Wow, what a day!
We were expecting a 1,000-point rally on the Fed cut but we weren't expecting it all on the day AHEAD of the cut. Luckily we played the day perfectly as we nailed every move. At 10:02, with the Dow at 8,500 we didn't like the consumer confidence numbers and I said to members: "Check out this chart and then buy shorts!!!" That led to a retest of our 8,200 line but by 10:54 I was already calling for shorting the SKFs and going long on UYG as I said to Jordan about my 10:02 call: "That was just my day-trade call at that moment (now 200 points ago) on that news. Overall, I’m still hoping we hold our bottoms and consolidate for a proper move up but, meanwhile, there’s no reason for us not to take advantage of these little 200-300 point moves when we can."
In the same comment, with the Dow still at 8,238 I said: "I think if we turn red here it may get ugly but if the Fed is going to announce a cut at 2pm, I would think the EU would want it pushed up to a pre-market coordinated announcement so it will more likely hit well before then… I don’t feel it in my bones but it does look like they’re testing a low again so we’ll just have to see what we hold. Maybe they rally back to even though ahead of the close in order to set up momentum for a big rally on a coordinated rate cut but it’s the same old plan as usual for us, we pick up some upside plays around 8,200 if we hold it and wait for a bounce to cover." Well what a bounce we got today!
Just 10 minutes later, at 11:04, we got our bullish signal and I said: "FXI back to $20.35, that’s expecting it to snap right back down 15%, not likely and a good deal to cover with the $20 calls at $2.50. We held 8,200 nicely! Of course, falling off 8,500 means we need to get to 8,260 or it’s just a weak bounce so let’s watch that line closely." You can see on the day chart of the Dow how we tested right around that line prior to retesting and finally breaking back over 8,300 at 11:30. This is why these reviews are important, we need to go over what works (and doesn't) so next time we see it, we can be a little faster to act!
I'm not too proud of the morning picks as it was another "monkey with a dartboard" kind of rally where anything worked but, when the market faltered a bit at 1:22, I made my second impassioned speech of the week to members, as I laid out my list of favorite bargain stocks, saying: "Those are on my watch list and all companies that are crazy cheap so mark this post and we’ll come back next year and see how they’re doing but you may NEVER see these prices again and, if you know you can sell 30% of the price in calls this year, then buying them now is effectively buying them at 30% less than these ridiculous prices – that’s Dow 6,000!" Well, it took just 2 hours and 38 minutes for those 23 stocks to gain about 10% while many of the options on those stocks jumped 25-40% on that crazy move up.
FSLR and WFR were good calls, picking up the slow movers from the back of the herd, which is what you want to be doing when the markets take off as a rising tide lifts almost all ships eventually (not the ones with huge holes in them). Other sluggish stocks we liked were BWLD, HPQ, WYNN, IWM and WHR and all moved up a bit into the close but are still laggers that will be interesting to watch in tomorrow's action.
The rest of the day was easy as we broke and held our clearly defined levels. We covered up our short plays as we hit the 5% rule and selling 25% covers on 70% of the virtual portfolio that's bearish = 17.5% along with 10% gains on the 30% bullish side and that's how fast you can flip to 50% bullish in a rally by simply watching your levels and acting on the crosses, something I reminded members of as we crossed 8,600 at 2:54.
All in all, it was a fabulous day. Our three days of bottom fishing finally gave us some solid bites but this only takes us into another "Which Way Wednesday – Fed Edition" and we will be setting up for a major move in any direction on the Fed. Obviously, nothing fundamentally has changed and I would have been much happier with a slow, steady build back over 9,000 than today's rocket trip as I'm not sure we have enough fuel left to break orbit (see "Sock Market Physics").
