I got great insight yesterday from one partner who reminded me that “when you wait for something for too long, you often build the opposite opinion subconsciously close to the moment you are about to be right”.
It made me more paranoid than I am already so I thought I would rationalise my decision a bit more.
There is a significant probability that the current bottom may launch a 3-month rally, reasons:
(1) Simply – Let’s not forget we are in a bull market and the trend is still up by all metrics (my short stance was more contrarian than my long one in big picture).
(2) When one index (the DAX here) has corrected in a very structured way that looks complete, you need to wonder what is going on (especially after 14% down).
(3) In the last 3 weeks I saw the correction momentum going down on DAX while news flow intensified (1 – Tsipras surprise announcement, 2 – Referendum oxi result, 3 – Nikkei collapsing yesterday)>> smaller moves.
(4) Sentiment has grown negative with many blogs preaching a bad summer for equities and yesterday morning felt like bottom panic on what could be a “Tuesday counter day”.
(5) I think sep/oct expiry will occur on a positive note. Initially I thought there would be a dive in between and my paranoia grew in the last 2 weeks that we may bottom here and climb slowly for 3 months.
(6) I find the dax calmer on the bottom – that is good as to climb sustainably – it needs to do that slowly so the rally can last 4/12 weeks (if you do 2/3rd of the expected rally in 5 days, something is wrong or you underestimated the potential).
(7) On the SP500, If I start to be positive on DAX without having had a correction I need to review my capping assumptions before it is too late – Which I do in the 2nd chart below.
(8) I am buying a bottom – I am not capitulating on a top. This is probably the most important in risk management.
(9) The emotional time component is very important too: we could argue that we are in a correction since April – 4months correction then – That qualifies as a good rest in a rally.
Now:
- Yesterday night close was very uncomfortable but also necessary as it puts a real mark on the bottom on close (which was rejected intraday so far).
- I did not buy the sp500 which i find more risky at this altitude, I bought the DAX which I find less risky and also has an enormous potential (Technical, Greek Deal, European Fundamentals improvements).
My risk?
- 140bp loss if DAX closes below 10200 – Reasonable given the above and the potential of making 400/600bp.
Voila – Faites vos jeux… Rien ne va plus.
It made me more paranoid than I am already so I thought I would rationalise my decision a bit more.
There is a significant probability that the current bottom may launch a 3-month rally, reasons:
(1) Simply – Let’s not forget we are in a bull market and the trend is still up by all metrics (my short stance was more contrarian than my long one in big picture).
(2) When one index (the DAX here) has corrected in a very structured way that looks complete, you need to wonder what is going on (especially after 14% down).
(3) In the last 3 weeks I saw the correction momentum going down on DAX while news flow intensified (1 – Tsipras surprise announcement, 2 – Referendum oxi result, 3 – Nikkei collapsing yesterday)>> smaller moves.
(4) Sentiment has grown negative with many blogs preaching a bad summer for equities and yesterday morning felt like bottom panic on what could be a “Tuesday counter day”.
(5) I think sep/oct expiry will occur on a positive note. Initially I thought there would be a dive in between and my paranoia grew in the last 2 weeks that we may bottom here and climb slowly for 3 months.
(6) I find the dax calmer on the bottom – that is good as to climb sustainably – it needs to do that slowly so the rally can last 4/12 weeks (if you do 2/3rd of the expected rally in 5 days, something is wrong or you underestimated the potential).
(7) On the SP500, If I start to be positive on DAX without having had a correction I need to review my capping assumptions before it is too late – Which I do in the 2nd chart below.
(8) I am buying a bottom – I am not capitulating on a top. This is probably the most important in risk management.
(9) The emotional time component is very important too: we could argue that we are in a correction since April – 4months correction then – That qualifies as a good rest in a rally.
Now:
- Yesterday night close was very uncomfortable but also necessary as it puts a real mark on the bottom on close (which was rejected intraday so far).
- I did not buy the sp500 which i find more risky at this altitude, I bought the DAX which I find less risky and also has an enormous potential (Technical, Greek Deal, European Fundamentals improvements).
My risk?
- 140bp loss if DAX closes below 10200 – Reasonable given the above and the potential of making 400/600bp.
Voila – Faites vos jeux… Rien ne va plus.
