September 18, 2014

Exiting $GCC and $SNE - Entering $NFLX $DISH $IHF $DIA

$GCC, a broad commodity ETF, has cost me a lot.  I sized that trade much larger than other stocks, as my rationale for sizing involves correlations and diversification.  I would certainly do it again.  However, the mistake was really buying weakness.  While I can look at it as something that has held back my portfolio, it's just as likely that adherence to lower risk among correlated assets results in lower overall risk.

Any measure you've taken to lower downside risk will likely hinder upside gains.

$SNE will also be exited at tomorrow's open.  I can hardly believe how investors have turned against Sony so quickly.  The stock had done very well after opening the position, but the last few days have decimated it.  As you can see below, it has a ways to go to find a visible floor, and I will be watching it.

However, new highs in several stocks and the indices have signaled that it's time to put some more risk on the table.  Both $IHF (Healthcare ETF) and $DIA (Dow Jones ETF) are at new highs today.  I'm also entering $DISH (Dish Network) and $NFLX (Netflix).  Let's look at $NFLX's scary chart:

First thoughts... "Oh NO! An ascending wedge has broken down, it's all over, dive dive!"  Not so fast.  Firstly, if you are any sort of trend follower, it's highly unlikely your stop has been breached.  Rewind a couple weeks, and cover the most recent fall so you can't see it.  Now what do you think?  The entry rationale has not been invalidated, and now you can get it at a lower price, with less risk.

I literally mean less risk.  If I'm entering a stock due to a new recent high, I size my positions like someone would had they entered the next day.  This helps counter the lower probability of the win and prevents losing more than expected if and when the price slices through stops.

$DISH is similar, though the Finviz provided chart is less scary.

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