Welcome to November…

Usually the beginning of the Santa Clause rally.  We would actually like to see a low volume pull-back over this week without a close significantly below the 20-Day MA as a good test of the potential for more gains and a run at more resistance above.

Stay tuned, there may be good entry points in the near future.  We posted RMBS alternatives over the weekend and that is one of our primary trade interests right now due to the huge potential upside as these lawsuits begin resolving the uncertainty about how much royalties they will begin receiving.

Look at RMBS first.  We will begin posting more possible reversal candidates as they emerge.

Coach BD

Well…  OK…

That was a very positive up day.  And after 3 high volume reversal days on 10/10, 16 & 23 this could be the day that begins a strong upward move.  Too early to tell for sure but a day like this ending at the highs on higher volume than recent down (bearish) days is a good sign.

Of course there is still significant resistance levels laying in wait above these levels from all of the short and long term trends, which are still all headed down.  The first is the 20-Day MA…  Let’s see how the averages react as they approach and test this level for signs of conviction in today’s buying.

Remember, all of the recent rallies have been met with heavy selling up against resistance, so the 20-Day will be the first test.  The DOW is very close to its 20-Day, with the NAZ & S&P a bit further away with more work to do. 

Maybe “Sell the Rally” sentiment is waining.  The technical picture looks more positive than it has in a very long time so we may nearing a point of upward opportunity.

Time to get focused back in on the action.  As you have read, we have been sitting mostly on the sidelines, keeping most of positions at or near neutral.  The action over the balance of the week may change our bias if we get some good confirmation action on high volume.

Stay tuned… it may be time to put some capital to work.

Coach BD 

We began the day selling some of our near fully valued hedges with the markets down 8 of the last 9 sessions.

Taking nearly full profits on many of these LT positions we determined to be the prudent move given that the market has possibly set up for a capitulation bottom, perhaps even tomorrow.  After the strong sell-off at the end of the day today, the ideal situation would be to see a strong sell-off in the morning and down significantly before reversing strongly at midday and through the close.

With the VIX closing at an all-time high, we are set up for a possible spike up once again, followed by a strong reversal.  At least this is the type of scenario that could create a strong capitulation bottom.  All of the elements are there…  A HUGE spike in the VIX… accompanied by big volume selling into the close today.  Tech stocks remained fairly strong vs the other sectors and may lead any capitulation reversal.

No way to know for sure but this is certainly the type market action set up that we want to see as we near a strong capitulation bottom.

Obviously everything right now is a bit of a crap-shoot but it feels like we are nearing a significant market event as the tension builds… sort of like an earthquake, where the plates are at the inflection point and a big snap movement is imminent.

Coach BD    

Ouch…

The S&P made a new low for 2008, and all were down on bigger volume than any day since January.  All this talk about capitulation is premature, at least in our opinion, since all the markets started weak and got worse throughout the day, closing at or near the lows.

Capitulation usually includes a huge spike downward followed by a reversal back to the upside… See 1/22 & 23, 3/17 and 7/15/2008.  Those were capitulation days.  Today is very scary though the FED may step in and cut rates, which could probably cause a ST rally back up into resistance.

The news is clearly that financials are in deep, deep trouble…  BSC, FNM, FRE, LEH Bankruptcy today and AIG in serious trouble.  It is very ugly out there.  Keep your powder dry for now and watch the carnage.

We had to hedge several positions further today and will update those later, or early tomorrow.  Of course it’s expiration week…  LOL.  What else would it be… ;-)

Coach BD

So far, what we know for SEP is that volatility is alive and well.  286 points UP, 280 points DOWN, and today another attempt at challenging those ST trends and another failure.

We wouldn’t be surprised if this pattern continues at least through this earnings cycle.  It now appears that following Fannie Mae and Freddie Mac being taken over by the FED’s that LEH may also be near insolvency.

Yikes…  What we all hoped would not be true is apparently the case indeed.  The banking and credit crisis is beginning to look like the disaster everyone hoped it would not be.  With no end in sight… at least not yet.

Certainly no time to be taking any new long positions.  We will be evaluating more ST & LT Strangle positions with some of those range-bound, higher volatility, stocks where we can take advantage of ST OTM premiums to generate income until this market makes some definitive move.

Keep your powder dry and wait.  Patience is the key word in this environment… as it has been for much of this year so far.

Coach BD 

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 

Below is the link and discussion I participated in regarding RMBS’s current stock price on the Investor’s Village RMBS Message Board. 

Coach BD

continue reading "RMBS Expiration Discussion"

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   

As we’ve said many times, this market is not currently very conducive for new entries.  However, for those of you who have ongoing positions, or want to make some low risk entries to use for generating regular income, we will happy to help you do that.

Even though we feel a responsibility not to enter new positions that put you at risk during unfavorable market conditions, there are still opportunities out there for those who have positions, or want to spend some extra time to learn how to manage new positions for regular income generation with low risk.

We realize that this whipsaw market is boring if you aren’t in the game.  But if you want to make some low risk entries and begin the process of learning income generating techniques and good hedging techniques with small entries using real money, you can begin to get the feel, and knowledge, for what to do in different situations.

This is a good time to begin learning, or sharpening, skills that will serve you well in the future while this crazy market figures out what it wants to do.

Everyone have a great holiday weekend.

Coach BD