It no longer matters what happened today as AXP lowered guidance and wrote off $440M for Q4, sending their stock down 10% after hours.
I think AXP is a screaming buy down here but the indexes all turned down and the whole market made a violent turn so we remain in the wait and see mode we were in this morning. As predicted, it was a totally wild day but ending on a sour note like this has put me off the bullish track again (and it wasn’t all that bullish to start with).
We started the day with COF announcing a $650M write down and lower guidance as it turns out the answer to "What’s in your wallet?" is "A foreclosure notice." We spent the morning waiting for Uncle Ben but they pre-released his speech at 12:20, which spiked the markets but they quickly fell back until 10 minutes before Ben was scheduled to say what we had just read, which caused another rally, followed by his actual speech, during which the market sold off, followed by a Q&A session, after which the markets dove until a rumor came out that BAC would buy CFC, which somehow sent that stock up from $5.50 to $9 as if BAC was somehow likely to have made an offer to buy the lender for double yesterday’s bottom.
Madness I tell you, madness! We shorted CFC, of course and had a totally great time shorting many stocks during the day. We had a discussion about market timing re. our Google spread (long the March $650s, short the Jan $650s) and I thought I’d reprint it here as it’s a great example of how we look to get in and out of a short contract on a volatile day. Please note, we day-trade for fun, it is NOT our core strategy and should not be entered into lightly:
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Market timing -At the open Goog dove and you know it’s a stock I will buy and buy and buy so I really don’t care if I get burned once or twice on a dip. If you look at the 5-day chart, it held $640 well except for yesterday and yesterday it zoomed back over like it had made some terrible mistake and got embarrassed by it.
So in the morning, when the call I sold for $14 yesterday dropped $12 and then $11 (up over 20%) just 1 trading hour after I got it, I was already psyched to take it off. I mainly wanted the call to protect against an overnight catastrophe, during the day I would be happy to roll down first and then sell if necessary.
Also, don’t forget I was working on the premise that Bernanke would save us and my comment at 9:36 was “how many time can they offer GOOG and APPL to you before you think it’s a good idea?” so I think my sentiment was pretty clear.
So to summarize my feelings at 9:35, with GOOG at $646 and my caller down 20% – I took insurance to protect my calls (which are up $10) against catastrophic faillure, not only did we not have failure but MY INSURANCE COMPANY IS PAYING ME 20% TO CANCEL THE POLICY AFTER THE DANGER HAS PASSED.
So I set my $1 trailing stop in case we go much lower and boom, it triggers at $11.50.
Now my love of GOOG and my Bernanke premise guides me and I’m hoping to get a $20 pop on the day. Having a realistic expectation and knowing your stock’s movements and ranges is critical here.
Just after 12, Google shot up to $657, up $15 from the LOD. The Nasdaq was heading to 2,500, which is my point of concern and is rejected there at 12:24. At the exact same moment, GOOG fails at $657 which is around the multiple peak it’s made for the last 4 sessions anyway and represents $15 of $20 that I hoped for today (figuring $660 would be a tough barrier).
As you know, I took those $660s again and one of the reasons I like to do that is because I know them so well that just looking at the bid/ask movement gives me a clue to market sentiment and owning them in my daytrade folder forces me to focus on GOOG (and you guys see this all the time as I fixate on certain stocks for a day when I think something fun is going to happen).
At 11:09 I wasn’t buying the dip at all and said “That was a fun sell-off, now let’s see if we can print a real high. Watch the NYSE, it must catch up to the Dow and the Rus needs to find it’s way to green or we’re not going anywhere.” and “This is all sound and fury, signifying nothing ahead of Ben.” So I was looking for a pop but I thought it was going to be BS.
I noted at 11:30 “My GOOGs are finally warming up, now $8, AAPL seems interested in coming off the mats too. GS looking strong and CNBC says 1:45 to Ben!”
At 12:20 we got the early Ben word and the rule is ALWAYS sell INTO (NOT AFTER) the initial excitement and I set my trailing stops and noted at 12:30 “Someone selling a lot of Googs into this run at $651, whole thing fizzing. I’m taking the money and running (and covering!). XXX”
So GOOG was my fulcrum indicator for the whole market today, their moves tipped us off to what was happening. So my Jans were gone and I sold the Jans again.
Then we went down fast and up fast and I was busy and missed it but I was covered at a way better price than I was yesterday so I could care less.
Then at 1:05 (having just missed my first chance to flip myself) I said: “This is your second chance to cover or short at high prices but I know that’s really hard. I’m mostly just watching now as this is just stupid.”
At 1:33 I had switched to the QID’s and now I was focused on them for a turn saying “There is no go Apple without go Google and hardly ever a go Google without a go BIDU and none of them go anywhere without the Nas and I just bought a bunch of Nas ultra shorts so there!”
Around then we had the Apple keynote leak, which tanked Apple and Apple and GOOG are linked but now that I knew they were tanked on a BS rumor I went back to stopping out my caller.
At 2:04, the fact that my caller stopped out led me to say: “GOOG could finally be breaking up, top of channel is $652.50 for those of you who like to buy high.”
Having now made $8 in less than one trading day on 2 callers and being naked, I was a little more liberal in letting it ride. At 2:47 I warned: “GOOG testing.” when it was touching $655 and you can tell I was intensely doing stuff if that was my whole comment on it! Also, we were up in general on the CFC rumor and, cynic that I am, I decided that was BS too so I also told people to buy index puts at that point.
When it had trouble at $655 I and we were heading into the close so I took another $16.50 (still huge for that call with the stock at $654) as I really don’t mind if GOOG goes to $670 and stays there through expiration and I have to give him $20 before I sell the Feb $680s for $25.
So that’s it. I try to jot down my thoughts during the day and I try to jot down my trades and once in a while it’s good to take the time to rehash something like this to help everyone see where I’m coming from but anyone can learn this with practice. Sure I might be better at sifting through BS moves and spotting a trend than some (not better than Opt for one!) but if you learn how to manage your trades then the little things I make note of during the day will start to make you see the buy and sell signals more clearly and that’s the key.
We can’t all trade the exact same stocks but we can all learn HOW to trade the stocks we like and hopefully my broader signals and the observations of other sharp people here coupled with your calling one of your favorites to our attention when they’re a good deal can make us all better traders.
That’s why group diversity is so key. I don’t watch JASO and didn’t even remember they were splitting but Jack brought it up and boom, a trade. Someone mentioned CFC and boom, a trade too good to pass up for even the small virtual portfolios – that’s how this place should be when we’re firing on all cylinders, an idea factory where the sum of the parts is greater than the whole.
Anyone can learn to make a good trade. There are stages like identifying a bargain, picking the right spot to enter, setting realistic targets and stops, knowing when to cover, when to go naked, when to fold the play and they all take practice, practice, practice but every day on these boards we make more trades than most sites do in a month and that really speeds up the learning process.
As I always say, this is a great team effort and it gets better and better every month so thanks to everyone who contributes and also to you quieter ones, who I’m sure will contribute in good time as well!
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So that’s how our day was, we are back to James Bond Investing mode and not too confident in the markets. As I said at the 3:30: "Hmmmm, coordinated effort to jack up the price of financials to rip of Asian investors says what?" Sorry to be bearish again but that’s just the way it is, as I said back at 1:30, with the Nas up at 2,480 "I just bought a bunch of Nas ultra shorts so there!"
