Active Positions & New Trade Entries…

Today Joe sent me a note about whether or not any of our “active” trades may be at good entry points, after acknowleging that this is not a good time to be entering trades.

At first I thought, well Joe, you just answered your own question…  ;-)

However, it brought up a good issue that we haven’t touched on much which is a very important part of any professional trader’s strategy in markets like these.

Whenever we have ongoing LONG TERM Long positions, that we want to continue holding, that we must continue to hedge on a monthly basis due a crappy market like this one, or, if the stock is in a funk…

At some point, unless the story or fundamentals that caused us to enter the position originally change, the stock will turn around and head in the right direction.  That is why we have held several of our LT Long Positions in the face of this really crappy market.

We have continued to hedge our positions and have been very successful in reducing our risk in most of our positions through this hedging strategy to the point that many of our LT Long Positions have very little or, in a few cases, “no” risk at all.

That is one of the key reasons that we like to keep these LT positions and continue generating ST Income from them while we wait for the expected action to occur.  I believe you will witness, in several of our LT holdings, that when this market eventually does turn the corner, we will be sitting on some potential monster winners over the next year or more.

Obviously, most recently we made a decision to pare back the size of most of our positions due to the fact that we were experiencing a phenomena that all of you should learn to recognize, and one which we pointed out at the time we posted our decision to take these actions…

Whenever you feel that you are having to make too many adjustments, or are feeling like you need to evaluate your positions on a daily, or regular, basis…  That is a signal that you have too many positions, or that your positions are too large or complex… and it is time to take a step back, evaluate each position and reduce your management time.  That may result in reducing position sizes, simplifying the positions, or in some cases, exiting some positions all together.

We decided to take all of those actions over the course of the last two months, leaving us very comfortable with our remaining positions, their structures and their size.  The two exceptions are our overweight positions in RMBS and USNA, which we are now spending the majority of our time managing.  As we noted last week, we may also reduce the USNA position at SEP expiration if the stock doesn’t start heading back down as we believe it should, based on the story and the condition of USNA’s business.

Now…  That doesn’t really get the heart of Joe’s question… Are there any of our active positions that may be at or near good entry points…?  The short answer is YES, several of our active positions may be near good entry points, however, because of our very low risk in most of our positions now, we are less inclined to begin adding to them just yet.

But we will begin looking at them as “new” entries and post our thoughts about some that we think may be ready to rock & roll.

Thanks for raising that excellent question Joe.  If any of the above isn’t resonating with anyone, please send your questions along or post a comment.

Coach BD 

Cramer is actually doing a show on something really important and one of our primary goals with The Trade Coach Investing and Trading Educational Service.

How NOT to lose money and playing defense.  The first thing all professionals evaluate first.

Coach BD

continue reading "Alert - Cramer"

Things are looking pretty ugly…

Today was the biggest volume day since 3/20, and that was an UP day.  The DOW is now within ~100 points of the MAR low, and ~200 points of the JAN low.  The NAZ is still holding up pretty well considering the action in the larger market.

It wouldn’t surprise us if we were to get a bit of a rebound rally next week.  We ended the week by tightening our hedges Selling closer to the money Calls, and by purchasing more downside protection with additional Put and/or Put Spreads.

We will update the Position Grids over the weekend and are now going to start concentrating on evaluating oversold, solid, dividend paying stocks that may be getting hammered in this current environment.  This is exactly the time that we look to add to our Long Stock holdings…  That is, when everything regardless of performance is selling off.

Everyone have a great weekend.  I will be working a bit this weekend so if anyone would like to chat or has questions please give me a call or drop me a note.

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We are also near the end of our patience with our current Membership engine and their inability to fix the login issue with our Members, though they have assured us that it will be fixed very soon.  Until it is, we will continue publishing all of our posts to the Public area for all to view.

Coach BD   

Friday’s sell-off wasn’t all bad news.  Mostly bad, but not all.  On the positive side, the range contraction that has marked this mini-reversal off of January’s lows is still intact, with a pattern of higher lows and lower highs.  That could change on Monday of course, but for now, the consolidation continues. 

Now for the bad news.  First, Friday’s volume was higher though still only average.  Bad economic news continues.  Regional business activity is weaker than it has been in 6 years.  AIG reported the largest loss in company history.  Warren Buffet warned that the insurance business could get tougher.

Oh, and oil passed $103 a barrel…  Yikes!

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From the perspective of our portfolio performance, we are in pretty good shape, up ~5% over the first 2 months of 2008.  The major factors of our success in this tough market are…

• Our basket of Canadian Energy Trusts has performed very well, up nearly 25% from their DEC & JAN lows.  And those 1-1.5% monthly (10-15% annually) distributions don’t hurt at all.
• Our core overweight short position in USNA is finally beginning to show some real strength.
• Our VIX portfolio hedge has also performed very well, up ~40% in 2008, largely due to our timely premium sales during the big spikes in volatility in JAN (2) and early FEB (1).
• The balance of our Long Portfolio has weathered this market storm pretty well as we have maintained tight hedges on all of our Long positions and have taken advantage of this see-saw market to successfully collect (SELL) ST premium against most of our LT positions, thereby minimizing the damage from the current market weakness.
• ST Trades will be discussed in a separate post as they have had little impact on the overall performance of our portfolio.

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We will continue our ST strategy of tight hedges and collecting ST profits from hedge sales and other premium sales (covered calls) as long as the market allows. 

From the perspective of a trader who has several significant long positions, a volatile market moving sideways is an excellent opportunity for ST income generation.  These ST income techniques are one of our core strategies for income generation.

The Trade Coach believes all traders should seek to add one or more of these strategies to their trading and investment arsenal in order to enhance returns and protect LT positions, which ultimately results in reduced risk…  One of our primary goals.

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Finally, we are starting to look seriously at a few metals plays, most specifically Gold.  With the prospect of a prolonged economic downturn and continued market weakness, a few of the Gold stocks are beginning to look attractive.  AUY & GG are two that may offer good risk/reward profiles.  We will update our evaluation early next week.  

Coach BD