OptionSage submits:
Quotes of the day from CNBC’s Fast Money
“Was that better than pig wrestling?” – Dylan Ratigan
“I’m not sure anything is better than pig wrestling”. – Dennis Gartman
Why the beastly analogies? Because if you just saw the closing prices you would have missed a beast of a day! The Dow dropped over 300 points intra-day before clawing back a few hundred points before another triple-digit decline before going positive for the day before closing down 15 points!
The Volatility Index soared to 37.50 intra-day before closing at 30.44. Bear Stearns was as low as $101.23 intra-day before closing at $116.44 having been as high as $119.44. Goldman Sachs, Morgan Stanley and JP Morgan all had similar reversals off their lows….and on and on and on….
I am seeing some of the big names in the industry hit the panic button. Tobin Smith had a long rant recently about how the bottom was close by before changing his mind and expecting the bottom to be 6-8 weeks away. Indeed, he is claiming his best stocks will be 10%-20% lower soon. In fact, he is calling for cash and heavy hedging (sounds much like almost every article we’ve written for the past few weeks!). At PSW, Phil noted he went to cash BEFORE the rest of the world hit the panic button!
Denis Gartman’s bottom line on CNBC was to “Sell strength not buy dips” – I think that’s exactly what we’ve been referring to in articles here over the past few weeks. We noted the retracements, the strong rejections, the big leg down, the panic and now what…it won’t be any surprise to see us recover for a few sessions now and we can then evaluate whether another leg down is indeed likely. Options expiration is tomorrow and it can play absolute havoc with the markets so we’ll have to wait until next week to see which way the market really wants to move.
It sure is tough for those solely long the market but there are opportunities to go long. A young trader asked me at 1PM how to trade the market intra-day and I suggested twice as many long calls as long puts. Three hours later the Dow was up a few hundred points. How did I know to lean bullish? I am not sure I did but volatility is the only thing we can rely on here and it is soaring! As Denis Gartman said “In 35 years I haven’t seen all aspects of the market display such volatility, from bond markets to currency market to equities markets!”
We keep encouraging cash or heavy hedging. Our members have been referring to this e-book on the members site which one member described as “one of the best” introductory books on options trading. There is lots of valuable information in there. Information and experience are the keys to this market. If you haven’t figured out how to hedge yet, it’s time to learn!
The quality of traders on PSW is so good that I am tempted to just record comments from our traders here and leave it at that! Yes they are that good! Want an example? Just check optrader’s comments:
“Just looked at charts, and if I was not prudent and it was not expiration week, I would be very bullish here. This reversal is very significant because:
– It happens after a textbook 10% correction.
– It happens on record volume.
– It happens at key support levels (200 MA on indices, 1580 on S&S, which is a key EW pivot etc..
– We printed a lot of hammers, which are the most reliable indicators of a change of trend when they happen in this kind of situation and with this kind of volume.
I talked earlier today about capitulation, and it really felt like it earlier. We need capitulation before reversals. Now, what do we do? Of course, the trend is still down (we barely finished up for the day). We will need confirmation tomorrow, but especially Monday. If we don’t get a meltdown on Monday, after options expire, then it might be time to look at calls again, as 5MA’s might start turning up. Until then, let’s stay prudent and keep our hedges. I am fully protected going into tomorrow. I even bought back some Q puts at the close, a small position but enough to be safe, and if we rally tomorrow I will add to them going into the weekend. Good luck to everyone, that was a great day with some amazing opportunities.”
Fantastic comments all day long! Well done to all….what a group of traders! It is a real privilege to be part of the gang!
Trade Safely!
OptionSage
