Crosscurrent....

These days, market is going through the sort of volatility that leaves a seasoned professional even shaking his/her head.   It is simply tough out there.    Owning any major positions overnight is a practice that generates a high degree of risk these days, this is not necessarily true with commodity stocks as this story continues.  The one thing investors have to worry about these days is that the company that issues stocks in his/her account, will still be there when it's time to sell.     Is it that bad out there?   It really depends on who you talk to.    However, one thing you have to stick to your mind is that "anything is possible"!     The dumbest way to avoid any disastrous stocks is not diversification, it's simply to stay away from troubled sector all together.     There will always be signs when a stock/sector is in trouble.     In the world of stock market, action definitely speaks louder than words.     There's no need to check balance sheets or read analyst report or any other due diligence as a trader.    When a stock/sector is falling hard, stay the hell out!

Right now, we have basically two main crosscurrent that are driving the market up and down in a wild fashion.    One crosscurrent is the current financial crisis with FNM/FRE as its nucleus.     Insolvency of banks is something we haven't heard of in a long time and it's a reality today.     When was the last time CNBC commentator advised the audience to check their financial account to double make sure it's protected under FDIC?    Oh yes, this world has come a long way since the establishment of capital system.    Right now, the government, the financial company executives, investors/trader and the entire system is being tested!     The other crosscurrent, as you may have guessed, is the energy prices.     When oil is down nearly $10 early, the ripple effect is felt across all of the commodity plays.   One thing you may have noticed was volume was not anywhere close to what we saw in the early July slide.  End of day may looks different now as buying came in coal stocks especially.  There was some inexperienced panic in the shakeout,  it didn't come from institutions or those who believe what we believe and that this fast 10 buck oil drop was an anomaly and that the commodity boom is not retreating.   We crossed this in the forum yesterday as an opportunity.   The come-backs by Coals was just simply amazing off the lows.

As a trader, all we can do at this moment is to realize our own strengths and weakness and determine how we can approach this turmoil riddled market.    Volatility and high degree of uncertainty can screw up probability of a good setup big time, so we choose to play with a much smaller size in order than usual to minimize the potential risk.     If you must trade, cutting the sizes and number of holdings down in this environment will prove to be crucial.     Remember, when the market is extremely tough, the main theme is survival with some occasional good trades.

As far as sectors go, we are still sticking to the same old theme.  Coals, Shales, Ag, Steels.  This order of preference can change from day to day as you know.   We would be however, keep even a closer eye on energy prices and change in sentiment.   Our trades remain manageable, meaning sizes are not over the top and the number of stocks is easy to sort.   Also, as everyone else, we'll be glued to news front to monitor the saga of this financial crisis, sometimes with popcorn!