At the beginning of the week I raised my long exposure for two reasons. Seasonality is strong between now and the end of the year. Next week, the week before Thanksgiving, is the seasonally strongest week of the year. The second reason I raised my long exposure was that I believed Italy would be rewarded by the ECB for passing austerity measures and appointing Mario Monti.
I was clearly wrong in assuming that the ECB and Germany would soften their stance after Italy did exactly what was asked of them. This morning, the ECB is once again doing the bare minimum as Italian ten year rates are only slightly lower than yesterday after blowing out the first half of the week.
I realized yesterday that the ECB was dithering and could have exited my new longs at a small gain. I told myself I would exit at the end of the day as I wanted a little more. We now sit nearly 30 S&P points lower and I now have a lot less.
At this point we are near the bottom of the recent range and I am not going to compound my mistake by selling here. I will look to use strength in the coming days to dispose of the longs I recently added. I plan to remain moderately long but unless the ECB acts more forcefully a more aggressive stance is uncalled for.