75% of Tradeable Big Bottom

Usually, I like to see the 4 major indexes to hit a Big Bottom on my program before buying, but today may be one of those possible tradeable Big Bottoms. I haven’t figured out how I am going to trade it (if at all) so I just wanted to update you as to what happened in the program today and give you a screenshot.

First, over the holidays ( on December 22, 2008 ) the DIA (ETF for DJIA) hit a Big Bottom. However, nothing else bottomed on that day. Plus, it was really a holiday trading period so I don’t truly trust it.

Today, January 14, 2009, the SPY, IWM, and $COMP all hit a Big Bottom today. That’s 75% of what I call a true capitulation moment. So, take it for what it is worth.

Painful To Watch

I wrote last month that this market was fun and exciting. I think I have changed my mind. It is no longer fun and like the “ass-whoopin’” Florida put on LSU this year, I just want to change the channel. Last week I celebrated my 33rd birthday and I hope that on all future birthdays that the economic mood of the country feels better than this. What’s wrong with this market?

I have strong feelings about all the craziness that I can easily outline.

• Baby-boomers are getting closer to retirement. That generation has amassed so much wealth in their more recent lifetime that they are not going to let it get away. They also have fading memories from their parent’s stories from the hardship of the 30s (I’m not going to say the word to describe that time period).
• Government is involved entirely too much in this process. I understand being there to ensure the credit markets flow, but this TARP plan has created a mad-house. No longer is the Treasury going to buy subprime mortgages to help the banks free-up cash flow. Instead, they are going to provide capital to the banks.
• Is everyone that lends money going to become a bank holding company? I loaned money to my buddy Nick last year. Can I become a bank holding company? I can see this shaking out in ten years when there is a wave of bank holding companies no longer wanting to be bank holding companies because they can’t make very much money.
• The era of no-failures. As a country, we can’t take any deaths on the battlefield. Yes, that’s right. Even war has been “babied” to that point. Now, any industry that can’t make it is begging for money from the government. The car industry is up to bat now and they are making dire warnings about all the job losses and that their industry poses systemic risk to the economy. This is all so sad. We are actually buying into this mess and will probably bail them out somehow.

The market is starved for capitalism. Where are the IPOs? Where’s the innovation? No growth. Government spreading money around like bad parents. Think about it? Why would anyone invest right now? It hardly seems worth it. People invest in the market because they think the company they are buying has an advantage over their competitors. Does anyone know of one company that has that advantage right now? You may think you know, then next week you would be wrong. I realize the government is in a precarious position. They look to that period in the 30s and see all the things that were done wrong. Hoover is back and no I don’t mean the vacuum cleaner. Government seems so worried about avoiding a repeat of that time that we will probably end up repeating that time because they overshot to the other side.

I repeat…this is painful to watch.

Trading Portfolio
No changes have been made. October 10, 2008 was the last buy where I put 1/3 of the portfolio to work. I still have 1/3 in SPY and the rest sitting in cash. I plan to buy more soon as my trading software program creates opportunities. The key is patience. From the buy on October 10, 2008, my position in SPY is down 8%. The overall portfolio is down 2.5%.

IRA
Sitting in 100% cash still.

Market Data Software
This program has been a life saver. It takes the emotions out of things. Just when I look at the market and I think, “Here’s an intermediate bottom,” I pull up the software and it shows nothing…or a sector bottom or two. Even though things have been bad since the last online update, nothing real good has setup like back in October. We have been working lower and lower over a period of weeks. However, recently the Nasdaq and the Russell 2000 have been bottoming. Sometimes on the same day, sometimes on different days. I don’t like either one of those indexes right now. Oil has been bottoming day after day after day and my indicator is pretty unreliable with all the pressure on that sector right now. I will probably get more cash into the market when all 4 major indices (Dow, S&P 500, Nasdaq, and Russell 2000) all hit a “Big Bottom” on my program on the same day along with a majority of the sectors.

Here’s a snapshot of my Market Data software program as of yesterday.

Unbelievable Volatility

How much fun is this market? Whether you are down or up, like a football game…it is very exciting everyday. Huge intraday point swings in the indexes. I’ve never seen the VIX up so high. It doesn’t seem like it wants to retreat. Until it retreats, every day the market is open it will be wild.

