Friday, February 5, 2010

Horror Show

I have been looking at a bunch of stocks either sitting at the very bottom of the portfolio with 0.1% allocations, or old holdings I am interested in getting back into - and the charts read like a series of Stephen King novels.  Certainly these are going to dead cat bounce sooner or later but there is no intermediate term good vibes to be found.  I am amazed so much damage has been done and the S&P 500 is only down about 8% from peak; many of these stocks are down by a third or more in 2-3 weeks.  I am struggling to put together a list of "want to buys" when chart after chart looks like this:

As for the S&P 500, I didn't really think 1046 would be in play today with the sanguine opening but as I type this we suddenly dropped a few points and now are at -1% on the session.  1052s and falling fast. How quickly the tide has turned for a market that was impervious to any weakness.

If the 200 day moving average is reached this afternoon I'll probably sell the majority of the puts (this time I went with SPY 106) I bought this morning, as outlined at the end of the previous post.  The position size was not as large as what we were holding for the selloff yesterday, but I simply wanted to get some of the exposure we moved out of ahead of the "news event" of the labor reports.   I threw some sheckles shorting BGU (3x big cap levered ETF) this morning as well.  I do expect a bounce off the 200 day when and if.  I am struggling to figure out what aside from index plays to use for any such bounces - for reasons outlined in paragraph 1.

For your moment of Zen, Senator Dodd says biparisan financial reform is at an impasse.... oh joy.  When I read about our leadership I sometimes wonder why the S&P is not below 300.  Since Dodd is "retiring" I can only wonder what financial firm he will be landing at in 2011... when we find out, we'll know which oligarch was most responsible for creating the 'impasse'.

EDIT 1:42 PM - well that did not take long.  1146 (edit: 1046) is here. Let's see what sort of bounce happens here.

EDIT 2:15 PM - sold 3/4th of SPY 106 puts bought this morning, for very nice profit around 40%ish (for about 4 hrs of work) as S&P bounces back to S&P 1048 range.  Trying to avoid greed and avarice to finish off a tremendous week.  I will reconsider buying if the 200 day moving average breaks but going into a weekend, I might just sit on hands.  So at this point we have fractional positions in SPY 108, 107, 106 puts - each reduced about 75% from original size.  The remaining 25% is the "house's money". The SPY 108 and 107 puts are up 100%ish from the purchase point.  By taking profits into the close both yesterday and right now, we've been able to profit from intraday waterfall type selloffs, locking in majority of our gains WITHIN the day, which means we had little overnight risk.  I'm comfortable letting the rest ride for now and watching. When the bounce comes (and it will) I won't need to catch much of it, since we had such a huge past few days. 

If there is a late day bounce I'll probably cut these positions even further. 

EDIT 2:30 PM - covered the BGU (3x large cap bullish) ETF that I shorted this morning, 3%ish gain but it was with 7% of the portfolio.  Will re-introduce to the portfolio next week if the 200 day breaks.  Done with it for the day.

EDIT 3:10 PM - cut the remaining 25% in all 3 puts by another 2/3rds, before CNBC goes to 8 hours straight of excited coverage about how this bounce off the 200 day moving average ahead of "Magical Mondays" (97% of the time a rally) means the bottom is in and all is well in the world.  Greece? Smeesh! I will use the dollar exposure as most of my downside hedge from here.  I'll rebuy puts next week probably after the 2% rally on Magical Monday.  We are back in a "white noise" area as we reach for S&P 1060, can easily go 15-20 points in either direction - no feel for the next 10 points.

It truly amazes me how trillions of valuation from day to day, hour to hour, are based on squiggly lines on a chart.  Talk about a textbook bounce off support.

EDIT 4:00 PM - and that boys and girls is why it is NEVER wrong to take at least part of your profits when they are available.  Surely there will be times you leave some on the table (almost EVERY time in fact) but profits can be fleeting.  Look at the title of this post in fact, written around 1:30 PM.  Haha.  The SPY 106 puts I sold around 2:15 PM I made 40% on, they peaked over 50% and by end of the day they went negative.  Looking forward to drool coming off the lips of CNBC hosts and the Fast Money crew tonight as we hear "fantastic" "unbelievable" "that's a reversal - buy buy buy!" and "the bulls are back in town".  Buy copper! oil! China! Heck, buy Greek stocks! Yeehaw.

A fun week! Let's keep this volatility going, so many profitable opportunities each day.

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