This market remains unpredictable. A large gap open resulted in a fill and then drop of the major averages. The frustrating thing is what happened with GE just a day ago did not happen with XL capital, it bucked the whole market trend and I got out with my measily gain only to see it shoot up another 4 dollars during the day. Oh well.
I tried unsuccessfully to be the contrarian twice to the downward trend. I made money a 3rd time and got out with a quick gain but the averages rallied into the close like I was hoping. Oh well. I need to fully remove emotions out of the equation. I tried to during the day as I took a trade and just a set a limit sell order of my predicted target. The target got close but not quite there so I never got filled and took a loss on the position.
You have to act so fast in this market it's insane. The perfect put plays on POT and FSLR i was wanting to take were only at their resistance levels for the first mins then proceeded to plunge the whole day. Who would have thought with a 4% gap up on the open there would be zero significant rally attempts to take them down at their resistance levels again. All I can hope for is another rally.
I fear the market is in a middle ground area, we could go up just as easily as we could go down so I don't really want to take a directional trade beyond a day. I need to just be patient and let the setups come to me and take the ones that make the most sense.
Tuesday, October 14, 2008
Monday, October 13, 2008
More History Made
So the rally finally came that I was expecting, although it came with even more force than I expected which caused me to leave a lot of money on the table as a result. Twice I looked for day trades to see if the rally would fade and twice I had to exit again because the trend just kept going up. History books seem to keep being written in this market. With the Dow gaining nearly 11% in the session, the second highest percent gain and the highest point gain in history.
Besides exiting my calls too soon, GE particularly pissed me off. I had my stock set to sell on the open at 22.25, it opens and 22.30 and apparently I didn't get filled because it promptly dropped and kept dropping the whole day. I ended up bailing at 21.20, so there is a 1k less gain on that trade. I did however buy back the puts I sold at .85 for .15 so I made 700 there, not too shabby. It is likely I could have collected the entire 850 but in this market I didn't want to risk it.
My target of 9500 was essentially reached today. I was hoping for a pause at 9000, then a resume on good confirmation of libor rates going down. As of right now it looks like the rally is set to continue with futures up 2%. I am upset I bailed out and missed that extra 500 dow points obviously, but the easier trades will come on the way back down and I won't chase the trend beyond some possible day trades. when we get near 10,000 I will put on a put position. Stocks in the ag and materials sector should also be close to some good resistance and ready to get some puts as well.
My only position at the moment is some stock in XL Capital. They report earnings tomorrow morning before the open so this is partially a gamble. However they are trading at 1/3 of supposed book value so if earnings and guidance is remotely decent we could see a pop. If not, then I shouldn't have too much downside risk. It did run up into earnings so that is a partial concern that it will sell on the news, but again it should be limited risk.
I may look to exploit these high volatility numbers with more option selling if we have a rally tomorrow and reach close to 10,000.
My general feeling is we see 10,000 then as earnings start to come out and are worse than expected and guidance gets cut we will see a lot if not all of this rally come off over the next couple weeks. Then there will be focus on the usual things like consumer spending. If the market is not doing well I don't see a good christmas but if it holds up going into the holiday season I have faith in people to keep spending money they don't have if they are employed.
I will let the chart show the way but these are annoying times to be an option buyer with such inflated prices but I am hoping the vix comes down significantly soon and we start to have more well defined trends we can follow.
Besides exiting my calls too soon, GE particularly pissed me off. I had my stock set to sell on the open at 22.25, it opens and 22.30 and apparently I didn't get filled because it promptly dropped and kept dropping the whole day. I ended up bailing at 21.20, so there is a 1k less gain on that trade. I did however buy back the puts I sold at .85 for .15 so I made 700 there, not too shabby. It is likely I could have collected the entire 850 but in this market I didn't want to risk it.
My target of 9500 was essentially reached today. I was hoping for a pause at 9000, then a resume on good confirmation of libor rates going down. As of right now it looks like the rally is set to continue with futures up 2%. I am upset I bailed out and missed that extra 500 dow points obviously, but the easier trades will come on the way back down and I won't chase the trend beyond some possible day trades. when we get near 10,000 I will put on a put position. Stocks in the ag and materials sector should also be close to some good resistance and ready to get some puts as well.
My only position at the moment is some stock in XL Capital. They report earnings tomorrow morning before the open so this is partially a gamble. However they are trading at 1/3 of supposed book value so if earnings and guidance is remotely decent we could see a pop. If not, then I shouldn't have too much downside risk. It did run up into earnings so that is a partial concern that it will sell on the news, but again it should be limited risk.
I may look to exploit these high volatility numbers with more option selling if we have a rally tomorrow and reach close to 10,000.
My general feeling is we see 10,000 then as earnings start to come out and are worse than expected and guidance gets cut we will see a lot if not all of this rally come off over the next couple weeks. Then there will be focus on the usual things like consumer spending. If the market is not doing well I don't see a good christmas but if it holds up going into the holiday season I have faith in people to keep spending money they don't have if they are employed.
I will let the chart show the way but these are annoying times to be an option buyer with such inflated prices but I am hoping the vix comes down significantly soon and we start to have more well defined trends we can follow.
