My head is bloody, but unbowed.

Today I lost lot of money in the stock market, since I have most positions in ultra short ETFs and puts.

But today has more impact in my trading than 2-27-07, which I regard as one of the most important days for my trading in a long time. On 2-27-07, I did things right; today, I did things wrong. What I learned from the market today:

Fed's decision:

1. Fed kept the rate unchanged, and changed the bias to neutral,so that they can tighten or ease rate in the future. This caused Nasdaq up 2% and Dow 1.3%.
2. But if you read carefully about Fed's statement, it's the other way around.
3. Fed admitted the economy growth is slower than they expected, which probably leads us to a recession, which on average, leads a 28% down fall in stock market. So a hard landing is more likely now than before.
4. On the other hand, Fed admitted the inflation is stronger than they expected, so they are still leaning to tighten. A higher rate leads to stock market down fall as well.
5. So it's really bad news, it's the opposite of what the market is hoping for: goldilocks. Either it's hard landing or inflation out of control. And yet market rally on Fed's statement!
6. Basically, Fed said they're out of options, they are into a corner: the economy is getting worse than they expected and the inflation is getting worse than they expected. And these two needs opposite actions to fight. So they will only act when one of these two is getting much worse, otherwise, they'll just continue to use moderate comments to not upset the market. And boy, they did their job today!
7. But Fed made a mistake today. By moving to neutral today, indicates they'll ease in the future should economy slow, which means they will let inflation grow, and by the time they want to fight inflation again, it's already out of control, and Fed will lose credibility.
8. A study shows economy reacts much quicker to rate reduction than inflation reacts to rate increase, so Fed moved to the wrong direction, as a result, U.S. economy will be in worse shape in 2-5 years should Fed carry out the rate cut in next few meetings.
9. Fed tried to not upset the market, to continue to paint a rosy picture until they can't do that any more. What a few smart people!
   

Back to market:

1. Now let's go back to the market. Yes, I'm smart and figure it out before the market, it should go down; and yes, lot of clueless players in the market and without intelligent analysis, pushed it up.
2. But is that it? It's the stupidity of the market that cause me losing money today?
3. Hell no!!! I think there are lot of traders smarter than me and participated the market rally today. So I totally misjudged the situation! I have no one to blame but myself.
4. These people, maybe hold the same bearish view as mine, but they also consider that market reaction to a Fed statement like this, so they did at least two things before today:
   1. They reduced their short positions and moved to cash.
   2. For a few even more nimble traders, they added their long positions.
5. Either way, they got rewarded by the market today. And some of them might do the third thing today:
6. They took the profit from their long positions they added recently, like Monday or last Friday, and added their short positions back in. Market is overbought after today's action!
7. So the smartest, knowing the market is wrong, but participate in the action and make money. They not only know the long term, they know the short term bounce as well. They know the market well.
8. I have a lot to learn.
9. You can say the people who switched from long to short in 1999 are smart; people who switched from long to short in 1998 are smart but lose money as result of bad timing; and people who switched from long to short on March 2000 are smart and lucky.
10. But people who reduced their longs in 1998, and again in 1999, and only added short in early 2000 are the smartest, they not only know the market is wrong, but also consider the stupidity of the market take time to play out, the mass of the traders can push a mad market even madder!
11. So this is what I learned today. I may not be good enough to long the market this Monday (market was up three days in a row, 4% , that's lot of money), but at least I should greatly reduce the short positions ahead of the Fed meeting, which I know will rally the market, but I thought this time is different.
12. By reducing the short exposure, I have long lasting power to stay in the market. Otherwise, I may be forced to sell sooner or later.
13. Every time you think "this time is different", you are wrong.
14. Overall, it's a bad day for my positions, but great day for my trading skills, I learned a lot today.
15. There are people who are in the market because they're index investor and move with market, good for them. It's luck that cause their fortune to go up, not because they're good.
16. And I don't think they can make 10% more money than the market. But that's the goal I set for myself, I want to beat the market and make 10% more than S&P 500 annually, that's my goal. If I can do that, good for me; if I can't, that's due to my lack of ability, not smart enough.
17. I need to monitor the market carefully, I need to be sure it's not 1998, or 1999, when shorts got crashed. I need to make sure it's Feb.2000 or March 2000, when a crash is very close. Otherwise, I'm just as stupid as the aimless and clueless investors in the market, actually, I'm worse than the clueless investors in the market, because I may lose twice: by shorting a bull market!!!

Today's action:

1. I added two small put positions today:
2. QQQQ Sept puts and MDY Sept puts.
3. I'm still thinking this is a bounce only, not a turn to resume the bull market. So I put my money where my mouth is.