Moment of Truth

This week we see a kick off of earnings season in a more significant way. Larger financial firms will be reporting such as Goldman Sachs which will most likely beat estimates as they always do with their unmatched ability to dominate trading activity. Financials will likely set the tone for the remainder of the summer in my opinion. If outlooks remain bleak and there is talk of a lot more write downs as has been speculated, then we could be headed back towards the 800 level in short order and possibly lower.

It will be interesting to see how realistic they are on their future projections since back in 2008 even the companies themselves didn't see it coming so it is humorous to think they will do any better this time. For better or worse we have a tendency to be optimistic so that is likely what we will hear. It could be a good time to start pairs trades on financials, possibly going long those who raise guidance(if they will) and short those that don't. The usual players seem to be considered "safe" GS, MS, JPM on top of their trading revenues they seemed to participate in the largest amount of underwriting and normal M&A activity(the small amount that occurred).

These fundamentals will likely determine the technicals because we have so far held the neckline of the head and shoulders pattern on the S&P but it has so far tested it a couple times. The more the line is the tested the more buying gets exhausted and we likely breakdown(which likely coincides with poor earnings releases).

Last week finished up decently for me. This week will be significant as my short options will expire this week. This month has definitely been one where I have been short options more than I have been long(or been both at the same time). I have cut positions that were questionable or ITM going into this week so I should have limited exposure there, it will just depend on how volatile the market wants to be this week. All of my short strikes are decently far away and would require some significant short term moves to become ITM but you never know what will happen, especially with earnings. The downside of having the short positions is that it requires a lot more capital to be held in reserve so that is an opportunity cost taking away other long positions. I am trying to make that steady grind back to my old high returns as the market figures out it's direction. If things go extremely well all my short positions will expire worthless and hopefully longs gain some ground as well or at least stay flat.

Futures just recently took off so we'll see what happens today. Hopefully good things, especially with my interview :-)

Total Return for 2009: 147%