Summary:
What a great day for my short positions! And I think I was up like 1% in the last 15 minutes of trading today:-). The 6 hours and 15 minutes before that were a little sketchy though (to put it mildly) and resulted in a 5.2% loss, wiping out much of my gains for the year.
The trigger for today’s fall was the 9% drop in the Shanghai market overnight. I knew this would cause a ripple, but was comforted by the fact that Japan was sporting a rather sedate 0.5% loss. When the market opened lower, I sold my Chinese funds FXI and TDF almost immediately, but thought the carnage overdone in other sectors. I put in orders for small additions to TNH and LMGGF , but it seemed they were too low and that the market was recovering. I went off to class and was rudely shocked when I logged back in. My orders had been hit and the situation was deteriorating. I spent about half an hour just watching the screen and reading message board posts. Thought about selling something, but not enough to put in any orders.
So what’s my take going forward? First the big picture. I don’t think the Chinese economy will implode despite the stock market setback. I’m not sure how tied the Chinese economy is to stock prices, but its probably much less than in the developed world. I should check this. If the Chinese economy remains strong, much of the fundamental positive story on metals, tankers and Japan remains intact.
On the other hand, as the Economist article I mentioned yesterday pointed out, low volatility has helped nurture the recent market rise, and its reversal could cause a sharp move in the opposite direction. Today was sharp but what they are talking about would be much more painful.
My gut tells me this is just a correction, which will bottom in 2-3 weeks. In my mind I have this image of the sharp move up in March 2002, when the market reversed a long bearish trend before resuming down (I was short at the time). I guess I could just be focusing on my own personal experience which probably bears no relation to the current situations. Maybe. I guess also that even if I expect a bottom in 2-3 weeks it would be rational to sell most everything now (adjusting for tax consequences) and buy back later. I may trim in the coming days, but am holding for now. I reserve the right to change my opinion:-).
Some of you may have noted my concern in the Biggest Market Worries section yesterday. Keeping track of this type of sentiment is exactly why I’m writing this blog. I hope to be able to hone my senses so that premonitions and worries become quantifiable trading signals. This will be difficult at the very least, perhaps impossible. But without recording this type of data it will definitely be impossible.
Btw, for those looking to short the market, one possibility is a short ETF which moves in the reverse direction of the market. Several seek to double the market move in the opposite direction. A partial list is here. The advantage of these over a short position is that you can limit your losses, while in theory the loss on a short is unlimited.
Positions:
Long: JEQ JSC LMC AUY SLW NTO NXG HBMFF ALSWF JAGNF FFHL EGLE AOB XSI KF UAHC FF NTLRF TNH LMGGF NM
Short: JCG BKC
Cash: 6.5%
Trades: sold FXI@97.12 sold TNH@22.58, added LMGGF@13.83, added TNH@42.45
Read:
Stocks Researched:
Hours spent on market: 1.5
Positions most worried about:
Positions most sanguine about: Japan
Biggest market worries: that the downturn which began today is more than a correction.
Thinking about: Trimming
Outlook ( up-flat-down surety rating: 1-5 reasoning):
US: up 1.0 ??
Tech: ??
Japan: up 3.5, good GDP
China: up 3.0 economic growth, Economist article 2/8/07
Silver: up 2.5, industrial, china demand
Gold: up 2.5, dollar weakness, china demand, price action
Copper: ??
Zinc: up 3, low LME warehouse stocks
Real life: research progressing again, less worried about deadlines
Previous night sleep and exercise: 5 hrs, light exercise Sunday
Mood: calm.
