Trading Journal (06.19.2020)

One of the crucial reasons why I have failed in investing is I lack the ability or know how to manage risk. Dear I say this but there were trading days this year I went either into calls or puts with no hedges or spreads. Playing a specific direction is dangerous enough if wrong but having time decay, higher than usual volatility and lack of defining entry and exit points has made me gave back most of my gains for the year to date. This has also hinder my mental capacity as I focus more on trying to gain back what I lost instead of looking for the next potential winner.

This reason I start off with this is to mention near the close of today's market and after market it has made a very tempting play to go short. Although it is still a gamble the odds are in bears favor. My directional play of going into puts was not executed since my recent pitfalls. So today I ended up being flat with no positions over the weekend. The outcome is still unknown but the past few minutes before the market closed leads me to believe there is more follow thru to downside in the coming days.

Today the market started out strong where spy opened above 314 but as the day progressed it gradually got sold off. It ended the day at a low around 308.6. What it basically shows is spy made a higher low for the week while creating a lower low also at the close of today if we exclude the Monday gap down opening. The after hours prove to be confirming more down to come as spy continue to sell off. Right around 3:20pm while the spy recovered to be flat it was likely a decent time to short or have puts. The continuation of downside did not stop from there all the way to after hours.

What is different in this draw down than past weeks is that the markets got bought hard on Monday but never had follow thru. Instead of a rise it basically flat lined and now started to decent. A few elements to look out for if bearish on the markets. Current reading of the DIX is the highest in its history, meaning dark pools were buyers of spy at the most in history. A DIX reading of 52.5!

It may likely mean something totally opposite of bullish with such overweight sentiment regarding dark pools. With heavily skew to the up side the possibility of selling becomes higher as there are less and less seeking to buy, just on the basis that more than ever people have bought into the markets. Although statistically the more times DIX has been over 50 reading has the market rallied the following day.

Today was first time when DIX hit 50 and over did the stocks not closer higher. Yet DIX actually continue to rise even though stock prices closed at lows. Again under the premises that markets are overbought there needs to be some selling to balance. Due to come with such a high DIX, is the contrarian view.

Trading Plan for Monday

This may sound silly as whole entire post I have been bearish by wanting to go short at close of today, but on Monday's open I intend to wait and see if the market actually drops and by how much. So that I can buy. I am anticipating on a capitulation bounce so strong that it will likely catapult markets to all time highs. Main reason is that markets have been overall bearish by many fund managers.

With almost a 2 to 1 ratio of bears versus bulls it leaves without saying that there are more managers not believing in the current market upticks and will be force to chase at any moment the markets seems to be at a discount. Add on top of that over $5 trillion still on the side lines that needs to be invested it will be interesting to watch come Monday and the the remainder of the week.

Also to note fresh start with the month options as June's have all expired. With new chips to be put in play it will be a volatile Monday and it has proven true since the close of today in after hours trading. Good luck and stay safe.