Blood, I Want Blood!

I am not as blood thirsty as I sound (well, I do have Viking beginnings) but the 10 o'clock reversal isn't satisfying. Two things:

1. The fact that the market bounced so easily means more pain is in the cards.
2. It would be a lot better if it hadn't bounced at all. As I said yesterday, NDX-100 running right through 1640 would be phenomenal.

Maybe it can redeem itself by stopping this rally and dropping right through the magic level. One can hope. However, a significant rally from here, will be foreboding and my "catch the knife (no, make that a sword)" mantra will change on the dime.

Trade 'em!

Cheers,
/Dmitry

With Chaos Come Clarity. So, Don't Blow It.

So, the Nasdaq makes its second biggest downmove on the year and I immediately come across alarmist articles like this one (Next LTCM?) and this one spelling all kinds of horrors.

My analytical side looks at this and says, "that's why I don't read news". My cynical side (I like it more and more these days) says (with a big, toothy grin), "Damn, lovely!"

Regardless of the commodities explostion, oil debacle, Fed, debt crisis, phases of Moon and Venus and pagan gods of thunder, it is business as usual, folks. The charts are oversold, they are running at support levels at the speed of a freight train and as far as I can tell nothing has really changed in the world from yesterday. So, if you plan on selling once the support is broken you will achieve three things:

1. You will lose money. The more you sell, the more you lose. (I know, this is brilliant)
2. More importantly, you will lose confidence in your ability to play the game. The irony of "of course it came right back after I sold it - the damn thing is random!" will ring true and you'll reach for the proverbial towel.
3. You will blow the biggest opportunity of the year (this far) available in the U.S. equities market.
   

While you're busy hitting the evaporating bids (I honestly hope not), at Cadence Capital we'll do the following:

• We'll be buying (actually, already are) June NDX 1650 calls. We're long just a few now and plan to buy more lower. A break below 1640 (especially if it happens tomorrow) will be a massive buy signal. Every low will be bought aggressively.
• The housing sector is nearing buyable levels and we're beginning to accumulate RYL June 60 calls. LEN 50's will follow shortly.
• Oil stocks should be sold here and we'll do that via put purchases. None initiated yet but we'll sell upticks.
• Gold is done for now. Nonethelss, going short here is a tough call and as crazily aggressive as I am, I can't pull the trigger. However, we'll sell any new highs via long ATM puts.
• Semiconductors - be discriminate here as the sector isn't as unified as it used to be. We like MXIM and KLAC. I think MXIM is a huge trader and KLAC is right behind it. Long calls on both of them. LLTC, SLAB to follow.
• Japan and Russian markets had a nice sell-off from their tops. I like Japan more than Russia from risk-adjusted returns standpoint. However, if you have the nerve, buy Russia here and smooth it out with a portion of long Japan.
  

You'll find it funny that the above "to do" list comes from an almost net premium seller. I have to tell you, I've learned to like being long. There is something about making money at supra-normal rates of return. I found that I don't mind the (sometimes crazy) risk, the drawdowns and occasional fits of anxiety (ever felt nauseous after making money?). Hell, we're traders and it's a part of the game.

We take our lumps and deal with the pain. In the end it pays off. Big time.

Cheers,
/Dmitry

Not For the Weak

Far too busy to write a detailed post on what's going on, but in a sentence, this is an amazing opportunity. While I am not screaming "buy!", I think we are nearing a level where not buying will be both strategically and tactically the wrong thing to do.

Specifically, if NDX breaks 1640 in one fell swoop, a properly controlled cost averaging long NDX call strategy will make a lot of money.

Our fund is already leaning long on the index, but only a little - I think more downside is in the cards and this really isn't going to be easy. Regardless, the opportunity is here and the strong hands are going to make a kiling.

More on this later.

Cheers,
/Dmitry