Enis’s Macro Wrap – Twisting Wrists

by Enis July 19, 2012 7:35 am • Commentary

Trading fascinates me as much for the internal battle as the external battles.  Most of the time, it’s fighting your own psychology and disciplining yourself.  The market will always be there.  It will always move up and down.  The stock market has opened each month for more than a century.

What constantly changes is how you respond to its moves.  Right now, the market is twisting my wrists.  I felt comfortable with my positions up to about 1360 in SPX, despite the rapid rally.  And then yesterday, I felt more and more pain, as the market twisted my wrists even further.

Overnight price action did not offer much relief, as Asia and Europe were both broadly higher, commodities higher, dollar lower, though bonds more of a mixed bag, with Spanish 10 year yields back near 7%.  Last night and this morning have been a heavy earnings season, with tech earnings strong (IBM, EBAY, QCOM), and financials earnings weak, as AXP lower, and MS now 2.5% lower after a bad miss across the board this morning.  GE  reports tomorrow morning, where I’m long the Aug 19 puts.

Experience has taught me to embrace the pain.  It usually comes close to turning points, and as long as my positions were well chosen, it usually pays to stick with them through the pain. To stay with your positions though, requires appropriate sizing.  It’s a crucial topic that we plan to discuss in the next few days.  In fact, I only added to my bearish posture with VIX calls yesterday because my sizing was not so large as to prevent me from taking more risk, even with my current losses.

The current pain feels very much like those previous instances, where we are close to a turning point.  Here’s to hoping that Morgan Stanley‘s weak report might be the start of a turn in fortune (here’s my trade from Friday).