Vacation is great, but I am very happy to be home. I realized how fortunate to be here in Breckenridge, CO. Regardless of where I go on vacation, there is nothing like Breckenridge. No traffic, nice people, and amazing Vistas. Not saying that Needham, MA and North Haven, ME are anything but relaxing. 50 acres on the Charles River, pools overlooking the Charles, fresh Veggies from the farm. Oyster ponds and Lobster from the pond in front of the North Haven farm house are pretty amazing too.
But home in the Rockies runs a close second to nowhere.
If I was home I would have probably made some better adjustments in my trading portfolio. Fortunately I made a few gains, and sold a few positions for very nice gains. Notably, FNM. I am now out of 650 contracts of the Dec/Jan 7.5, 9, and 10 calendar spreads for very nice .17 profits.
I also exited 80 of my 300 USB calendars for modest .12 profits.
This picture was taken this morning. First snow. Snow level @ 11,500ft
I have incurred no significant losses from any positions in the past two weeks, although if I were at home I may have be over zealous in shorting the market. Although, there were no technical reasons to do so. The SPY and IWM have been riding their uptrend line very nicely. Currently I have 2.5% portfolio positions in the IWM to the downside. I would have been crushed in these positions, however I put these calendar positions on with significant Vol skews, and Theta has been my friend. From this point forward I don’t think I will be so fortunate if the bullish trend continues. I “think” we should be seeing an end, however the basic facts are still showing up trend, and there is no reason to counter that until we see a break below the uptrend.
Fundamentally we should be in the crapper. The US$ has rallied big time, mostly due to the threat of global recession. Europe, and emerging economies have caught the cold. It seems to be one thing if the dollar gains strength due to US economy strength, and another to gain strength due to global recession. Gas prices going down, but @ 3.70/gal in the US are we really rushing out to fill up. NOT. We are approaching US$ resistance. I will use the XDE (Euro/USD) as a proxy. I am looking for Euro support @ 146/145. This upward move will probably have some recovery in oil related names, and I wouldn’t doubt seeing the Euro around 150/152 before resuming it’s downtrend. My favorite oil related issue remains PBR @ 44.50 (50% retracement, and previous consolidation).
As a country our people have been financially wounded, as citizens we are demanding alternatives. Hopefully, my fellow Gen X citizens will show more gumption than our parents when oil prices retreat, and continue the move alternative sources of energy. I believe we will.
That is long term, I am looking out the next one week to 45 days. This is what I see.
The SPY chart holds much interest for me.
We have encountered resistance @ the 50% retracement level 132.2, yet we maintain the uptrend. Breaks above the 50% retracement may very well lead us to 135 on the SPY. It has been my unscientific observation, that when we see such massive moves as occurred and May to July, the rubber band can take us to the 61.8% retracement. Also, there is a decending 200 day MA which may meet this rising price window @ 135. This could represent the second best shorting opportunity of the year. The best so far was SPY 144.
Also the volume was was average past few weeks. There have been bloggers talking about anemic volume on this rise. I don’t see that. I see massive sell volume from 4 and 5 weeks ago, but we have just returned to average volume, which remains short-term bullish. The Oscillator below 140% retracement is still making a bears case.
IWM – the relative strength of the small caps has been amazing to me. And as a small consolation it has been a surprise to many fund managers. Perhaps the weakness in Energy, Finanicals, and Ag have weighed down the SPY and less so on the IWM. The chart is certainly undeniable.
Somehow, I am short this index via calendars 68,70, and 72… Aye Carumba! We have seen a full, 100% retracement to the June highs. The downtrend line is broken. I have resorted to hope, which is never a good place to be while trading. There are better shorts out there, and my 2.5% portfolio position is down about 10%. The line in the sand is clear. Above 76.30 sell, and sell @ about 71.6. Future trades look like pairs trades… long either IWM or MNX and short SPY and DIA.
I continue to believe in the short thesis for our economy, and the global economy for that matter. My preferred short is COF. I believe the Seeking Alpha article outlines a strong fundamental case, however the technical case is even more compelling to my way of thinking.
First here is the bullish technical case – Largest downward Oscillator move took place in November, and it was less powerful in July. We are still in an uptrend from July lows. OK, that is it.
Bearish Technical case – Stop is well defined above the previous high @ 47.32, which coincides with 200 day MA, upper range of Bollinger bands, and previous neckline breakdown.
Overwhelming trend is downward.
Move up from July lows have been on decreasing volume.
Downward sloping 50 and 200 day MA. 50 below 200.
62% Fibonacci retracement.
Oscillator has made a 140% pullback and is now dropping.
Volatility is medium to high
This, in conjuction with Sept 12 price projections provides for some interesting Sept trades.
Credit spreads 45/50c
Debit spreads 40/35p
I will look for more trades this weekend and I will add to this post. But for now, there is a break in the rain, and I going on a run.
Weekly targets ahead –
XDE – down to 145 – then play a bounce
/QM – down to 107, then play a bounce to 125 or so
SPY up to 135, then down down down
Other adjustments and additions. If this prediction takes place, my plays are to:
1) exit 1/2 of my C Sept 20c, and hold onto my short Sept 17.5/20c spread.
2) Long PBR around 44.5.
3) short COF with one of the above strategies.
4) Buy volatility via index calendars.
5) Adjust my overfunded Life insurance to 80% from 50% diversified bonds/cash, and 20% small cap fund from 50% mixture small/med/large cap funds.
6) Buy the SDP (Utility Ultrashort) on XLU breaks below 36.25 with a target of 29.50.