VXX: no Stupid Human Mistakes!

Last week, the market entered the short box as it is depicted in the longer-term chart of the S&P 500 and longer-term short signals surfaced.  I have advised a combination of four short market-based ETFs to take advantage of the downside illustrated in our combined longer-term analysis.  The progression from longer-term resistance to longer-term support is a process that takes time, many months usually, but short positions that were established within the short box depicted in the longer-term chart of the S&P 500 should fare well over time assuming that progression continues.

Unfortunately, some people do not pay attention to the details of strategy.  Equally as frustrating, some people do not pay attention when I use terms like speculative, and advise a very small amount of money.  Certain people are coming to me full of emotion and fear and there is no place for either of those in this business.  If you are afraid you will make bad decisions and if you are emotional you will make bad decisions (this is true for everyone).  If you happen to get lucky after making a mistake I think it is almost worse than having to take a loss because people who get lucky once will make another mistake in the future and eventually pay a much bigger price.

Interestingly, once you take your lumps, once you really feel the pain of making a stupid human mistake, the odds of you repeating that mistake are far less than they otherwise would be.  Therefore, just like I told the people who made the mistake of buying double weighted short positions when the market was in the middle of its longer-term channel (they are down between 10 and 15% now), I will also tell the people who have contacted me afraid about VXX (they put too much money in this and emotions and fear are getting the best of them); you should sell immediately and learn your lesson.  One of the people actually put every dollar he had into this speculative and uncorrelated ETF.

Although I used the word speculative over and over, and although I have advised only a very small amount of money only, I have learned that someone still has made the mistake of putting everything they have in this ETF (VXX).  In my opinion, people that make stupid human mistakes like this need to feel the pain so they never make these mistakes again.  I have made mistakes, I know how it feels, and I have learned my lessons over time.  Everyone needs to go through this cycle.

Even though I believe the market will fall from longer-term resistance to test longer-term support, because that is what the longer-term channels and my macroeconomic work tells me, the strategy allocations I have advised do not depend on that to happen.  A small percentage of the allocation is designated for this purpose, but 85% of that same allocation can work regardless of what direction the market goes.  However, my allocation model does not include VXX; This ETF is for very small speculative trades only and my allocation model is for investment purposes, not speculation.

I do not consider investments in the stock market to be bets, or gambles, but I consider them to be educated and intelligent decisions.  Anything less than a sound decision based on proven disciplines and strategies is either a speculative trade, an attempt at developing a new approach (each of which should be constrained to minuscule amounts of money anyway), or a step in the direction of learning a valuable lesson (one that I hope will prevent mistakes again in the future).

For those who are not on the same page, please understand I am bringing down a heavy hand, intended to help you begin to make intelligent decisions.  The first might be to take your loss, regroup, and never make that mistake again.  Although I am bearish, I believe the risks of a Greater Depression are real, I think everyone needs to be 100% proactive, hedged, or in cash, I am not one-sided.  There is a time and a place for everything, so long as it is within the confines of prudent strategy and discipline.  I am still a big fan of VXX with small amounts of money ONLY!!!  However, this is NOT an investment; it is a speculative trade.  Price target = above $40.

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