Why I Went 100% Cash Ahead Of Greek Referendum
Ryan Mallory | Jul 05, 2015 01:31AM ET
This was a decision that I really struggled with all day on Thursday.
I came into the day 30% short, which included positions Marriott (NASDAQ:MAR) and Jarden (NYSE:JAH), and long position in ARCA:SDS - the ProShares UltraShort S&P 500.
I really wanted to hold every position into the weekend. In fact, I desired, desperately wanted, to hold my positions over the weekend.
The S&P 500 chart on the daily time frame indicated that the bounce on Tuesday and Wednesday was nothing more than a dead cat bounce.
Here's the dead-cat bounce setup:
As you can see, the price action closed in a doji type of manner and right below key resistance. So why didn't I have the courage to hold my positions in the face of the Greek referendum vote to be held on Sunday ahead of Monday's market open?
"Because I was a coward."
Kind of a mean thing to say about myself, don't you think? Not necessarily. In fact in trading, cowards survive and those with the guts that aim for the glory, are the ones that ultimately blow up their accounts.
Yes, the temptation was there to go short into the weekend and roll the dice. If I was right, member of the SharePlanner Splash Zone would love me for it. However, that is not my purpose in trading. My purpose isn't to go for the glory or to be the hero. Not even close. Instead it is to play the risk, when it is in my favor.
But the problem with the holding positions over the Greek weekend was many:
- Having a good and firm grasp on the situation in Greece was a tall task. I spent over 20 hours, this week alone, studying the situation, not to mention the past 5 years as well, and the conclusion that I can form is that a) Greece has spent too much money over the years, b) they can't pay it back as it currently stands c) and no one truly know the consequences of these action.
- There are just as many opinions out there that state a "yes" vote on the referendum is bad as there are that a "yes" vote is good, and so is the case for the "no" vote.
- What Greece may ultimately due as a result of a "yes" or "no" vote remains unclear. Tsipras speaks out of both sides of his mouth. Not to mention the sudden change of heart on Wednesday where he suddenly want to accept all the demands, really spooked me as well.
- Politicians will ultimately seek the path of least resistance. At this point, if there is a situation that can be obtained, even at the detriment of the people they represent, these politicians will take it if it allows them to retain their power. I have no confidence in Tsipras or any of the main characters associated with the IMF, ECB or Germany.
Get The News You Want
- The polls were tightening on the Greek Referendum, and then the latest poll on Friday was rumored to be incomplete, and even shot down by the pollsters themselves. So that data was unreliable.
- It was a three day weekend. I really wanted one more day of trading to get a better feel for what this market ultimately wanted to do. The extra day of the market being closed created another day of risk and rumor that would have to be dealt with.
Then there was the strategy of my trades:
- If I was right and the market sold off hard on Monday, then I would profit nicely.
- If I was wrong and the market rallied hard on Monday, I would likely be stopped out of my positions at the market open and lose much of the profits from shorting the market from last week.
- The likelihood of a flat opening was unlikely in my opinion.
And then the alternatives that I could have by covering my positions prior to the close:
- By being 100% cash, it allows me to reset, see where the market wants to go following the Greek debt, and regardless if it is up or down, I can get long or short and follow the trend.
- If the market sells off, I will have to add the short positions back into the portfolio following the opening bell, and I won't make nearly as much profit had I simply held over the weekend.
- In the case of a rally, I would avoid significant losses, and have the ability after the opening bell to get long and actually make some profits on a move to the upside.
- A flat open allows me to jump back into the market at no cost to me and with the Greek Referendum in the rear-view.
Overall, regardless of what the market does Sunday night when futures open back up and the subsequent open on Monday Morning, I know that I am making the right move. Was I reluctant to do so? Absolutely. From an emotional standpoint, it nearly ruined my night. I hated getting out of those positions. But the mark of a successful trader isn't the absence of emotions in trading, but the ability to ignore them and do what is in the best interest of preserving capital and increasing the portfolio value.
By going in cash, I believe I give myself an opportunity to do both.
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