Friday, November 12, 2010

A Very Fruitful Week, and Does our Urgent Buyer Show Up in the Last 30 to Spike Us Over the 13 Day MA?

It's been a very fruitful week for the fund, and far more enjoyable than the 'melt up' weeks when you can check your brain at the door.   Looks like we are going to be up around 3% versus the market down about 2.3% - I like it.

I've edited the SPY put piece to indicate I exited the last of the puts (50% of original position) now that S&P 500 has cleared intraday highs of 1198.  It might still fall lower later in the day but I wanted to lock in good gains across the board.  These have been good to me this week, with 3 trades of 5%, 3%, and 5% exposure during various intraday selloffs - all garnering nice gains.  Frankly, until today the long positions all held up quite well this week as well.

The 20 day moving average on the S&P 500 looks like it will hold, barring some miracle for bears in the last hour.  Hence the bulls are still in solid shape, although they took a blow today.  (glancing)  The only question now is do they spike this market to get it to jump back over the 13 day in the closing moments... which we can explain as 'short sellers' covering.... as if there are any short sellers still with their extremities intact after a 2.5 month attack.  But it will make for a convenient excuse if and when.  I bought some TNA ETF (long) [modest - 2.6% exposure] assuming they "mark up the close"... not that I am cynical or anything.

With the hold of the 20 day one would expect the dip buyers to show up again early next week but the fervor seems to have lessened.  The question is what happens after the "oversold" bounce.  (nowadays a 2 day selloff means oversold)  It won't really be safe to be "all in with Ben" until we break to new yearly highs... because one can now make a case of a double top with April highs in the S&P 500.  But we have a clearly defined bottom of 1192 - 1194, so one can place long side bets with that level as your ejection seat.

Larger picture, we have a haze of war area (I often call it "white noise") between S&P 1195 and 1225, or 30 points in which I have no strong opinion. Below 1192 I raise my bear claws; above 1225 I drink Kool Aid.  The gaps at S&P 1110 and 1090 still sit out there; potentially a break of S&P 1192 can lead to 100 S&P points to 'fill the gap'.  Hence buying "the dip" is not something I am in a rush to do.  Plus a lot of the hottest stocks / commodities showed some mean reversals the past 3 days.  "Buy high, and sell higher" has failed some people (finally) although certain situations like Priceline and F5 Networks remain in a cocoon of "only upside".  And as important, the "I can't lose due to POMO" fallacy finally took a hit today.

I do say isn't it ironic that the market sold off in a meaningful way for the first time in a month, on the first day of QE2.  Alanis also wonders that.

Other than that we await the Irish sovereign debt rescue.... and then the Portuguese rescue... and in late 2011 the Spanish rescue.  And no bondholders will ever take the hit as apparently bondholders are the new gods of the world.... the taxpayers are responsible for all the risk bondholders take in the world.
  • “The battle between financial-sector investors and taxpayers is intensifying,” said Kapoor, who advises governments and nonprofits on regulatory policy as managing director of Brussels-based research group Re-Define. “Those with the weakest voices will be left carrying the can. Unborn future taxpayers have the weakest voices of all.”
Why do you care?  Because (a) you are partially funding the European rescues (hello Greece) via IMF and (b) we the taxpayer surely have to make CA, IL, and any other troubled state's bondholders whole in the coming 3-5 years as the state bailouts occur, since they can never be punished for bad investment decisions. Power to the PIMCO.

I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everyone.

--James Carville, Clinton campaign strategist

Back at it next week.

Long some TNA in anticipation of Monday Morning Madness in fund; no personal position


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