SURVIVING THE GAME
MARCH 10, 2009
2009 – 20

Citi up 38%! By the news I’m hearing tonight, the bottom in the markets has come and gone. After closing Monday at the lowest level since early 1997, the market rallied today and that is it, there is no where to go but up from here! Of course there is the odd “ non-believer “ that doesn’t agree that this is it but they are being scorned by the talking heads as “ blind “. I saw a clip where Mark Haines, the morning guy on CNBC, called the bottom because we are at 66.7% of the 200 day moving average or something like that. Phooey.

The rally today, led by the financials is likely nothing but a dead cat bounce. It had to come sometime. Even in a raging bear market it isn’t straight down every day. I would recommend you avoiding jumping on this bandwagon. If anything, I would be selling into this rally, looking to re-purchase at lower levels. If Friday’s inter-day low was, “ the bottom “, we may rally for a few days and with almost near certainty we will retest the lows. Rarely do you see a sharp rally after grinding down in a slow methodical manner such as the one we have seen. Sharp rallies generally come after a huge spike down like we saw on Oct. 10th and Nov. 20th last year.

Many other indicators suggest that today was not an important turning point. Indicators like the VIX, put:call ratio, volume, advance/decline line, etc all point to nothing more than a normal up day, not THE beginning of something sustainable. Being almost 100% cash enables one to look clearly at the current situation instead of through rose-colored glasses. Most commentators you hear are simply “ talking their book “ and since 99% of them are long, what else would you expect them to say.

I also heard two other interesting things today that reinforced my dim view of money managers in general. The first was an advertisement for Trimark mutual funds. Their slogan was “ it’s time in the market, not timing the market “. They went on to say that being 100% invested all the time was the only way to succeed long term in the market. As long as you had a 5 year or longer time horizon, you will do just fine. Hmmmmm, I’m glad I didn’t put 100% of my money in their funds 5 years ago, or 10 years ago. The other was some joker on BNN doing technical analysis. When asked, “ by looking at the past can you accurately predict the future? “, he actually said yes! I hope all of you reading this understand that technical analysis is accurate only about 52-54% of the time at best and is only one of many tools you should use to determine entry and exit points on your trades. Isn’t it funny how what is touted as SUPPORT at a certain price on a stock all of a sudden becomes RESISTANCE when the analysis is proven wrong as the price plummets through this magic support number? I use charts and technical indicators all the time, but only to try and reinforce an already existing hypothesis.

I believe, and I think it has been proven repeatedly; that there is no way to consistently beat the market using any sort of “ mathematical “ or “ canned “ system. The best example is Long-Term Capital Management. That is the hedge fund that blew up in 1998. They were the best of the best. Nobel prize winning economists, mathematicians, theoretical quantum physicists, etc and they were wrong. They were unable, with all that brain power to anticipate every possible outcome or condition that would affect their positions. They were caught off guard and suffered enormous losses that were not supposed to be possible according to their “ models “. Many hedge funds suffered the same fate this last year as the “ impossible “ occurred almost on a daily basis. Regular, long only, mutual funds suffered by default as the markets declined because their only position is long.

But, I may be wrong. As I have said over and over, I don’t KNOW any more than the next guy. All one can do is amass information, take an educated guess and dive in. If you’re right, great. If you’re wrong, move on. The money is not made in being right or wrong. The money is made in using the right financial instrument for the particular trade, applying rigid risk management and leaving your emotions at the door. I am wrong more than I am right but I somehow manage to come out ahead of the game when all is said and done.

OPEN POSITIONS:

USO – still a chance on this one. Hold.

SU – I wish all the long stock/short call positions were like this one. SU up $4.75 from entry point, short $20 calls up only $2.70. Net gain of $2.05 per share. Hold

CDN $ - dong well so far. CDN$ closed at 7775 today. April 7900 straddle closed at 301, down 40 from entry point at 341. Adjust exit stops to 7500 and 8300. Three weeks and 3 days to expiry. Look to purchase calls at 8200 and puts at 7600 for less than 15 each as insurance.

NEW TRADES:

After sitting back for a while and watching, it’s time to dip a toe back in.

VIX still high at 44.37. SPY made a low of $67.10 on Friday. Closed today at $72.17. Sell 25 each SPY APR $74 calls and puts. Straddle closed at $747-767.Should get close to $750 per straddle. Net premium received of $18750. Place exit stops at $66 and $82 on SPY. Risk is approx $5000 or 1.7% of portfolio. Expiry is in 5 weeks and 3 days. DO NOT enter this trade if SPY is up or down more than $2.00 at the open Wednesday.

Options Guy
Editor
Surviving The Game
optionsguy@shaw.ca