Random Thoughts: China Rider!
The Grateful Dead try to awaken the bears.
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.
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 firstname.lastname@example.org.
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