Monday, January 3, 2011

Where do we go from here?

Welcome to 2011. Happy New Year to everyone. 

The Good
So I haven't had a lot of time to update and post to the blog lately with the holidays and life in general as I have twins on the way in May so life has been a little busy to say the least. To be honest the trades I've been doing aren't for the faint of heart and thus why I haven't been recommending them. I've continued to trade long the metals(SLV, GDX and other smaller miners) selling short calls along the way while I wait for the inevitable selloff that is sure to come as soon as every retail investor finishes throwing their money into the market in January. Everywhere I turn I hear gold and silver and pawn shops with the name in it. Do I believe we're at a top in the metals? Short term yes.....long term no.

The Bad
I have been very vocal in my skepticism of this market rally that we've been in for now WAAAAAY too long. As they say you can't fight the tape so you have to hold your nose and buy but I've been playing it conservatively and selling my upside with calls....which again won't make you rich but will help protect you when this crazy market corrects. The close in calls will increase while the far out calls will not move a lot. Ultimately I want the market to go down short term and I'll buy those calls back when it does. If it doesn't I'll roll them out to next month and wait on the correction. What you ask will cause the correction.....If I knew that I'd be rich and retired already but I can tell you it always happens when you're least expecting it.

Everything in the market is pointing to oversold, the talking heads on CNBC are overly bullish for 2011 and bullishness is rampant on the street. I personally think the straw that breaks the camels back will be the unraveling of commodities especially gold and silver. I am longterm bullish on the metals but they need to correct and really shake out the weak hands before we go up again and I think 2011 will be the year that no one makes any money in the metals relative to it's run over the last 7-8 years. Once this sell off starts other equities will follow as margin and risk is on currently and selling will beget selling.

The Ugly
As for the overall economy I think $3+ gasoline will start to hit peoples wallets and this will in fact slow down spending by the average consumer. Interest rates are on the rise thus choking off the up tick in the housing market that everyone was raving about this past week. Unemployment that went below 400k this past week will tick back up as no one files for unemployment during the holidays. China is raising rates and in fact if you look at their equity markets they are right in the middle for the worst performing markets for 2010 with the PIGS.

The Market
I took a quick look at the options activity on the S&P 500 and what I found is I do still believe we get to 1300 and I think we get there quickly....within a week or so.....but then I think we go nowhere. I don't think we'll get a huge sell off for more than begin with....then we go flat for a while before another leg down.

The market rarely gives you a chance to cash in your profits and hang out for the inevitable sell off like it's doing now. My advice take profits and or buy some puts and or sell some Jan/Feb calls against any long positions you have. If I'm right you'll thank me in a month, If I'm wrong you can buy them back as your underlying stock or options will continue to go up as well. This is no time to be play superman with your money.

Agree? Disagree? I'd love to hear your take.

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