Portfolio Management for January 15, 2016

Yesterday was a clear reversal day. This forced me out of the VRTX short before the trade start losing money. I also decided to cover the short EDU, even though the EV pattern was not indicating that buyers were coming in, but EDU publishes earnings early next week so it was a matter of timing.



I noted early that the QQQ was attracting very good money (QLD too).
I quickly ran the Breakout calculator and found out the best investment range. This is where I located a buy order on a pullback.









Later in the day, I regretted that I only invested 1/2 position in that long trade.

Indeed, when we have a strong reversal, it is important to be in early, but it is also important to keep the position for a continuation of the bounce. If the position is small at the beginning of the move, it is impossible to book partial profits around the close of the day and let the second half run for the next day. However, entering a full position early might be risky in a market that has not proven itself yet.

The consequence is that we now have a 10% long QLD that could turn against us today. There is a 3% buffer gain, which will probably give us some room to maneuver the position.

I copy below the portfolio gain figure, which shows that no progress has been made in January.
The second panel shows a 30-day average of the ratio of the portfolio that is invested. Red arrows show that I tend to trim positions when markets are weak and then put more money at work when markets look better.

The point is that in order to make money, the portfolio should be at least 40%-50% invested. Since we are only 10% invested now, it is clear that the portfolio will not make money. The second condition to make money is to have the market direction correct. Then the third condition is to be able to cut losses fast enough. Volatility and intraday reversals are the most difficult aspects of this market. Many stocks and instruments are sometimes moving 10% in a day. Since my standard stop loss on a position is 2.5% it is key to be early in a move and to stay with the move direction.

This is not a typical buy/hold investing in good leading stocks. It is a constant deciphering of market activities with a rush in and out at critical timing.

I truly hope that we will be able to catch a trend that leaves us time to build a position in size and duration.





The trade ideas for today are below. Many short ideas look interesting, especially after the bounce of yesterday.