The collision of global markets and social mood

Monday, May 13, 2013

Both Sides Now

Peter Brandt posted a great bit of ancient wisdom that I wanted to share:

Magnificent trading wisdom from 2,400 years ago

When an archer is shooting for nothing . . . he has all his skill.
If he shoots for a brass buckle . . . he is already nervous.
If he shoots for a prize of gold . . . he goes blind;
or sees two targets . . . he is out of his mind!
His skill has not changed. But the prize . . . divides him. He cares.
He thinks more of winning than of shooting . . .
and the need to win drains him of power.

– Chuang Tzu, 400 B.C.

I like this quote because it dovetails well with trading psychologist Dr Ari Kiev, who also uses Eastern Philosophy in his work.

You need to stop being too invested in the personal significance of your financial outcome
and begin to see trading strictly as an opportunity for self-expression.

The pursuit of mastery is ceaseless. It is a journey without end, a state of mind rather than a result. The results show up on their own, often in unexpected ways. But you better enjoy the trip.

The S&P had an ambiguous close on Friday. The pattern suggested two things: a sharp reversal down targeting below 1620, or a choppy continuation of a triangle targeting 1640+.

The way the futures opened in last night's Globex session, it seemed the first scenario could unfold.  But in this morning's pre-market there is more support so far. Until I see below 1620 in the cash market, I'll be looking for higher areas to load up on SPY puts and establish another VIX call position. Still holding the SPXU against SPY 163 calls. A run to 1640+ would be welcome, especially if I can successfully increase the call position today.

Investors pulled $20.8 billion from gold bullion funds this year. If gold gets above 1539.40 without making a new low first, I will start looking for spots to get long GLD or calls on gold futures. It could signal a potential rally to over $2000.

The big news of the day happened after the close on Friday. Jon Hilsenrath's WSJ article hit the press:

Fed Maps Exit From Stimulus

Timing of Wind-Down Is Uncertain, but Focus Is on Managing Unpredictable Market Expectations

Recall this was flagged back on April 9th, right here, in a post titled Subtlety.

It's just a whisper thus far, but the Fed may have sent its first signals that it may be getting ready to begin tightening.

Last night at the Atlanta Fed, Bernanke said the Fed will raise the interest rate on excess reserves as its primary tool for tightening monetary policy rather than selling assets from its balance sheet.

I don't think we've heard this level of specificity before. And it seems to have passed under the radar. Or maybe that's the plan at this point.

The Fed's eventual tightening -- which may not happen for years if the market rolls over on its own -- is likely to be telegraphed far ahead of time. It feels as though it began last night.

When the reality hits it won't be pretty. All the warning signs are there: large FX moves in the yen, counter-trend cracks in the bond market, a Daily Sentiment Index reading of 92% bulls, and a Market Vane Bullish Consensus reading that equals the highs of May 2012.

It may be a good time to focus on mastering both sides of the market. Cue the angel from Alberta.

Both Sides, Now by Joni Mitchell on Grooveshark

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