The (UDN) trade went well one day into it. The ETF was up almost 2% today. The call option trade didn't officially move, but the bid-ask changed for the better. That was an encouraging sign. Remember, this is a longer term trade. The indicators are showing that the ETF is getting a little ahead of itself so expect a pullback. Not to worry, you have several months until expiration.
Overall, the markets ended mixed with the NASDAQ ending lower and the Dow and S&P up slightly for the day. This came after a two-day rally in the markets. I still think these are times to get short for a shorter term trade. Long term, it looks like we might see a nice rally, but we will probably see nothing until the new year. So until the calendar changes to 2009, you whould probably be net short of the market. I am.
The other interesting action today was the divergence between the dollar and the price of oil. When the oil market was screaming higher, you could just see the dollar go lower and the price of oil go higher. It happened every single day, say in and day out. Today the dollar was appreciably lower and oil was down dramatically. It was obviously not the first time it happened, but it felt different. I am not sure if there is anything here yet, but it is something to keep an eye on.
If we keep up the positive action over the rest of the week and going into next week, when everyone is back from vacation, I might get more bullish. Until then, I stay short the market because I believe we still head lower. There will be some earnings announcements in the coming weeks I will look to trade but we will go over those when they come up. Until next time, stay low risk.
Tuesday, November 25, 2008
Here is Your Trade
As we all know, the federal government and governments around the world are flooding the market with excess liquidity. The US government has put trillions with a "t" dollars into the system with the TARP, funding ailing banks, the commercial paper market, etc. All that is actually a good thing in response to a complete lack of liquidity and confidence in the market. The side effect of this massive liquidity injection is rapid inflation when the economy recovers. The other side effect is the massive devaluation of the US Dollar.
How to play it? Very simple. You can buy calls on the (UDN). This is a short-dollar ETF. You buy calls in the same way you buy the (GLD) calls that have already made you a ton of money. Buy the $30 strike with JUN 09 expiration. You can currently buy them for about $.90 per contract. This gives you a long time until they expire. It also gives you a long time for them to be in the money. The same rule applies. When they double, take half off and keep your original investment safe. There is no reason to get cute with this market.
There is very little that we can predict with the way this economy is going. One thing we know for sure is that the government is running the printing presses. We also know that when the government produces any stimulus, nevermind the massive stimulus we have seen, the inflation and currency picture gets ugly down. You know this is going to happen. You may as well make the easy money with it. Until nex time, stay low risk.
How to play it? Very simple. You can buy calls on the (UDN). This is a short-dollar ETF. You buy calls in the same way you buy the (GLD) calls that have already made you a ton of money. Buy the $30 strike with JUN 09 expiration. You can currently buy them for about $.90 per contract. This gives you a long time until they expire. It also gives you a long time for them to be in the money. The same rule applies. When they double, take half off and keep your original investment safe. There is no reason to get cute with this market.
There is very little that we can predict with the way this economy is going. One thing we know for sure is that the government is running the printing presses. We also know that when the government produces any stimulus, nevermind the massive stimulus we have seen, the inflation and currency picture gets ugly down. You know this is going to happen. You may as well make the easy money with it. Until nex time, stay low risk.
Monday, November 24, 2008
Not too bad...
The rally today was pretty strong. The volume was a little on the light side but overall it was stronger than I expected. Still there is no person in their right mind who thinks we don't pull back from here. The Q3 GDP number will be out tomorrow and it will not be pretty. It will give traders a reason to sell. The other reason to sell will be the home sales numbers.
Interestingly, Obama spoke today and the market sold off. I thought that was interesting. Even more interesting is that Paulson will be speaking tomorrow at 10am. That is GREAT for the shorts. Every time Paulson speaks, the market tanks. That said, I took the opportunity to add a little to my (QQQQ) put position. The timing was good this afternoon when I bought more puts because the market sold off hard near the end. Either way, you could have bought more puts at any time today and you will probably make money.
I have another trade ready for tomorrow. The themes are the same, but the trade is a little different. In a market like this, there are only a few ways to make money. Just like when the real estate market was bubbly and ridiculous, you could flip any house and make money. When the market is like this, you only have a couple trades that are going to make you money. I will give you another tomorrow.
At the end of the day. The fact that Citi is not going bankrupt because you, the taxpayer, are bailing them out is not the sign that everything is ok and it is time to buy stocks again. Keep your positions in check, keep yourself net short the markets, and wait for a sweet little trade tomorrow. Until next time, stay low risk..
Interestingly, Obama spoke today and the market sold off. I thought that was interesting. Even more interesting is that Paulson will be speaking tomorrow at 10am. That is GREAT for the shorts. Every time Paulson speaks, the market tanks. That said, I took the opportunity to add a little to my (QQQQ) put position. The timing was good this afternoon when I bought more puts because the market sold off hard near the end. Either way, you could have bought more puts at any time today and you will probably make money.
