optionman's Account Talk

[optionman]

Weekly Update

Downward momentum picked up last week in the SPX as expected. My signals and analysis suggest it will most likely end with a capitulation bottom soon. This sell off has been way too orderly. No panic yet, but that’s not likely to last.

What will the catalyst be? There’s no way to tell, but I can think of two things that may serve as a catalyst:

1) A major source of oil supply gets disrupted (could actually happen this weekend or early next week causing oil to spike up and a capitulation as early as Monday)

2) We get more bad news from the financial sector suggesting more banks are in trouble.

How low will the SPX go? Again there’s no way to tell, but looking at the monthly charts I see support areas at 1250, 1200 then 1150.

SPX is extremely oversold to the point one would think a rally may ensue and that is a possibility, but keep in mind that many times momentum driven lows or capitulation bottoms begin at oversold levels.

Continue to watch for a high volume strong down day or couple of days accompanied by a spike in the $VIX.

The trend in AGG representing the bond fund is down as well. It appears to be firming, but there’s a potential for a pull back so before hopping aboard I would want to see a little backing and filling while support in the $99-$99.50 area holds.

I remain 100% G fund.

Trade Well!

optionman

“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.”

Ed Seykota

 

[Warrenlm]

A Question--we think of capitulation bottoms as setting the foundation for a long term resumption of growth. However, in this case, given the reduced earnings projections and lack of positive signals, could the bottom you see coming be only a stop on the way further down?

 

[optionman]

A Question--we think of capitulation bottoms as setting the foundation for a long term resumption of growth. However, in this case, given the reduced earnings projections and lack of positive signals, could the bottom you see coming be only a stop on the way further down?

Warrenlm

In my opinion we are in a bear market and will probably see lower lows sooner than later. The recent drop in the SPX has been too orderly and we will likely see a capitulation. Once the SPX capitulates it may form a short term bottom or begin moving up immediately. IMO it will do the latter, but I also believe it will only rally to a significant resistance level before stalling and reversing. So the bottom line is we probably capitulate, rally, then roll over and begin the next leg down.

This is obviously just my opinion and certain things could happen that could cause the rally to stay on track.

As an example lets say that the price of oil is 1/3 supply/demand, 1/3 US Dollar related and 1/3 speculator trading. If the CFTC finds some way to place restrictions on or somehow regulate oil futures trading it will have an impact, then if the dollar begins firming it would help also. This would begin letting the air out of the balloon and be seen as a positive and the market could continue to rally. Financials are still a big part and would need to begin firming also so there is quite a bit to overcome and I’m just not all that optimistic that it will happen soon but I will be watching to see how it plays out.

Trade Well!

optionman

 

[optionman]

IFT

Moving to 100% F fund today.

Trade Well!

optionman

 

[Warrenlm]

In my opinion we are in a bear market and will probably see lower lows sooner than later. The recent drop in the SPX has been too orderly and we will likely see a capitulation. Once the SPX capitulates it may form a short term bottom or begin moving up immediately. IMO it will do the latter, but I also believe it will only rally to a significant resistance level before stalling and reversing. So the bottom line is we probably capitulate, rally, then roll over and begin the next leg down.

Thanks. I didn't understand that there can be multiple "capitulation" points down preceding a return to a bull. Hearing some dire predictions elsewhere makes a buy and holder consider trying to "time" by selling and buying back in.

 

[mojo]

Following you to F. Thanks optionman.

 

[optionman]

IFT

Moving to 60% I and 40% S

Trade Well!

optionman

 

[mojo]

I'm following, thanks.

 

[optionman]

Position Update

I remain bearish in this market environment, but the SPX is oversold to the point it will likely experience a snap-back rally back up to its short term (20 day) ma at which point I may move back to the G or F fund.

Pessimism is so thick out there you could cut it with a knife making the argument for a rally even stronger. The VIX hasn’t spiked to the 30 level we would like to see and that probably will happen, but I expect it will be after a rally so I’m willing to take a bit of a risk here with the markets so oversold.

The biggest driver in the market these days is obviously oil. Oil by any measure is overbought and could begin a descent any day, but it could move higher too. It has been overbought for a while now but has continued its relentless march higher. If it does roll over it has the potential to keep a rally in stocks on track. If however it spikes and/or we get some bad news out of the financial sector it could get ugly.

Bottom Line: I expect a rally in the SPX to the 20 day ma, at which point I will likely make a move back into the G fund or possibly the F fund depending on how it looks at that point.

TSP: 60% I 40% S
Stop: SPX close below 1249, short term target 1315-1320

LT:Long SSO on 3 July @ $60.19
Stop: Contingent on an SPX last below 1249

Swing:Long SSO on 3 July @ $60.19
Target: 1280—if SPX blasts through this resistance point I may hold for a move up to 1315-1320
Stop: Contingent on an SPX last below 1249

YTD Results:

TSP: + 8.24%
LT: --
Swing: --

Note: YTD results for LT and Swing trades will start with these first trades posted on this MB.

Disclosure: I’m trading the swing trades I post on this MB, but not the long term trades. The LT trades are what I would be trading if I were trading in an IRA outside my TSP.

Trade Well!

optionman

 

[optionman]

Position Update/IFT

I got stopped out of my swing and LT trades yesterday. The SPX is now even further below its short term moving averages and with oil pulling back we may still see a short term rally, but I don’t believe it will have any staying power.

