Locking in some gains after 4% move off lowsI sold half of my long exposure this morning to lock in some gains and give myself some ammo to buy back if and when the market sees some selling this week. Most traders were away last week and will likely return wanting to short into the extended move higher that occurred without them. I was lucky enough to nail the buy on Monday and didn't make a trade for the rest of the week jump-starting my account for the month of September. Now the trickiness begins. I will be looking at a 1.5-2.0% pull-in in the overall market as a place to begin buying leaders again. I had about a third of my account in SPY last week but will be selling that holding to buy individual companies.
The leaders of the market are clear: AAPL, AMZN, BIDU, NFLX, VMW. Financials are clear laggards and not worthy of a momentum trader's time for now. It is important to keep the recent move in context for the technology leaders. If this move in the market is real, the rally last week is nothing compared to where the stocks will run before they rest again for an extended period of time. I think AAPL at $240 was a gift and while I started early and took some pain from $250 the last couple weeks, I believe it is a $325 stock. With that in mind, I will operate with the mindset that I should be a buyer on weakness and will trade around a core position until further notice. I continue to believe in this rally.
Mastercard (MA) and Visa (V) thoughts misplaced
I recently outlined some arguments for a long trade in MA and V but the concept was simply wrong for the constraints most shorter-term traders operate within. A common mistake money managers make is called "style drift". Style drift is defined as "the divergence of a fund from its stated investment style or objective" and I am guilty of this with my MA and V idea.
I have a very strong affinity for value investing and the philosophies of Benjamin Graham and Warren Buffett but my current position is as a momentum trader. I am trading a short-term account with the goal of capitalizing on momentum moves. This strategy is very dependent on sentiment and less dependent on fundamental value even though it is an important piece of the puzzle.
While someday I may become a value manager now is not the time. I have been continually expanding my horizons and honing my trading discipline in search of what I have long termed a "scalable and repeatable" strategy. I started as a scalper which was excellent for a highly volatile market with relatively low HFT impact. But, as volatility slowed and HFT stole a larger portion of the possible intraday profits I expanded to full day trades, then took overnight positions, then held for days, weeks, months. Now I am trading larger baskets of stocks for broader market moves.
Where I have consistently hit stumbling blocks as a trader has been my desire to take too many steps too quickly. Evolution is absolutely necessary for survival but amoeba didn't become human beings overnight. There are steps to take and many, many lessons to learn the hard way before achieving that sought after "scalable and repeatable" strategy. I cannot allow my beliefs in the fundamentals to lose me money when the sentiment is against me. Momentum trading is highly dependent on accurate timing while value investing relies on the willingness to hold out-of-favor positions trusting that eventually the market will recognize the value and bid shares up. Value requires a high degree of patience, something which I do not have at this time precisely because I do not have the experience to know that I am right on the idea. Conviction is all that really matters and it is gained through time by being correct. I must tell myself: "dabble slowly in uncharted waters and take it one step at a time".
Brandon R. Rowley
"Chance favors the prepared mind."
*DISCLOSURE: Long SPY, AAPL, AMZN, BIDU, EMC, DNDN.