Initial Thoughts

Trading started several months ago but, for some reason (?), I did not start the journal until today.

Coming back from holidays on Monday 6 August (4 days ago), I had the strong feeling that the markets were ready for a technical bounce. In fact, I had tried to buy HXU at the last moment last Friday afternoon, but was too late in entering the order by a few seconds. Toronto was closed Monday but NY rallied. On Tuesday at the opening, I was surprised to find Toronto trading flat from Friday's close. Being quite certain that the markets would rally following the Fed statement later (no matter what they said -- any old excuse would do), I bought HXU at 28.37. Stop loss was set at 27.95. I thought there might be a dip before or after the statement, but thought the spread would be sufficient to take account of any market 'noise'.

I was away from the computer from before the Fed announcement until after the close. I was slightly annoyed by the outcome. Markets did indeed rally, and there was a dip first. But the dip was large, and my stop loss was hit. In fact, my stop loss was hit at 27.88, and the low was 27.83. Close was 28.60. There must be a lesson to be learnt there, but I am not really sure what it is. For now, I am taking it to be: "be sure in your trades and set stop losses wide". If you are not sure, then don't trade!

Wednesday: market rallied again but I decided to stand on the sidelines. I did not expect the rally to last very long -- this was a technical bounce, after all, so it was a matter of waiting for it to peter out.

Thursday: European markets tank after more bad news on sub-prime. Turns out the problem is spreading to Europe. Amazing where this junk is turning up. In retrospect, not too surprising though. Considering that China, Japan, India, Russia, Saudia Arabia, etc. have been buying all the US Treasuries over the past few years, what has everyone else been buying? Securitised and structured products. And why not? They have a AAA rating, and the yields are certainly better. But ratings do not say anything about liquidity risk. And right now, it seems that no one wants anything without a government name. The technical bounce is over.

Toronto gaps sharply lower at the open and I am a buyer of HXD at 21.78 (no stops set after Tuesday's experience...for now). Market subsequently rallies for the next few hours. I know this cannot last, but I am annoyed at my impatience. I could have entered the trade at a much better price. Try to tell myself that it is the big moves that matter, not the intraday. In the end, market gives up all its gains and more.

Friday (am: London): Asia down sharply overnight. Nikkei is down a lot but the March lows held (so far). Europe also down. US$ up. Everyone is worried. Apparently the central banks are injecting liquidity into the markets. But I have a strong feeling it won't be enough to prevent a bear market. It may prevent a seizure of the credit markets, but the damage to the American household has already been done. People are worried about their homes and jobs. Spending will slow, dragging the economy down with it. In the financial markets, the global buyout binge is finished. finito. This has been driving the market up for the past 6 months, and now it is gone.

This all said, I have a sneaking suspicion there will be some short covering today before the weekend. The selling will continue next week.

MARKET POSTIION: SHORT (2 units)