I have another trade ready for tomorrow. The themes are the same, but the trade is a little different. In a market like this, there are only a few ways to make money. Just like when the real estate market was bubbly and ridiculous, you could flip any house and make money. When the market is like this, you only have a couple trades that are going to make you money. I will give you another tomorrow.
At the end of the day. The fact that Citi is not going bankrupt because you, the taxpayer, are bailing them out is not the sign that everything is ok and it is time to buy stocks again. Keep your positions in check, keep yourself net short the markets, and wait for a sweet little trade tomorrow. Until next time, stay low risk..
Do NOT...
I repeat, do NOT take a Citi-isn't-going-bankrupt-rally as anything other than what it is. Shorts are done with their positions in Citi. They will be covering today. There is a small reduction in the counter-party risk for the other financials. Therefore, they will head higher too. But that will be about it. Friday's rally had very little to do with the Tim Geithner announcement, in spite of what the media says. It calmed some fears and relieved some uncertainty. But the 500 pt. pile on was a little glimpse into the amount of fear that still truly exists in this market. No bull market ever does that.
What if you were a trader in a horrible bear market, the likes of which we haven't seen in decades? What if you got a 10% pop in 2 trading days? Would you take some off the table? I know I would. That is what I anticipate the pros are going to do today. I wouldn't be surprised to see the market end the day lower.
This is a bear market. It works in the reverse of a bull market. When bull markets go higher, they need healthy pullbacks before retrenching and going higher. The same will go on today. We head higher and then retrench before going lower. It isn't the end of the world as long as you know what to do with it. If you jump in thinking this is the bottom, you will be in for a healthy dose of humility. If you use this as an opportunity to take advantage of some weak sectors and buy some puts on the cheap, you will probably be rewarded. Tread lightly here. Until next time, stay low risk.
What if you were a trader in a horrible bear market, the likes of which we haven't seen in decades? What if you got a 10% pop in 2 trading days? Would you take some off the table? I know I would. That is what I anticipate the pros are going to do today. I wouldn't be surprised to see the market end the day lower.
This is a bear market. It works in the reverse of a bull market. When bull markets go higher, they need healthy pullbacks before retrenching and going higher. The same will go on today. We head higher and then retrench before going lower. It isn't the end of the world as long as you know what to do with it. If you jump in thinking this is the bottom, you will be in for a healthy dose of humility. If you use this as an opportunity to take advantage of some weak sectors and buy some puts on the cheap, you will probably be rewarded. Tread lightly here. Until next time, stay low risk.
Friday, November 21, 2008
You Got It
We got the rally we were looking for. I said 5-8%. We got about 6.5% across each of the indexes. The rally was pretty weak. There wasn't a lot of volume to signal some conviction in the positive move. It was exactly what to expect in a bear market. I am still short on the index ETF's. It was painful to look at the account balance in the afternoon, but I took heart knowing that there was nothing to this rally.
The (GLD) ETF trade I mentioned the other day doubled for you today. You're welcome. The trade on Monday, if you didn't do it today, is to take off half of your position and play with the house's money.
You had the chance this afternoon to add to short positions more cheaply. This was about as good it gets for shorting oil. I think it heads lower from here. I can't see a much higher price on oil from here. (USO) puts got cheaper today. It was a good entry point.
The same was true with (QQQQ) . It rallied higher on mediocre volume and most of it was near the end of the day. I bought more puts.
Here is another trade to look at. Canadian Natural Resources (CNQ) is a wildly volatile stock and is highly correlated to the price of oil. The stock was up over 20% today. It will revert to the mean soon. Buying puts a strike or two out of the money probably makes a lot of sense. Until next time, stay low risk.
The (GLD) ETF trade I mentioned the other day doubled for you today. You're welcome. The trade on Monday, if you didn't do it today, is to take off half of your position and play with the house's money.
You had the chance this afternoon to add to short positions more cheaply. This was about as good it gets for shorting oil. I think it heads lower from here. I can't see a much higher price on oil from here. (USO) puts got cheaper today. It was a good entry point.
The same was true with (QQQQ) . It rallied higher on mediocre volume and most of it was near the end of the day. I bought more puts.
Here is another trade to look at. Canadian Natural Resources (CNQ) is a wildly volatile stock and is highly correlated to the price of oil. The stock was up over 20% today. It will revert to the mean soon. Buying puts a strike or two out of the money probably makes a lot of sense. Until next time, stay low risk.
Here we go...
