We left off in Part II with our Feb 23rd Big Chart Review.
Even though I said: "Once again we are in a market that environment that reminds me of the Simpsons episode where Homer jumps over a gorge, crashes, is taken up by a helicopter (Ben) smashing against the wall along the way only to fall all the way from the top again. Pain, pain and more pain every time we try to get long" – we still weren't fully prepared for the devastation that was to follow as the Dow fell from 7,500 to 6,500 in the next 10 days. My commentary on the environment the next day was:
According to Cap, someone on the YHOO message board was counting the number of times CNBC talking heads said "nationalization" this morning and, as of 8:15, they were up to 300 times. Sadly, this is the fear-mongering that is driving the markets to new lows while Cramer continues to keep his sheeple out of protective ETFs like SKF. So you have the man’s network telling you financials are going to zero while dog and pony boy tells his minions to sell ALL the financials, causing them to go to zero – even though they could hold on and protect themselves with conta-funds, if Cramer didn’t spend 3 days a week convincing his viewers contra-funds are poison. I’ve never seen anything like this outside of a racketerring investigation. Speaking of racketeering – Dennis Kucinich nailed it when he pinned that charge on Paulson and company back in November.
Our wall of worry continues to be a steep one. After yesterday’s failure we do not expect too much out of today, we’ll be happy to just see a bottom at this point but it’s looking a little more likely that we’re heading into a capitulation event that can take us down to frightening levels. The 60% line is a line the markets dare not cross but, as I pointed out yesterday, we already lost the SOX and the Nikkei, with the Hang Seng and the BSE hanging on by a thread. Let’s take these levels very seriously, if the administration can’t turn it around this week – the downward momentum can easily pick up steam.
I'll spare you the details other than to say we DIDN'T turn it around that week and the downward momentum DID pick up steam. I was at war with Cramer at the time as he was blatantly ripping off my ideas and trying to pass it off as if he had had one of his own. We were super bearish and I was concerned (rightly so it turns out) that we shouldn't have capped our QID calls (major virtual portfolio protection) by selling Apr $64s as a hedge. While we did sense we had further to fall, we did begin buying some stocks that week as they got crazy low like AIG at .40, BAC at $4, CY at $5, F at $1.68, FAS at $4.76, GE at $8, GOOG at $350, HCBK at $9.50, HOV at .80, IP at $5.62, IWM at $37, JPM at $16.80, UNH at $20, VNO at $30, WFC at $12, X at $10 and dozens of others that were detailed in that week's wrap-up where I laid our strategy:
Our final move was a to go naked on our long puts and 60% bearish into the weekend. We hope our lower levels hold but it was such a sickening week and we had plenty of new upside plays that we’d rather take a small hit on our short side for a change than watch another round of longs hurt us. Notice the balance as it played out over the week – we get bearish, the bear side pays off, we look for offsetting bullish plays. The bull side begins to pay off and we look for more bearish plays to balance out the other side. As we are long-term (very long-term) bullish, our goal is just to have a nice base of stocks down at the bottom and let them run when we do finally turn around (if ever). Meanwhile, we ride the waves on the way down and pick up what profits we can.
If I didn’t think we were way oversold here, my strategy would be different but I do. As I said in my review of Berkshire Hathaway’s Annual Report, I have to go with Warren on this one, there’s bargains to there to be had and no one ever made a dime by panicking BUT – a little cautious hedging goes a long, long way!
Monday, March 2nd, it began hitting the fan and we prepared for a proper test of our 60% levels. The week was a nightmare although you wouldn't know it from our member site as we were pretty bearish and on Friday, March 6th, as the global markets were melting down and the media was panicking and giving simply AWFUL advice (and here is a great video from the Daily Show from March 4th to remind us). I commented that morning:
On the right is a fantastic video of the Daily Show recapping the idiocy that was passing as market commentary on CNBC during the market decline. Well the same idiocy is being practiced now by the same same idiots, who are now cheerleading the bottom as much as they ever cheered for the top. As Jon Stewart says: If only I had followed CNBC’s advice, I’d have a Million dollars today… If only I had started with a hundred Million dollars! Why then now, do we listen to these bozos? It is just as ridiculous to tell us that WFC is going to zero as it was to tell us XOM was going to $100. Goldman Sachs is another group of morons who still manage to move the markets with their prognostications – even though they themselves lost more money than the GDP of 300 nations last year – presumably following their own advice… Obviously we will be happy to cover our long puts and flip bullish, riding our (hopefully) well-timed plays from yesterday but let’s not fall in love with a bounce off a 25% Dow drop since Jan 2nd. We EXPECT a 400-point BOUNCE along this downtrend so we’re not even impressed with anything less than 7,000 next week, which is now a 6% gain off 6,600.
