Citigroup Bailout Spawns Monday Dow Rally

Well, it wasn't the announcement I expected (thinking it would be the GM bailout), but its resulted outcome is similar to what I expected. The government announced that they would back up Citi's assets which was a sight for sore eyes for financials. Financials took one of the nastiest beatings of history last week as we saw several banks heading below the $5 stock range.

The announcement caused, once again, another one of these aggressive, emotional rallies which sent prices flying. Goldman, Morgan and Citi were all up over 30%, while UYG was also up close to 30%. This drive in financials brought the rest of the market up while people began to see some optimism in trading. Talks of what I like to call "The Obama Bush" stimulated some confidence, as people feel they are united in providing another band aid, I mean bailout before the end of the year. However, I still believe we are no where near the bottom.

Sometimes I find days like this comparable to an acid trip or some other form of distorted reality. Off of speculative news, people are able to forget all the problems and failures going on across the country (and world) and believe we are all well again. This is why you should not mix emotion with investing.

All the shorts took a beating today, which means one thing for me. They're almost ready to be bought again. SRS and SKF took massive beatings, which made me grateful for getting out of my SRS position on Thursday. FXP was also down with the mix, but held its own far better than most of the others. EEV took a hard beating, due to the strong week opener in Europe yesterday. I did pick up some more EEV at $80. Even if it continues to go down in the short term, I think this is a steal for this fund. Even though the shorts have been beaten hard, it only takes 2 to 3 days for them to bounce back. I probably should have sold more on Thursday just to get the gains and re-lower my basis, but hey, you can't always get it right.

On the bright side, my long options went off once again today. I made 30-40% in every single one of my long options. GDX remained resilient as did DIG. Also, I finally got the love I was looking for from UYG. See, in one day you can see your options soar. Having these options actually kept me in the green today, despite FXP being down. This is exactly why I hedge with them.

I was very close to pulling the trigger with some of my long options and selling off some of my profits. I just don't think this rally will last for very long. However, these options are what is keeping me in the green right now, so I would rather take the loss on a down day tomorrow, than risk not being hedged for another rally. I may regret it tomorrow, but I still think this bailout hasn't completely fizzled yet. People believe just because Citi gets bailed out, all of the other banks are saved. That's impossible. All it will take is another big bank going under to tank financials again.

We do have a lot of forces pointing to a down day tomorrow. We have the consumer confidence report, which could shake things up a bit. Coupled with that, we could also see some healthy profit taking from the last two days of gains. We saw some sell off hit towards the last few minutes of trading today and on into after hours. If so, I will probably sell out of my UYG options (as that one worries me most) and maybe my DIG options. I plan on holding onto GDX(as well as my Apple), because I still think we have a ways to go with Gold. If we are indeed up another day, I will definitely sell out of my DIG and UYG options, while holding onto Apple and GDX.

The market is just getting more and more volatile, which makes me more and more nervous. It is amazing how quickly people's outlook changes. If you continue to look at the fundamentals and see what is to come in 2009, I don't know how you believe the worst is over. These short term bumps just set us up more and more for a crash. I may have to hang out with my inverse ETFs for a bit, but I remain VERY bullish on them. In fact, if I can see SRS get below $120, I will be back in that Rock Star.

China showed weakness yesterday, especially in their banks, which is why we saw less losses from FXP today. I believe there is a lot more of this to come. World markets should respond pretty well to our jump today, so EEV may struggle again tomorrow. However, keep an eye on these key economic data announcements that come out, because they can put a quick halt to this joyride we're on. I feel very happy about today, considering I have now made a very healthy profit on my call options and hopefully get deeper into some shorts for the downfall. I hope everyone had a good weekend. I will see you tomorrow.

5 comments:

  1. kevin Says:

    Awesome article.
    Thanks for posting.

  2. C Says:

    Acid trip? You betcha! This is one crazy market. I'm shocked that Prudential is up when Moody's reported a NEGATIVE outlook on Friday.

    I'm still confident that my put options on some of the big insurers will pay off for December. Capital One is another one that is way up, despite the company's exposure to growing amounts of consumer credit card debt.

    Thanks for the insight. It's nice to find people out there that are willing to share solid strategy for profiting in this market.

    Happy trading $$$

  3. Loc Says:

    This blog has provided a great entry point into day trading for me. Thanks CMS, it has definitely been insightful.

    Keep up the great work, ;) I'll click on those ads to support.

  4. Finance Fanatic Says:

    Appreciate the comments, thank you. China is struggling again today. Their hype is slowly dying. Should be good for FXP for the next sell of the DOW gets.

  5. Penny Stock Investing Says:

    I cannot believe that something like this can happen in the united states of america. We now live in a nation where the type of type of financial shenanigans occuring on a daily basis would only be thought of as happening in third world countries maybe south america. But now their happening here. I don"t believe that we are seeing so much of a big increase in the financial shenanigans today but less enforcment of violations of securities laws by the SEC. I can remember back in the nineteen eighities when almost two thirds of all the savings and loans were taken over by the FDIC the arm of the federal government that is suppose to regulate banks and other financial institutions. Their were thousands of persons charged with all sorts of crimes during and after the savings and loan debacle. I cannot believe that not anyone on wall street has been charged with any sort of crime whatsoever after the financial crisis of two thousand eight and two thousand nine that almost brought down the whole financial system. As far as Citi bank goes these mega banks should be broken up.