Wednesday, May 17, 2006

Shadow of Death

Scary, crazy, painful, but not-quite-jump-out-of-the-window (yet) action. Enough said. Two points I'd like to make this afternoon:
  1. No matter how bad the news is (I don't know how bad it actually is as I rarely read it) or how bad the catalyst is for a move of this magnitude, the market always overreacts. So, technically, we are going to reverse and the revesal will be significant. This is what we are betting on right now. Now, whether the reversal will be lasting is a completely different question and as a trader I don't care to answer it.
  2. The Dow and the SPX finally sold off after the Nasdaq made its headspinning slide - a tell that everthying is getting thrown out for sale. It's a good, bottom-forming fact. However, it's tough to time it correctly - just know that when "beta goes out of the window" it's a "crash" scenario and as we all know (or at least should), crashes are good. No, make that great.
At Cadence we're continuing to leg into this slide. In fact our prop long model tells us to buy new lows at this level agressively. So, we're sqeezing the trigger at NDX June calls, Homebuilders (RYL, LEN and others), Financials and a host of others. Anything quality will bounce hard and you want to be averaged close to the money when it does.

Homebuilding sector may be a bit of a misnomer when I say "quality". The play here is pure sentiment - so much bad news at once when the sector is so low without ay retracements is a dead giveaway (there is more to this, but even what I said is enough). So, there it is on the table -we're long a massive call position on the sector and we're getting longer. This is not a recommendation so do what you like with this tidbit. I am just putting our money where my mouth is (or is it the opposite?)

I should comment on Oil and Gold and will do in due time. Ammo for the next post. :)

Parting thought - no matter how bad this looks, please recognize that this is a huge opportunity. Let the fear not veil your logic. Something like - "... though I walk through the valley of the shadow of death ..." - basically, stick to your guns and shoot to kill.



At 4:36 PM, Anonymous Petar said...

All right, Dmitry, that's the spirit! It's not the end of the world, no matter what the press says... Cheers!

At 1:19 PM, Blogger Dmitry said...

Well, it's mostly probability. Spirit just helps us stay with the trade.

Never the opposite! :)


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