I was listening to CNBC this morning and I heard one of the fund managers say he expects to see large cap strength and small/mid cap weakness, a pair trade; long YM, short ER2. You can see in COTC reports that the speculators have positions weighed in this direction as well. About a month ago I heard the same strategy from another money manager they had on CNBC. Yesterday I should have been taking long YM positions and looking for short positions in ER2. Even Dr. Steenbarger talked about this strategy on his recent blog entry at TRADERFEED as well. I use to trade based off of divergences between the indices (ie YM leading, so I'd buy ER2), but this is a mistake, because there are strategies being deployed by big money that makes these divergences widen instead of shrink, making it frustrating for divergence traders.
I gotta leave early this morning, not sure if I'll be trading. I think I will do a recording this morning and look for a setup that I've been seeing lately.
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