Stock Market Crash - Year One Review III - March Madness!
by Phil - September 10th, 2009 5:51 pm
We left off in Part II with our Feb 23rd Big Chart Review.
Even though I said: "Once again we are in a market that environment that reminds me of the Simpsons episode where Homer jumps over a gorge, crashes, is taken up by a helicopter (Ben) smashing against the wall along the way only to fall all the way from the top again. Pain, pain and more pain every time we try to get long" - we still weren’t fully prepared for the devastation that was to follow as the Dow fell from 7,500 to 6,500 in the next 10 days. My commentary on the environment the next day was:
According to Cap, someone on the YHOO message board was counting the number of times CNBC talking heads said "nationalization" this morning and, as of 8:15, they were up to 300 times. Sadly, this is the fear-mongering that is driving the markets to new lows while Cramer continues to keep his sheeple out of protective ETFs like SKF. So you have the man’s network telling you financials are going to zero while dog and pony boy tells his minions to sell ALL the financials, causing them to go to zero - even though they could hold on and protect themselves with conta-funds, if Cramer didn’t spend 3 days a week convincing his viewers contra-funds are poison. I’ve never seen anything like this outside of a racketerring investigation. Speaking of racketeering - Dennis Kucinich nailed it when he pinned that charge on Paulson and company back in November.
Our wall of worry continues to be a steep one. After yesterday’s failure we do not expect too much out of today, we’ll be happy to just see a bottom at this point but it’s looking a little more likely that we’re heading into a capitulation event that can take us down to frightening levels. The 60% line is a line the markets dare not cross but, as I pointed out yesterday, we already lost the SOX and the Nikkei, with the Hang Seng and the BSE hanging on by a thread. Let’s take these levels very seriously, if the administration can’t turn it around this week - the downward momentum can easily pick up steam.
I’ll spare you the details other than to say we DIDN’T turn it around that week and the downward momentum DID pick up steam. I was at war with Cramer at the time as he was blatantly ripping off my ideas and trying…
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$5,000 Portfolio Update - Week 6 - $5,614
by Phil - August 15th, 2009 4:04 am
Well we’re back to cash…
After getting off to a great start, up 12% in the first 3 weeks, we were lucky this week to get back to 12% after having a run of bad luck (or bad skill actually, as we went bearish too early and got punished for it). The goal of the $5,000 portfolio is to play around the volatility of earnings and make no mistake, it’s a high-risk way to trade $5,000 and is meant to be a small portion of a large portfolio - not something you would want to do with your only $5,000. Of course the usual disclaimer is, this is a virtual portfolio, don’t try this at home, trading is dangerous, always consult a professional financial adviser, etc, etc. The idea is to practice different option strategies and we’re learning from our successes and failures - I hope!
Our first play 5 plays that we closed were on AA, DIA, SGR, MCD, and DELL, which had a total gain of $629 in our first 6 days. For details on those trades, go to the Day 6 post. We have been posting all of the moves for the $5KP in member chat, of course, but also on Seeking Alpha’s Stock Talk, where we have discovered the added bonus that, like Twitter, you do not have to refresh the page to see new comments! If you want to follow these trades, just click on "Follow" under my picture and you will automatically see any comments made there. A full review of Stock Talk commentary regarding the $5KP is available here and please make sure you click "Follow" on my picture so that you will be able to track further updates.
We closed positions on WFC and AXP, up $258 in our last review on July 25th and we have since closed our YUM position with a $256 loss on the 28th, which was a shame as we gave up on 8 Aug $35 calls at .45 ($360) and they flew up to $2 ($1,600) just a week later. Unfortunately, in a small portfolio, you don’t have the luxury of riding out your losses and, at the time, we felt lucky to escape this underperfomer with a relatively small loss.
A VNO put spread we couldn’t fill the week of the 21st, was an easy fill the next week and 3 Sept $50 puts were in at $3.70 ($1,110) and 3 Aug $50 puts were sold for $2.90 ($870). The premise of this play is a tough one to hold on through as we expected VNO (and all commercial realty) to…
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Weekend Wrap-Up, Ripping Through the Top or Topping and About to Tip?
by Phil - July 25th, 2009 12:34 pm
What a week this has been!
In last week’s 600-Point Weekly Wrap-UP, I said it would take some spectacular earnings results next week to keep the rally going and it seems like we got them this week as roughly 85% of the companies reporting this week beat expectations with 42 of this week’s reporting companies guiding up and only 18 guiding down. While people like Richard Bernstein may make very good arguments for why we shouldn’t focus too much on quarterly earnings surprises, I have to say I am somewhat swayed by the preponderance of evidence we’ve gotten this week that, by and large, the vast majority of our companies are weathering the storm far better than analysts have expected.