We headed lower yesterday as expected. It looks like we will go higher today. The rally might be pretty dramatic today. I wouldn't be surprised to see something on the order of a 5-8% rally today. You will have the bulls running out (they have been really quiet recently) saying, "The bottom is in!" Do not believe them. It is not the beginning of the new bull market. It is only a great opportunity to get short in whatever you have been looking to short.
Why? Aren't we oversold enough? The true answer is not really. We have had several days in a row of selling so, by that definition, we are a little oversold. That is what will happen with the rally today. But there is nothing coming in the near future to brighten the picture. Most of the smart money will look at today's rally as an opportunity to sell. For that reason, I wouldn't be surprised if we saw a dramatic rally early and have it peter out near the end.
So why, in the big picture, are we not oversold? Because we are creatures of habit. We are always looking a reference point. This market has an unprecidented level of fear. When people are operating out of fear, they look for something to guide them. In this case, we are looking for technicals, because no one can trust fundamentals. No one can believe balance sheets, or cash positions, or debt levels. Unfortunately, almost all we have to go on is charts. The charts say we need another couple hundred points if not more on the Dow. We need to go to the 1,100 range on the Nasdaq and we will probably have to go below the 700 range for the S&P.
So what is the trade? This rally will be an opportunity to get short any of the index ETF's. I will be taking some of my calls I had off the table today. It should also be a good time to get short oil via the (USO) ETF puts. I would be looking for at the money puts that give a couple months till expiration. Oil has been trading with the market. It should be higher with the market today.
The (GLD) trade I gave you yesterday is now up 8%. That is nice, but I think it goes higher long term. Until next time, stay low risk.
Why? Aren't we oversold enough? The true answer is not really. We have had several days in a row of selling so, by that definition, we are a little oversold. That is what will happen with the rally today. But there is nothing coming in the near future to brighten the picture. Most of the smart money will look at today's rally as an opportunity to sell. For that reason, I wouldn't be surprised if we saw a dramatic rally early and have it peter out near the end.
So why, in the big picture, are we not oversold? Because we are creatures of habit. We are always looking a reference point. This market has an unprecidented level of fear. When people are operating out of fear, they look for something to guide them. In this case, we are looking for technicals, because no one can trust fundamentals. No one can believe balance sheets, or cash positions, or debt levels. Unfortunately, almost all we have to go on is charts. The charts say we need another couple hundred points if not more on the Dow. We need to go to the 1,100 range on the Nasdaq and we will probably have to go below the 700 range for the S&P.
So what is the trade? This rally will be an opportunity to get short any of the index ETF's. I will be taking some of my calls I had off the table today. It should also be a good time to get short oil via the (USO) ETF puts. I would be looking for at the money puts that give a couple months till expiration. Oil has been trading with the market. It should be higher with the market today.
The (GLD) trade I gave you yesterday is now up 8%. That is nice, but I think it goes higher long term. Until next time, stay low risk.
Thursday, November 20, 2008
Here Is the Trade I Was Talking About..
OK. We know that we are heading quite a bit lower. There will be a dramatic up day here or there but we will ultimately go lower before we bottom out. Puts are a really good idea to make money right now.
Another good idea to make money involves some of the ultimate underlying trends out there. One of the big underlying trends out there is that the central banks around the world are flooding the market with trillions of dollars of liquidity to help solve this crisis. There is a significant amount of fear in the market. The economy is not getting better any time soon. Those are pretty safe assumptions. So how do you make money. Here is a suggestion.
Hedge funds have been liquidating positions as fast as they can and they have been selling anything that had value to raise cash. Included in the selling is the entire commodity space. One of those commodities that is taking a beating unfairly is gold. This is the traditional hedge when things get hairy in the market. The problem is that gold has been one of the victims of the forced selling along with the whole commodity complex. In the next couple of months, when people have completely given up on markets and all the forced selling is over, gold should go back to its traditional position of an inflation hedge. To make money on this trade, you need to be early.
The way to do this is to use what I call a "corner trade". To do this you buy the highest-strike call option with the longest maturity. In this case, you would buy the Jan 2010 gold ETF (GLD) calls at $145 strike. The total cost would be $195 per contract right now. The GLD ETF trades at 1/10th of the price of gold. That means gold would have to get to $1,500 for the option to be in the money. It sounds unthinkable right now, but remember we were over $1,000 per oz. not too long ago.
I have seen predictions for gold as high as $3,000 per oz. within the next 18 months. That might be a little aggressive. Let's say it gets to $2,000 per oz. by Jan 2010. That puts these calls in the money by $500. This means a $195 investment goes to at least $500 with a conservative $2,000 price target on gold. I like the small capital outlay with a trade like this. You can get some huge potential upside with very little risk.
