'll keep old, slow and not such a hero (not like you, tough guy). If I had sense I would be shorting right here and now (again!). Instead I remain pointed longer, spitting-up on myself while spitting-out, mostly bull grovel.

    And if we do smack-lower, breaking this up-trend with authority, it will be most assuring to know that Dr. Roubini is looking at where to bid for my shares as I am looking to get short.

    Recovery or not!

    -Total Position: ~2.25-to-1 net-long, considering levered TWM hedge.
    -42% invested     overall
    -Pure-longs = 34%

    Currently Long (according to size): SXCI (6.5%), CFSG (reduced today, 6.2%), DGW (5.8%), BCSI (4.9%), CLW (4.2%), SWM (reduced today, 4.1%), RINO (reduced today, 2.8%)

    Currently Short (according to size):
    -TWM-long (Russell 2k Dbl-short; reduced friday, 7.8%)
    (Note: inverse-ETF TWM represents being dbl-short the respective R2k-index).

    Futures Accounts: no position
    Oct 08 02:06 am | Link | 1 Comment
  • Carnival Knowledge
    Friday, October 02, 2009 Carnival Knowledge
    While I know action in the US market has a direct impact on Chinese growth ADR's traded in the US, a large part of me this morning was wondering if these companies should be so woeful of lack of jobs in the west. So woeful as to gap-down an additional 5-10 percent on our negative news.

    I'm having a good day and making up for yesterday's drubbing in rapid fashion. But I've still got hands (and now feet) on the chopping block and have to focus on where I am going from here. Sell, hedge or swing this position as-is into next week.

    Terrifically boring, I know - but if you were jumping up and down with hearty gains last night, as you were so brilliant as to be short this ridiculous market, then you're likely getting whacked again right now. Contrary to how we like to behave, up and down excitement is no edge in the long run. Steady, dull and boring might just be better.

    Yes, there are bears who were short and covered at the open today. That's good for them because they got the week exactly right. But the day you celebrate is the day you should be out of the market, not in front of it. As the next day (or next) will bite your brilliance down.

    Fortunately for me, I remain an idiot. Aside from clear and obvious set-ups like a highly anticipated pathetic jobs report, I don't want to get in front of the trade. I don't want to prove anything to the market. I don't care that the world economy is a board game, I don't care if athlete's utilize growth hormones to enhance performance, and I don't care that old-world Chicago cannot topple an emerging giant.

    We are so subjectively focused, aren't we? I mean, how can this US market have rallied so high since March when we can't even buy the Olympic games anymore? What's been driving this rally anyway?

    That's all the bile for now. I've got the rest of my RINO position (beast!). And apparently water treatment jobs in China must be doing OK, because group-mate DGW was also a bit of a gift at the open. I also have to deal now with too-much CFSG and not so much TSL. All from China, somewhere east of Rio.

    Brag post? Undoubtedly. But in younger times I would have attempted being 200% short yesterday, covering and backing-up the truck long at today's open, head for Mexico for the weekend and then come back Monday in time to blow myself apart. I can't trade like that anymore.

    Unfortunately ;)

    -Total Position: >3-to-1 net-long, considering levered TWM hedge.
    -55% invested     overall
    -Pure-longs = 48%

    Currently Long (according to size): CFSG (increased today, 8.2%), SXCI (6.3%), SWM (5.4%), TSL (new today, 5%), RINO (increased today, 4.9%), BCSI (4.8%), JDAS (4.6%), DGW (new today, 4.5%), CTSH (4%)

    Currently Short (according to size):
    -TWM-long (Russell 2k Dbl-short; reduced today, 7.7%)
    (Note: inverse-ETF TWM represents being dbl-short the respective R2k-index).

    Futures Accounts: no position
    Oct 02 03:35 pm | Link | Comment!
  • Bearspring!

    Bountiful images aside, I'm going to make this as boring as possible.

    Candles did glow red late in the day after all and the market reversed lower on reasonable, rising volume; an outside reversal and clear distribution day, the first of either in some time.

    Let's discuss some (boring negatives):

    -Oil and most commodities were down again and this was true for all the day. Cramer came on at one point late (just before the market peaked) and made the argument that the stock market was finally de-coupling from the movement in oil prices. That was true today, but only up to the moment that he mentioned it. I suspect tonight Cramer will find a was to take credit for today's pullback now, but who cares about that? He can take credit for his own birth - I won't mind.

    -Shanghai has been down all week. Small GDP-economy or not, this is where a lot of the growth is and partly why US Mainstreet has no idea how a stock market can be so good when things are obviously so bad out there (out there, in their minds, is not far enough out the window perhaps, as emerging markets have been fueling growth, while domestically, only cost-cutting has been adding much to bottom-lines).

    -The Baltic Dry index has been down for some weeks now; well enough off the highs to make a negative impression.

    -Trish, I mentioned earlier, today asked a pro when and not if the Dow would reach 10,000. I have said many times to listen to Trish. You think I am crazy, but you don't know Trish the way I know Trish. Trish is a sentiment composite; she's a peach.


    But before you bears go crazy with excitement, there are positives:

    -We were still making new highs in indices and in key stocks as late as, well today. Leadership has yet to do anything but lead on the upside, not down.

    -There are a ton of stock offerings coming this week and many of them have the Goldman/Morgan Stanley name on them. I cannot recall a week with big offerings where the market had a substantial sell-off. Big firms with big sell buttons want nothing of a panic when they are trying to distribute such quantity of stock. Hands-off the sell buttons right now would be the company line...let's see what happens.

    -Fervor, yep fervor today now on the message boards, as bears finally have something to high-five about. And I have to say, it reminds me of someone finally getting a big win at the race-track and shouting with way-too-much vigor. Sorry, but this is what a long-term loser sounds like when he eventually nails an exacta. Bears should not over-celebrate a small victory here. Bears should be keen for either of three possibilities now and respond accordingly. Hope is not a trading strategy.

    -A small pullback here would be a nice positive, assuming it doesn't deteriorate with accelerating force each day. Letting off a little steam, without that acceleration, would be a bullish set-up. If we see accelerating force, then respond accordingly - naturally.


    That's as boring as I can make it for such an exciting day. I sold stocks with abandon in the last hour today - but that is less about what I might think and more about what I do (accelerate exposure going up and manage risk, if not change sides, going down).

    I don't even want to know what I actually think about any of it.

    I went from 13 to 8 names long today and I reduced several of those remaining. Here is how it looks here going into Thursday...

    -Total Position: Aprox. 1.5-to-1 net-long (down from 4.3-to-1), considering levered SKF and under-levered UUP hedges.
    -56% invested     overall (down from 84).
    -Pure-longs = 35% (down from 65).

    Currently Long (according to size): SNDA (5.5%), EBIX (5.3%), DGW (4.9%), CLW (5%), CYOU (4.2%), TQNT (3.9%), CFSG (3.8%), ULTA (3.4%)

    Currently Short (according to size):
    -UUP-long (12.1%); current inverse correlation with equity mkts defines this as an equity hedge
    -SKF-long (US Financials Dbl-short; (7.9% position)
    (Note: inverse-ETFs SKF and TWM represents being dbl-short their respective index).

    Futures Accounts: no position
    Tags: SNDA, SKF, CYOU, EBIX, DGW, CLW, TQNT, ULTA, CFSG, UUP, baltic dry index, trish regan, shanghai index
    Sep 23 06:04 pm | Link | Comment!
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