Wednesday, March 08, 2006

Sell the Rally, Buy the Break

That's the name of the game as we see it. So far our scenario of Oil, Housing and Gold finding short term bottoms is panning out as expected. At the same time, rallies in the Nasdaq are presenting opportunities to get bigger on the short side.
  • Oil: Most of our names have bounced (we're looking to liquidate long calls) and the put spreads collapsed. Now we are looking to sell call verticals on this upswing. Oil spot looks oversold and I do think more upside is in the cards.
  • Housing: Less of a bounce as I am seeing more names reaching oversold condition. I do think we'll see a tradeable rally here as well. Leaning long calls as the sector grinds lower.
  • Gold: Spot looks terrible. Technically, there is a MASSIVE sell signal in place. Yes, it looks that bad. However, equities seem to have priced in a substatial drop in the spot and are near their short term bottoms. Leaning calls here as well.
My order of short-term bullishness on these three sectors is: Oil, Housing, Gold.
At the same time, Oil and Housing are in longer term downtrends with Gold at a big decision point. Watch the Gold futures very carefully here - I can't bring myself to get short, but the indications are definitely telling me to do so. (Am I a gold bug?)

Biotech is also bouncing smartly but I haven't figured out my stance on it. I am putting Cadence money is BBH and separate names fading directional moves.

Finally, Metal Miners look terrible and that tells me that buying vol is a good idea. We're eyeing CCJ as an interesting candidate. At the same time, PD and CLF look close to a near-term bottom and we're selling put verticals here.

Caveat: I just re-read all of the above and it feels like a hodge-podge of trading ideas. Well, it truthfully is. There is a lot going on and I owe it to our fund to not leave anything on the table.

When markets move we have to trade them. That's what we do.

Cheers,
/Dmitry

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