Author: Michael Arold
Disclaimer: Michael owns AAPL in his Covestor Technical Swing model.
September 30, 2010: Major Indices including the S&P 500 and the DOW gained significantly in the month of September. However, my trading account showed a small gain of .2%. Overall, I’m not too concerned with the performance, because I followed my rules and executed my trading plan. Risk management is key in a choppy market.
I was bearish going into the month with various short positions in the portfolio. However, it became clear to me that the market would not brake down and I closed these positions immediately. The losses on the short side were small. For example, I took a small loss on short Financial and Semiconductor sector positions. Most long trades at the beginning of September had positive outcomes with gains in Apple (AAPL) and Mercardolibre (MELI). Because of the erratic market environment, I closed the long trades with just small gains to protect profits.
Throughout the month, it became clear the rally had a lot of underlying breadth: many stocks participated in the move and pushed major indices out of the recent trading range. Market characteristics changed significantly and there are signs that the market has become healthier. One indication is daily equity price fluctuations, which have declined over the last months. In a more healthy market, we can hold positions for a longer period to profit from intermediate term price momentum.
Short term, however, markets are overbought and a one or two week consolidation would be healthy. I plan to keep my current long positions and add to the portfolio on pullbacks.
A bullish market observation on a final note: I am following/communicating with other short-term oriented traders and there seems a common theme among them: many currently have a good portion of their portfolio in cash and are waiting for a pullback to put money to work. They have been surprised by the strong rally and feel they “missed the move”, a feeling that could put a bid under the market.
