Random Thoughts: China Rider!

By Todd Harrison  SEP 20, 2012 10:25 AM

The Grateful Dead try to awaken the bears.

 


MINYANVILLE ORIGINAL

Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

Today’s title isn’t about China Cat Sunflower—although you really wouldn't have to twist my arm to do that. I'm referring to the Shanghai stock market, which was down another 2% last night—or 8% for the year, or 67% from the 2007 high.

I bring this up for two reasons; first, if you recall, China was once viewed as the global growth engine, the widely-proclaimed savior of globalization. It was as sure as sure could be; perhaps almost as sure as the Bernanke call (note: this used to be the Bernanke put until the Fed became offensive).

Second, and this is perhaps more pertinent to traders in our midst, Shanghai 2000 should provide some support (it closed at SHCOMP 2024 last night).  That's nice and tight for a "spec" position—OR, for those betting against the stateside proxies, this might provide a good "pair" on the other side of that bet.

The last time we offered this thought was with Spain and the IBEX has rallied 35% off the July low (vs. 10% in the S&P (INDEXSP:.INX)).



Food for thought as we continue to find our way.

Anatomy of a Botched Trade

Last week, I had a long Facebook (NYSE:FB)-short NDX (NASDAQ:QQQ) dollar-neutral trade positioned.  The logic, as discussed at the time, was that I thought Facebook would outperform the tech market (based on an $18 and change entry level in Facebook) and in the back of my mind, I sensed that tech—and the market as a whole—would come for sale after Big Ben spilled the beans.

While that strategy proved prescient—Facebook is up more that 20% while the NASDAQ  has rallied 3%—my execution was dirt poor.  I attempted to "leg out" of the trade by selling Facebook and holding the tech short.  It's not the opportunity cost that stings—opportunities are made up easier than losses—it's my attempt to get "cute" on what would have been a solid situation.

While observing the holiday earlier this week, I found myself in a quandary.  I was in "hope" mode as I watched the tape constructively digest the recent gains (sector rotation is on-the-margin healthy relative to outright migration) and I post-rationalized my risk.  While I've mentally written-down the loss (setting stops removes emotions), the situation could have been avoided if I just followed my plan.

I share the tale for two reasons. The first is an opportunity to synthesize my thoughts (which is why I write to begin with) and the second is the hope that by recounting my missteps, others will have the foresight to avoid them altogether.  It's only a mistake if you don't learn from it; otherwise, it's a lesson.  I prefer the latter, which doesn't help my bottom line but does provide utility. Anyway, that's about all I have to say about that.  I’m still short tech—down $0.35 on the position as I pound the keyboard on the opening—and I’ll update it in real-time on the Buzz (click here for a free two-week trial!

Random Thoughts:
R.P.

Twitter: @todd_harrison

Position in QQQ

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.