No Picnic Basket Required

This week was a strange week for anyone that just started opening their 401K statements again. For those that are new or been trading for a few years, this week certainly holds up to what must seem as a “once in a blue moon” event.

Imagine what this week must be like when seen through the eyes of a 16-year-old day trader that’s accustomed to racking up over 30% annualized returns. Obviously something must be wrong. If not how else can the markets go down 2 days in a row? I mean – “OMG!”

Of course I’m being sarcastic yet – not by much.

Anyone that’s been involved watching or trading markets knows the proverbial trading queue involving magazine covers:
When the covers say it’s “Time to Buy” – it’s  -“Time To Sell” and vise versa.

Yet, in this day of print media going out of business faster than their ink dries. The “talking head” shows were a buzz with the equivalent of what a tabloid finds newsworthy. A 16-year-old actress that’s also a self-professed day trader sporting yearly returns that would make a vampire squid blush.

I had seen the story of this young girl and her exploits as a day-trader and wanted to know a little more. Her name is Rachel Fox. This is nothing about her personally. She seems like a great kid with her head screwed on straight. It was also uplifting to see a young adult actually involved in managing her own money. I wish her kudos.

What I do wish to shine light on that I believe will be instructive to a great many in the coming weeks, months, and quite possibly years is this: “Markets do go down – and sometimes – they don’t come back up.” At least in the sense of where you can exit at a slight loss, or break even as has been the way of the last few years.

Personally my business bent is that of a Short Seller. I regard this side of business much more invigorating in both the analyzing of data, as well as the trading. One of the greatest pleasures I take from seeing the world from this viewpoint is this: When the world is coming apart and panic is abound; Shorts (aka Bears) by nature find exhilaration in the havoc. They begin implementing strategies and more with clear thinking and vision while everyone around them is just losing their minds.

Personally I believe the reason behind this is because it’s not easy being a bear when everyone from the Federal Reserve to 16-year-old day traders have you in their sights because “JBTFD” (just buy the f’n dip) has been rewarded again, and again, and again, and again, and, well you get the point.

An inflection point for the markets just might be closer than many dare think. This could actually be scarier (many think it never could) than that of 2008 and for the very reasons people believe it can’t. Of course I’m speaking of the Federal Reserve.

Nearly overnight all the wonderful reasons why markets were rising based on earnings and more were drowned out by the gasping of commentators everywhere that the Fed might take the punch bowl away. (oh the humanity!)

Imagine someone that’s been trading their own 401K or other investments over the last 5 years. For the most part everyone “buys” stocks. (Very few are what one calls “Short sellers.”) They’ve learned technical analysis, stop-loss orders, learned how to read all sorts of indicators or technical studies, and far more. But, (and it’s a very big but) the one thing they have not experienced is a fast-moving panic induced down move. Just for context. The last time a sustained down trend that lasted more than a day or so was when our teenaged wonder trader was (wait for it) eleven!

With the advent of HFT (high frequency trading) along with their headline reading algorithmic quote stuffing schemes all one needed to do was just wait for the market to spin on a dime and rocket not only back up – but higher. Over the last 5 years that’s all one’s known. What happens when it no longer does?

JBTFD’s can turn into trying to catch a falling knife faster than one can say “WTF!” Or should I have said “OMG?” If I’m correct it will be the former that’s used far more often than the latter.

Just what happens to one’s psyche when all of a sudden fast markets ignore your stops? They gap over or under them never giving you an opportunity to close that position that now has your net liquidation total showing negative numbers? The word “Hello” won’t be coming be coming from some trading icon. (pun intended) It’ll be from the margin managers desk. Like I said: “Hello.”

Just how many new orders will they put in to buy when every-time they do the market drops another 2 – 3 – 5% or more then does it again – for days!
What happens to the self-proclaimed “Pro” that’s been trading for 3 to 4 years and has yet to experience a week like the many experienced in 2008? I know this; exhilaration won’t be the term used to describe what they feel.

Of course Bears or Shorts have been wrong over the last 5 years. Many have deep wounds or scars to prove it. However, unlike most they take their cues when everyone else is either blind to the clues, or just refuses to see them. And I quite possibly saw one of this years best.

As I said earlier I wanted to find out a little more information on our teenaged wonder trader when I saw her in an interview with one of my personal favorite talking heads: Jeff Macke. I hadn’t seen him for quite sometime. My favorite line he used to expound was “If the markets are open – it’s a good day to short the airlines.”

As I watched his interview on Yahoo Finance™ all I could think was : If the news of the day is a teenage wonder trader making 30% returns – It’s a good day to short everything!

© 2013 Mark St.Cyr