It was a big week last week. There are many lessons to hopefully be learned from how it all unfolded.

Today, I want to focus on three things:

1- Stock indices and single stocks;

2- The Euro as an example of how to utilize our work;

3- Understanding our client base to better understand the methodology of our writing.

***********************************************************************

1. Stocks:

If you go back and review May 2 in the archives, you’ll see the recommendation to get out of long stock positions. This is also when we started selling short the S&P 500 Futures @ 1363 and actively buying the June 30 yr. Bond futures. This should have been a sign that the markets were going to start potentially reversing, as they did. We have been trading with a short bias since the beginning of May.

We also warned to take profits in individual stocks that had huge month end rallies in April.

Let’s look at one example of a single high flier we were long into May 2 – OXY. We said then that we need to do something to cover this instrument – either take your money or sell calls against the entire position. The individual instruments often move independently of the indices. Oxy is a perfect example. It moved much faster. Sometimes, even hedging in the futures will not adequately cover your downside in high flying stocks. OXY was up almost 20% in 2 weeks and close to 40% since our last big buys, the S&P broke a few percentage points, while OXY gave up almost 20% before the S&P started to play catch up.

I will stress this point one more time – We trade and invest to make money! We are not a private wealth manager being paid to move you out of the hot sector after it’s given up all it’s gains to park it in some “defensive” ridden instrument so we can keep collecting a management fee! Cash is good and you do not always have to be involved. This means – don’t be afraid to be in cash. It is more than OK to take your hard earned money and wait for the next opportunity to manifest itself.

2. EURO:

Tuesday, June 7, we were adamant about NOT buying the Euro up near 147 for a multitude of reasons previously stated. We are bringing this up because our main goal is to keep you out of trouble at a particular level. Most traders thought that it was going to keep rallying, including me.  However, we knew the area had a big red flag on it, due to the currency crosses, and it was highly unlikely it would rally from that level. It had to break first and give up some gains in order to set up for a further rally.

This leads us to the next subject – time frames.

Our view was that the Euro would back off into Wednesday for a buying opportunity. Please note that OUR CLIENTELE IS ACTIVE FROM BOTH SIDES OF THE MARKET. Therefore, some traders took this as an opportunity for a short. However, we were looking for a low before the ECB meeting to hold, and then rally through the meeting. Again different strokes for different folks. There are a lot of ways to make money.

We had our “trade location” on Wednesday against 145.50 and bought the Euro ( @ 145.80). It held and rallied into the meeting before failing at the previous week’s close ( 146.40)  and imploding. Good day traders recognize this type of price action and have the ability to trade it from both sides.

This highlights two very important points.

First, we try and only do trades for our longer time frame clients. These are mainly private wealth guys that are either in or out. We don’t flip positions for them. They would Freak Out!

Second, most of our clients are top professionals who trade from both sides everyday with differing goals and strategies. To that end, we try it once at a level for the longer term guys, and give the shorter time frame traders our preferred side to trade from (sell them before you buy or buy before you sell) at the levels we identify as significant. Flipping and going with the short term flows is up to them.

3. Trading Style:

Let’s talk about our trading style. Last week, on Thursday, we bought PAAS & REE. These are both Risk On trades, meaning the equities need to rise and or the U.S. Dollar to weaken for these to work. We bought these as a hedge against our short S&P’s, notwithstanding that a big part of our client base was also mega short NASD, Russell, and Midcap 400). Buying a little upside (it was a nibble) with a defined “out” is a strategy we often use. Why? It reduces your risk profile. When we did these trades the equities staged a full day rally only to fail in the final minutes of trading.

The theory is that one side works and the other is kicked out or liquidated for a small loss, while letting your winning side ride. In the case of stocks, this is a Long /Short strategy. On Friday, we also saw some of our client base lock in some of their profit in the NASD, while leaving the other sectors ride.

The result? We still have shorts against our longs. We live in a Risk Off Risk On world. We now have to see if the Equity weakness will lead to a tapping of the Precious metals ATM. We have warned repeatedly about this possibility. It’s called margin selling ( sell the good to pay for the bad). Then everything goes one way – until it decouples again.

We publish a list of positions put out for our entire network. However, we also do a lot of custom work for clients subscribing to our premium service, who can have very different looking portfolios with varying instruments depending on their own goals, trading strategies and risk tolerances.

Although we publish current positions, our clientele are mostly professionals who will ultimately decide which instruments and positions ( long or short) is right for them.

They could very well have the opposite position at any given time than we state.

That’s called trading.