Thursday, June 04, 2009
As discussed in the comments earlier in the week and in yesterday's post I was prepared to do a small trade in reaction to the S&P 500 taking back its 200 DMA.
It is difficult to describe the trade as buying X because I had to go account by account to calculate what to do for each account. With that in mind I meaningfully increased clients' tech exposure from a severe underweight using ETFs.
There was a tremendous amount of work, relative to most across the board trades which, combined with a couple of other things, contributed to a logistics issue for getting the trade done Tuesday but it turned out OK in that I bought a little cheaper than I would have on Tuesday. I waited until about 12-10 minutes before the close to execute the trade.
Increasing tech does a few of the things I mentioned yesterday in terms of trying to add a little beta and a sector that might do well early cycle. Toward the end of the day the SPX seemed to be flirting with the 200 DMA and then it appeared to kick up at the end of the day to close several points above.
The trade was about sticking with the game plan set out months ago. My thoughts about another run down that scares the hell out of people have not changed but opinions can be wrong and staying faithful to something that tends to work (as opposed to second guessing) is probably a good idea. It is easier, both for professionals and do-it-yourselfers, to explain being wrong (either to clients or yourself) by saying this was the plan ahead of time and I stuck to it.
It is just one trade, there is still plenty of cash still on the sideline and I have started the process to build the next trade and have it ready to go. From here there is more art than science, especially if the market holds its 200 DMA. I'll update the blog accordingly as we go.
One other dynamic that made the trade a little easier (in terms of strict adherence) is that the 200 DMA is dropping quickly making it easier to stay above it, in a manner of speaking. I've brought that up before a couple of times. The flip side of that coin is that many believe that it will still be a bear market until the 200 DMA starts to turn up.
Tweaking the idea to account for slope is something to consider for the next go around but I don't want to change mid stream. While I have been generally pleased with how this has gone it has not been perfect (said up front it wouldn't be). The SPX went further below its 200 DMA that it ever had before so it rallied a lot before taking it back but again it warned early and would have you get back in at a much lower figure.