"Market, you shall rally from hence forth… *abra cadabra or however you spell it" – Demetrius Michael, 2:24 pm with the Dow at 12,523
That's right, over at PSW, we don't just predict market reversals – we cause them!
Mega-Kudos to DM for hitting it right on the nose today in a very impressive display of stock market magic. By the time I confirmed it (using slightly more conventional methods) 5 mins later, we were already up 15 points on the way to a 233-point recovery. All in all, it was a really fun day to play the markets…
It was a wild day over at the member section. In my morning post, I counseled the wisdom of not playing as we were still concerned that this bottoming move was forced ahead of action by the Plunge Protection team. My attitude of crisis inaction was outlined more fully during the August crash, when my advice to members was "Don't Just Do Something, Stand There."
Not trading is the hardest lesson of all and my opening statement to members for the day was: "Anything green today is good. Flatlining can give us consolidation but every day will be hairy so make sure you love your positions and get cash from the ones you don’t love to roll the ones you love down in strike AND out in time. Giving ourselves another month or two for a recovery is the smart way to go. If you LOVE a position but you don’t love it enough to roll it to a better strike and give it another couple of months, they you just aren’t ready for a committed relationship to it. AAPL, I love. AXP I love, GS I love, BA I love – for richer for poorer, for better or worse, in downtrends and uptrends until capital gains kick in and we part… If you can’t take those vows, think really hard about your relationship."
Our first trade or the day was, in fact, the GOOG $660s at $6.20 – a trade that made the whole week worthwhile! Sticking with and rolling down AAPL, AXP, GS & BA while they tumbled gave us some fantastic prices on our leaps, who are likely to give us much love in our long-term relationships. We made a LOT of moves to adjust our $25KP and were rewarded with a $11K gain on the day – enough to make all the heartache of the week worthwhile!
We put our money where my mouth is on AAPL as I made a bottom call for $169 at 10:35 and that gave us fantastic entries and my 11:02 comment was: "Gosh I am trying so hard to keep positive, I’ve uncovered a lot of calls but it’s very tense. I said I would give the markets until today to show me something, we have Uncle Ben speaking tomorrow and if we can’t have any enthusiasm ahead of what he MIGHT say, then imagine the devastation if he follows Paulson and Bush and says nothing useful." Our play at that time was the XOM $90s at the bargain basement price of $1.60, now $2.65.
This is why cash is so important in a wild market like this, there's tons of money to be made on hit and run-style plays but it's so hard to do if you are sweating over the rest of your virtual portfolio. This is a way that having good balance enables you to take good risks when appropriate.
At 11:45, when the Dow went red, I called for cash and deep covers ahead of the Dow dropping another 90 points, just in case I was wrong with my bottom call, which I restated an hour later, with the Dow at 12,611, saying: "This is the sell-off to 12,500 I wanted since August but we need to finally consolidate, rather than bounce back up after 2 days. Once we build a base, we can get going as the economy recovers in Q3." I also made a very embarrassing (for me) call: "FSLR – I can’t bring myself to sell the $220s for $9.80 so I guess I’ll be looking to pick some up if FSLR can crack $215, I’m taking a few now, DD at $8, out at $7.50." It was a perfect call but for some reason I soured on it and got out with a small loss at 1:52, right before it flew to $21.75. Bottom line, I just didn't love them…
Luckily we channeled our love into Google, who I renewed my pledge to at 1:10 (doubling yet again at $5 at 1:30) along with INFY, who we doubled down ahead of earnings today. 1:30 also gave us a great deal on my stock of the decade selection, TASR, who had a wild sell-off and recovery we jumped all over. At 2:01 I noted: "Well I’m getting my 12,500… That actually woke a few buyers up: BXD, NOC, CVD, GENZ, BIIB, ABX bucking the other golds, JNJ, KO still going.."
We knew it we were good to go when we got multiple signals around 3pm, thanks to DM's magic spell the market rocketed up the magic 120 points we were looking for as the Dow topped out at 13,627 at 2:51, then it retested 12,625 at 3:32 on the way to another 110-point gain, finishing the day up 146 points, slightly better than what we were looking for when the day began.
Still we are, overall, less than thrilled, not so much with where we ended up, but why (rumors of more Fed cuts). We kept half of our deep covers in place, following our normal strategies and I ended up the day "accidentally bullish" as so many covers stopped out so quickly but there was nothing terribly impressive about the S&P and we'll need to see some follow-through tomorrow before we start tossing our cash around. I'm still looking for 2,500 on the Nasdaq and we'll do a Big Chart review in the morning. Tom2oc, the man who called this drop on the nose, is also preparing some follow-up reports over at his site, so tune in there when you can!
It was a totally fun day but, as I said near the close before we broke up (forced?): "Don’t get too cocky, make sure you cover as we could wake up tomorrow down 300 (or up 100). We’re not holding 12,700, think about how sad that is. Tomorrow is retail comps, not sales and I don’t think that growth beat inflation this year. Bernanke speaks tomorrow and word is he’s giving a .50 cut in the afternoon – if he doesn’t, look out!"
Either way it's going to be another exciting day!
