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Option1307 (30.45)

Time to buy SKF...?

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January 04, 2009 – Comments (7) | RELATED TICKERS: SKF

Dexion10 posted last week about his newly added short positions:

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=125358&t=01006200319074134916#commentsForm

I basically agree with his thoughts about how the market is overbought at this moment. Regardless of your overall market outlook. Whether you feel this is just a suckers rally or the beginning of an actuall bull market is irrelevant. What is important to realize is the fact that the amrket has risen too far too fast. Remember way back in our last bull market, the market did not rise up this quickly without taking a breather (a downward correction).

So I agree with Dex in principle that we are ready for a downturn.

My only concern is that now we have pretty much smashed through the resistance level (~910 SP 500) as we are currently sitting at ~ 930 on the S&P 500. That is, we did not just brush up against this resistance level and are prepped for a crash, we completely blew past it and thus may not "respect" it. The next technical resistance level is not until around 1000 on the S&P 500.

 

What about SKF?

I've been a big fan of this 2x short financial for the past 6 months or so and I have done really will by sticking with a rather simplistic approach. I buy it everytime it gets close to 100.00 (anything less than 105.00 essentially). This seems to be the lower limit on it, yes this is totoally an oversimplification. I hold onto it for a week or so, and sell it for a quick 20% or so gain. I've done this about 4 times. Easy money right?

It is currently at 102, so I'm seriously thinking about pulling the trigger again on monday and playing it once again. I think the market is ready for a pullback because of what I stated above. However, even if the market rises a bit longer, the odds of financial stocks rising straight up in a then apparent "V" shaped market is zero at best. In my opinion, financials will at the very least, retest some lows, more likely fall off the face of the earth.

Thus, buy some SKF and make some quick bling bling $$.

 

Thoughts? Opinions?

Reasons why my logic is completely flawed this time?

 

Happy New Year my fellow Fools...

~ Option

 

7 Comments – Post Your Own

#1) On January 04, 2009 at 8:07 PM, Option1307 (30.45) wrote:

Btw, I do realize all cycles/patterns eventually do breakdown, and maybe it is time for this one to pass as well. But I just don't see that happening right now. Why you ask? Umm, no real reason I guess. It's just that not only is the market overbought, but SKf is near 100. That's two positive signs in my eyes...

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#2) On January 05, 2009 at 3:46 AM, Mary953 (40.07) wrote:

Only one negative here but it is a major one.  If you are prone to procrastinate - at all - or if this is not the sort of thing you would usually do (AKA you don't know what the heck you are doing) - or if you find that you really did intend to keep track of the stock price and somehow you just got distracted  --  then this is not the chance for a quick buck that it might seem.  The problem would not be with the idea but with the behavior of the investor.  As for me, I fit - oh - all three of those.  (Sigh)

Thanks for the idea though.  I see no flaw in the logic, just wish I was a little more experienced at this so I felt that I could take advantage of it.

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#3) On January 05, 2009 at 6:38 AM, Gemini846 (88.73) wrote:

Sell into the rally (or in this case buy an ultrashort) and have a pre-determined point of maximum pain. At 102 today if we're below 90 on tomorrows close I would be tempted to assume an indeterminate rally.

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#4) On January 05, 2009 at 7:23 AM, DarthTater (< 20) wrote:

It might bounce off from support at about 102 but then again it might well break down right through it. The risk/reward certainly does seem sharp, but with a possible descending triangle formation and the fact  this is the third retest of support at around 102 in about a month, I would be more inclined to say that the 102 support will fail and SKF will fall a bit more.

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#5) On January 05, 2009 at 10:49 AM, Option1307 (30.45) wrote:

Mary953

Valid concerns you have, especially during a market like this that has produced so much volatility. Yes, you are completely right in that this method is not for everyone, the more experience the better.

As for me, I've only just recently begun trading (this is not investing but day/week/etc. trading) and have done rather well at it thus far. The few things I've learned so far are:

1) Only trade with a small portion of your portfolio, basically an amount you are comfortable with loosing.

2) Make it automatic. I know this is supposed to be the case for all investing, but many hardly follow this rule. Set predetermined points for when you will enter a position, and most importantly when you will close it. Whether that is with a gain or loss, know beforehand when you are bailing out. I usually set a market stop loss order as soon as I buy it. Especially with 2x/3x ETF's as they can swing wildly. This significantly limits my downside. Also knowing how the outcomes of upcoming events will effect your thoughts on the stock is important.

3) Don't be greedy. I typically only hold these for a week or so, and a small 10-20% gain. No need to "score big" and holdout waiting for that 100% return. Take small profits when they present themselves. Greed will destroy you in this market IMO.

4) Be patient. Don't chase the stock. This goes along with #2 I guess. There are plenty of stocks out there that are presently themselves farvorably in terms of technicals, emotions, etc. Don't chase a certain stock just because you feel it's your "only opportunity" ever. Not true. There are always opportunities, you just need to look.

Best of luck!

Gemini846 , DarthTater

Thanks for the responses.

I have not pulled the trigger as of yet because I am still not confident as of yet this am (10:45am). You make a valid argument Darth about how this will be the third time testing this resistance in a matter of one month. Kind of close.

I am keeping a really close eye on this though, as I feel a great short term buying opportunity is jsut around the corner. Whether that is today, tommorrow, or later this week I'm not sure yet.

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#6) On January 05, 2009 at 11:21 AM, Mary953 (40.07) wrote:

Option - I never considered setting a sell point at the same time I set a buy point.  That is a great idea and one I will use on another investing opportunity (but still not day trading for me)

Only leaves one problem and it is and will remain the absolute deal breaker - One fiscally, very frugal husband!  I would pass up a million dollars rather than make him uncomfortable with anything I was doing.  He is so worth more than millions!  And I am a more than lucky lady to have him  (35 years and counting)  We were, of course, mere children when we married - grammer school, promise!  ; )

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#7) On January 05, 2009 at 9:56 PM, Option1307 (30.45) wrote:

Mary953

That seems like a great problem to have! Congrats on achieving the 35 yr. mark, very impressive and something to be termendously proud of. And obviously you two were in grammer school, that was my first thought!

Happy New year, happy shorting etc.

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