Saturday, October 11, 2008
The Crash of 2008
It's interesting to think these really are historic times. People will look back and reference this as the "crash of '08" just like people talk about the '87 crash. October seems to be the month for events to unfold historically and this time around it is no different. With the Dow 40% off it's highs from almost exactly a year ago it seems eerily coincidental.
I have been trying to do some research on previous bear markets and crashes to help me gain an edge going forward. I feel like this is a great opportunity to make money on a snap back rally since we are so significantly oversold. Friday was slightly encouraging as we rallied from 670 down to settle only down 128. This could have been because people did not want to be short before the G7 meeting over the weekend but it seemed fairly positive since more forced selling didn't come at 2:30 or was at least overcome by more buying into the close.
Looking at the dot com crash, it basically took 2 years and had 4 steps on the way down to retracing from 1500 down to 800 on the S&P 500. This time around it has taken only a year but still took 4 steps to retrace 1550 to 800. The month following retracement there has a been about a 10% move back up in the opposite direction. The fact that this move has happened so quickly and gone so far means there should be a massive rally around the corner, likely sparked by a government move. I personally think that the government should guarantee interbank lending, that would spark a huge rally, but at this time all they are saying they'll do will be to invest in banks directly which may not do much to inspire confidence.
Comparing the previous declines as well each time it reached a -70 oversold condition there was a rally generally for the next week or 2, we have reached that condition, as well as historic oversold conditions on the McClellan Oscillator and bullish percent index. Even with the late day rally the McClellan is at a -120 level up from -130.
The factor just comes down to time and with the Vix at all time highs it makes options trading very hard. I still bought some November calls on the DIA with the expectation that we see a 10% move in the next couple weeks which should offset any volatility and time decay enough to get a nice profit.
GE reported earnings which were in line and affirmed outlook for the year. This would have normally be big news but seemed to be ignored. I took a stock position in GE at 18.50 which has been a significant support level over the last 10 years. It also coincided with an oversold level which was ideal. Right now after hours it hit 21.50, if we see a rally I think it could see another 10% pop. My first target is 22.50 with a second target of 24. At the same time I sold an Oct 17.50 put since we will have time decay over the weekend and doubt it will finish in the money at all by friday, but who knows anything is possible. I think odds are in my favor which is why I took the trade. Waiting a week and hopefully getting 800 for it is an ideal situation but still makes me a bit uneasy having an uncovered put position. I could have done a covered call but I expect the move to be up so that seemed to not be a good play.
I think the Dow could get back to 10,000 in short order once we see some credit relief but I think 9,500 is a more realistic target.
Who knows if we saw a bottom, but lets hope history repeats itself again and it is profitable. :-)
I have been trying to do some research on previous bear markets and crashes to help me gain an edge going forward. I feel like this is a great opportunity to make money on a snap back rally since we are so significantly oversold. Friday was slightly encouraging as we rallied from 670 down to settle only down 128. This could have been because people did not want to be short before the G7 meeting over the weekend but it seemed fairly positive since more forced selling didn't come at 2:30 or was at least overcome by more buying into the close.
Looking at the dot com crash, it basically took 2 years and had 4 steps on the way down to retracing from 1500 down to 800 on the S&P 500. This time around it has taken only a year but still took 4 steps to retrace 1550 to 800. The month following retracement there has a been about a 10% move back up in the opposite direction. The fact that this move has happened so quickly and gone so far means there should be a massive rally around the corner, likely sparked by a government move. I personally think that the government should guarantee interbank lending, that would spark a huge rally, but at this time all they are saying they'll do will be to invest in banks directly which may not do much to inspire confidence.
Comparing the previous declines as well each time it reached a -70 oversold condition there was a rally generally for the next week or 2, we have reached that condition, as well as historic oversold conditions on the McClellan Oscillator and bullish percent index. Even with the late day rally the McClellan is at a -120 level up from -130.
The factor just comes down to time and with the Vix at all time highs it makes options trading very hard. I still bought some November calls on the DIA with the expectation that we see a 10% move in the next couple weeks which should offset any volatility and time decay enough to get a nice profit.
GE reported earnings which were in line and affirmed outlook for the year. This would have normally be big news but seemed to be ignored. I took a stock position in GE at 18.50 which has been a significant support level over the last 10 years. It also coincided with an oversold level which was ideal. Right now after hours it hit 21.50, if we see a rally I think it could see another 10% pop. My first target is 22.50 with a second target of 24. At the same time I sold an Oct 17.50 put since we will have time decay over the weekend and doubt it will finish in the money at all by friday, but who knows anything is possible. I think odds are in my favor which is why I took the trade. Waiting a week and hopefully getting 800 for it is an ideal situation but still makes me a bit uneasy having an uncovered put position. I could have done a covered call but I expect the move to be up so that seemed to not be a good play.
I think the Dow could get back to 10,000 in short order once we see some credit relief but I think 9,500 is a more realistic target.
Who knows if we saw a bottom, but lets hope history repeats itself again and it is profitable. :-)
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