OptionPundit

Tag: stock market

  • Consumer Confidence, Home Prices and Markets

    Prices of U.S. single-family homes fell 18.7 percent in March from a year earlier, while prices in the first quarter dropped at a record pace, according to the Standard & Poor’s/Case-Shiller Home Price Indices released on Tuesday.

    The Conference Board Consumer Confidence Index™, which had improved considerably in April, posted another large gain in May. The Index now stands at 54.9 (1985=100), up from 40.8 in April. The Present Situation Index increased to 28.9 from 25.5 last month. The Expectations Index rose to 72.3 from 51.0 in April.

    The  stock market focused on the positive one. Markets are rallying and as of this writing DOW is up nearly 150 points (+1.7%).  An excellent move. We’ll see what market closure brings.

    If you recall, sometime back I mentioned that “O-Benti” trio might be winning the war, at least for short term. Consumer confidence, at least in my opinion, is pretty much the reaction on the stock markets. If you see the stock markets moving nicely up, consumer confidence jumps-up. The “Hope” or “Green Shoots” campaign is working as well.  I have shared my bearish bias earlier and I am still on that path (yes while protecting upsides as well).

    The world economy suffered the steepest decline in the 1st quarter. World trade volume during the first quarter of 2009 fell 11.3 percent below the fourth quarter of 2008, according to an independent research institute.

    CPB Netherlands Bureau for Economic Policy Analysis said the decline amounted to an annualized drop of 38 percent, the steepest fall since the institute began to track data in 1991. Leading the downturn was Japan, whose imports dropped by 16.6 percent, and exports by 28.2 percent during the quarter.

    Germany -14.4%, Mexico -21.5% and many more. Guess what, most of the export oriented economies are not in good shape as the biggest consumer is not importing much. According to Briefing, U.S. real (price adjusted) exports over the past nine months have declined from $95billions in Jul to 72.8 in Mar (monthly) and Imports (x-energy) declined from $125billions to $96billions (monthly).  Since July, U.S. exports have declined 23.4%, a 35.1% annual rate. Non-petroleum imports have declined a similar 23.0%, or a 34.5% annual rate. Green Shoots!

    Over a decade I have learned not to fight with markets. Mr market can remain irrational longer than I can remain solvent so I just go with the trend while preparing for a worst case scenario.  Bottom line, I am in bear camps but I have due respects for the bulls. I don’t want to wrestle with fierce bull either and hence protected OPN portfolios for further upside till markets clear current resistance levels.

    Have fun, be careful, be profitable, OP

  • Don’t Be Impressed with Yourself

    While reading “Better Than Good” by Zig Ziglar, I came across this quote “Don’t be impressed with yourself”. I thought those were quite meaningful words of wisdom, particularly for those who deal with stock markets. It’s very easy to be “impressed with ourselves” when we have a winning streak, just to realize profits being taken away by Mr Market in a jiffy. This is not to say that we ignore “past performance” but rather “Don’t be complacent” and that one should “Treat every move by Mr Market as a new move”.

    The author refers to “Don’t be impressed with yourself”  with regards to not let the success rule your head. Be humble and yourself. While it is easier said than done, there is lot of truth in it. When we start to let success rule our head, it’s the success that drives our future actions and not the earlier traits which drove success. And stocks market is such a interesting place that has humbled many, time and again. No one, no matter how successful, is really spared who hasn’t been shown “door” by Mr Market over the last century and of course, even as recent as last year.

    So, it requires one to be level headed, learn to deal with uncertainty and be prepared to be “humbled”. Expecting for best but preparing for worst, even if you are impressed with yourself. Treat every single move of Mr Market as a “new move”, and therefore don’t have an impressions that past performance will drive future performance. I mentioned this earlier (not my words) “Charts don’t shape the markets, the markets shape the charts” else every stock chartist would have been billionaire romancing on the moon every weekend.

    Here is an interesting peice from John Hussman on uncertainty-

    In his book On Being Certain, neurologist Robert A. Burton quotes F. Scott Fitzgerald – “The test of a first rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.” Buddhist teacher Pema Chodron calls it “being comfortable with uncertainty” – being willing to take every aspect of reality as the starting point, without wasting energy wishing things were different, without denying reality as it is (even if your next step is to work toward changing things), and without needing to know what will happen in the future. “The truth you believe and cling to makes you unavailable to hear anything new. The best thing we can do for ourselves is to be open to an unknown future.”

    Burton offers the same advice. Tolerating the unpleasantness of uncertainty, he writes, “is the only practical alternative to cognitive dissonance, where one set of values overrides otherwise convincing contrary evidence. Each position has its own risks and rewards; both need to be considered and balanced within the overarching mandate: Above all, do no harm. Science has given us the language and tools of probabilities. We have methods for analyzing and ranking opinion according to their likelihood of correctness. That is enough. We do not need and cannot afford the catastrophes born out of a belief in certainty.”

    That’s what precisely I am inferring from “Don’t be impressed with yourself”. If we are impressed with our results, we are probably impressed with our strategies, past performance and tools we used which might not be applicable in the new world that is about to appear. If however, strategies are driven to deal with uncertainty without being pumped up by “past performance”, there is good chance that one is well grounded.

    Markets have gone-up, and have gone-up very nicely. I feel as if I missed the rally. It’s an irritating thought in the “present moment”, but when it is thought in retrospect, it probably was a good decision under a set of circumstances which I considered that time and still consider as bearish. Dealing with uncertainty was what kept us grounded at  OPNewsletter and thus allowing us to generate over 8% returns (last week’s closing) in spite of being bearish. But again, that is “past” as of “this moment”.

    Have fun and profitable trading, trade cautiously,

    OP

  • OPNewsletter : Oct’08 (+9%)

    What a tubulent week! For the week ending Oct 17, here is the market tally. Dow closed at +4.7%, S&P500 almost similar +4.7%, NDX: +3.3%, Nasdaq (COMPQ) +3.6% and Russell 2000 almost flat at +0.75%.

    For OPNewsletter, it was rather an unusual month. We opened one mini-portfolio consisting of options in Russell 2000, that was officially closed for +9% gains including commissions. Thereafter sensing market collapse I stayed away from investing for OPNewsletter we were in cash throughout the past 4weeks. Cash surely outperformed the market during which Dow lost almost 3,000 points. The results doesn’t include my trade alerts for speculative trades (mostly bearish). Well in this bearish market there was a bullish call too :

    Watch out for bullish BTU, but only if it crosses > $30.25, you may choose either Bull Put Spread, or straight call (but straight call lose due to IV loss) or any other way…you may choose covered call as well…keep very tight stop loss, kinda $28 or so..

    Also Since Sept 29th, we have already started preparing for the upcopming bull market (not investing yet, it’s only preparation to find quality stocks). On Monday, I also shared a list of 80 stocks that are making to my value screen and some of those are now below my price targets. In fact I shared one value stock that is hammered so badly in the past few weeks that it’s share prices is almost half of it’s book value. It’s levered but leverage ratio is still below the S&P500 (these are only one of few valuation indicators). I shared how I played it so that my effective cost was almost 15% lower than market price.

    I also published a special report (for OPN members only) sharing my view of what to expect and what to do about the broader conditions in the market. No, this doesn’t have a stock idea but it deals with the market psychology.

    I am in the process of selecting portfolio and trades for Nov’08. You may want to sign-up for OPNewsletter as to benefit from the a) fresh portfolios, b) my special/directional picks, c) my list of potential value stocks, d) general almost daily market comments and e) member’s sharing on the forum.

    Stay cautious, Stay profitable, OP