Thursday, February 4, 2010

Same Game Plan as Last Friday Ahead of the Labor Report

I expect tomorrow's labor reports to create the normal "gap up" or "gap down" as happens most months, when we act as if all the world changes based on an extra +/-25,000 people the government tells us are unemployed. (which they will revise down within the following year anyhow).  I have the same disdain for that headline knee jerk reaction as I do with how people treat earnings reports... it's over the top, but that's our Ritalin addicted society.  I still think the intermediate term is down but in case the lemmings find joy & solace in government data, I don't want to give up some nice profits.  That said my gut tells me whatever the number and initial reaction tomorrow AM - we still are going to be selling off in the days to come.  Not only do the indexes now look terrible technically I have 1 stock out of 25 in my portfolio that is above the 50 day average.  My watch lists are full of broken down stocks as well, so the individual equities tell a far more dire story than I am seeing in the indexes.

This morning I put about 11% of the portfolio from cash into SPY (S&P 500 ETF) puts.  I didn't short any of the levered ETFs because we are so heavily in cash and there is no reason to go hog wild to hedge the portfolio.  These puts are now up around 40%; just as last Friday when we did a similar play, I'll consider locking in 1/3rd to 1/2 (by selling) if we get a nice woosh down or the S&P 500 breaks back closer to 1080 on some sort of strange late day rally.  Obviously the preferred outcome would be some waterfall selloff into the close to maximize profts.  I still don't see panic out there but there is a lot of carnage in individual equities - red across my watch lists..

We have now made up the losses from Monday's premarket surge which took away the 1/2 of our puts that we ended up not selling last Friday.  (ironically if I had held those puts through the pain of the 2 day rally Monday and Tuesday they would be very profitable today - oh well, if only I could see the future).  Portfolio value at all time highs.  I really don't want to sell much of this until the S&P 500 hits the 200 day down near 1045, but it's prudent to take off the table large gains which come so quickly.  At least some of them - so by 4 pm we will.

S&P 1070 is being protected at all costs, as we assumed it would be.  Let's see what the final 30 minutes bring, very rare to see any sort of late day reversals either up or down anymore.

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