Last Wednesday we wrote that we were still bearish risk assets. By early Friday, we wrote on social media that we had turned short term bullish and were sitting on the fence. Our positions reflected those view; we were already out of our short SPX position by mid-Wednesday and were net flat, playing watchmen.
Turning on a dime, flipping sides as and when the markets call for a change. As traders, we never fall prey to the syndrome of becoming emotionally bonded to one position or one view, or "falling in love" with a trade so to speak. It's a toxic mindset and a habit amateurs unknowingly embrace, and it'll be the death of them sooner or later.
Starting off last week, we were committed to the downside, for the various reasons we have espoused at large on these pages. But when price action develops and market sentiment takes a shift, or in this case an abrupt reversal we hazard, then old biases become somewhat redundant in the essence of time.
At Friday's close, we were definitely short term bullish risk assets. We had a flat book going into the weekend, and that gave us a lot of peaceful room to plan ahead for the following week.
Why short term bullish? For simplicity, let's just say the bearish rhetoric of "selling everything" got way too pronounced. Everywhere you looked, on financial media, typical mainstream media, and even on the Internet, you'd be sweating not to see stories of crashing oil prices and the all too familiar woes about China featured as headlines.
Just when everyone, and by everyone we mean the average retail trader and investor, flips out and decides to liquidate every long position, it's then time to cash out on ITM shorts, and if one is daring enough, intiate covered long positions betting on a visceral reversal at least for the very short term.
That was what we saw, and that was exactly what we got. Climatic sentiment, overcrowded trades, and a peak in fear. Such classic market psychology breeds pretty predictable results. Oil posted its largest 2-day gain in over 13 years. U.S. stocks rallied hard from thier August 2015 lows. Risk currencies soared while safe assets were liquidated. Hedges were partially lifted by the smartest of the smart money.
We were short term bullish but weren't yet convicted on being outright long. We certainly weren't short risk after last Wednesday's inflection point. As we monitor price action, we're increasingly convinced that we've seen an intermediate low in risk. Intermediate because the environment still remains murky and challenging to navigate.
We made adjustments to our active strategy, and switched models for now. So far, it has been working in our favor. But just as the title of this snippet is, we're more than ready to turn on another dime should new circumstances and information come through.
This week, we're already long risk on several positions which we won't disclose publicly.
Subscribers to our Premium Signals Service are however being updated in real time as we maneuver our books.
Also note that today will bring the first FOMC meeting and interest rate decision of 2016. Markets seem to be sanguine about a dovish Fed after all that has happened. But we'll leave it at there for now until the statement is out.
Until then, we're short term bullish and just about to flip sides for the medium term. Trade accordingly.