Momentum Book Update

Rough market.  Staying small and extremely agile continues to be of utmost importance.  It’s been almost three full months since more than 25% of my capital was allocated on either side of this market.  In that time I’ve lost about 1% of absolute return.  For a market down more than 15% from the top, I’ll take it.

I began building short positions on Friday afternoon.  I will continue to build shorts up to the declining 50 day moving average.  I believe we test 1040 SPX at least one more time.  If we cut through it hard we could see a quick capitulation move.  If we bounce hard, consolidate for a week or two at higher levels, and see some institutional participation, this market could rip.  For now I will play the short side as we still have all of the trend indicators pointing negative.

Look for the US Dollar to move higher next week as it is very oversold on many of the important oscillators I watch.  The long bond will also be interest, it continues to trend on the intermediate term time frame to the upside, and has pulled back to an important breakout level.  The doji top put in a few weeks ago was quite obvious, and I said as much here.  Now we will find out if it was a real intermediate term top, or just a short term break in the momentum.  Honestly, I’ve got no edge either way, we will wait and see.  Watch this asset for clues as to whether risk has come back into the equity market along with European bonds.

The big money is not made by coming and going, but by sitting.  Right now, it’s not possible to sit, so stay small or be out.

The new quarter started at the bottom of this market, and thus I’ve seen pretty poor relative performance.  I trail the SPX by 460 basis points after about a week and a half of trading.  I’m flat in terms of absolute return.

New positions this week include longs in PWER and DPS.  The PWER chart could not look any more beautiful.  Long term this stock could be a big winner and is doing every it needs to right now to set up that scenario.  In bear markets though these types of setups often fail.  I like it as a great hedge for my shorts, if this market rips this stock is going to fly.  I added to my short in USO along with building a short position in UCO, the double long ETF.  The only reason I’m fooling with the double long is because I couldn’t get a borrow on any more USO.  Other short positions added this week are URBN, STD, SNDK, DLTR, and MSFT.  Remember, I don’t trade on the short side like I trade on the long side.  Get in, get out, move on, these are shorter term trades, a few days to a week or two at most.

I took some profits this week in PWER, and a loss on a short in AMZN.

Overall, I’m 20% short, and will probably build that to around 30% over the next few days.  There is an underlying drift to the upside in this market the last week or so, but it is coming on lighter and lighter volume.  Rising wedges are dangerous patterns which often produce big breakdowns.  I think we see one next week at some point.

Look down on the right hand side of the performance sheet to find the short positions.

Nothing that I say or show on this blog should ever be considered investment advice or a recommendation to buy or sell any security.  The performance numbers that I post in the momentum book should never be regarded as representative of any specific client account managed by Surfview Capital, it is there solely for educational purposes and should be treated as such.

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