The Trend Is Your Friend

The most basic principle in trading; trade the trend until it is broken. Dip buying continues to be profitable, I got back into positions I wanted to near the lows of the day on the pull back with higher strike options and into a couple new positions as well. Towards the end of the day I had a nice profit and we were hitting up against resistance I had expected so with GS earnings in mind and the fact that most financials had run about 20% since WFC pre announced I figured we may be due for a pull back if GS was even the slightest bit disappointing. I bought puts on the XLF as a hedge but still have a long bias. After the bell the XLF started jumping around and my position was flucuating between a profit and loss and I wondered what the hell was going on.

Apparently, GS released earnings early and completely blew them away, earnings almost double expectations. They also announced a capital raise of 5 Billion. The stock is down slightly after hours. Had they not announced the capital raise I suspect it would be up big in afterhours. As of right now I am sitting on a small loss on my puts which is fine given the protection I had to disappointment and my view of limited upside risk. I am torn on whether or not to leave the hedge on, the position size is slightly large for my taste so maybe I'll keep it but scale it back. I'll watch how the financials trade in the morning, GS was likely one of the strongest to report so others may not fair so well making the hedge a good one. This is bullish for the overall market though, so far not too many disappointments where it counts.

Intel reports tomorrow, I think it will beat and guide higher but the market also expects that so it may be built in, either way that is likely bullish for tech, retail sales should be decently strong for March as well, another reason to keep going up.

We seem to just keep trading near these oversold levels, we'll pull back enough to ease off then go up again. If we have another gap up I think that will be the time to sell into it and position a bit more bearish in the short term to take advantage of a pull back. With options expiration this week I have to expect we pull back at some point fairly decently, but of course I could be wrong.

I picked up exposure to some agriculture and dry bulk shipping as this reflation trade continues. In addition to picking good stocks I have sidestepped a few disasters by being disciplined. My puts on WYNN for example I was in at 20 and out at 21, now it's trading at 32. I sold out of WFR and was planning to buy on a pull back or roll into better options but after the close thursday they had a warning that sent it down 15% which would have turned my profits into a loss(this was lucky but my action of taking profits saved them). Last is ESRX, announced it was buying Wellpoint and was up big on that news which would have given me a large loss on my puts. The theme seems to be that it is semi-hazardous to be holding puts but I think that will change after earnings season and more information comes to light.


Total Return for 2009: 117%