By The Disciplined Trader
On Monday the S&P 500 hit 1309 and I was sitting comfortably on 37 points of profit from my short trade that I entered last week at 1346. By this morning that profit has dissipated completely - as news from the EU summit gapped the markets higher at the open.
When the summit got underway on Thursday the stock market had already bounced from its lows as risk expectations increased and opportunistic bulls bid the markets higher. Subsequently, when Europe awoke this morning the futures were gapping higher on the announcement that the EU leaders had come up with another plan to save the euro.
We all know what the EU leaders and central bankers are trying to achieve, but there are serious doubts that any of their plans will succeed, with each attempt to bring control, restore stability and stop the crisis from spreading scepticism and incredulity increases further.
With each passing summit – time is bought and investors respond to this hope. I remember a similar story in 2008 when the Fed tried to stop the banking crisis from spreading - each time they intervened the markets rallied sharply but then a few weeks later, as the hope faded, the bear market would resume in earnest. Once a bear market takes hold, the downward spiral from negative sentiment is difficult to stop and reverse.
I’m frustrated by the latest EU plan; my short position was nicely on side until early this morning and I have gone from a healthy profit to break even overnight! I don’t know how long the market holds these levels of high expectations, but as long as the bumps in the road remain and the can-kicking continues I’m staying short for now, hopeful for a resumption of trend.
The Disciplined Trader is an average guy who has little fundamental knowledge of the financial markets, yet he consistently makes money trading. He simply applies the basic rules of trading discussed in bettertrader.co.uk and executes his trading techniques applying great discipline.