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Tales of a Technician: The March That was

April 5, 2017

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Tales of a Technician: The March That Was

April is upon us, and you know what that means – another monthly retrospective! I can already feel the good vibes bubbling to the surface. Lest you are unaware, I’ve started a new series this year here at Tales of a Technician. Every month I climb my trading turret and look back at the battlefield. Laid before my eyes are all my victories and defeats. Like a good little general I pull out my war-torn notebook and jot down all the lessons I learned. I’m determined to only make mistakes once before correcting my behavior. After all, my beloved soldiers are counting on me.

My writings fall into four categories – the monthly theme, what I did right, what I did wrong, and my trade of the month. Let’s hop to it.

Shots Fired

The theme for March was easy to spot. We experienced the first real test of the Trump rally since November. From peak-to-trough the S&P 500 dropped 3.6%, probing below the rising 50-day moving average in the process. The funny thing is 3.6% isn’t even that big of a pullback, but given how extremely bullish the market has been it seemed like a massive shift. Plus, other areas suffered even more. For example, the small-cap-laden Russell 2000 dropped 6% before buyers finally said no mas!

If you’ve been leaning bullish this year with naked puts, bull puts, and the like, then March was probably the first real test of your risk management protocols. Did you get stopped out of a lot of bullish trades this month? Did the volatility monster wreak havoc on your well-laid plans? If so, what do you need to change about your trading so that next time the market gets a tummy-ache, you don’t give back all your hard-earned gains?

What I Did Right (aka why my mommy should be proud)

Risk mitigation was the name of the game this month. With financials taking it on the chin (see XLF), I elected to reduce exposure elsewhere in the portfolio. Some positions that were profitable returned to breakeven during the downturn. I bailed on a handful of them simply to cut down on my overall delta. I also tacked on a few hedges for good measure. So far, I’m happy with the audible call.

What I Did Wrong (aka the last vestiges of stupidity)

Perhaps my largest misstep this month was pressing my bearish bets in bonds when they were on the ropes. Rather than sitting tight with my existing bear calls, I upped the ante with a few extra spreads when TLT really fell out of bed at the beginning of March. Needless to say, the rebound in recent weeks has necessitated a bit of shaking and baking. I remain firm in the longer-term bearish outlook for TLT, but it sure looks close to completing a multi-month bottoming pattern here.

Trade of the Month

My monthly RUT Condor took the cake as the best-behaved position. Indeed, profits have reigned for delta neutral premium sellers in the Russell for months now. Since December 5th, the RUT has been entrenched in a narrow 5.7% range. Of course, now that I’ve brought attention to it the Market Gods are sure to spoil our fun. Nonetheless, here’s to hoping small-caps remain neutral for months to come.

Check out the entire 2017 retrospective series:

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