Story of Trading September - December | My January Call (SELL)
December 31, 2008
– Comments (14) |
RELATED TICKERS: SPY
, UWM
, RYL
I wanted to share some thoughts with this incredibly smart CAPS community and I welcome all comments.
This month was a great month for me personally because I've adopted what I hope is a winning strategy. It's like guerilla warfare though I swear... you keep tabs on the enemy, pounce, then run for the woods.
Basically I have decided to focus on a few stocks I know very well at this point and also on a few monthly events that I feel are high probability bets and I've just bing banging away at them with big bets when my triggers get hit.... AND MOST IMPORTANTLY I NEVER GO ALL IN.... I ALWAYS HAVE CASH TO AVERAGE INTO A BETTER POSITION... fyi only amatuers go "ALL IN" to the market. AND BY "ALWAYS" I mean "most of the time" ha!
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Anyway here is the deal:
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I have a go to short and a go to long.
#1: I have a go to short - Ryland Homes (RYL)... I've been short RYL about 10 times over the past 18 months. I've probably made money 7 times.
I know RYL's trading range like nobodies business and I watch the technicals to see when it is overbought... if it is overbought and over $18 I just pile into it and short it like crazy... shorting it at $20 feels like stealing.
#2 At the end of every month since the big crash Wall Street & the Mutual funds have been marking the market up to around S&P 500 to 900 points.
I'm convinced that mutual funds are scared to send America 401k statements that show what stock values and 401k balances look like with the market below S&P 900. For the sake of their jobs money managers seem to force march the market back to 900... at some point they will not be able to do this but I knew they could do it to end December and to end the year.... and look at what they did today.
Take a look at the chart:
HOW DO I BENEFIT FROM THIS THESIS... I buy an ETF usually a Russell 2000 ultra long before the month end mark up... this month I bought the UWM 2x russell. I buy the russell because the Russell is lagging all the major indexes... and when the market rallies the russell tends to play catch up
The reason I buy an ETF for my long-side exposure is because most stocks are just moving with the market these days. Buying specific stocks is risky because stocks carry stock specific risks that can hold them back from a big move in the market - especially given the constant earnings cuts and analyst downgrages that can come out of the blue in this environment.
#3 Bear Market Strategy that allows for bear rallies and sells them. I still believe we are in the midsts of the bear market and I have a strategy that allows for rallies of 20 - 40% just like what we saw in 1929 to 1932 when we had four 20% rallies as the market lost 80.
I believe selling the tops of Bear Market rallies is the easiest thing to d right now if you look for a few indicators:
A. Look at the technicals and the level that the market struggles to reach on overbought indicators. Start shorting there, but be prepared for the market to rally and become truly overbought (like it did around 12/17 and like it is right now 12/31.
B. Look for blow off tops... after the beginning of a rally where many of the worst stocks rally 10-20% in a single day stocks eventually start slowing down and grinding higher... if there is a later rally where the crappy stocks move 6-10% then that could be a sign that your near a blow off top. Like Yesterday 12/30
C. Even though fundamentals don't matter a ton right now be prepared and have a fundamental framework - a max upside downside number.... for me its the max upside is about 15x next years earnings or S&P 975 - 1000. Downside is 10x next years earnings or about S&P 600.
FYI once the market gets past deflation issues (and it will) people may start looking at inflation and stock multiples could drop to 7x... but I'd expect a mighty rally north of 1000 before then.
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