October 11, 2011- Risk On, Risk Off, Wash, Rinse, Repeat.

Here’s the best advice I found on the smartest and most profitable traders I know from the web space:

1.) Corey Rosenbloom – Valuable Lessons from 2010’s Support Range Break

I’ll let you draw your own conclusions, but the big lessons that come to the top of my mind are this:

1.  History Repeats

2.  Outcomes are NOT always what are assumed

3.  Bias Hurts

Then as now – or at least as of early October – an overly bearish bias has hurt traders, even though that seems the most logical assumption.

Those who were overly bearish did not react to the reality of the sideways trading range that developed, including the neutral boundary ranges as labeled.

When the market goes up when it “shouldn’t,” (at least according to the majority sentiment), it can be painful both to trading accounts and to logic, resulting in confusion (“Why is the market doing that?!”).

Ironically, due to “feedback loops,” and “short-squeezes,” the more BEARISH sentiment gets, the more powerful the upward rally can be when expectations are not met with market outcomes.

Of course, this logic works in reverse when the majority are overly bullish – it’s the foundation of Sentiment Analysis.

2.) We’ve had the 8th best October Starts.  Preserve those gains with trailing stops.  (Via Bespoke)

*****

Tried to see if there are still left to chew on in the Philippine markets, for some oversold bounce plays that will catch up with the overall regional short covering rally.  As Joshua Brown mentioned in CNBC earlier today in Fast Money, failed moves correspond to fast moves.  That’s what this market looks like.

If we get a rally, my eyes are set more on the oversold bounce plays.  Those I like are mostly Hongkong issues which were massacred particularly high beta names in the cement space (3323, 1313) as well as resilient gaming stocks (27, 1928,880).

With oversold bounces continuing some more, check the laggards that haven’t traveled much in the market’s bounce, as the 3700-4100 range in the Philippine index looks to gather more ground.  Though the risk reward from the index standpoint is limited, a tight stop on buy entries may still be possible.

Also, last night’s $NFLX, despite good news about the folding of Qwikster was sold down (Bearish tone). $XOM instead broke out after 4 times of attempting it (Bullish?).  — Are these company specific?

If you are an ipit investor, I’d sell the strength for the short term, only as an insurance policy.  Watch out for those resistances.  For now, we’re in a trading range.  For those who have successfully held on their longs purchased a few days ago (October 4), trailing stops are key on preserving your gains.

So I guess everyone’s happy except the sideliners like me.  Hopefully, I can catch some good entries.  We shall see. Else—food’s all for you guys.

Lastly, best offense truly is good defense. – Rich Ross.

“Given the magnitude of recent declines, if I’m wrong about the intermediate and longer-term trend being down, you can just about buy anything, which is our favorite kind of market here on Wall Street,” he said. “But the reality is I think once this euphoria settles down, we get through this Columbus Day cheer, we’re looking at lower levels here.” – Rich Ross

Thank you to All Star Charts for all the great links for the day. 😀

Tonight, Today will be very interesting indeed.

– Faceless Trader

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3 Responses to October 11, 2011- Risk On, Risk Off, Wash, Rinse, Repeat.

  1. Ipit Investor says:

    Hi.. still in a quandary about my portfolio.. should I cut loss on those with losses >39% (SLI,RFM,CEB,CYBR,FDC. BEL) >20% (FOOD, LR,MA, MAB, ORE, PNB) <20% (AT,DMC,FGEN, LC,LCB,TEL) <10% (VLL, FGEN,MBT,PX,EDC). I haven't cut loss since I started trading kaya ako ipit investor. I want to correct that now with the rally but don't know which ones to cut loss. Thanks.

    Like

    • everything’s correlatd, pero from what u can tell from your own portfolio. The winners that u shud continue to buy and hold are the ones where you have the least losses. The ones where you have the most losses should be the first priority in cutting. Its really hard to tell you..kasi what if its just a false recession fear? What if Europe does come out with a solution? It is this dilemma which is why we are in a trading range. I dont want to really give an advice because there will never be a perfect answer. I’m just answering based on a probable outcome. If Europe wins- then its good that u have strong companies. The amount of stocks that you have are many. Try concentating only on a maximum of 3-5 stocks. Minimize the ones where you lost >39%. Then devote that money to the strong ones (the ones you have only losses of 10%). Hope this helps. Cut the losers.

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  2. Ipit Investor says:

    Thanks again!!

    Like

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