.jpg)
I happened to be on TV myself that afternoon, broadcasting the last 3 hours of a day that the market was plunging 300 points off the open on Livestock with Tim Sykes, where I laid out my bullish case. Sticking to our plan, we were BUYBUYBUYing stocks at the bottom but the trade of the day was the one our Members had been planning all week – the shorting of SKF at $250, an entry we hit pretty much on the button that day and turned into a 1,100% winner. In fact, people viewing the show that day who put $1,000 into each position we picked that day would have had this virtual portfolio:
- Short SKF: 1 March $210 put for $10 ($1,000) finished at $12,000 ($11,000 profit, 1,100%)
-
Long FAS: 71 shares of stock at $14 (adjusted), now $77.70. In for $994, now $5,517 ($4,523 profit, 455%).
- Note, I advocated 1,000 shares!
- Long FAS: April buy/write 12 contracts at .80 ($960) with $2.50 called away at $3,000 ($2,040 profit, 212%).
- Long RUT (Russell Index): 1 May $390 call at $10 ($1,000) finished at $10,500 ($9,500 profit, 950%).
- Long GE: 142 shares at $7 ($994), now $2,094 ($1,100 profit, 110%)
- Long BAC: 318 shares at $3.14 ($998), now $5,466 ($4,468 profit, 477%)
-
Short SKF: 6 March $125 puts at $1.60 ($960), finished at $21,000 ($20,400, 2,087%)
- Note, I advocated doing 200 of these contracts!
- Long DIS: 62 shares at $16 ($992), now $1,758 ($766 profit, 77%)
- Long XLF: 166 shares at $6 ($996), now $2,423 ($1,427 profit, 143%)
- Long AMZN: 16 shares at $62.50 ($1,000), now $1,339 (up $339, 34%)
- Long TGT: Selling 1 April $25 puts at $2 (credit $200), expired $0 (up $200, 100%)
- Long HOV: 1,538 shares at .65 ($1,000), now $6,305 ($5,305 profit, 530%)
- Long RKH: 110 shares at $9 ($990), now $2,441 ($1,441 profit, 144%)
So that's 13 bullish plays in 3 hours while the market was crashing – The profit on $13,000 invested 6 months later is over $61,000 – 469% profits, outperforming the S&P by over 400%! Compare what Tim and I were saying live on March 6th (buying with the Dow at 6,500) at the exact same time (2:30) as Jim Cramer was calling 5,320 as a possible bottom – 20% lower – adding to the panic for the average viewer. I was specifically saying to buy DIS which Cramer predicts would go lower, virtually at the same time on two different shows! Later that night, even after having a chance to view our show, Cramer was still VERY negative, with the OPPOSITE advice we gave. Fast money also told viewers that same Friday that "there’s too much risk and too little reward to get involved." That night, even though they could have taken some time to listen to Livestock, the Fast Money team said:
-
"A lot of people are calling bottoms", says Guy Adami. "But I still don’t think we’re there, yet. It has to feel like the end of the world before the market can bottom."
- "The data that I’d watch to signal a bottom is the rate of decline slowing", adds Karen Finerman. "But I don’t see that, yet."
- "We won’t be at the bottom until the financials participate in the market’s broader moves," adds Pete Najarian.
- "I don’t think we’ll get a bottom until we get policy going forward that doesn’t seem like it’s just attacking Wall Street," adds Jon Najarian.
Television is a powerful and emotional medium, it is very difficult to go against the will of ALL these "experts" when they get on TV and all tell you to sell (or buy) and then their TV station backs them up with bearish news and bearish guests – it’s a natural bias that develops, they aren’t going to make their own paid personalities look foolish by contradicting them with facts and dissenting opinions. On Monday, March 9th, Cramer and company were still at it with his ridiculous, fear-mongering Dow 5,320 call. Cramer wasn't the only idiot on that bandwagon – the same morning Uncle Rupert's Journal headlined "Dow 5,000? A Bearish Possibility" but that didn't stop me from taking our QID puts off the table in Monday morning's post at exactly the high of the year. Not only did we take the money and run at $70+ on QID but we flipped into the QLDs for $20 – at their low of the year (now $49) – now that's flipping!
Of course we don't always get such clear market signals and generally, in times like these we are happy to grind out normal monthly gains but the trick about investing is to be ready for opportunities like this when they come along. Sure you could have turned $13,000 into $74,000 but you have to have $13,000 to invest. Tying up all your buying power is never a good idea and that's why we try to stress balance and patience. The MSM is full of buffoons who stampede the masses in and out of the markets at will. If you review these three posts you'll see that betting against them wasn't a one-day event but a months-long process that culminated in our being in the right place at the right time.
You never know when the right time is going to be, but – if you keep showing up at the right place – you have a better chance of being there when it finally is the right time…
In our next crash review, we will look at where we are today and where we are likely to be in 6 more months. You can read Part 1 of this series HERE and Part 2 HERE.
