tactical trader

Just over a week ago I promised to let you have some information about my intentions following the recent volatilities in the market. First things first, what was it that set it all off? Nobody really seems to know, was it Japan limiting the access to free money causing speculators to take flight? Was it the dear old US consumer finally realising that the party cannot last? Was it the manipulators finally deciding it was time to take us all down? We shall never know of course and there will no doubt be several pages of worthy commentary in the weeks to come all trying to figure it out.

My advice is don’t read it. A correction was inevitable after the crazy movements of earlier this year so instead of trying to work out who started it your attentions would be far better placed trying to address the question, ‘what next’?

Optimists would have us believe that the gains we have seen in recent days are an indication of a return to the uptrend because in actual fact not much is wrong. As far as the global economy is concerned things are no different now than before the slide started. This is true apart from one very important thing, sentiment. Most investors have had a rude awakening and if enough press space is given to the bear market theory they are going to get even more scared than they are right now. As a result I believe that any gains could just as quickly be wiped out by an irrational reaction to something that previously would not have been overly important.

There is the distinct possibility that the down side is not over yet and that the falls could be even worse than we have seen so far. There are two opportunities not to be overlooked here. You could attempt to trade the markets through short positions as a hedge though if you are not an experienced trader I would urge you to be very cautious in this endeavour.

The second opportunity is a chance to get out. If you have been kicking yourself for a few weeks for not jumping ship you may get a second chance in one of the up days that will inevitably continue. You are still going to suffer some loss of profit because there is no way the rebound will be to previous highs but at least you will not have to suffer the roller coaster ride that appears to be on the cards for the next few months.

I could be wrong and I hope that I am, I would dearly like the indices and metals to recover and get back to where they were before all this happened and in today’s markets this could well happen especially if sentiment can stage a major turnaround.

For my part I am going to take things easy for a while, I have some spare cash but I am not in any hurry to invest it, there are plenty of opportunities in the short and medium term trading areas so I will devote more time to them. I will hold on to all my core positions including India (ouch!) Taiwan, Korea and the Emerging European Markets. I was fortunate enough to be out of the majority of metals before this hit though I do have a stake in the MLIM Gold and General fund which has taken a hit, once again I am not unduly worried by this. The FTSE holdings were getting a bit long in the tooth and once the recovery is underway I will dump these, I really can’t see too much life in this for the medium term. I will certainly be on the lookout for buying opportunities once I am convinced that the bottom has finally been reached. I will post these as and when. That is it for now as the weekend beckons, more next week.