Friday, October 23, 2009

Thoughts on Taking Profits

I took profits on my short position late today; it was definitely one of those gut feel decisions that may or may not come back to haunt me. The stock indexes were weak today; there's no denying that. As we approached the Wednesday and Thursday lows, however, I noticed that we only had a little over 500 NYSE, NASDAQ, and ASE registering 20-day lows. That was about the same as Wednesday's level and below Thursday's.

In addition, as you can see from the Futures Heatmap from Barchart, intermarket themes were not providing as many bearish cues as I would have expected to see if we were going to sustain a break to new weekly lows. We didn't see unusual strength in the U.S. dollar, and we didn't see unusual commodity weakness--particularly from the metals.

In short, we were weak; just not outstandingly so. Discretion the better part of valor, I cashed in my chips.

When we get to the top or bottom of a distinct range, there's always a judgment call to be made for discretionary traders as to whether we trade for a breakout or fade for a move back into the range. And, sometimes, when the evidence is mixed, it's best to take the chips off the table and wait for a clear signal. Success doesn't require being involved in all market moves; it just requires that the market move your way when you do get involved.