Futures are deep in the red as of this posting and we could see the capitulation we’ve been talking about today. We still have several hours before the open so they could certainly back off. If they remain deep in the red I will stay with my current TSP position, but if they flatten out somewhat I plan to move to 100% F. If I do an IFT I’ll post it near the open.

IMO banks/brokerages and financials are in more trouble than they are letting on and as this comes to light it will hamper the markets ability to sustain a rally. Oil pulling back may provide a bit of a bounce, but when financials begin letting the cat out of the bag look out.


TSP Position/Allocation: 60% I 40% S
May move to 100% F today depending on futures at the open

Trading Account: No position--Stopped out of LT and Swing 7 July for $58.22 (combined to trading account below)

YTD Performance:

TSP: +7.16%
Trading Account: -3.27

Trade Well!

om

 

[optionman]

IFT

To 100% F fund.

Trade Well!

om

 

[optionman]

Position Update

I moved to 100% F fund yesterday and although the AGG chart is not very impressive my signal system has it on a buy. Additionally, looking at the weeks leading up to the January and March lows AGG spiked up as the market capitulated and sold off.

I have no faith the SPX’s attempt to rally here. To the contrary I’m looking for a shorting opportunity. I’d like to see it move up to its short term moving averages so I can put on a short trade, but my signals and analysis support a market meltdown any day now so I’m not convinced it will make it there. We’ve been witnessing a “slow burn” type of downward which could continue but my analysis suggests we will soon see a panic driven sell off.

Bottom Line: If the SPX moves up to its short term ma I will likely put on a short trade, if it begins to melt down I’ll wait until a panic driven sell off then enter a long trade at the extreme lows trying to catch a short term snap back rally.

TSP Position/Allocation: 100% F fund

Trading Account: No position, waiting for a short entry.

YTD Performance:

TSP: +8.91%
Trading Account: -3.27

Trade Well!

om

 

[mojo]

Thanks, I had to go to G no more trades this month. GL

 

[optionman]

Capitulation?

Capitulation? with volume at 6.3B on the SPX and it hitting a low of 1200 and a spike in the VIX, probably so. Have we seen a bottom in this bear market? probably not.

IMO the only way a rally will last is if oil continues to pullback, but even then financials are in much worse shape than most would like to believe and we will soon see more fallout from them so even if oil begins to pullback supporting a rally, financials will likely upset it and the bear market will continue to make new lows.

The bigger question is will we rally from here, if oil continues to hover around 140 a barrel it's unlikely and things could get ugly. However, if it does begin pulling back we may get at least a releif rally.

I remain 100% F fund.

Trade Well!

om

 

[luv2read]

Notice oil pulling back and financials are being bought...no coincidence here. Shoring up their stock to dump it. The crash is yet to come.

 

[Corepuncher]

I guess I just don't understand why everyone wants to go into the F fund. The chart is HORRIBLE...and there is inflation. Look at it today...down 0.66%. Why not G with a guaranteed gain every day? F has some real downside potential, IMO. Not until the AGG breaks 101.5 would i buy into F. Just my opinion.

 

[Guest2]

I guess I just don't understand why everyone wants to go into the F fund. The chart is HORRIBLE...and there is inflation. Look at it today...down 0.66%. Why not G with a guaranteed gain every day? F has some real downside potential, IMO. Not until the AGG breaks 101.5 would i buy into F. Just my opinion.

For me, its a desperate attempt to catch the escape to quality move.
Or, maybe because there is potential for minor gains instead of tremedous
loses. Or maybe greed tells me to take the (F) 2 pennies instead of the (G) 1/4 penny.

In all honesty, the chart IS aweful and any stay in the (F) is Temp for me.

 

[Silverbird]

Mostly because I'm sick of being in GGG space GGG space (boring typing exercise). SSS space looks like Ssssinking, CCC like Ccccatastrophie, and if you understand how they are calculating III I don't. :toung:

 

[Guest2]

Mostly because I'm sick of being in GGG space GGG space (boring typing exercise). SSS space looks like Ssssinking, CCC like Ccccatastrophie, and if you understand how they are calculating III I don't. :toung:

Even the FFF is boring and I don't have a clue about III calculations. If
you find anyone who doesn't use Mystery Money to explain it, please let
me know. I'm all about learning.

Over the last two months, many of us are happy with safe harbour.
There's a place for all things, don'tcha think ! Even the FFF !

 

[optionman]

Signal Update for 18 July 08

My stock fund signal moved to a buy and bond fund signal to a sell as of the close yesterday. Unfortunately, I used one of my IFTs earlier this month trying to catch a bounce when the SPX was extremely oversold and the second moving from that position to the bond fund so I’ll be moving to 100% G fund today.

Taking positions at oversold or overbought market extremes and against my signal system has not worked out so in the future I’ll trade only in the direction of my signal even if the market is at extremes. Having said that, if I had an IFT available I would not enter today, I would wait for a pullback and want to see my signal remain in effect during the pullback. This generally happens at some point between 1-10 days after a signal is generated. I’ll post the entry point that I would take once we get it for those monitoring this thread.

Although I will not trade against my signal, I still don’t believe we are out of the woods just yet. Some of the raw data I review as a part of my system does not support a prolonged rally. The SPX closed right on resistance at 1260 and has a stronger resistance point at 1275/80. If it can breach the 1280 resistance it may launch into a nice summer rally, but there is a lot of negative data to overcome.

Trade Well!

om