So the VIX is pointing to a 60% move in the S&P 500 over the next year. Let’s hope it is up 60% and not down 60%. If the market is up 60%, the S&P 500 would be at 1504.88. If it is down 60%, it would be at 376.22. I have no idea where the market is going. Not a clue. But, I can say this…if we go down to 376.22 over the next year in the S&P 500, no one will be able to recognize this country.

Portfolio
No changes made this week. I implemented a new “bear market rule”. If a trade is made, 2 weeks must pass before any other trade can be made.

Market Data Software
Nothing really caught my attention this week. We did have a bottom in the S&P 500 and the DJIA, but not in the Russel 2000 and/or the Nasdaq. A few sectors bottomed, but that was sort of expected.

Put 1/3 of Cash to Work

Trading Portfolio
I purchased the SPY ETF today for 1/3 of my position. I believe we are seeing the low in the market and I am going to work in my cash position in 1/3 increments. I am now holding 356 shares at an average price of $86.36.

IRA
Still 100% sitting in treasuries. I realize that I will miss the “spring” bounce rally. But, this is my retirement funds and since I moved into treasuries in December 2007, everything is working out fine. I will wait for confirmation before doing anything.

Market Bottom Will Hold

Today did not generate the action I thought we would see. Two days after an extremely rare big bottom, I was expecting to be down through the day and have a powerful rally going into the close up about 4-5% on heavy volume which would have created at least an intermediate bottom. We got the heavy volume, but we were down about 2.5%. When I first looked at it, I thought, “Not good.” Then, I updated my program. Two things stood out.

Common to all bear markets is that NOTHING works. Well, the Healthcare and Consumer Staples sectors were still technically “working” and had not bottomed. Both bottomed today.

Healthcare hadn’t bottomed in 2,268 days, since July 23, 2002.
Consumer Staples hadn’t bottomed in 2,764 days, since March 14, 2001.

Two days after a major – extremely rare – market and sector bottom, we did it again…two days later.

Based on these two factors, I feel very good about the market and where we go from here. I think the low intraday today will hold as we go further. I do not subscribe that we go straight up from here. In fact, I think we rally over the next week or so big time and then tumble right back down to the lows we saw today. The difference is that when it comes back down, I believe it will hold. It may even do this over and over, but once again, I believe the lows today will hold. Let’s see how things turn out in the future.

Chart courtesy of StockCharts.com

Here is a snapshot of my Market Data software program.

Tradeable Market Bottom?

About 6 months ago I created a software program that analyzed the market. Nothing out there seemed to work for me to get an “edge”. Plus, I got tired of drawing a bunch of graphs and charts and dropping in moving averages, trend lines, etc. I wanted to see the market on my whole screen in a snapshot form. So, I created it. On my endeavour, I also created a proprietary algorithm to analyze the entire market to identify bottoms. Tradeable bottoms. Let me first say that it doesn’t identify “permanent” bottoms. No one can ever know that without foresight…and none of us have that ability. What it does do is identify tradeable market bottoms.

In fact, the algorithm only produces a tradeable bottom about twice in a decade. In fact, even after all of these declines, the last three before this were January 22, 2008, July 22-23, 2002, April 14, 2000. Well, we had one yesterday, October 6, 2008. We had a very big one.

I have been encouraged to update my blog to keep a record. I will also update sectors and what I am seeing on a purely technical level in the market.

Hotlanta

As my roommate Ray would say, “Oh, you are in Hotlanta”. My whirlwind tour of the South is slowly coming to an end. I have decided to skip Florida and finish off my trip in Birmingham, (Maybe Mississippi to play golf with Shawn), then on to Baton Rouge, Lake Charles, then finally in Houston for the first day of the Masters.

I decided to come to Atlanta today because tomorrow I am going to Birmingham, AL and I also had to check out of my hotel room in Savannah. I will try to play golf at one of the Robert Trent Jones golf trail courses while I am there provided it ever stops raining. My friend Kayla from Lake Charles is flying to Birmingham on Saturday to meet up with me. Not entirely sure what we will do while I am there, but we always have a great time.

As for my final day in Savannah…well…I got a haircut. I have to say, this guy that cut my hair did a fantastic job. Probably one of the best all around hair cuts I have had since the hair number started to diminish (fancy way of saying falling out — You like that?) He was so gay he was almost on fire. Let’s just say he was sparkling. But the key thing was that he was starting to loose his hair too. Well, it was starting to recede. He felt my plight. I wore a ball cap all day, walked into that JCPenney Salon, and told him to cut it the best way he knew how taking into consideration the thinning effect. I wish he was in Lake Charles. I would introduce him to Ray and have someone who knows how to truly cut my hair ready and able.

