Double Journey

I was watching CNBC with someone at lunch today.  He is not that familiar with how markets work, and I was explaining to him how I was playing the abnormal volatility we are seeing these days.  No sooner had I explained this did we see the Dow Jones go swing 100 points up and then 100 points down.  Literally in a matter of about 3 minutes.  After the 100 down, it came roaring back and ended up almost 300 points from that level.  And all it took were 20 minutes.  That’s just nuts.  He remarked that watching it was more exciting than watching the baseball playoffs.  In some regards, he is totally right.

So how am I playing?  Today, I sold off my short position, SDS.  I bought it at 97 and sold it at 106.2.  So I got a quick 10% profit.  I was debating on whether I should hold on to it or not.  But then my coworker gave me some sage advice, “Don’t be too greedy”.  He was right.  I have been saying I was going to sell when the S&P broke 900.  It had, and by a few percentage points, so I got out.  Of course no sooner did I get out did the stock go straight to 108 on its way to 112.  I felt a little twinge of regret, as it was about a $600 difference in a matter of an hour, but I still felt I did the right thing.  No need to be greedy, the stock could have easily gone the other way.  And ironically enough, it did, ending the day at 100.

As the market ran up, I played the other side of it.  So now I’m long the S&P index.  I’m very uncomfortable here, and would be happy to just get a few percentage points.  If I get a 2%-3% pop in the index, giving me a 4%-6% gain, I’ll head for the doors and reverse my position again.  I’m willing to take about a 10% loss on this, and then I’ll be out on the other end.
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This is why you don’t do short term trades.  I woke up early this morning to check my long positions to find out that what was going on.  But what I thought would happen went the exact opposite way.  The market started down, which confused me, and continued to go down.  I kept watching it go down, and then closed half my position as I reached a 7% loss threshold.  I’m going to hold on to the other half for probably a move 3% either way and then close it out.

Like I said, wild ride.  If you don’t have the stomach for it, better to just stay out.  I will close out my long market position but I will probably open up positions somewhere.  I’m interested now in Novartis (NVS) becasue I want a drug play and I want an international play, and it does both for me.  I also want to buy a bank somewhere as I think the strong banks will do very well going forward.  Maybe US Bank (USB) which has weathered the storm very well.  And of course I want to buy Berkshire.  Seriously, Buffet is a genius, but I’m going to write about that tonight.
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So far, I’m looking like a genius.  As I wrote in my last blog, I wanted to get out of my short position and into my long.  I actually did not get the full 4% gain I had when I wrote the last blog, but I did end up with a little bit over a 2% gain.   I put in a stop limit order at the 2% mark, and it actually executed in the 30 minutes it took me to get to work.

But then I reversed the position.  In fact, I put more money in on the other side.  I went long on the market and purchased QLD.  I did this in anticpation that the Senate would pass a modified bill.  It looked more and more likely that it would happen.  So right before the close of the market, I pulled the trigger and went long, despite my bearish long-term outlook.

I’m probably not done here either.  The Senate did indeed pass a Bailout bill.  I’m not happy about it, but rather than cry about it, I’m trying to think how I can profit from it.   There are short term gains to be had here and I plan to partake if I can.  The name that will move the most is going to be the financials.  They are the ones most helped by this move by the Senate.  I plan to go long the financials.  I will do it by buying the Ultra-long financial ETF, UYG.  I’m sure that it will pop at the open, but it will run even more before the end of the day.  I might not stay in very long, I might trade out of it before the end of the day.  But I also may stay in since I think it is VERY likely that the house will now feel pressure to pass the bill.

It’s going to be a wild wild ride.  I’m either going to make a lot of money, or lose it. Hang on tight.
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As I write, the Nasdaq is down 2% which makes the short position I took yesterday up 4%.  Not bad for a 1 day trade.  I will probably try and close out the position today and I might even take the exact opposite position and go long the market for the short term.  Why?  Did I suddenly become a bull?

No, I’m still negative on the market.  But I think at this point, it is good to reverse position for two reason.  First, the volatility of the market makes swings more likely.  I’m just trying to play the gyration of the market.  Downdrafts are followed by upswings because nobody knows which way the market should be moving.  Second, I think it is more likely that the Senate will pass the bailout plan tonight.  This should cause the market to move up sharply as soon as it happens.  I think the senate will do whatever it takes to pass the bill.  I think they feel pressure to do something.  The problem with this plan is that congress wants to pass something, so they look like they are doing their job. However nobody wants to vote for it because given the overwhelming sentiment against the bill.  So congressmen want it to pass,  they just don’t want to be voting for it.  Given the House voted it down, this will probably put additional pressure on the Senators to vote for it.

We will see.  Watching the markets closely right now trying to figure out when to close out my position and go the opposite direction.
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This week at Mac World, Steve Jobs announced the company’s latest product, the Macbook Air. I have to admit, it is pretty cool. I’m actually in the market for a new laptop and I’m leaning toward getting a mac (despite my dark Microsoft days). In case you haven’t heard yet, here is a video showing the Macbook Air.



Now the problem is that it starts around $1800 and goes up from there all the way up to $3000. It’s a little bit more than I want to spend.On a related note, boy am I glad I didn’t buy Apple when I was looking at it.The stock looked poised for weakness there and boy was I right. Rick urged me to buy at $195, but I resisted. The stock closed just under $160 today, down 6%, I would have taken a huge haircut on that trade (although I would have gotten out way before now) Maybe I should ask Rick for advice, and then do the exact opposite. I might make my double then! Actually, my advice would be to short Apple at this point. The market is looking ugly, and the former leaders like Apple are going to get whacked. Short the market as a whole (sds) or short some of the stocks that have been great like Apple or Monsanto. Sphere: Related Content

A while ago I took a position in some Natural Gas drillers.  Specifically Grey Wolf and Nabors.  I never really planned on owning them long term.  I just took positions because I thought I wanted a few different energy plays and so I branched out into an area I wasn’t totally comfortable with (mistake #1).

I actually did OK on these at first, and saw some good gains.  As I was in this for a trade, I should have gotten out, but I didn’t.  Soon after, the price of Natural gas spiked down and never recovered.  Since I didn’t have a lot of money invested in either position, I didn’t really worry about it.   I figured that it was OK and that it would eventually come back.  So I held.  Held like a chump.

I should have just gotten out of the position when it reversed.  I made a classic mistake that so many of us make; I let a trade become an investment.  I held on to the position WAY too long in the hopes that it would eventually come back.  Hope, it’s the one case where it really isn’t a very good thing to had.  I kept telling myself that energy was a great story and it would continue to be so (it is, but this wasn’t the way I should have or wanted to play it).  I kept coming up with excuses to keep the stock.  But that was unnecessary.  It was a trade.  Trades don’t have reasons, only investments do.

I finally got out of the positions this week.  I did it to take the capital loss and offset some capital gains I have but it should have never come to this.
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