Unloaded some more longs on this +50 points S&P500 day

S&P is up 50+ points today. We gapped up at the open, stayed in a trading range for the day, then slowly rose up in the last hour, but only to lose a small chunk and settled at 850, again. The volume has been low throughout the day and the internals didn't look too good. That's what prompted me to unload about half my positions in the last 45 minutes. The recent beating in my account certainly is making me being very cautious now. I'd rather save my ammo to enter higher later when we get confirmation for a rally than wait for one with bloated bullish positions.

Looking at the S&P 500, TICK, and Advance-Decline line. Aside from the open gap up peak, both the TICK and A-D line failed to impress throughout the day. Actually, it was lack of strength in the numerous 840 tests and the weak 850 breakout about 3:20 that worried me. Notice the lower lows in both the TICK and A-D line at the 840 and 850 breakouts in the chart below.

[caption id="attachment_886" align="aligncenter" width="500" caption="S&P 500 internals"][S&P 500 internals][][/caption]

The first to go was -90 DELL @ 9.90 at 3:25pm for about a 50% loss. I bought DELL at the beginning of October for \$16.49 and it has been underperforming throughout the two months. There's been little volume since I bought, up or down. Even with the exuberant buying on the market today, DELL failed to break above \$10 (it did close at \$10.14). Most important reason for me selling this long term holding now is that there's very little volume even on this up day when everyone's expecting a real bear rally.

[caption id="attachment_887" align="aligncenter" width="500" caption="DELL"][DELL][][/caption]

Next up, I sold my C calls from the strangle placed Friday. As I said earlier in the day, the news that the FED is bailing out Citigroup has rocketed its share price from \$3.17 at my time of purchase to \$6.50 on the morning rush. However, C share price eased down throughout the day and failed to break \$6 with high volume. I sold at about \$6.05. I purchased the +2 Dec 5 calls for \$0.79 and sold them for \$1.77. This was a speculative play and I didn't want to be greedy. So I sold when C share price showed it's lacking steam to continue to move up ahead.

[caption id="attachment_888" align="aligncenter" width="500" caption="Citigroup"][Citigroup][][/caption]

Lastly, I sold my +2 ABB Dec 10 calls purchased at \$1.55 for \$1.70. A breakeven trade after commission. The drawdown was humongous in this trade since I have missed some previous stops. The ABB share price action is a lot like DELL today, a lot of fireworks but no real substance. Yes, the price is up a lot today, but there's no volume from it. In particular, in the last 15 minute, ABB dived back down to its major pivot point of \$11.10. I quickly unloaded my calls then.

[caption id="attachment_889" align="aligncenter" width="500" caption="ABB"][ABB][][/caption]

Like everyone else, I am really hoping for a good bear rally. It would do everyone, both bears and bulls, some good at this point. The thinking is, after so many fake rallies lately, this one has to be it, right? However, having learned my lesson in bottom picking in this bear market, I'm putting my hope/logic aside and interpret what I see in front of me. From today's price and volume movement, this rally doesn't seem like it will follow through.

I do hope I'm wrong though, if we can hold the 845/840 level on the S&P500 tomorrow. Then I would be looking to add to my already 60% long holdings.

[S&P 500 internals]: http://traderpau.files.wordpress.com/2008/11/2008-11-24-spxintra.png [DELL]: http://traderpau.files.wordpress.com/2008/11/2008-11-24-dell.png [Citigroup]: http://traderpau.files.wordpress.com/2008/11/2008-11-24-c.png [ABB]: http://traderpau.files.wordpress.com/2008/11/2008-11-24-abb.png

BOUGHT +2 STRANGLE C 100 DEC 08 5/2.5 CALL/PUT @1.62

[caption id="attachment_846" align="aligncenter" width="500" caption="Citigroup"][Citigroup][][/caption]

Citigroup is all over the news today. NYT:Citigroup Tries to Stop the Drop in Its Share Price and FT:Citi board locked in talks as shares dive.

