Down We Go

Friday was one of those very annoying days where initially almost all my positions were working. My puts were making money and my calls were making money or had smaller losses. I walk away thinking I don't need to really monitor things and hope to come back to more profits but instead I come back and all my profits are gone and I have decent losses in their place. This can happen when you have diversified and therefore somewhat uncorrelated positions. Generally you want your relative strength and weakness candidates to work in your favor but it can't always be the case.

Today I would consider more positive, in that I managed to have a small loss on a fairly large down day. Usually the leverage afforded by options can cut both ways so up moves and down moves are multiples of the index. Today I actually had only slightly more than a 1% loss with the S&P down over 2%. This is how I'd like things to work all the time while being long biased. My WFR position actually made money which I found very surprising given that oil was pulling back and materials stocks were getting hammered. Hopefully if we see a bounce tomorrow WFR will be an outperformer. That divergence allowed my put positions to help equal out my other long positions. ANR is currently stuck in a range from 27-30 and CHK is stuck between 22-25. Natural Gas actually had a huge day which I am hoping will be bullish for CHK which has been my thesis all along. As soon as we start to get an uptick in NG I am hoping the linked equities will catch a significant bid.

On a broader perspective, we finally broke that channel of prices from 930-950 on the S&P and we got that large down move I was talking about. This means that if we rally from here it will be smart to lighten long positions or get into lower risk short positions. Until we break back above 930, the direction seems to be downwards. I am really wondering how low we can actually go as I have said before that there are a lot of people now waiting to get in that didn't initally so it may be hard to break below 900.

For the first time this year I have moved money back into my FOREX account as it looks like there could be some significant outperformance in those areas compared to equities in the short term and possibly longer term. The problem I face is not getting over leveraged one way because a weak dollar/recovering economy will lend a bid to commodities, materials and currencies so being long the Euro is essentially the same as being long oil and commodities. Ultimately though I honestly think the biggest outperformance will be in these areas and in the longer term the risk of losing money is very slim. Once we actually do see the economy recover, real demand will come back, along with inflation so you have two factors working in your favor rather than against you.

At that point we must be mindful of where the turn comes of what is bullish and what is bearish. Just like before oil at 100 was bullish until it started to get to 120 and then it started to be bad for stocks. The same could become true with equities and interest rates and further down the line equities and oil again. At this point I know the apparent short term direction but nothing is really hitting me like "this is easy money". I feel like the dry shippers are really lagging the Baltic Index but obviously if people don't agree with me then there isn't an inefficieny to exploit. Those too will likely depend on actual recovery in the global economy for a sustained move but once it gets going it could be a great trend to ride.

Total Return for 2009: 154%