I'm out of my shorts (really naked now)

34.6, closed all SDS for a "minor" loss. Let the bull parade begin up to 1150 where I may short again.

I'm a happy trader

Bought 300 UltraShort S&P 500 (SDS) @ 35.16, stop @ 34.1

I'm only going to track the SDS in the blog and not on the positions list as I am in and out of it too quickly here since this bear move began.

SDS

Sold 200 SDS @ 37. Will reshort if the market closes in below 1050 about 10 minutes before the close.

Short and re-short

Reshorted ... bought 300 UltraShort S&P 500 (SDS) @ $35.12

SDS covered

Sold another lot of sds this morning at $36.


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Less short

Sold 200 sds @ $34 for a 18% profit.


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Gold looks toppy

Gold (GLD) looks toppy here. We've tested $1250 3 times now and failed. There are no triple tops -- so Gold will eventually surmount this challenge. But there may be a pullback to the upper $1100s in the meantime.

I'd use this opportunity to write near-month (June) covered calls on any gold miner positions (GDXJ, GDX, GG) and to accumulate phyiscal Gold (PHYS).

I like the $31 June calls on GDXJ, the $55 June calls on GDX, and the $49 June calls on GG.

Euro (and consequently equity) bounce coming

The Euro hit a panic low today around $1.22 intraday. This likely marks a short-term bottom in the eurodollar cross. Already in afternoon trade it has recovered all the way to $1.24. I suspect equity markets may get a bit of a boost tomorrow as the euro may rally on shortcovering to $1.26.

This short-covering will be ahem...short lived. I expect the euro retest the 1.22 area again in the next week or two, and I expect substantial market intervention from central banks again in this area to try to build an artificial bottom.

Sara Lee, you've been good to me

Sold all of my Sara Lee (SLE) for a 52% gain including dividends. The stock is now fairly valued to slightly overvalued.

$9.93 Purchase Price
$14.80 Sale Price

Moving on Up

Bought Bristol Myers Squibb (BMY) @ 23.9 (NS)
Bought more Ultrashort S&P (SDS) @ 31 (S @ 29)
Bought Goldcorp (GG) @ 46 (NS)
Bought Goldenstar Resources (GSS) @ 4.4 (NS)

Volatility high = Put premiums very high

If you are willing to own some big cap names here at 40% lower prices and still collect an option premium, there are some interesting opportunities out there.

Write an AAPL June $150 put for $0.80. AAPL is currently trading around $235 (36.2% stock price decline required to lose money on option). If you believe AAPL will not trade down to $150 by June 18th then this is a money maker.

Write a GOOG May $390 put for $1.00. GOOG is currently trading around $493 (20.8% stock price decline required to lose money on option). If you believe GOOG will not trade down to $390 by May 21st then this is a money maker.

Write a BRK.B May $70 put for $1.00. BRK.B is currently trading at $74 (7% stock price decline required to lose money on option). If you believe BRK.B will not trade down to $70 by May 21st then this is a money maker.

Write a BP June $42.50 put for $0.83. BP is currently trading at $49 (13.2% stock price decline required to lose money on option). If you believe BP will not trade down to $42.50 by June 18th then this is a money maker.

Tried and true market signal vs. “Fundamental Analysis”

Something I wrote down many years ago when I first started following and investing in the stock market was…

Best long-term market timing system:

20 week moving average crosses over the 50 week moving average by one percent you go long… If it goes below by more than one percent you sell.

Everyone talks about esoteric technical systems like Elliot Wave or some crazy “can’t fail” chart pattern but in reality stock technical analysis boils down to two things.. support (and resistance) and most importantly TREND.

The 20/50 helps you get the trend part right.

How can you argue with a strategy (the 20/50) that:

- Got you to buy in the year 1994 at around S&P 450.
- Didn’t tell you to sell until year 2000 at S&P 1400.
- Got you back in the market in 2002 at S&P 900.
- Told you to sell again in Jan 2008 at S&P at 1450.

So given I know this signal and respect it, tell me what I was thinking back in the summer of 2009 when these two moving averages crossed again and gave a BUY signal at around S&P 1000? Why didn’t I buy there, I was actually just finishing selling my last longs at the time and shorting some things.

See Chart:

Basically I thought… “It’s different this time”.

The market had run from 666 to 1000 is just a few short months. I was long for most of it and felt like a genius.. Fundamentally I saw the economy was still very weak and there were many reasons good for us to go lower. All of these have been covered in my blogs and in other folks blogs.

I ignored the signal and did NOT go long. The only thing the signal did was keep me from trying to short and made me put ultra tight stops on the few shorts I tried because I realized the trend was against me. So the signal saved me lots of money I could have lost shorting but I did not buy the signal because of “fundamental analysis”.

A couple of weeks ago the market topped out at 1220, a full 20% above the 20/50 signal point.

That’s 20% that I missed on the long side because I didn’t follow a simple signal. There is a reason old pros say things like “charts don’t lie, people do”, “the trend is your friend”, “the market can stay rational longer than you can stay solvent”, etc.

It is because the market can always find a reason to go up or down that is disconnected from the fundamentals and informed participants are always surprised how far it will overshoot on the upside AND the downside.

The market is driven by panic, euphoria, outright manipulation, greed and a myrid of other human forces. In the long run it is fundamentals of course, but the long run is MANY YEARS.

So in summary the market has not really gone anywhere the last few weeks and you can see the red line gaining on the blue line in the all important chart above… Maybe the market has topped (no one knows for sure), but what I am SURE of is that the person who WAITS for the signal on the long and short side will always DESTROY the person who tries to pick bottoms and tops.

Trust the predefined mathematical market signals you believe in (whatever they may be) and not fundamental analysis if you are going to try to time the market.