When Macro Trumps Micro

• Posted by Derek
• on December 1st, 2010

Today is a perfect example of why I split my daily prep into 2 distinct periods.  I review individual stocks and my breadth numbers at night to get a sense of relative strength and longer-term money flow and liquidity.  I save my looks at $SPX, $RUT, $TLT, $GLD, $FXE, etc. for the morning only…in this era, too many significant events happen overnight for me to construct a full plan based on yesterday’s close.

As of last night’s work, I had a tiny but equal set of longs and shorts to consider.  My favorite short was $COF, favorite long was anything oil service…they run as a pack so I just use $XES for simplicity.  Longer-term breadth remained in the bull camp, but intermediate-term has weakened enough for me to consider the picture mixed.

Overnight events in China, at least for today, completely trumped my planning.  The relative strength I measure is a good guide most of the time, but when broad strength or weakness appears the indiscriminant nature of it overwhelms relative strength.

That leaves me with the rare day where stock strategy and index tactics collide.  I won’t add to $COF puts(for now), and will just sit with the $XES calls I already have rather than chase.  It’s too early for me to call this is a one day macro wonder, but it has that potential given the time spent just above here in early November.  Conversely, a market in which $RUT is making 8 month highs is not exactly bear-friendly.

Hours of work, no new trades to show for it.  I still like the approach of saving my macro prep for the AM…by waiting on global events I have no trouble accepting $SPY levels that would have seemed absurd at 4:15 yesterday.  Just because most nights don’t instigate a trend day doesn’t mean every night doesn’t have that potential.

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