First posted 09/12/09

Further to my earlier post about equities, I am not so sure about the SPX. It has not gone up on good news and other markets (which are correlated) are looking technically weaker. I was thinking about placing a buy order at 1130 but I think I would prefer to wait for a convincing breakout to the upside.

I have, however, shorted the Nikkei. I still can’t give you a link to the trade sheet, so I have copied it below. Chart courtesy of the excellent ProRealTime.com .

TRADE SHEET

Short Nikkei, 09/12/09

Trade Description

Short March 2010 Nikkei from 9925.

Details

Technicals

Downtrend established. Market failed to break downtrend or resistance (formerly support) at 10165. Waited for S&P 500 to open down before entering trade.

Fundamentals

Although the Nikkei ran up with other global markets in Q2, Japan does not have quantitative easing in place, the new government does not appear to have a plan for cutting the deficit, everybody knows the demographics are awful, Asian trade (ex China) is looking somewhat weak and the yen is still too strong. So there is not strong domestic liquidity support and the negative outlook means that foreigners are unlikely to buy. In addition the government is beset by squabbling with minor parties and the new stimulus only worsens the fiscal position.

Stop Position

10460. Loss-to-stop = 0.5% of trading capital.

Trading Plan

Reassess close to support at 9050. If negative news stories continue, pyramid on downside breakout. If not, exit. Move stop to ensure a profit if market breaks below 9700.

Entry Checklist

Are you trading against the trend? No — trendless market.

Is there a fundamental story? Yes

Is there a technical buying opportunity? Yes

Are you placing your stop at a point where the market would tell you you were wrong? Yes

How much conviction do you have? High

Does the risk accord with the conviction? Yes — it is lower because of recent trading losses.

Do you have a plan? Yes

If you are wrong, will you live to fight another day? Yes

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