What if gold actually goes to $3,000? Does making 5-10 times your money sound good? I think so. You keep your overall risk low and your profit potential high. That's my kind of trade. Have a safe trading day. It looks like we go lower. Until next time, stay low risk.
Another good idea to make money involves some of the ultimate underlying trends out there. One of the big underlying trends out there is that the central banks around the world are flooding the market with trillions of dollars of liquidity to help solve this crisis. There is a significant amount of fear in the market. The economy is not getting better any time soon. Those are pretty safe assumptions. So how do you make money. Here is a suggestion.
Hedge funds have been liquidating positions as fast as they can and they have been selling anything that had value to raise cash. Included in the selling is the entire commodity space. One of those commodities that is taking a beating unfairly is gold. This is the traditional hedge when things get hairy in the market. The problem is that gold has been one of the victims of the forced selling along with the whole commodity complex. In the next couple of months, when people have completely given up on markets and all the forced selling is over, gold should go back to its traditional position of an inflation hedge. To make money on this trade, you need to be early.
The way to do this is to use what I call a "corner trade". To do this you buy the highest-strike call option with the longest maturity. In this case, you would buy the Jan 2010 gold ETF (GLD) calls at $145 strike. The total cost would be $195 per contract right now. The GLD ETF trades at 1/10th of the price of gold. That means gold would have to get to $1,500 for the option to be in the money. It sounds unthinkable right now, but remember we were over $1,000 per oz. not too long ago.
I have seen predictions for gold as high as $3,000 per oz. within the next 18 months. That might be a little aggressive. Let's say it gets to $2,000 per oz. by Jan 2010. That puts these calls in the money by $500. This means a $195 investment goes to at least $500 with a conservative $2,000 price target on gold. I like the small capital outlay with a trade like this. You can get some huge potential upside with very little risk.
What if gold actually goes to $3,000? Does making 5-10 times your money sound good? I think so. You keep your overall risk low and your profit potential high. That's my kind of trade. Have a safe trading day. It looks like we go lower. Until next time, stay low risk.
Wednesday, November 19, 2008
Just Another Day...
You bought puts right? This is what I was talking about when I saw the trend change the other day. I talked about the trend being "troubling" and that we could be heading lower. I said we were at a "crossroads" yesterday. We could have headed higher. We didn't. We have taken one step in to a much deeper bear market.
So what is the next stop? Wait till you hear this...
Dow 7,125 - 7,225
Nasdaq 1,095 - 1,195
S&P 500 725 - 750
It is a bad thought, but I think we have to head to those new areas of support before we go higher again. The point is not to trade the market you want, you trade the market that is there. The market in front of us is going lower. Take advantage of it and buy index ETF puts. You can get short without taking a ton of risk. At the money puts on the QQQQ, SPY, and DIA will get you what you need.
Any long positions, other than the one I will tell you about tomorrow, should be VERY carefully analyzed and small in size. You can be dead right about the future prospects of a company and get pounded in your long position because the market isn't trading on fundamentals. Until next time, stay low risk.
So what is the next stop? Wait till you hear this...
Dow 7,125 - 7,225
Nasdaq 1,095 - 1,195
S&P 500 725 - 750
It is a bad thought, but I think we have to head to those new areas of support before we go higher again. The point is not to trade the market you want, you trade the market that is there. The market in front of us is going lower. Take advantage of it and buy index ETF puts. You can get short without taking a ton of risk. At the money puts on the QQQQ, SPY, and DIA will get you what you need.
Any long positions, other than the one I will tell you about tomorrow, should be VERY carefully analyzed and small in size. You can be dead right about the future prospects of a company and get pounded in your long position because the market isn't trading on fundamentals. Until next time, stay low risk.
Not Good...
Yesterday's action in the market was not very encouraging. Do not kid yourself into thinking that, just because the market was up, we have seen the worst. I think there is another shoe to drop here. I can't imagine that we have the sell off like we saw at the beginning of October, but I think there is another leg down based on yesterday's action. I mentioned we were at a crossroads. We took the path of a Bear market.
So what does all that mean. You know that the bias is significantly to the downside for the foreseeable future. Remember, a trend is a trend until it isn't. Near the middle of October, we started a short term trend higher. That is when I bought the index ETF calls.
We are now in a trend lower. That is not to say that we won't have some dramatic up days coming. We might have one today. Bear markets do that. But the short term (and of course the longer term trend) is lower.
That said, how am I positioning myself. I upped my ratio of Calls to Puts to 1:1. A savvy investor asks the next question. What did you purchase/sell to get to that ratio? I bought more puts to even out the ratio. I am hanging on to the calls because we are due for an up day soon. When I get one of those, I will take off a portion of the call position. I have long term calls and I know I can get a better price than they are trading for now. Investing is not about the money you make, it's about the money you don't lose. I am sticking to that philosophy. Tomorrow, I will show you another, longer term trend I am looking at. Until then, stay low risk.
