Milk The Market Investment Blog

Welcome to the blog of Milk the Market. On www.milkthemarket.com we offer our tools and solutions for investing and trading. Here, at our blog, is where we discuss ideas, market events, random thoughts and basically everything related to finance and investing in a casual format. Our main focus is on stock trading and index futures (E-minis) trading, both day trading, swing trading and long term investing. Don’t be surprised to find some ideas on bonds, commodities or options though, even the occasional Forex or quant thoughts. In the end, our goal is to extract money from the stock and futures market, and hopefully you can share in that goal too. You can find out more about myself and our tools in the About section. Good luck and happy trading!

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If you thought the fallout over the subprime lending “scare” had already taken place and the market was finding it’s bottom, I think its time to reevaluate that theory. As 3rd quarter results loom over the megacap financial institutions, it’s expected to see $35 billion or more put on the books as bad debt… yes, $35 billion.

According an analyst at JP Morgan, this will effectively wipe all profits off the books. According to Kian Abouhossein, “Banks will have made almost no money over the last quarter. Profits will be close to zero.”

Despite Greenspan’s possible actions that planted the seeds for this mess, he is economically astute beyond most. He recently told us, “The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987, I suspect what we saw in the land-boom collapse of 1837 and certainly the bank panic of 1907″

I’ve had a bearish outlook, but I am now I am considering only taking short position setups in swing trades. Remember, when the market is bullish, bullish setups have better expectancy. When the market is bearish, bearish setups of better expectancy.

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To be honest, right now you need to be very careful as an investor (as opposed to a trader), because of the current market conditions.

However, like Phil says, you can make profits going long in a bear market. The only difference is this is not any old bear, this could be a CAT 5 economic hurricane that puts the S&L scandal to shame.

IMO, we have only seen the tailings, or nose, or how ever you want to put it.

Only time will tell, but it is better to be cautious instead of a consummate optimist. Anyone who confidently believes they’ve seen the worst, and it is all blown out of proportion is a fool and has no concept of economics or the underpinnings of the financial systems. Those people are the ones being fooled by those companies, financial institutions and others with motives to quell the bloodletting. If their opinion is not being based on the words coming out from those places, then they are basing it on nothing but their gut feeling, and we know where that can get you.

When you factor in just the housing, credit, employment, consumer confidence numbers, which are right in front of your nose, it is easy to see something quite troubling. Now factor in insolvency, the dollar, inflation/deflation, bad debt being marked. Look at the bond market… 80% of AAA rated bonds are backed by subprime loans. When people start valuing bonds backed by subprime the same as a US treasury bond (as close to iron clad as you can get), you have a problem.

In a bull market just about any long strategy works well. In a bear market, most fail, so it’s not throwing darts at a dartboard with Rule #1 qualified companies. You will need expand those filters and look for companies that are “relatively” recession proof on top of a great value.

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If you are long term investor, unless you are really really confident fed will cut by 50 bps, be careful in new positions heading into the announcement on Tuesday. The FF (fed futures) is priced in at 50 bps, but there is a reasonable chance that it will only be 25. If it is only 25, disappointment will likely occur to a degree and could send the markets down, as 25 bps is priced in as a certainty in FF. A 25 bps cut is likely being reflected in current prices, though there may be surge or some type of frenzy on Friday due to retail investors who don’t know this buying up everything after the Fed announcement, or just because of general sentiment. In which case, that could lead to a long squeeze of sorts.

But that’s all hypothetical and getting the cart ahead of the horse.

Either way, this could be a tricky week to navigate if you are anything but a day trader. I like to take the side probability and not shear speculation, and right now the upside to 50 bps would probably be quite less than the downside of a 25 bps cut. So I will be waiting until later in the week before I start adding or taking on new positions as an investment.

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I’ve had a couple not so stellar ES sessions, and mid-day Monday I switched over to YM with great success. I had not played YM in a while, and still, the fills can be terrible in comparison, but the outcome was great. I’m going to stick with YM for a bit, if nothing else for psychological reasons.

I was up extra the early the other day and loaded up the platform to see how things were unfolding for the day. I saw a couple good setups developing on ES and took them. Bingo! I was up and decided it would be best to leave the rest of the plays for regular market hours. As I am closing out I see another setup, take it, winner. Now I’m starting to think “this is too easy”. And when you start thinking like that you get burned.

Around 8:00am EST, some traders who plan on making the market obviously show up. Next thing you, the gaming begins. Well, I was on the wrong side of it before I see it happening. Being a little tired, and a little incensed, I started breaking all the rules. I start letting emotion get involved, I start overtrading, both day one mistakes that have no business in a trading session.

That was the setup for a mental block on ES. Switching to YM helped that, and when I wasn’t interested in the e-mini, I switched over to scanning for small stock scalps, which were abundant.

There are several morals to this story. Never ever break the rules. It snowballs… what irritated you will only irritate you more. If you lost, you will only lose more. Avoid afterhours unless there is a specific reason for doing it. If you are playing afterhours, it may be indicative of a gambling mentality instead of a seeing a business opportunity.

If you find yourself in a situation where you consciously broke you own rules, you may find yourself in a period of uncertainty about your trading. When that happens, walk away for a few sessions and regroup, or try switching to another index or instrument for a period of time. Either way, the war is not won in a day, but it can be lost in a day if you try to force something or fall outside of your trading parameters.

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I’m not a big fan of wacky indicators, or really indicators in general. Almost all indicators are derived from price and volume, and hence they are lagging, especially averages. But can they assist in a predicting the future based on which way a line is trending for instance, sometimes… but I think the more important thing is that so many people believe indicators are the holy grail that you can predict what a lot of other traders (mainly retail) are going to do. So you do you fade those, or do you play along? Anyways, here’s an interesting video. And yes, as he states, whether what he is doing is right or wrong, you cannot argue with results.

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