This week I have stayed well away from the markets as the dust continues to settle. Just to re-cap what happened last week a large sell off on Monday appears to have forced the Feds hand into dropping rates by .75 which caused a delay rally. At the moment the FTSE is at 5885 nearing the 6000 level and the Dow is at 12,387.

Many rumours emerged towards the end of last week about bank write downs that never happened but the big story was obviously the huge trading losses by Jerome Kerviel the trader behind the Societe Generale 4.9 billion loss. His initial loss of 1.5 billion caused Societe Generale to offload shares on Monday which many now believe helped add fire to the Monday sell off. As the markets spiralled downwards this 1.5 billion quickly turned into 1 4.9 billion loss. Looks like Jerome is facing a nice seven year stint in jail for his troubles. The French government is also adding pressure on Societe Generale chairman Daniel Bouton to resign over the handling of unauthorised deals by the junior trader.

My losses while huge have been in good company. Have a look at these links of similar trading stories.

http://marketmonkey.typepad.com/blog/2008/01/27th-january.html
http://www.paddypowertrader.com/blog/index.php/2008/01/25/phew-nearly-the-weekend/
http://highprobability.blogspot.com/2008/01/stock-market-ruined-my-life.html

This is not where I expect the FTSE to end up or down but the accumulated amount I have now lost. Having been sick for two days and suffering a mild fever I placed a stupid sell on my existing trade cancelling it out. If I hadn’t been drugged up on sleepy juice I would have noticed that I should have been trading June futures not March. That stilly episode cost me 900 Euro and to compound that I tried to trade the volatility and again lost badly. All in all the past two days have had accumulated losses of 1650 which leave me at 850 Euro to trade.

Just for the sake of history Friday the 18th was the day Bush announced his economic stimulus plan and the AMAC insurance firm was downgraded from its triple A rating. After a nice weekend in bed I woke on Monday to market turmoil with markets loosing up to 10%. In America it was Luther King day and the markets were spared due to the national holiday. Tuesday before the market opened the Fed stepped in and averted a major crash (which they should have let happen to cleanse the market and allow a faster recovery). They dropped the rate by .75 and markets rallied while my position did not.

Today the US markets opened lower and continued downhill. I closed out my position at 16:30 and can now sleep tight and wait out the rest of the volatility. My next move is to wait for the rebound and sell it with the pennies I have left.

Yesterday was a busy day as the Dow Jones industrial average lost 307 points (12,159.21), seeing its worst one-day point loss since Nov. 7. The broader S&P 500 index lost 2.9 percent (1,333.25), and fell to its lowest point in 14 months. The Nasdaq composite fell 2 percent (2,346.90) and hit a 10-month low.

For my part I had placed a close stop loss on my sell position which was stopped out closely after weekly job numbers at 13:30. Again it seems like another market misjudgement as the FTSE is currently heading south without me on board. Quite to the contrary I seem to have opened a buy position on the FTSE at 5960 based on Bernanke saying something a little more positive that “we’re all fucked, run for the hills”. Following his happy speech, Merrill Lynch reporting nearly $10 billion quarterly loss and took a $11.5 billion writedown along with bad news from the Philadelphia Fed index (regional manufacturing reading) which tumbled to -20.9 I was up shit creek. Initially my position had rallied and was making tidy profits but it all turned sour later in the day.

For now I’m sitting it out and watching today’s comments from President Bush who unveils his master plan to save the economy. Although considering his reputation I’m not optimistic and may have to wait till the end of next week as Fed Fever kicks off with the expectation of a .50 cut in rates and a 45% chance of a .75 cut (that isn’t going to happen but as long as markets rally on the gossip I will be sitting sweet).

Hope everyone else is enjoying the volatility!

The markets have this strange feeling today. I can’t get a feel for them either way, on the one hand they have the potential to drop another 300 points but they could also drift erratically and could even rally slightly if JP Morgan release better that worst case scenario results. I have entered with a 1 Euro sell at 6925 and we shall see how things pan out.

Yesterday I placed my stop way to close and was stopped out at 6130. “If only I had of” and what’s worse is at current levels I would now be in profit 700 Euro but that’s no way to be thinking. This is the kind of flawed thinking that drove me to place a stop 10 points away from the market level at the time. My thinking was to place it above the moving average which was 50 points away and a quick calculation told me that it would consume 90 Euro of my profits so I winced out. The old mantra of “Trade to trade well” is what is now eating at me, done wrong and now I have paid for it.

As predicted Citigroup results were well off target but based on analyst predictions could have been worse. Citigroup said it is raising at least $14.5 billion and cutting its quarterly dividend 41%. The bank also posted its first quarterly loss since its creation in 1998 a $18.1 billion write-down for exposure to subprime debt. This dropped the markets by about 40 points but following that was bad December retail results that sunk the markets by another 30 points. The FTSE dropped by 1.5% and the Dow futures were 100 points off fair value.

I placed my stop at 6120 where I was eventually stopped out but made a nice 330 Euro which brings me 100 Euro away from being back in the green. My account now stands at 2600 Euro and I suspect Intel will have good results after the bell along with Steve Jobs keynote speech which might serve to dampen the fall in stocks.

I would be looking to re-enter again at 6200 or worst case scenario 6150. Results still to come this week are Merrill Lynch and JP Morgan Chase.

Yesterday I spent the day weighing up the pros and cons to entering a sell order on the FTSE 100. The reason I was pondering was that as I previously had mentioned I had intended entering at 6350 or 6300 but 6200 was a tad lower than my ideal entry point. After spending the better half of the day watching the markets trade in a range I put in a open to order sell trade for 6230. To my surprise this as executed quite quickly and I am now the proud owner of a 3 Euro FTSE sell trade which is currently in profit.

Today Citigroup reports and the markets are quite nervous. Anything below the estimated 20 billion in write downs and you could be looking at a big sell off, on the other hand if they come in as expected the market might be happy to have the news out of the way and could marginally rise. According to Wall Street Journal “Citigroup Inc. plans to cut more than 20,000 jobs, or about 6 percent of the workforce, and reduce its dividend after as much as $20 billion of costs to write down the value of subprime-related securities”. Three hours to go and one position riding on bad results so now we just sit tight and wait and see.

Against my better judgement (in hindsight) I opened another sell on the FTSE this morning. I was following the trend and all was on target except for the quick retracement back above the 200 day moving average. Of course this is where I had my stop defying another well known adage to always place your stop loss about 5 – 10 points above the resistance level.

Since my heavy losses last year I haven’t been able to get back into day trading even when good opportunities present themselves. I seem to be risk adverse and place my stops in all the wrong places. For now I will go back to concentrating on my long term strategy of selling when the FTSE retraces to 6300. This I fear won’t happen till the Fed meeting on the 30th of January which is two weeks away and a lot can happen in two weeks.

Happy Trading!