Operating Principles
RARELY trade more than 50% of Special Ops capital
SIT. SIT. SIT. SIT. SIT. Wait and watch. Stalk. Wait for major levels to hit, then depending on The Outlook, The Traders, and The CASP, craft a trade.
Don’t hedge or use stops. Confidently take a position and manage it according to levels, VOL, and The CASP
Trade ATM 1MTE almost exclusively, unless trading against The Outlook, in which case use ATM 2MTE…or taking a counter-trend flyer, in which case use ATM 2WTE. (For Special Situations, the extra 50% is allocated to 2MTE for an extra bit of safety.)
Special Situation: 100% Allocation. In line with The Outlook, The Traders fully support, and The CASP fully supports. BUT, sentiment/positioning readings are fully oversold/overbought. These situations are special. They rarely happen, but when they do they must be taken advantage of to the max.
Max Conviction: 50% Allocation. In line with The Outlook at key MAs, The Traders fully support, and The CASP fully supports.
Full Conviction: 35% Allocation. In line with The Outlook at key MAs, The Traders fully support, but The CASP is only neutral.
High Conviction: 20% Allocation. In line with The Outlook at key MAs, The Traders fully support, but The CASP doesn’t support.
Rifle Shot: 5% Allocation. In line with The Outlook at key MAs. The Traders and The CASP are at least neutral in the aggregate with mixed support for the trade in place.
High Conviction Counter-Trend: 25% Allocation. Goes against The Outlook, but with The Traders and The CASP in full support.
Rifle Shot Counter-Trend: 10%. Goes against The Outlook with The Traders in full support. The CASP must be at least neutral.
Counter-Trend Flyer: 2.5% Allocation. 2WTE options based on my read of the WOTE.
The Portfolio
6.6.24: Bought a 2WTE SPY $534p. 2.5% position.
Key Levels
ES 5342 = SPY $532.80 [watch for breakdown]
ES 5272 = SPY $525.82 [important support]
ES 5258 = SPY $524.68 [major support]
ES 5165 = SPY $515.40 [bull flag support]
The Traders
June 13: no change
June 11: no change
June 9
A: BTFD mode
B: BTFD mode
D: BTFD mode, but hedging for SPX 5200 this week
J: BTFD mode
June 13 Notes
10:10pm EST
Message to my trading mentor tonight:
I’ve done one trade - a tiny one at that - in two weeks (assuming nothing tomorrow).
Just sat here. Waited. And watched.
Despite a raft of cross-asset market divergences saying rather loudly SPOOZ don’t belong up here.
Despite a raft of tempting catalysts and news flow.
TREMENDOUS confidence builder.
My conclusions:
1. Trading is the easy part, sitting still is the hard part
2. Put yourself in a position to be able to SIT stress free
3. You can confidently sit and wait on a winning trade with a good entry point. FOMO is the killer of entry points.
4. Neutral positioning is a POWERFUL weapon, allowing you to sit and wait for asymmetric opportunities. Mediocre trades are the killer of asymmetric trade set-ups.
Earlier in the Day
Don’t chase is the name of the game right now. Sit, wait, watch, and stalk a pullback to SPY 20dma, if not the 50dma for an opportunity to get long in Special Ops.
This is a 2020/2021-like policymaker liquidity-driven market, so same rules apply: buy dips to the 20/50dma, and aggressively so if it gets to the 100dma.
The CASP is in no way, shape, or form confirming this breakout. It is what it is. It kept me from buying micro dips off the May 31 low, but that’s my process. IG CDX is right back up today on hideous breadth outside of Tech, and VOL is sticky. So, despite The Traders remaining in bullish BTFD mode, the lack of CASP confirmation keeps me from acting with anything more than 5% unless SPY pulls back further to the 20/50dma.
June 11 Notes
The CASP isn’t even pretending to confirm SPX/NDX strength: VOL and CDX remain sticky, CDX in particular, breadth is atrocious, and, most importantly IMO BTC is not confirming in any way, shape, or form.
This means two things. 1) I will continue to hold my Counter-Trend Flyer position through tomorrow, which I’ve long anticipated to be a highly consequential macro event day. No that’s not some brilliant insight - CPI + FOMC is obviously a key combo - but I have been appropriately cautious in chasing this move up into the event, as evidenced by very negative cross-asset market action. 2) The most I can allocate to a long position in Special Ops is 20% High Conviction assuming The Traders are all 100% bullish into a pullback.
Now, this could change on a pullback tomorrow. If SPY spikes lower on CPI and breadth, VOL, and CDX are bullish, if The Traders are max bullish I could theoretically go up to 50% max conviction long. But that’s a lot of alignment for one trading day. It’s more likely SPY pulls back and the WOTE is a mixed bag and I take a Rifle Shot long.
June 9 Notes
I have extremely high conviction this market is not going to run away to the upside this week. I’ve seen too much communication from the Fed confirming the re-hawking process is well underway, as detailed in a variety of posts here on The WOTE and over on X.
Whether SPY decides to go down and retest demand circa $518 remains to be seen. CPI Wednesday is likely key, because Powell certainly isn’t going to drive it lower. And if not CPI, then perhaps a 1-cut SEP.
UST auctions are also heavy this week, so the set-up is in place for me to get to the end of this week questioning why I’m OW equities in 60/40 and Long/Short if on top of heavy auctions we get a hot CPI and 1-cut SEP.
But if and when SPY gets to $518, I will need to set aside any and all negative macro biases and buy with both hands. Yellen has $1.1 trillion of liquidity on hand, the Fed will be back out yapping next week to control financial conditions, and the market bias toward overweighting weak data prints remains firmly in place. AND, it’s going to take many more inflation prints to get the Fed to officially guide to hikes - unless inflation really starts to zoom, they will not do that ahead of Election Day.