So what does all that mean. You know that the bias is significantly to the downside for the foreseeable future. Remember, a trend is a trend until it isn't. Near the middle of October, we started a short term trend higher. That is when I bought the index ETF calls.
We are now in a trend lower. That is not to say that we won't have some dramatic up days coming. We might have one today. Bear markets do that. But the short term (and of course the longer term trend) is lower.
That said, how am I positioning myself. I upped my ratio of Calls to Puts to 1:1. A savvy investor asks the next question. What did you purchase/sell to get to that ratio? I bought more puts to even out the ratio. I am hanging on to the calls because we are due for an up day soon. When I get one of those, I will take off a portion of the call position. I have long term calls and I know I can get a better price than they are trading for now. Investing is not about the money you make, it's about the money you don't lose. I am sticking to that philosophy. Tomorrow, I will show you another, longer term trend I am looking at. Until then, stay low risk.
Tuesday, November 18, 2008
Look Out
The futures are lower this morning. As we all know, this means nothing because we could see another 1,000 point spread on the Dow today. We could end up 500 points on a crazy short covering rally. Who knows at this point. But...
If the action today is similar to the action of the last couple days -where there is very little volume and the action is lethargic at best- we could slowly slip into dangerous negative territory with the technicals and see another significant leg down.
This morning Home Depot reported a the-world-isn't-ending-but-things-kinda-suck quarter. The market had priced in armageddon, therefore the stock is higher by about 4% in pre-market trading. I said the stock would be higher yesterday and here it is. What this stock is going to run into today is weak overall market movement. This is the big risk with large cap, multiple index stocks like HD. They can be pretty good fundamentally or report good news but the overall market can take them lower no matter what. I think that might happen today. That's why, in yesterday's post, I chose to have nothing to do with this trade. If the market ends higher and HD ends much higher, I have lost nothing. Losing nothing is a huge win in this market.
I stay 2-1 calls to puts on my index ETF's but if I see disturbing market action today, I might adjust that ratio because the trend is changing. Remember, a trend is a trend until it isn't. It sounds silly but it is pretty deep if you thing about it. Until next time, stay low risk.
If the action today is similar to the action of the last couple days -where there is very little volume and the action is lethargic at best- we could slowly slip into dangerous negative territory with the technicals and see another significant leg down.
This morning Home Depot reported a the-world-isn't-ending-but-things-kinda-suck quarter. The market had priced in armageddon, therefore the stock is higher by about 4% in pre-market trading. I said the stock would be higher yesterday and here it is. What this stock is going to run into today is weak overall market movement. This is the big risk with large cap, multiple index stocks like HD. They can be pretty good fundamentally or report good news but the overall market can take them lower no matter what. I think that might happen today. That's why, in yesterday's post, I chose to have nothing to do with this trade. If the market ends higher and HD ends much higher, I have lost nothing. Losing nothing is a huge win in this market.
I stay 2-1 calls to puts on my index ETF's but if I see disturbing market action today, I might adjust that ratio because the trend is changing. Remember, a trend is a trend until it isn't. It sounds silly but it is pretty deep if you thing about it. Until next time, stay low risk.
Monday, November 17, 2008
Look for earnings tomorrow
HD will announce tomorrow. They will probably be better than expected. The stock will probably be higher tomorrow. The problem is that there is absolutely no trade here. This would have been one of those events I normally would have gotten in front of by purchasing some calls or a call spread. In this market, I am not interested in trading this. I have very little confidence in the direction of this trade.
I was happy to see Goldman step up to the plate and announce that their top executives will not be accepting bonuses. I was furious to hear that when Vikram Pandit was asked about his bonus, he said that was up to the board. WHAT!? BE A LEADER PANDIT!!! YOU EARNED NOTHING!! YOU DESERVE NOTHING!! It is that simple. What a snake.
The action today was wishy washy. I really feel like we might get into a nasty death spiral without really knowing it. The technicals are really on the verge of breaking down. If we don't get a strong up-side move in the next couple of days, we might see a free fall in the market. It will be very ugly.
On the other hand, if we get some good up-side in the next day or so, we could get a good rally. We have retested the bottoms a couple of times and we are now at a cross roads. I am 2-1 in my ratio of calls to puts on my index ETFs. I think we go higher with some strong action. If we don't, I am covered either way. There is a ton of cash on the sidelines. When it comes back, there will be a glorious rally. Until next time, stay low risk.
I was happy to see Goldman step up to the plate and announce that their top executives will not be accepting bonuses. I was furious to hear that when Vikram Pandit was asked about his bonus, he said that was up to the board. WHAT!? BE A LEADER PANDIT!!! YOU EARNED NOTHING!! YOU DESERVE NOTHING!! It is that simple. What a snake.
The action today was wishy washy. I really feel like we might get into a nasty death spiral without really knowing it. The technicals are really on the verge of breaking down. If we don't get a strong up-side move in the next couple of days, we might see a free fall in the market. It will be very ugly.
On the other hand, if we get some good up-side in the next day or so, we could get a good rally. We have retested the bottoms a couple of times and we are now at a cross roads. I am 2-1 in my ratio of calls to puts on my index ETFs. I think we go higher with some strong action. If we don't, I am covered either way. There is a ton of cash on the sidelines. When it comes back, there will be a glorious rally. Until next time, stay low risk.
Oil is going to $30
The long held adage is that bubbles fall faster and farther for a longer period of time than anyone ever expects. I honestly thought that, when oil was at $147, we were about at the end of the run. It proceeded to drop faster and farther than I expected. I thought about a 50% correction was in order. I was absolutely wrong. Looking at all the fundamental numbers, it seems like oil should be rebounding. Even with a bad economy. It isn't. What makes me think oil isn't going higher any time soon is that no one else is even thinking about a bottom in oil right now.
And don't even think for a second that OPEC has anything to do with prices. They are a bunch of smarmy, self interested scumbags. They "announced" a cut in production. Are they really going to cut anything? Don't even think about it. Think like a smarmy, self interested scumbag for a minute. What would you do?
Here are the things you would know:
1. You know the air is coming out of the biggest commodity bubble of our lifetimes.
2. You know the demand picture for oil isn't getting better for a while.
3. You know that supply disruption and hurricane news do nothing to move prices higher.
4. You know that hedge funds are selling anything that has value left, including oil contracts.
5. You know that the world is experiencing a credit crisis the likes of which we have never seen.
6. You know that there was a time when an oil bubble popped and prices went into the teens.
Knowing all this, would you cut back your production? Or would you crank out the oil as fast as you can to get as much of the inflated price that's left? Seems like a pretty easy answer.
So you as in investor, what is the trade? Very simple. In bear markets there are MASSIVE rallies before resuming a downtrend. Your trade is easy. Wait for a huge rally (5% or more) and buy puts on the USO. Which ones? A couple months out and near the money. Let the market come to you.
A more aggressive trade would look like this. Buy calls on the DUG when you get the same type of rally. This trade is a little more risky. You would need babysit it more because the trade can go against you quickly. This is a double short ETF and inherently more volatile. You can make a ton of money with either trade.
The trend hasn't ended here. There is a lot more money to be made. Take advantage of it. Until next time, stay low risk.
And don't even think for a second that OPEC has anything to do with prices. They are a bunch of smarmy, self interested scumbags. They "announced" a cut in production. Are they really going to cut anything? Don't even think about it. Think like a smarmy, self interested scumbag for a minute. What would you do?
Here are the things you would know:
1. You know the air is coming out of the biggest commodity bubble of our lifetimes.
2. You know the demand picture for oil isn't getting better for a while.
3. You know that supply disruption and hurricane news do nothing to move prices higher.
4. You know that hedge funds are selling anything that has value left, including oil contracts.
5. You know that the world is experiencing a credit crisis the likes of which we have never seen.
6. You know that there was a time when an oil bubble popped and prices went into the teens.
Knowing all this, would you cut back your production? Or would you crank out the oil as fast as you can to get as much of the inflated price that's left? Seems like a pretty easy answer.
So you as in investor, what is the trade? Very simple. In bear markets there are MASSIVE rallies before resuming a downtrend. Your trade is easy. Wait for a huge rally (5% or more) and buy puts on the USO. Which ones? A couple months out and near the money. Let the market come to you.
A more aggressive trade would look like this. Buy calls on the DUG when you get the same type of rally. This trade is a little more risky. You would need babysit it more because the trade can go against you quickly. This is a double short ETF and inherently more volatile. You can make a ton of money with either trade.
The trend hasn't ended here. There is a lot more money to be made. Take advantage of it. Until next time, stay low risk.
Sunday, November 16, 2008
Are We Kidding?
All the recent news about a potential bailout of the automakers is driving me crazy. How can anyone think that just throwing cash at the automakers makes any sense? Fortunately this article gives me hope that we don't just hand them taxpayer cash. Any investor knows that there is zero sense in throwing good money after bad. The logic is the same here. Stroking a check and hoping that GM or Ford or Chrysler will pay us (yes... us... the taxpayers) is an exercise in complete stupidity. I have seen more assinine moves from the government before but this one would be a doosy. Why? Here is why:
1. NOTHING about a bailout will have changed about their ridiculous business model. Who the hell thinks that selling cars (or any widget) at a loss makes any sense? The little three automakers would lose less money if they shut their doors tomorrow and never made a car again. Draw up a business model like that and try to raise money for your business. See if you get any.
2. NOTHING about a bailout will accelerate the labor changes that need to be made. I am not pointing the finger here. Union leaders AND management are both responsible for this lunacy.
3. NOTHING about a bailout will make the little three more responsive to customers needs. The auto business is a long-lead business. It takes a very long time to develop new vehicles and it takes visionary leadership (of which, they have none) to anticipate the changes necessary for consumers.
4. NOTHING about a bailout will change the perception that American cars are crappy vehicles. In spite of recent statistics to the contrary, the PERCEPTION (which is all that matters) is that American vehicles suck.
The bottom line is that the American auto industry does not have a cash problem. The cash problem is a symptom of a much larger disease. A bailout would be like trying to treat AIDS with cough syrup.
So what is the solution? They can make the "too interconnected to fail" argument and there is probably a little bit of truth to that. But the bottom line is that bankruptcy exists for a reason. A Chapter 11 reorganization is just that, a chance to reorganize without creditors breathing down your neck. It is a chance to fix the auto industry. People will lose their jobs. That sucks. Maybe there should be a little government help for the workers. But not for the atuomakers. They are a lost cause. This was an easy long term short I had on for a long time. I took it off about a month ago. The trend was very easy to spot there. Until next time, stay low risk.
1. NOTHING about a bailout will have changed about their ridiculous business model. Who the hell thinks that selling cars (or any widget) at a loss makes any sense? The little three automakers would lose less money if they shut their doors tomorrow and never made a car again. Draw up a business model like that and try to raise money for your business. See if you get any.
2. NOTHING about a bailout will accelerate the labor changes that need to be made. I am not pointing the finger here. Union leaders AND management are both responsible for this lunacy.
3. NOTHING about a bailout will make the little three more responsive to customers needs. The auto business is a long-lead business. It takes a very long time to develop new vehicles and it takes visionary leadership (of which, they have none) to anticipate the changes necessary for consumers.
4. NOTHING about a bailout will change the perception that American cars are crappy vehicles. In spite of recent statistics to the contrary, the PERCEPTION (which is all that matters) is that American vehicles suck.
The bottom line is that the American auto industry does not have a cash problem. The cash problem is a symptom of a much larger disease. A bailout would be like trying to treat AIDS with cough syrup.
So what is the solution? They can make the "too interconnected to fail" argument and there is probably a little bit of truth to that. But the bottom line is that bankruptcy exists for a reason. A Chapter 11 reorganization is just that, a chance to reorganize without creditors breathing down your neck. It is a chance to fix the auto industry. People will lose their jobs. That sucks. Maybe there should be a little government help for the workers. But not for the atuomakers. They are a lost cause. This was an easy long term short I had on for a long time. I took it off about a month ago. The trend was very easy to spot there. Until next time, stay low risk.
Friday, November 14, 2008
Crazy!
I am not really sure what to think about today's market action. I expected a little bit of a bounce. The market really deteriorated near the close. I expected it to hold up. I was at a loss near the end.
Fortunately, I took yesterday's rally to buy some puts on the long QQQQ position I had on. They helped hedge the loss potential I had going today. I saw that the current uptrend (believe it or not) in the QQQQ was getting close to reversing if much more selling was going to happen. Turns out that the puts were a great bet for today. I could have sold for a healthy profit but I decided to hang on just in case the G20 leaders come out and royally screw up this meeting.
My question is where is our fearless president-elect Obama? He is being "kept up to speed" but why is Bush even participating? Obama is the one who is going to be stuck with this mess. If nothing else, it would be a great networking opportunity for him. I know he isn't the president and he gave the little schpiel about "one president at a time" but a little proactivity would be nice. We got caught with our pants down while the financial system melted down. It would just be a little reassuring to see the guy who is going to be in charge at least eaves-dropping a little.
There will come a time soon where we will have a strong, sustained move to the upside in the markets. I wish I could tell you when it will happen but these markets are ridiculous right now. This market has lopped off the heads of some of the biggest names on Wall St. I don't feel bad for not being able to predict this one. Until next time, stay low risk..
Fortunately, I took yesterday's rally to buy some puts on the long QQQQ position I had on. They helped hedge the loss potential I had going today. I saw that the current uptrend (believe it or not) in the QQQQ was getting close to reversing if much more selling was going to happen. Turns out that the puts were a great bet for today. I could have sold for a healthy profit but I decided to hang on just in case the G20 leaders come out and royally screw up this meeting.
