Riding Out The Storm

Several days ago I promised to tell a story surrounding the now infamous August 2010 lows.

I catch myself thinking about it quite a bit, partly because summer seems so long ago from this cold, snowy winter.

And partly because it was the origin of this relentless up trend that started as I was riding out a storm on the coast of Maine, away my trading screens, huddled over an iPhone that seemed to lose its signal every time the boat swung in the wind.

The owner of the iPhone is a successful photographer known for his signature hand-made sepia images of yachts and seascapes. We were out for a week exploring Merchant Row just off Stonington, Maine, on a beautiful Grand Banks trawler that we were just plain lucky to be aboard.

Each day he’d wake up at 5am to go to “work” carrying his “briefcase” full of gear for his antique Hasselblad, sculling his rowing shell into the rush hour traffic of lobster boats running out to their traps.

I was still on vacation though, and would wake up when the whenever the sun filled my stateroom. I’d brew some coffee, smoke a cigar, then go for a sail in the Dyer dingy.

By the end of the cruise, he’d shot 72 rolls of film while I missed the start of one of the best stock market rallies ever.

We had been anchored at McGlathery Island, just the windjammer Nathaniel Bowditch and us. Sailing, fishing, swimming, steaks on the grill, beer, rum . . . summertime.

It was all about to change.

A storm was coming. NOAA radio was calling for a cold front to pass through with a large area of low pressure behind it that would displace the high pressure which was providing our dazzling sun each day. High winds were due to start building from the East and would back around to SSW over several hours, almost a full 270°. There was a small craft warning for later that night.

We needed a less exposed anchorage right away. I began checking the charts.

Merchant Row, to the East of Penobscot Bay, is a cruiser’s and gunkholer’s paradise, and is home to hundreds of picture-perfect islands. But precious few are hurricane holes. Fewer still could accommodate a 270° storm swing. Bold Island was the only choice.

One thing about Maine is that her beauty rests soley above water. Below the water's surface she’s one of the most wretched and terrible places on earth. An unprepared mariner’s nightmare. Nothing but rocks and ledge and granite, strong tides and swift, cold currents that punish the slightest mistake.

Regular readers of this trading blog might then recognize where my emphasis on risk management comes from. It comes from the ocean, these waters in particular, and from my own father who served as an officer in the Coast Guard as a young man, practices risk management as a profession, and who taught me everything I know.

We were safely tucked into the lee of Bold Island when the storm began to rage, and we stayed there for two whole days. I had set a 45 lb. CQR anchor into a mud bottom with 140 feet of chain in the water plus another 30’ of ¾” nylon rode. The wind howled through the rigging, the rain pelted the glass, the waves stood up and danced along the Deer Isle Thoroughfare, but we weren’t going nowhere.

A few hundred yards off our beam was Hell’s Half Acre, with her craggy rocks hidden by the tide. A gorgeous Hinckley Bermuda 40 arrived later, her crew looking cold and frantic. They motored in close to Hell’s Half Acre, where earlier that day the rocks had been exposed. I was just about to go out on deck to wave them off when they turned around. They dropped anchor further out and quickly went below. That was the last we saw of them for two days.

Aboard the Grand Banks there was not much else to do but let the storm blow through and be thankful we were warm and dry. We had heat. We had a generator. We had plenty of food. We had even had the iPhone that sporadically kept us connected to the rest of the world.

We also had rum. A lot of rum. Rum from Tortola. Rum from St. Croix. Rum from Jamaica, Barbados, and Bermuda. And like the famous drinking scene in Jaws with Quint, Hooper, and Chief Brody aboard Orca, there wasn’t much else to do but hang out in the salon, drink some rum, and tell tales.

Remember in the BVIs when the wind died and the girls jumped off in the middle of the Sir Francis Drake Channel and dingied all the way to Pusser’s Landing for Painkillers?

Remember diving off the flying bridge waiting for the Eggemoggin Reach Regatta to start?

Remember standing in the surf at 2 am on the Outer Banks freezing our asses off fishing for stripers?

It was probably just after the word BANKS that our conversations shifted to the markets. I’d just taken a long road trip across the country and seen a lot of things socio-economically that disturbed me.

Even though I’d previously written a bullish argument months before (What If It’s a B-Wave?), I couldn’t help thinking we were about to fall off a cliff. I grabbed a piece of paper and drew a very bearish path for the market based on a possible wave count I was following.

Suddenly the iPhone was getting a few bars, and I was able to download an S&P chart. I jumped up excitedly.

The market had just closed, and had traced out a 3-wave decline since the August highs. At a minimum, the implication was a projection of 100 points on the S&P.

“You’ve gotta buy that!” I blurted out, all rummed-up and shouting. “YOU GOTTA BUY THAT!”

Only one person in the world heard me say it.

……………………………………………………….

We all know what’s happened in the market since then. By the time I got back to the screens, I’d missed the buy. I missed the retracement. And I soon realized I’d missed so many trading days that it was hard to get back in the rhythm. The train had left the station without me.

Looking back, there were so many things happening that I’m surprised I could not see the signs or the symbolism.

We were close to the end of a large multi-month correction -- a storm in the markets if you will -- while we were close to the end of the storm in Maine.

The full moon had just occurred which often brings a change in the weather. In this case, it was bringing an end to the storm, pushing it through with another blast of high pressure behind it.

If the moon can move the oceans up and down, why can’t it move the markets which are made up of humans which are 80% water? In this case, the full moon coincided with several other astro-cycles and the results speak for themselves.

I had ridden out the storm in the markets and had ridden out the storm on the ocean. The sun was about to return. But I was still focused on the clouds and the wind and the rain.

Meanwhile it’s been sunny since last August. That is, until a storm blew in last Friday. Who knows how long it will last. I've got my eye on the chart. I know a good hurricane hole. And I've got a sturdy anchor ready to go.