Market Anthropology: Bear Market Driving

Wednesday, May 4, 2011

Bear Market Driving

“I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.” – Paul Tudor Jones.

I have always gravitated to tops and bottoms as well (could be a gender thing), because you get to drive the freshly laid technical infrastructure on the backside of the move. I find the exits and entrance ramps to the market highway much clearer revealed during these pivots. 

Structurally speaking, bull markets typically lay the roadwork that you can drive at high speeds during bear raids. The downside decline is typically a much steeper face. Tremendous gains can be captured and compounded in very short timeframes. However, as a trader you absolutely need to have your homework completed and have available a few extra road maps and fractals in plain sight. The exits and entrances will come at a much faster pace as the move progresses. 

Speaking of bear markets declines, silver met the standard criteria of a 20% decline (intraday) today; this after just four trading sessions. It’s certainly not a Hunt’s brother’s 50% decline in four days (see Silver Thursday) – but it is following the exhaustion geometry rather acutely. 

My near-term target of ~36 for SLV appears to be taking the expedited route. 
I cleared my position in ZSL today (20% gain) at the bottom of the move below 40 (SLV) and re-entered the trade right before the close, picking up a few additional percent. Now that silver has pivoted, I will manage the position and use the breached hourly SLV trend line from late January as my sliding stop. All my trades have been posted in real-time via my Twitter account (@MktAnthropology). 

Recently, I have read some articles describing the dangers and misconceptions with the leveraged ETF trading vehicles. And while I wholeheartedly agree with some of their generalizations towards retail investors, I would strongly disagree towards their utility to professional traders. In my opinion, they are an excellent alternative to the options market where a trader’s position can be adversely eroded by time decay. I am more comfortable layering in a larger position with a leveraged ETF in a set-up such as silver – than I am with conventional options. I know my risk principal will be less as long as I am not applying extraneous margin to the position. Like any trade, timing is everything – but the flexibility and liquidity with these instruments over the short to intermediate time frames outweighs their imperfections. 

Just my two cents – we all have our own comfort zones. I am sure there are those that strongly disagree with this methodology. 

Broadly speaking, the equity markets appear to be taking on the bull-trap scenario that I described last Thursday (see here). At this point that perspective hinges on the Dollar. You could say that the market is wrapped in tinder if the Euro decides to break from the stampede it has been on for the last several months. I cleared the deck of the Russell short I had via TWM (4% gain) since last Thursday. I will likely reposition that trade in the coming sessions if the dollar decides to firm or the market bounces. 


I just joined Twitter, you can find me here

(Positions in ZSL & UUP)

Disclaimer: This is not investment advice. Always do your own due diligence. Erik Swarts is not a registered investment advisor. Under no circumstances should any content from this website be used or interpreted as a recommendation for any investment or trading approach to the markets. Trading and investing can be hazardous to your wealth. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor.