Thursday, July 23, 2009

Mr. Obvious: Looks Like It's a Breakout

It doesn't take a rocket scientist to see today is a trend day. Zoom zoom zoom up all day.

Once we broke that "double top" (early June and the past few days) we spoke about yesterday, the super computers rushed in (HAL9000) and the humans joined. I was using S&P 959 as my "breakout" point, and it appears that about 10 million other humans (and microchips) were as well.

While I still have that 3% insurance policy (puts) and will hold until the middle of next month, as we wrote yesterday we replaced some individual stock risk with index risk and once we broke over that double top we joined the party. For now I guess we just keep riding and watch with a close eye.

Both our remaining shorts were called away this AM, BHP Billiton (BHP) and ProLogis (PLD) in the euphoria - took 3-4%ish losses on each but just a minor part of the portfolio. I sold a small portion of PLD for a gain yesterday but not big enough to mention. (1/4th of the stake)

Since the move over a double top is so powerful I actually put double the normal we've been doing "intraday" into S&P 500 (SPY) calls and that's our main weapon on the long side right now. They tend to act like firecrackers if you get the direction 'correct' and already have expanded from 16% of the portfolio to about 19%. For you option folks these are August 97 & 98s.

I am not going to be too greedy and will be back into cash by the end of the day (which to me is now 3:30 PM based on the crazy action in the last 30 minutes many days) if not sooner. On trend days I have a simple game plan, choose a moving average and don't sell until it breaks below - yesterday was one of the few times I can recall we actually had to sell what looked to be a trend day. We had a very mild reversal but the shorts were weaklings and did nothing with it in the last 45 minutes.

Today, I'm just going with the brown line - as long as we hold it, I'll keep the calls until 3:30 - 4:00 PM and hope we rally 5% more ;) Other than that, I'll just "refresh" this chart every 10 minutes and sit tight while I "bet on brown" - that's all the action for the day.

[click to enlarge]

So position wise it looks like this:
  • Long stocks - about 10%
  • Short stocks - about 2%
  • Long SPY options - 16% that jumped to 19% (entered this morning right before 10 AM, and will be out of all I assume by end of day)
  • Short SPY options - 3% that has now dropped to 1.5% exposure with this furious rally
Everything else in cash. I don't want to chase individual stocks here.

I know it is impossible to believe but the market can go down! :) Today didn't seem earnings inspired (the EBAY rally?) - just technical in nature and why I think investors need to have all the tools on their toolbelt. If you were not looking at the S&P chart you'd be scratching your head and saying "I never new 3M (MMM) was such a powerful stock to move the whole market - consumers are buying scotch tape again - boo yah."

I believe I read last week that the longest NASDAQ rally ever was 12 days - considering I lived through 1999 when it seemed NASDAQ was up 19 out of 20 days, the fact we're matching that record is ... well, let's just say special.

p.s. if we can add 3% or more today I can probably sell these calls and come back next Jan 1, ready for the new year. This year will be "done" ;)

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