Pride Before The Fall

I made a gain today! Sad to have to celebrate something that should be a regular occurrence but I have to take it one step at a time. However the bad part was the fact that I decided to take on some more long positions to help even myself out as my short bias was doing well today. I assumed the hedges would help insulate from a move back up into the close like we have normally seen. In today's case the tide seems to have changed, we did not make a significant attempt to rally and actually finished near the lows below 1000. This is the signal I was looking for originally. The paper profits given up were mainly the cause of my new long positions losing money into the close. Obviously I can't pick ultimate bottoms and they were at low risk entry points, but finished right at support.

I will likely be quick to cut longs because even though I like to try and pick relative strength candidates 75% of stock movement comes from the index and we look to be finally setting up for a decent pull back if some things start to confirm. The $VIX traded right up to the 50 SMA and bounced off as resistance. If we take a step back and look at the chart we can see if we get above 27.50 there will likely be a decent reason and cause a decent sell off.


We are in a precarious spot right now in the markets where things are pointing to bearish action but nothing is totally confirmed. The /ZN has been flagging for the past month and looks like it may break to the upside which would likely be bearish for stocks. The EUR/USD has come off it's highs but is currently sitting at nice uptrend support. Oil also failed to make a new high but is sitting at a recent diagonal trendline. If these start to break down it will likely point to more downside.


I did take a couple long positions, all were longer dated options because I ultimately do expect a pull back. One was Visa, which has held up very well and was sitting at a low risk entry point. If my own card use is any indication this company should be in great shape. I got long some Dec 70 calls. 67.50 will be my line in the sand even though it is longer term.

I also decided to get into WFR, which may be a stupid play but if materials do happen to continue along with tech it could play some catch up. Not a relative strength candidate per se but a good place to manage risk. Went with Oct 17.5 calls.

Lastly I decided to attempt a speculative but semi-hedged play in LVS. There is a lot of talk surrounding these covenants and whether or not they will be renegotiated or cancelled. The theory is that if they go through it should be worth a 5-10 dollar pop in the stock. I decided to take a long position in the event this happens but also sell a strangle against it so that if it doesn't actually happen all it needs to do is finish within my range and I should limit my losses quite a bit if not eliminate them. My range is from $6 to $22.5. I am slightly limiting my upside if I happen to be right but not much because again the amount the short call gains should be mostly offset by the amount the short call loses (assuming it doesn't get all the way to 22.5). I gave myself until December for this to play out which will hopefully be enough time.

Two of my positions could be affected by the USDA crop report tomorrow. One is obviously corm futures but the other is ADM. I actually don't know if ADM benefits from higher corn prices, I would assume so as they could pass prices on to customers more than the cost they incur meaning higher profit margins. I will be curious to see how the report is because ADM held up decently well today which could be a tell in how people are leaning for this report. Futures have held around that previous breakout level of 330 for most of the day.

Currently S&P futures are slightly down so I think tomorrow could possibly be a very telling day for the next intermediate move we have.

Total Return for 2009: 137%