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Bull Wins Today - End Of Week Rally Brings Dow Over 8000 Again
Posted On Friday, November 21, 2008 at at 2:38 PM by Finance FanaticThere we have it, The Bull wins today. It was a hard battle up until the last hour. With the help of Obama's cabinet picks, especially the new Secretary of Treasury (Timothy Geithner, the New York Governor), the market made a dash for green and far beyond. Once again we see the sensitivity of the market in action. The speculation of the new Secretary of Treasury ignites a 500 point rally? Really? These are the times we're in. Wow.
I discussed the probably of a strong short term rally, based on a new band aide fix that temporarily numbed our current pain. Which is why I keep my long options as a hedge. Even the guy's hamburger shop that's about to go out of business got a bump today with this rally. However, unfortunately, I remain a realist. Our volatility increased more today, as well as our volume. In my opinion, this just keeps pushing us closer to capitulation. The more this market sets up emotional traders to play in the market, the more vulnerable it is for a downfall. In a recession, people are far more inclined to sell during a down day, then to buy during an up day. This is why you usually see the down days hurt more and last longer. That is exactly what caused Black Tuesday.
The bad news. I know, I should have sold out of FXP yesterday, right? Although I did expect a strong rally today, I did not expect FXP to take this much of a beating. Still, no worries for me as I have said before, I plan on holding this time around for a couple of months. We just have to start over again, ugh! China is experiencing some serious Government intervention, which is causing people to think that it could still be a profitable place to invest money. I don't buy it one bit. We're talking about the country that lied to the world to get a gymnast into the Olympics. In my opinion, pretty soon we will see very bad days in China as more and more businesses are shut down and the poverty level increases. I remain VERY BULLISH on FXP, even more so on the low price.
I did not buy more of FXP, as I am already heavily into it. I did, however, pick up some more EEV shares. Not much, but enough to earn back some of the losses that happened today. So yes, my shorts got killed today, but let's not forget how great they were this whole week. 4 days for 1? I'll take it.
The good news, were my long options shot out of the park. My GDX options were up 133%! Gold has been waiting to launch, it just needed some market support. I continue to be bullish with GDX. With a rate cut approaching, I think gold will be in high demand. My DIG option was up 40%, and my other options were up about 20% combined. So even on a day where I should have gotten killed, my losses were severally less, because of these options I hedged with. This is exactly why I choose to buy them, even in this crappy economy. These bear market rallies can be fierce!
I chose not to sell any of my options today, despite the very large gains. There is still one variable that hangs and could potentially spawn another big rally like the one we saw today. That is the GM bailout. Expectations have been lowered, dealing with the possible bailout of the autos. If next week or over the weekend they were to announce a bailout plan for them, we would most likely have another rocket of a day. In case of that, I want to be hedged with my shorts on a day like that, where we could see a big potential for green. So I will hang on to them for a bit.
Fundamentally, nothing changed today that wasn't there yesterday. What did happen is that there was no news announced (which is a good thing for the market these days). Also, there was the new Secretary announced. This does not change our daily increasing jobless numbers, broken down banking system, failures of small business, and a holiday spending season that should be a record low. When you mix emotions with trading, it may feel like the worst is over on a day like today. However, when you look at the facts, it's easy to see that the worst is yet to come.
For next week, I will look to see how the market is established on Monday. We have some key announcements next week. The one I am especially eyeballing is Consumer Confidence on November 25th. Confidence has been thrown out the door this past month and should be devastating. Existing home sales should also be a doozy on Monday, so we could see this rally put to a quick halt with some of our REAL economic data. Thanks for all the comments and to those that have donated! It is much appreciated. I enjoy the comments as well. Have a good weekend and we'll see you Monday. Happy Trading.
Hey I was wondering about FXP, it seems that whenever the dow does well FXP suffers and when the dow suffers FXP shoots up. Is there any relation between them? Im just wondering I have been watching both stocks for a week now and thats is what i noticed. Thanks
read the previous post. thanks.
I posted a similar answer on the previous post. To sum it up, usually FXP would be more responsive on the Dow down days, however, recently China stocks have been strengthened with the stimulus package announced from the Government 2 weeks ago. With this, many different sectors have received an unearned bump in price due to speculation of allocation of that money. However, as we saw with the US, these bailout plans are not solutions, only a temporary hype. It's pretty clear that China will be hurting during this cycle.
Ouch! What a day.
Thanks for pointing out that you accept donations. Not sure how I missed the huge orange button.....
Anyway, would you mind providing some detail on your options trades? Is it correct to assume that you purchase far more options than you could ever afford to 'redeem' if you chose to, but you are just buying the options to sell later if market rises? If so what is the advantage of this over just buying the actual stock?
And one last-where do you go to track the price of options and get details about each?
I kept my FXP too, but I regret it now. There is a time to take profits, especially that this rally was almost a certainty. I caught a 30 minute interview with a Chinese economist today on the radio, and I am having some doubts now about FXP now. I am certain we will see FXP at $100 in the coming weeks, but I don't think it will be a viable stock in the mid term. Economically, China is very strong. This guy was saying how G20 is pressuring both China and India to get more involved in the world economy. Especially China, because of their massive savings and liquidity. They can practically just use their savings for the next decade if they wanted to. There was a lot more, but I was surprised at how much government is involved and in control of the situation. One thing he said that sent shivers down my spine in regards to FXP was that they are considering to make up for the deficit that the global market is imposing on them but increasing their own consumption. Apparently 1% increase in consumption will be enough to offset the worst case scenario....
My gold stocks finally went into the green today!! This is just the beginning. I think it was actually gold that pushed up the market today, and not the other way around. But who cares!!! We're getting rich!
Bruce
I mostly use my Schwab interface to track options. I will usually watch the one I am interested in for a month to see what the moving trends are. Then I will buy at the bottom. I rarely buy the option with intention to assume the shares. My goal is always to sell it again before it expires. The reason why I choose options for my longs is that it minimizes my downside risk significantly. Also, they move with far more volatility than the actual stock, because of the leverage. Since I am only looking to be in these options for 1 or 2 days of a rally, I want to use the more volatile option.
For instance, my GDX option was up 130% just today, while GDX itself was only up 23%. It's riskier, but pays off if you time it right.
Monsieur,
News like that is why China has been given undue credit. Sure, as a country they have a lot more cash on hand, but their economy is really struggling and their communists. The government can pump as much into their businesses as they want, but who will buy their products? My partner is from China and says it is much different there right now then what is perceived on tv. Businesses are shutting down left and right and the people are getting more poverty stricken. Soon we may see food riots and other clues that China isn't as good off as we thought. It may take some time for everyone to realize it, but I dont mind sitting on it for a couple of months. There is just as much bad news for them as there is good, their government just controls it better. I still love FXP!
I just read an article that was along these lines:
http://seekingalpha.com/article/107329-china-the-one-global-market-with-gains-behind-the-gloom
The article was so-so and painted a very rosy picture, but I found the comments after the article very interesting- particularly the first two. One comment points out that China has claimed 9% growth for the last umpteen qtrs. I'm no economist, but this seems very suspicious to me as well.
As FF pointed out, this is a Communist regime and as such the information coming out should be viewed with skepticism. In addition to some of the Olympic shenanigans (14 year old gymnasts, fake fireworks), China State Television recently announced the successful launch of their manned spacecraft- two days before liftoff- complete with dialog. While the launch later turned out to be successful, the fact that they have the organizations and people in place for generating news independent of reality should gives me reason to question much of what comes from their official news channels.
http://www.space.com/missionlaunches/080925-false-launch-report.html
I couldn't agree with you more Bruce. Thanks, great post.
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