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Tuesday, September 30, 2008

Maybe I mark the bottom

With all the recent market chaos, small caps have been completely out of favor. In fact, being long anything for more than an hour has been out of favor. The rules changed drastically from the first half of 2008 where I scored on some huge small cap wins (see top and bottom of right hand corner of blog for results). The second half of 2008 brought on an accelerated financial crisis as we now know all too well. Had to clear out the small caps and protect profits (TAYD NTIC VIFL and the rest) and in some cases get stopped out of the rest. TAYD and NTIC were 50-100% gainers, retraced and then had decent pops off lows. I was able to profit several times. VIFL was a stop out as the market tanked shortly after that buy. When the market psychology changes as drastic as it did, I cant hold on to mindsets that worked in times that were much more bullish.

That being said, I have had great success shorting financial stocks before the ban. It did not always feel right having successful trades while the entire financial system was breaking down. However, super-trades alerted 2 blog posts with nice short winners MER short call at $27 hit $17 within a week and LM short at $46 hit $40 within a week MER & LEH blog post. Also GGP was a super short from $21 to a low of $13's within days GGP blog post (most of the other mall REITS's from that blog post fell as well).

Then as you know, the SEC banned the short selling of approximately 800 financial stocks. The easy money shorting financials was taken away. Spreads on put options have been insane, making it more challenging to play the options, especially with the market down 300-400 one day and up the same the next. However, some REIT's and many homebuilders are not on the no-short list (yet). So when there is absolute horrific market news, I have been short scalping stocks like VNO, KIM, SPG (REITS), RYL, TOL , KBH (homebuilders). After the market has been crushed and it is obvious that a relief rally is in store, JPM, BAC, WFC, USB, (the super-banks) are usually steady long scalps.

The SEC is looking at making changes to FASB 157 (Mark to market rules), the FDIC is looking to raise the insurance on bank accounts, and we may see some form of bailout/rescue package. There are many schools of thought on what will happen with these moves. One thing I believe, is that these moves are the big 3 bullets (maybe the uptick rule would be a 4th for shock value).

Many of my trades lately have been fast scalps minutes or an hour at the most. I will continue to post blog ideas when I think there is some time for them to play out (Like the short calls on MER , LM , and GGP). Maybe the fact the I am mostly posting on short sells (when I am known for longs on small caps) will be the glaring sign that marks the bottom. That being said, capital preservation is key in these times and I wont make too big a trade on anything for long with this volatility.

1 comment:

neo? said...

hopefully you are right about the bottom. I stepped into the market an year ago, the worst time to probably start learning. I am down 20k now and no end in sight. I found all the good recommendations like yours and lion's a tad too late. oh well. Keep up the good work

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