More Signs of Our Broken Market

Le_Soldat said...

Wondering what's your opinion on today's [Tuesday] light volume bear market rally? I'm losing big on puts on Cpaital One (COF), Hartford (HIG), Caterpillar (CAT), Simon Property (SPG), United States Steel (X), and SPDRs (SPY).

Do you think this "rally" has any legs, or do you believe there will be a selloff starting Friday?

I made the mistake of buying Jan puts and they are really dropping in value. I just can't understand how we rally with the worst consumer confidence and the worst home prices.

Good Luck and Happy New Year.

CP said...

I think the rally is a joke. Anytime a decent stock (GK Tech (BGC)) vastly underperforms a garbage stock (Maguire (MPG)), to me it is another sign of our broken market. Result: bearish.

That being said, you need to have staying power. Buying front month puts is problematic. I own Jan puts that are deep in the money that I don't want to sell for tax reasons. But I would never buy OTM front month puts just to watch the premium evaporate.

I have no idea when the next selloff will commence. All I believe is that most of my shorts will be zeros a year from now. So I am patient.

Comments

[sr9web:]

So tell us, what are you shorting?

2008 Dec 31 02:11 AM

[Moon Kil Woong:]

Catapillar is doing the right thing, cutting executive pay and making not-overly excessive cuts to their labor force. Management voluntarily taking pay cuts even though they remain profitable is a sign of excellent management. I wish others were so good. If they ran GM I doubt it would be in the shape it was today. The uS should be funding good strong companies like it and IBM not garbage companies like AIG et al. Anyway, as I mentioned before I'm long Catapillar and a few other stocks as an inflation hedge just in case. Otherwise, I advise cash.

So your bearish calls are not wrong. Unfortunately volatility is dropping so you are getting burned on that. And fund managers like spending cash in the end of the year to briefly and often artificially pump up their performance by buying the stocks they own so they can pay themselves commission for making the right choice. This is called window dressing. I call it a self fulfilling prophecy of ripping off their clients.

Anyway, yes, a low volatility up day in the market is nothing to cheer about. Volume was about 60% of normal volume so it pretty much means absolutely nothing unless you have options expiring anytime soon.

Best of luck to anyone playing the market long or short. It is brutal.

2008 Dec 31 02:35 AM

[rjm51a:]

The rally is light volume and it's technical. However, a heck of an Obama relief rally cannot be ruled out. It will be a shorting opportunity but that opportunity may come from higher levels, as much as 1500 DJIA points or more. The greatest stock market rallies occur during bear markets.

Why fool around with options? Use inverse ETFs. The upside isn't as great bit if you use the leveraged ones, it is still substantial and there are no time premium and no expiration date concerns.

2008 Dec 31 02:00 PM