"It’s pretty amazing what passes for good news these days," remarks Barry Ritholtz on his blog, The Big Picture (www.ritholtz.com.) "Beating dramatically lowered earnings forecasts on cost-cutting and layoffs — rather than top-line growth — seems to be the order of the day. The irony is that the Wall Street analyst community overestimated earnings at the top of the cycle — pure extrapolation of trend to infinity. They seem to be doing the same thing now, only extrapolating falling earnings to zero. What that produces is not true upside surprises, but merely jumping over a dramatically lowered bar," he says.
It’s interesting Barry says this now because it sounded familiar and I went back to my May 2nd Weekly Wrap-Up, where the sentiment was very similar and I said at the time: "With 2/3 of the S&P 500 weighing in, earnings have been 70% positive. I had warned earlier in the week that we are only beating a very low bar but we are beating nonetheless. As you can see from the above chart, even if we do keep moving up, we are heading into some very serious overhead resistance that may not prove futile this time. With the added pressure of the old "sell in May, go away" adage - there will be a lot of obstacles to overcome this week and next so we will remain on guard but we have also trained ourselves not to think and simply go with the flow, letting our levels guide us and, so far, our levels keep saying yes - despite our common sense saying no."
More importantly, with the Dow right at 8,200 that Friday and the S&P at 875, was my call that we had…
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$5,000 Portfolio Update - Week 3 - $5,598
by Phil - July 25th, 2009 8:25 am
We’re up 12% in 3 weeks - not bad…
The goal of the $5,000 portfolio is to play around the volatility of earnings and make no mistake, it’s a high-risk way to trade $5,000 and is meant to be a small portion of a large portfolio - not something you would want to do with your only $5,000. Of course the usual disclaimer is, this is a virtual portfolio, don’t try this at home, trading is dangerous, always consult a professional financial adviser, etc, etc. The idea is to practice different option strategies and we’re having a a very exciting first few weeks!
Our first play 4 plays that we closed were on AA, DIA, SGR, MCD and DELL, which had a total gain of $629 in our first 6 days. For details on those trades, go to the Day 6 post. We have been posting all of the moves for the $5KP in member chat, of course, but also on Seeking Alpha’s Stock Talk, where we have discovered the added bonus that, like Twitter, you do not have to refresh the page to see new comments! If you want to follow these trades, just click on "Follow" under my picture and you will automatically see any comments made there.
On Wednesday, we also had an open a ratio backspread play on YUM and we sold 6 Aug $37 calls for $1.15 ($690) and bought 4 Aug $35 calls for $2.20 ($880). The idea of a trade like this into earnings is that a large drop will hurt your callers more than it hurts you and, to the upside, you have net $800 in the net $190 spread before you have to pay your 2 open callers a penny. That means they would each have to go up $3 before wiping out your profits. Since YUM was at $36 at the time and we did not feel it would be likely to go to $40, even on great earnings, the play made sense. YUM had very poor earnings and dropped right down to $34, below our strike. We decided to buy back the 6 Aug $37 calls for .40 ($240), so a gain of $450 on that leg. That left us with the 4 naked Aug $35 puts, which we paid $880 for, less the $450 gains so we are in those 4 calls for an average of $1.13 per contract. We have since doubled down that position at .40 leaving us with 8 at an average entry of .77 per contract. Currently, they are trading at .50 so we are down $216 on this…
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Which Way Wednesday
by Phil - February 25th, 2009 6:48 am
Well I’m uplifted!
We had a fantastic day in the markets yesterday as we went bottom fishing in earnest early in the morning, picking up entries on JPM, X, IP, VNO, HMY, M and IYR early in the day, ahead of my 12:48 observation to members: "BAC breaking up along with their preferred stock - that’s a good sign. SKF back at $192 test area, XLF at $7.45 so just a little push and maybe we can get somewhere!" Indeed watching our levels paid off and we went flying up after that. As I often say, you NEED to make these buy decisions at the bottom, it’s too late once the train starts moving. We did grab a momentum play on BAC as they crossed $4.40 but, other than adjusting our DIA cover play, we had no need to make adjustments during the run-up because it’s what we were playing for.
We went into the close fairly neutral (a very slight bearish bias on our DIA puts), having accomplished our mission and not being sure what kind of speech Obama would be giving. It turned out to be a great one and the Republican response by Gov. Bobby Jindal was so mind-blowingly awful that Rachel Maddow was stunned to the point where she was unable to speak and I will leave my own commentary at that! On this same clip, Cris Matthews had the comment of the week, saying that the Republicans were so mired in responsibility for this crisis that they had to outsource the response (Jindal is Indian). I found that very funny…
As we expected, there is no "quick fix" in Obama’s speech and we’ll see how well the markets hold yesterday’s gains. We would have been more bullish had we not had so much trouble with our two critical levels I said we should watch in yesterday’s morning post: Russell 411 and NYSE 4,790. As I said in the morning, these were just the levels we needed to break in order to consider the day’s action anything more than a weak bounce off the horrendous drop of the past two weeks. That’s why we do not jump on the bandwagon once the rally gets going - we do our bottom fishing at the bottom and we sell or cover into the rallies. If it’s a real rally, we have a long, long way to go and we will have very strong buy signals - a good start would be…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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