My question is where is our fearless president-elect Obama? He is being "kept up to speed" but why is Bush even participating? Obama is the one who is going to be stuck with this mess. If nothing else, it would be a great networking opportunity for him. I know he isn't the president and he gave the little schpiel about "one president at a time" but a little proactivity would be nice. We got caught with our pants down while the financial system melted down. It would just be a little reassuring to see the guy who is going to be in charge at least eaves-dropping a little.
There will come a time soon where we will have a strong, sustained move to the upside in the markets. I wish I could tell you when it will happen but these markets are ridiculous right now. This market has lopped off the heads of some of the biggest names on Wall St. I don't feel bad for not being able to predict this one. Until next time, stay low risk..
A Successful Test
What we saw yesterday was a successful test of the lows from Oct 10th. Here is an intraday chart of the Diamonds Trust (DIA) from yesterday. You can use the Spyders (SPY) or Powershares QQQQ Trust (QQQQ) too. For newbies, these are ETF's that track the major indices. They all look the same. They basically always do.
Those charts are nice but these ones are even better. Here are all three, only longer term charts (DIA) (SPY) (QQQQ). Pay attention to the period from the beginning of October until now. Notice there have been essentially three times we have gone to those lows and then headed back up? It means we are in the process of bottoming. Yes, we can head lower again. But unless something dramatic happens, the Dow is not going to 5,000. 7,000? Maybe. 5,000? Doubtful. The market has priced in an economic armageddon. Things are bad, but the global economy is not coming to a hault. There are a lot of values to be had out there. Pick your spots. For example, every single time Mcdonald's (MCD) pulls back. I am nibbling. I sell calls to finance the purchase and hedge my risk and capital outlay, but MCD goes higher by the end of the year. That is a trend that is easy to spot.
As you continue to read, and as I continue to post, you will find that I do not complicate things with crazy scenarios for profits. I look for the easiest-to-predict, lowest risk trades available. Notice I said lowest risk. Not most profitable. I have found that the easiest way to make money in the market is not to lose money in the first place. The fastest way to walk from point A to point B is to never take steps backward. Big picture trends are very easy to spot if you just look for them. I will do some math next time to show you how. Until then, stay low risk
Those charts are nice but these ones are even better. Here are all three, only longer term charts (DIA) (SPY) (QQQQ). Pay attention to the period from the beginning of October until now. Notice there have been essentially three times we have gone to those lows and then headed back up? It means we are in the process of bottoming. Yes, we can head lower again. But unless something dramatic happens, the Dow is not going to 5,000. 7,000? Maybe. 5,000? Doubtful. The market has priced in an economic armageddon. Things are bad, but the global economy is not coming to a hault. There are a lot of values to be had out there. Pick your spots. For example, every single time Mcdonald's (MCD) pulls back. I am nibbling. I sell calls to finance the purchase and hedge my risk and capital outlay, but MCD goes higher by the end of the year. That is a trend that is easy to spot.
As you continue to read, and as I continue to post, you will find that I do not complicate things with crazy scenarios for profits. I look for the easiest-to-predict, lowest risk trades available. Notice I said lowest risk. Not most profitable. I have found that the easiest way to make money in the market is not to lose money in the first place. The fastest way to walk from point A to point B is to never take steps backward. Big picture trends are very easy to spot if you just look for them. I will do some math next time to show you how. Until then, stay low risk
Thursday, November 13, 2008
First Post
Welcome to my new blog. I will share some opinions of market issues and investing trends. My investing style is to find specific trends in the market and use them to my advantage. My philosophy is that a trend is a trend until it isn't. I make my money in the middle. I know I will not pick a top or a bottom but I know there is a TON of money to be made in the middle.
The other thing I look for is specific, tradable events. This usually means earnings. I will place hedged trades in order to take advantage of the volatility around those events.
I use mostly options in my investment strategy. It allows me the ability to diversify and risk small pools of capital with huge return potential.
That's it. That is exactly what the most successful investors do. Warren Buffett looks for trends. The trends he looks for are VERY long term trends. Others look for shorter terms. You need to find what works best for you. I will share some of my ideas. If you lose money on these trades it simply can't be my fault. I make money and lose money on all my trades. You will too. I will get back tomorrow. Until then, stay low risk.
The other thing I look for is specific, tradable events. This usually means earnings. I will place hedged trades in order to take advantage of the volatility around those events.
I use mostly options in my investment strategy. It allows me the ability to diversify and risk small pools of capital with huge return potential.
That's it. That is exactly what the most successful investors do. Warren Buffett looks for trends. The trends he looks for are VERY long term trends. Others look for shorter terms. You need to find what works best for you. I will share some of my ideas. If you lose money on these trades it simply can't be my fault. I make money and lose money on all my trades. You will too. I will get back tomorrow. Until then, stay low risk.
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