Momentum Book Update: No Discernible Direction to the Market

by: Leigh Drogen

Another week of this trendless mess of a market. I’m starting to feel like a broken tape recorder when I say, stay small and hedge if you really want to play in this market. Our job as trend/momentum traders is to ride the tide as it lifts all boats by buying the right stocks. Right now there is no discernible direction to the market, and because of this it becomes infinitely harder to trade our strategy. I’ve been playing a very low number of small positions on shorter time frames in both directions. It’s hard to sit around with 90% of your book in cash, especially when you’re not racking up alpha as we would with the market falling apart. But this is the reality we are faced with, so it’s best not to fight it.

I’m going to keep this extremely short this week because I’m not trading much and there’s no sense in over-thinking it. I put up another 50 basis points of absolute return last week and about 125 basis points of alpha as the market fell. I also only trail the market by about 260 basis points for the quarter, pretty amazing when you think about the fact that we started at the very bottom of the pullback.

I closed half of my short in BP this week for an average gain of 8% or so. It’s very oversold here short term and should bounce, I’ll be looking to reestablish my whole short position into that bounce. My GameStop (NYSE:GME) short is also working beautifully as they reported crappy earnings and got smacked [see call transcript].

On the long side I’m green in Radware (NASDAQ:RDWR) and iRobot (NASDAQ:IRBT) and red in Nxstage Medical (NASDAQ:NXTM) and just slightly in my long position in the grains ETF (NYSEARCA:JJG).

Overall my exposure is about 9% long, pretty representative of my conviction, very limited.

Nothing that I say or show on this blog should ever be considered investment advice or a recommendation to buy or sell any security. The performance numbers that I post in the momentum book should never be regarded as representative of any specific client account managed by Surfview Capital, it is there solely for educational purposes and should be treated as such.

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Disclosure: Short BP, GME. Long RDWR, IRBT, NXTM, JJG