Big Family Week

Hey all. It's my daughters birthday and we went camping. Today is a big party. I'll be back next week. Best wishes and good trading to all.

Not fighting the tape, Fed and Treasury

Anyone who reads this blog knows I think the market is going to tank big time at some point. Capitulation is a descriptive term I'm especially fond of.

In the short term, however, I am riding the bull. I'm not solvent enough to fight the tape, the Fed and the Treasury. They are throwing mind boggling resources at the problem. This is causing a lot of money on the sidelines to now take risk with securities. I don't think that's very smart but I'm not going to fight it. A good trader is an adaptive trader.

I'm long FAS, SPY, GE and GLD with calls. As soon as fear starts building up again they will be closed out and I'm trading the other way. The Fed and Treasury have fired almost all of their bullets and if they are not successful the market will panic....down to single digit P/E's. When fear is back, and I think it's just a matter of time, I plan to ride the bear until the bulls are throwing up in the streets.

Then I'll be bullish again....

Gilley's

The Fed and Treasury are drunk and riding the bull like they're at Gilley's. Short term the market likes it and some are calling a market bottom. I'm not buying it. Printing money to buy our own debt and banker's toxic assets isn't the solution.

Short term we may be bullish but before this bear market is finished we will be in single digit P/E's. As a trader I've bought some FAS and SPY calls so as not to fight the Fed, the Treasury and the tape. These are very short term trades.

I sold some XLE 35 puts yesterday because with the pressure on the dollar, commodities such as oil will probably not drop all that much. It was my first sale of premium in a while.

Interesting times..

Capitulation

I don't know when it's going to happen but capitulation is definitely in the cards. Right now there is a decent bull/bear tug of war going on with the Fed riding the bull like they're at Gilley's.

We are in a depression not a recession. In past recessions the bear market left stocks with single digit P/E's and investors running for the hills supposedly never to return. But they did return after it was clear that the bear had ended and the bull was underway. Only problem was they missed the most violent leg up. The old sell low buy high maneuver. If stocks went to single digit P/E's after recessions where are they bound to go after this historic fiasco and depression we find ourselves in?

I can't say where the market is going this week or next but I am confident we will ultimately see capitulation. The next time there is a lot of fear I'm going to load up on options for the ride down toward capitulation. I think the bottom will be S&P 600 if the U.S. is lucky. When one does the math to get stocks to single P/E's the numbers are scary low.

Whatever you do don't buy into the argument that we're at a market bottom. I can't recommend writing any covered calls or writing puts unless they are on precious metals or bear ETF's. After capitulation that's a different story altogether.

How will you know when you see capitulation? Anyone who was optimistic and bullish will have been taken out to the woodshed to be ripped to shreds by the bear. When your barber and mechanic swear off stocks forever it's time to ride a massive bull rally that most will miss out on due to their fear.

Sold SPY puts for 38% gain, holding FAZ

I didn't want to hold the SPY Mar (10 days to expiry) 75 puts over the weekend so I took the gain. My FAZ April 30 calls that I bought for 6.00 ended with a bid/ask of 9.70/10.00. I'm letting this one run. I would have held the SPY's but time decay was going to start being an issue and if it looks like the final down dive I'm expecting I'll just jump back in.

TBT and GLD calls haven't moved much. I think TBT's three point drop after the Fed announced it's buying our own Treasuries was an overreaction. These yields have to rise. My GLD calls are June 94's and with the world crapping on their currencies I expect this to continue to rise. I also think precious metals will rise as the market takes it's next fall.

After the next fall assuming it's a capitulation I will be looking to write out of the money puts like a madman. Until that time I think it's too dangerous to write puts and covered calls. That is why I haven't been an "option premium collector" lately. Well actually I have been on existing positions but I'm hard pressed to feel safe being bullish or even neutral on most issues to establish new positions.

