Golden Slumbers

Well a lot has changed since I last posted on this blog. A few new rules, first of all, I am going to do less market analysis and more on specific trading strategies. Think of it as reading the manual in your glove compartment as opposed to Car and Driver. I am more about when to change the oil than whether the V8 is a better buy than the 6 cylindar.

Moving from one of the major wirehouses to a regional B/D, has given me the freedom to allocate assets in across a wider spectrum of risk profiles. In order to do this, I attempt to capture market inefficiencies using my knowledge and tools.

An example of this is available in the WYE/PFE transaction. Because of the decreased use of leverage across hedge funds, we have a wide arbitrage spread. Buying WYE at $43 is effectively creating PFE at $13.10. This is a great way to pick up a large pharma with lots of cash at a 8% discount to market value. Using the large edge in the spread, you can effectively hedge market risk with a put on XLV (about 14% combined of PFE and WYE).

Of course, we would add this to an already allocated portfolio to create some alpha. With assets at a huge discount to fair value, it is important to manage the volatility of the overall portfolio. I currently do this with ETF puts and calls.

Told you about Brett Favre, what a maroon.

Today's Tom Sawyer gets high on you.....

Seeing a lot of bullish confirmation out there. The hold of 818 SPX on last weeks dip set up for that nice rally. 952 is the next inflection point on the way to some August levels (1125-1175). Volatility still pumped so use that to your advantage when using options.

My background as a trader lets me look at certain situations and break them down into simple risk reward equations. Take a look at the TIPs market. They are at an alltime low vs. Treasuries. With the government backing, you have a risk free call on the CPI index while getting paid CD like returns. Great idea for the cashlike part of your portfolio.

Merger arbs are still running scared. BUD closed with $1.48 spread remaining on the table. Show that the playas have zero bullets. Allows the smaller fish to get some nice trades.

Thankful that College Hoops is here. That Curry kid on Davidson is pretty fun to watch.

That's Amore

Nice action on Friday, with a new low followed by a 10% rally. Technically, we have set up for another 25-35% move from here. The market is making it hard to stay long, blowing thru stops, and then reversing. Next target is 1006 SPX with a final move to 1125 ish. But as Kenny Chesney says, don't blink. This could be done in a matter of days, not weeks. Good strategy here would be backspreads on your favorite blue chippers. With VIX over 60, you will be selling the meat of the vol.

Jets over Titans, ...there was once a dream called Rome.

"All the Gold in California...

...is in a bank in the middle of Beverly Hills, in somebody elses name." Austinite Larry Gatlin.

A once infamous bank robber was asked why he robbed banks. His answer, that's where the money is. In this market, you have to go where the money is. So far that has been on the short side. Looking at a slew of charts today, I can't find anything that looks positive. The one chart that is really sticking out is Gold. About 18 months ago, we broke out of a $730-$660 trading range and made new highs at $1000. So far with every other asset making new lows, this has held. Even with the dollar index on a tear from 75 to 88, the shiny metal seems to have support. GLD, the gold future ETF, made a low recently at 66. Today it settled at 70. A good trade here would be to sell some near month put spreads to finance later dated out of the money calls. I believe we can see GLD back in triple digits in a years time.

By the way, nobody is thinking about the Titans going 19-0. No respect.

How can I miss you, if you never leave?

"Barrack Obama became the 44th U.S. President last night in a practical landslide victory. Unfortunately, the stock market melted down on fears regarding his economic leadership skills and true ability to navigate the country."

Not being too political, but the stock market really does not care who is President. People asked me about my views on the election and I told them all that since the economy was slowing, the incumbent party would not be reelected. Proof, see 2000, 1992, 1980, 1968. As for possible economic policies like higher taxes and spending, well it seems a lot of the recent weakness in the market began once the polls started to reflect an Obama win.

My main concern in this matter, is whether or not we will have to continue financing a buildup in the national security budget. Although the dollar has had a pretty good rally lately, I would not be surprised to see a test of the 72 level on the DX (about 15% decline). This is bullish for gold, bearish for bonds, and neutral for stocks.

Skyrockets in flight, afternoon delight.

Combination of pension rebalancing, end of redemption selling, short covering, and good old fashion buying will get you a 10% move off of the lows. Still many skeptics out there, but one thing is true, the market makes it hard to sell when you have to, and then rips to the upside when you think its time to get back in. I mentioned to someone this morning, that 9700 DJIA was my target for this week. That could be a conservative number. The "news" being a rate cut/credit ease/commercial paper buy/full moon/end of the baseball season/beginning of the NBA season, you name it.

Whoa Nelly, We got a barnburner here!

Boy did I miss this. Biggest plunge in 7 years and I was long. Still there, looking for a retrace back to 1200 SPX to get out. Elliot Wave of 5 in progress, making 890 a possibility out there. VIX should come back into the 35-40 range that will show a nice bear rally.