Tonight won’t be anything substantial. I leave Atlanta tomorrow for Birmingham. I am pretty tired. The drive from Savannah was grueling with the bad weather and all the traffic. Plus, it was 4 hours of straight driving. I am really looking forward to getting back on central time. I haven’t adjusted yet.

Georgia Pines? Savannah Oaks!

Well today after having myself an aweful day in the market, I went back to my hotel room and fell asleep for about 2 minutes. Then, the fire alarm went off. Thinking that maybe the hotel was on fire, I put on my shoes and grabbed my laptop. Everything else can burn…well, except for the golf clubs. I walked out of my room and another guest says, “False alarm…Somebody burned some hamburgers.” Ha! The alarm stopped shortly thereafter.

Since I was already up, I decided to get in the car and drive downtown. Let me first say that I had Savannah all wrong. This city is amazing. I guess being midtown is not the place to be. I have never seen a more beautiful downtown in all my travels. The city is full of charm with old-style Southern architecture lining every road. There were parks and plazas. Downtown was buzzing. I can only imagine what it was like 200 years ago. Heck, even 100 years ago.

One of the baristas at the Bucks encouraged me to take a ghost tour. I think I have found a good one. It is the Pub Crawl which takes you through old taverns in downtown Savannah. It includes drinking, mingling, socializing, and history. I did drive by the Pink House Restaurant and there was a line out the door onto the street. Amazing! I have read some great reviews on it and I think I will dine there and catch a late night tour of Savannah tomorrow.

I leave Thursday. Not sure where I am headed to next. Somewhere in Florida.

Caught on Wrong Side of The Road

What a nice day in the markets today. Every major average was up over 3%. First day of new quarter buying…I guess. Too bad I had the worst day in the markets in quite some time. Down 6%. That was really ugly for me.

I averaged in on some SPY April Puts and now I own:

April 30 Puts
April 32 Puts
April 34 Puts

I also own some Citi May 17.50 and 20 Puts.

When the market completely goes against you and you are aggressively anticipating a movement in the opposite direction, it really does hurt. I have to admit that I was essentially wrong. The play would have been to be long the market yesterday and if my thesis about the jobs number was still intact, sell the double around 3:50 PM. Of course, hindsight is always 20/20.

As of the close today, I am 37% short in all of my holdings. I am long 63%, but I did take a whacking today in UNG and V. MO took a beating too, but I swapped out of that and into PM. No more MO. No more great dividend yield.

NYX was really the only thing that was up in a big way. PG was up nicely, but that is such a solid stock that it doesn’t move very much in any type of market. I never like verbally rooting for a bear market move, so I won’t do it. In the end, I do want the market to move higher. Friday’s employment numbers will be what they are. Nothing anyone can do either way.

I will wait to see what type of follow-through this market has before deciding what to do next.

Is it a Market Head-Fake?

Well today, I am in the house of pain. I was “early” in my thoughts that we would be down this week. In trading, “early” means wrong. I will take my lumps and admit that I was wrong. Self-flagellation is the mantra for the day today…it appears. Ouch!

However, I am a big believer that until the market shows you a change, things really haven’t changed. Over the past 6 months, this is the common theme in the market. We get rallies and everyone is saying the worst is over. Then, we get sell-offs and everyone is talking about how we are in a recession. If you trade volatility, this is your kind of market.

I am not changing my thesis just yet. I don’t think we are out of the woods. In fact, this is just the rally I was hoping would happen. I don’t like putting on any position unless I can get a good price. Today, I am aggressively shorting the market. This can be difficult because there is so much short covering and people on the sidelines with cash putting it to work because they are worried they are going to miss the move. So much positioning today and the bulls sure have the upper hand.

Yesterday, I purchased some out-of-the-money SPY Puts for $1.93 (including all fees) at the April $130 strike price. I also purchased some Citi (C) Puts for $0.78 (including all fees) at the May $17.50 strike price.

Today, my plan is to leg into some more SPY Puts hedging my strike price, but still staying in the month of April. I already purchased some $132 Puts and I am planning to get into some $134 Puts if the price is right. Also, I am looking to get into some more C Puts at the May $20 strike. Last Friday, my plan was to get into some April $20 Puts in C, but with the 10% run-up in C this morning, I can buy myself another 30 days with the May’s.

This is definitely gut-check time.