So my experiment as an active option trader (buyer) continues. I'm making money but I'm also getting stopped out a lot. For those of you who are avid premium writers please don't lose faith in me. I'll return to the fold sooner or later. I'm just sowing some wild oats :)

Bought SPY puts and FAZ calls

Made some bets that the market drops after a hefty runup. The Fed's actions seem more out of desperation than anything. The numbers they are putting out to battle the crisis are mind boggling.

Long GLD and TBT calls

Gold is soaring as the Fed's action will weaken the dollar. I took the TBT bet because I don't believe the Fed will be able to keep yields that low and all they've done is reinflate the Treasuries bubble. We'll see.

Fed buying treasuries

This is a game changer for the financials, TBT and gold. Stay tuned.

Bought JPM Jun 10 puts

I keep wondering why JP Morgan isn't as cheap as BAC and C. Evidently Jim Rogers is wondering the same thing as he's heavily short JPM. The stock does keep making lower highs and lower lows, however. I purchased these puts at what I see as the new lower high. I've bought some time since we seem to be engaged in a pesky cyclical bull within the long term secular bear. Stop losses and conservative position sizing are in place to manage risk.

Rosy news from banks...huh?

It started with Citi Chairman Pandat leaking a letter that Citi was profitable. Today another Citi top exec is quoted as saying Citi needs no more government money and is one of the most healthy banks out there. Bank of America says they are interested in writing new jumbo loans and that Merrill Lynch and Countrywide were terrific acquisitions. To put there money where their mouth is they are hiring a bunch of people to write these jumbo loans.

Huh? Isn't this just a response to their being strings attached to free money? Isn't this just a concerted effort to show lack of stress before the government stress tests? Or are things suddenly better? Have home prices suddenly dropped dropping?

Personally I don't buy it for a second but it's great for my FAS calls. I'll be slowly moving up my trailing stop. So long as the public believes it and pours money into the financials I'm along for the ride. I just think the emperor ain't wearing no clothes...

WTF is with ERX?

ERX the 3X Energy Bull is down when the market and oil are both up substantially. I'm preparing a letter for my Congressman...[Note: If I would have bought ERX calls instead of posting this bit of silliness I'd be worth a few more ducketts.]

Trade Management: NLY Annaly Capital Management

2/2/09 Bought NLY @ 15.27
2/2/09 Sold Feb 15's @ 1.00
2/23/09 Sold Mar 15's @ .57
3/12/09 Bought Mar 15's @ .05
3/12/09 Sold Apr 14's @ .55

The Mar 15's were basically worthless but the time that we were going to have to wait until options expiration was not. Therefore, I bought them back and sold the next month options. Cost basis less commissions is 13.20. This is a good example of how covered calls can make a stock that is dropping in price still be profitable.

NLY will be paying a sweet dividend soon which in my book lowers the cost basis even more. This trade is in a Roth IRA so there is no tax difference between premiums collected and dividends received.

In .FASDA @ .95

I'm going to ride the FAS train as far as it will take me. Like I said earlier this financial rally might be a little long in the tooth but maybe not. I don't want to miss out if it is and if not I'll get stopped out for a small loss. This is Livermore's not fighting the tape type of trade. It also serves as a hedge to my active shorts.

Financials continue to lead

Historically financials lead us in and out of bear markets. We are in a long term secular bear market and I expect when the bear is finished ravaging it's prey stocks will be in the single digit P/E's. In the meantime it looks like we are in a short term cyclical bull within a long term secular bear. Financials remain strong although I don't know how much is related to the mark to market hearings and the uptick rule.

I haven't been stopped out of my QQQQ, GS and BBY puts but I'm getting close. It's strange not to see the market awash in a sea of red. I'm looking for some longs to get excited about but I wonder if this cyclical bull isn't long in the tooth and we are in a Depression in case you didn't know.

Foreclosure filings hit an all time high and unemployment numbers are only getting worse. People are saving more and that's good but not for retailers who love our spend first mentality.

Short Goldman Sachs

Bought GS Mar 90 put for very short term trade.