Lock in Your Losses, Let Your Profits Shrink 12/14/22

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If you have a hedged trading portfolio with both longs and shorts, and with judiciously placed stops around sport and resistance levels, that headline is what the market will do to you. No amount of disciplined trade strategy management will save you from the pain of what happened yesterday.

At least, that was my experience, with the regular trading hours opening on that ridiculous gap, then spiking even higher for another 30 minutes, then spending the next couple of hours giving all of it back. How does a trader protect demsevs under such conditions? And after all those well placed buy-to-cover stops in the world were hit in yesterday morning’s carnage, we must axe oursefs, who ended up heavily short at 11 AM? Certainly not the prudent hedgies. They got skinned.

I could see the better than expected inflation print coming, as I’ve splained here ad nauseum, and I could see the market moving early in the premarket. After all, I have the advantage of looking in from Europe, at least 6 hours ahead of most of you. As the market reaction confirmed what I was expecting as of 8:30 AM ET, I dolefully removed my stops on my trading port shorts and decided to take the whuppin, in the hope and expectation that I’d be better off at the end of the day than the beginning. I let two stops get picked off. The wrong two. Had I removed them, by the end of the day, I would have fully recovered. Instead, I locked in big losses on those two, and will need to work long and hard to recover that.

The thing is, how do I know that there won’t be more days like yesterday. As the Fed persists in steadily removing $95 billion per month in cash liquidity from the markets, momma says there be more days like this. And I’m not sure how to defend, short of staying awake to trade the fucutures 24 hours a day. Unfortunately, I am not one of those superhuman traders who can do that, nor am I a computer programming genius who can train an AI bot to do it. I’m just an average guy attempting to report what I see.

We complain about the dealers, but in my work tracking them and the big banks for the past 20+ years, I have seen time and time again where they were massively wrong, suffered massive losses, and in fact, caused massive systemic failure for which they were hardly blamed, and never suffered any consequences. That’s the difference between them and us. When they’re wrong, the Fed just pats them on the head, says “There there, don’t feel bad, here’s some extra cash for your trouble.”

Ain’t nobody gone do that for us.

In my published weekly swing trade chart picks, I had resolved long ago to stick with a strategy of posting once weekly as a matter of both efficiency, practicality, and the fact that it seemed to work most of the time. Most. But yesterday was truly a 500 year flood. I don’t have the final details yet, but it’s likely that virtually all of my buy stops were hit on the open, at prices far, far above the stop price, turning nice profits into losses. Once again, the use of stops has proven detrimental to the cause.

That said, I was, after all, wrong about direction in the very short run anyway. So, no excuses.

I don’t remember ever seeing a day like yesterday. 3% up and then 3% down? In the space of a few hours? Come on. The market literally gave us all the finger, whether you were short or long.  We used to talk about the finger pattern often in the 2000-2003 bear, but it’s been rarely seen since then, and certainly nothing of this magnitude.

I’m sorry for this lament, and sorry that I’m not smart enough to avoid being wrong on a day like yesterday. Only the geniuses who came in long over the weekend and sold the spike profited from yesterday. Who were they and how did they know? That is the question.

Or were they just lucky?

As I write this at 6:30 AM ET, the ES 24 hour S&P futures are at an inflection point at 4012. Down from here would be bearish, while up would be bullish. Being FOMC day, we have to wonder whether yesterday’s drunken orgy exhausted the potential for more partying. Especially since we, and no one else, are aware that the Fed is now tightening into a deflation.

For moron the markets, see:

• Swing Trade Screen Picks – 4 More Shorts. 4 More Shorts December 12, 2022
• Limited Supplies Delivered At Bear Custard’s Last Stand December 12, 2022
• Gold Hones In On New High Projections December 9, 2022
• Federal Tax Revenues Are Slowing December 6, 2022
• Fed Policy Will Stay Bearish Until It’s Too Late November 20, 2022
• The Repeal of Rule Number One, Don’t Fight the Fed November 14, 2022
• Bond Market Rally is Technically Valid but Belies the Facts November 12, 2022

If you’re serious about the underlying forces of supply and demand that drive the markets, join me!

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