After failing to retake \$10 earlier in the week, C share price has gone vertical. Since Citigroup is in-play in the market this week, this is a great time to buy an options strangle to capitalize on this volatility. The bet here is that Citigroup would go down in flames or it would rise back from the dead. This position will breakeven if C goes below \$0.88 or above \$6.62. Given that C was at \$10 just days ago, moving from \$3.44 as of now to beyond either of those range seems viable.

Upside: Lots of talk about C at the moment. The stock is in-play. High volatility is what the options strangle feed off by.

Resistance: \$5, we could bounce around the \$5 range

Downside: High volatility so options premium is expensive. The volatility might be factored in the price already, so this \$0.88 to \$6.62 range could be a trading range for C until expiry next month.

Support: errr... \$0?

Bottom line: This is a hedged play. I can profit if C goes up or down. Given the extent of the situation with Citigroup, I think it's highly likely we would break this range.

[Citigroup]: http://traderpau.files.wordpress.com/2008/11/2008-11-21-c.png

Is the collapse of Citibank factored in the market price already?

[caption id="attachment_840" align="aligncenter" width="500" caption="Citigroup versus S&P 500 ETF"][Citigroup versus S&P 500

The possible folding of Citigroup is creating another wave of panic on the market today. As the second biggest bank in America, this is unlike the collapse of Lehman, WaMu, Fannie and Freddie. While the previous institutions are also gigantic financial institutions and an integral part of the financial system, Citigroup is different because it's a part of the daily lives of many Americans. While I am not an economist, but I am a consumer. I personally feel this is psychologically a bigger deal.

However, is this a time to panic? Perhaps. But from a trader's standpoint, I think we would be a little too late now. In hindsight, anyone would have wished to unload the financials back in 2007. But who am I kidding, I definitely don't have that foresight.

What I do notice though, is that the failed retest of \$10 for C last Friday and this Monday was a pretty good sign that C is going down. A failed retest of the \$8.5 level on Tuesday and Wednesday was a confirmation. I tried to short C then but was stopped out. Frankly, I didn't think it would be this bad (my target was \$7).

Since then, Citigroup and the market continued to decline at an accelerated pace. Rather this is simply a case of correlation or causality is unknown by me. It doesn't matter. The point is, even an amateur like me saw C to be going down on Wednesday. Do you think the professionals would have missed it? Wouldn't they know already C would be going down in flames? And probably months ago too!

I think it's good to assume that the current panic on Citigroup trading below the magical \$5 has been factored in the market already. So am I saying we'll be making a reversal soon? Not really. C trading below \$5 is one thing, but there's also the bigger picture we should consider. Would this trigger a new leg of this bear run due to a vicious spiral of panic? Don't forget, we have recently broken some multi-year supports. This leg of the market downturn still haven't eased off yet.

Yes we may be going down, but I believe the time for panic was over, this is a time for finding values and positioning yourself for the longer term (hey, it has to go up some time, right?). I wouldn't dare short this market though, even a target of 600 on the S&P is just 150 points away, but look at the S&P chart on any time frame and you can see the vast green pasture to the upside. The risk/reward potential just isn't that good for a short here.

I believe I have learned my lesson. There is no profit in calling for bottoms. I will wait for the market to play it out and watch the price action for entries.

[Citigroup versus S&P 500 ETF]: http://traderpau.files.wordpress.com/2008/11/2008-11-21-cvsspy1.png

BOUGHT +1 C 100 NOV 08 5 CALL @3.50

[caption id="attachment_801" align="aligncenter" width="500" caption="Citibank"][Citibank][][/caption]

Well that was fast. This trade lasted only 36 minutes. I shorted for \$3.25 and was stopped out for \$3.50. A lost of \$40 with commission. I dumped my holding when my stop was hit this time. No question asked.

The market rallied fast in the last 20 minutes to close at 858.82 for S&P 500. Let's see how the market does tomorrow.

[Citibank]: http://traderpau.files.wordpress.com/2008/11/2008-11-18-c1.png

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