Dear Prudence

consolidation after that nice rally. got my Dow 15000 hat ready for 1Q 2008. industrials have the nicest charts. sick with the winners in this rally. Oil stocks getting very heavy. could see a nice selloff in the larger names as rotation out of the winners into tech should be a good trade for the next year.

happy new year to all of my fans and wishing you and yours a healthy and wealthy 2008.

La Grange

So looking at individual stock charts, I see nothing pretty in the financials, retailers, or transportation sectors. Can staples, energy, utilities, and tech carry the load? They are going to in order for us to make new highs come 1Q 2008. Take a look at any beverage, food, or drug stock. Good odds that they are consolidating for a move upward. If you want to play the beaten down ones, at least buy write them to take in some income. You may have to wait a while to get some good traction in those suckers.

I made some sales at 1522 SPX and am fully loaded again at 1455. Look for a quick rally from these levels into 1490-1515, then a pause. Come January expiration, we should be ready to rally out of a flag into 1550 territory.

See Barry Ritholtz's Big Picture for some great economic insights, especially the negative real interest rate discussion. With all of this central bank liquidity flooding the system, it will keep a floor underneath financial assets for a while.

Cheap Sunglasses

So I am scanning the media this morning and one of the TV shows has a market analyst whose bullishness on tech in 99-02 is noteworthy. This morning, he was the "bear" in the conversation. That is all I needed to know, 300 points later on the DJIA and it confirms most market moves. This afternoon a report on how to "hedge" your home from losing its value. A little too late? The market is a forward looking discounting mechanism. If you listen to what the money honeys are saying, its too late to act. I would take some profits SPX 1485-1495 in order to reload on a pullback, but still looking for a rally above 1540 in Q1 2008.

Gold had a nice dip last week, but I did not buy it. Oil missed 100, probably headed for 78. Aggressive traders could buy put spreads on oil ETF's. Volatility will crash on the way down. This is a commodity play, not an equity play. Stay away from energy stocks unless the chart looks like a breakdown.

Volatility is still high, would be a seller of OTM options vs stock, especially in financials.

I found my thrill, on Blueberry Hill

Had the trigger ready to put some shorts on at 1495 SPX, just a bit outside, would have been nice. Ah the beauty of the market, you can get another shot if you preserve your capital. One way to do this is to trade options. Yes, that is the derivative of choice by myself. Having grown up in the pits with my values on paper, it is the only way I can make rhyme or reason of any trade. Today I will start on some basic strategies:

I. Buy writes. Get long a stock you like and sell a slightly out of the money call. Very simple, able to earn good returns with some downside protection. What every investor is looking for. Of course I look for large cap names that have a nice spread between the 30-day historical and implied volatility. Stay away from any event like earnings or merger plays. You want a flat to mild up trending stock. For example, if you bought KO when it broke 50, wrote 55 calls all year, rolled the last one up to 60, you would have easily turned a 20% gain into 30%. That buys a few extra cases of diet coke.

II. Straddles. When a stock hits a 52 week low, I like to buy the ATM straddle to see if we bounce or break. Look for more than 15 day paper, and keep the trade on a short leash. Some recently good trades were on the financials as panic selling created the waterfall and then a mild bounce.

Bad, Bad, Leroy Brown...

Long and wrong. What to do. I think we hold em and let some go on a rally back to the 1500 level SPX. Hate to double dip in this volatile environment, but still some names are being stomped. Would nibble on more big cap tech here if underweighted, add to financials if flat. Probably the best move is to buy call verticals going long deltas and skew.

Pour some sugar on me.

With all this bad news, the market holds. That means it wants to go up and watch the shorts go screaming for the exit. I see new highs come year end. I also see the far-east settling down. Waiting for a good entry in gold, seems it makes a new high every day. Once we get a bounce in the dollar, since everyone is short, gold will come down also. My view on crude is stay with the trend, looking to get long also, but not at these levels.

Stay with the winners in equities: tech, drugs, and consumer staples. You can bottom fish, but tax selling ain't over in some others. Financials are good values, but you will probably have to wait a year to get a good rally in them. Small caps are under owned, look at some charts for breakouts in beaten down names.

Still like buywrites with the VIX over 23.

Countdown to November 17 begins......now.

Grasperino

You notice this guy on CNBC who is the current star "journalist". You see his book is out on the shelves. No wonder he has the latest word on everything. I don't call that unbiased, just clean business. Call it for what it is, let the buyer beware. If I made a statement without disclosure, I could lose my job, how come reporters have that option?

Now back to our regularly scheduled market, time to take a breather after a 68% retracement of the latest downdraft. I would not be surprised to see a test of 1515 SPX before we make new highs for the move. Still like the short vol play after 3Q earnings, tax selling, and mutual fund distributions. Set up them buywrites.