Splash Zone Weekly Wrap Up: 2/28/16

A very good week of trading that was entirely hinged on Wednesday where the market gapped down and reversed hard to the upside later that morning. It was a perfect example of how important it is to be flexible and nimble with the direction that the market is taking. Had not a rapid reaction to the market developments not been taken that morning, it is likely the week would have never been profitable. 

Being 100% cash overnight has happened quite a bit this year, and has become quite a theme so far for 2016. That is okay though as it takes a lot of overnight risk off the table in a headline-driven, gap-heavy kind of market. And while I could have held GE over the weekend, it didn’t make sense to as the market closed right back on the resistance the market strived so hard to break. As a result, I would find it far better to simply go cash and adjust our portfolio to the direction the market is willing to take come Monday. 

On a side note, if SPX closes more than 7 points lower on Monday it will put the market in negative territory for the month, and will market the first time in over four years and since the summer sell-off in 2011 that it has finished lower three straight months. 

My biggest concern from the week was the trades in R and PII and the tight risk management that I took on the trade. Given had I not sold R there is a good chance I would have never of taken the trade in PII, so the impact to the portfolio consequently would have been minimal. My goal with closing out R was making sure that I simply take a small loss, when it gave up its early gains and get out as close to flat so that we could move on to a better setup. It was that same approach that allowed us to quickly get out of our short positions on Wednesday and get long on the market for the rest of the day. So sometimes there is plenty of give and take that the market provides us with. On the PII front, the volatility that was coming into the trade started to concern me as the bid/ask price got extremely wide (more than 20 cents on the trade) coupled with the early profit taking that was starting to occur. 

Overall the week was solid and I’m happy with the overall results and am looking forward to a new week of trading and new month as well.