Sidelines Suck

The market continued higher Friday which makes me wonder how high it can ultimately go. It also makes me irritated I am not long anymore . Optimism continues to win out and we have gotten some better than expected indicators to keep that optimism alive. Up until now I really have not doubted the rally so it begs the question of why start to doubt it now, especially since there hasn't been much reason for negativity as of late. Jobless claims continue to rise although not as quickly, housing was much better than expected as well as durable goods being not as bad. Those could have been reasons to sell it off but it keeps being somewhat of a surprise or a reason to not sell. There are people on TV who say "this is a bear market rally we aren't interested." While I am not delusional and realize it is a bear market rally there is no reason to not ride it while it lasts.

So far I have captured a majority of the move but the dilemma is to decide when to get out. The market is at a critical point finishing just at the 870 resistance level but not able to break above it. The odd thing I have noticed which could be a bearish divergence is the fact that while the market is back at new highs, the stocks I was in that were previously leading are not at previous highs themselves. PCU is still below resistance, ACH also off its highs. This could be sector rotation but generally materials demand is a good indicator of economic recovery. The other possibility is that these stocks are making a lower high and could possibly start reversals over the short term. Then again, shippers are looking strong and coal could be turning around also both things I'd like to be involved with when they happen. From a technical standpoint if we break above 875 it's likely we go to 900 like I had said before. Like I also said I am just hesitant to commit longer term capital at these overbought levels but it sucks not participating in a trend.

AMZN was up 4 dollars on friday after earnings, again going higher when people said there is no way it should. Even with that move up I did make money on the calls I sold. This is a perfect lesson on why options can be risky and why speculating about earnings has to be done with care. Those with in the money options likely made out nicely from the day before but the people who bought the options from me lost money even on a nice move higher because so many things are going against you. From my couple years experience it is generally better to hold options up until earnings then sell if they are out of the money still, or do like I did and sell a couple strikes out of the money if you feel there is some safety but again manage risk. AAPL was down on the large up day which was good as well for my position.

Going into next week I'll see what the market does. It is hard to know what is built into stocks and what isn't. GDP will be announced and I actually have a feeling it will be not as bad as feared again which is bullish but if it is worse that will likely be the catalyst for pause. The 10 year treasury is at a critical level of 3.0%, if it breaks that it should point to higher stock prices as well and more favorable to commodities and foreign currencies. Bernanke made his large announcement about the fed buying treasuries last time we were near this level and something could be said again to try and keep rates capped for the time being but ultimately the market will win out.

My short call positions netted a small 1% gain, which is less than I am used to but again it isn't a loss.

Total Return for 2009: 125%