Email – #428
It never ceases to amaze me when the market begins to feed on itself. You wake up one day and it seems that the entire market is focusing on one stock, one sector and regardless of what logic dictates, it’s the immediate short term that matters most to traders and investors. Regardless of whether there is a bargain to be had, when the sellers pile in, stocks go down.
The last time I saw this type of mayhem in a particular sector, in this case the Financials, was when the Internet stocks collapsed in 2000/2001. The selling was not targeted, it was willy nilly – the need to get out was greater than the want for cheap stocks. I saw Intel, Cisco and Oracle trade at one fifth of their high price within a year. In some cases it was justified – when a company has no earnings, no future and was hyped up on fluff. But, just as quickly as the good companies collapsed, they recovered. Not to their old highs, but doubles and triples were easily had.
Today, the financial sector is the target of sellers of all types, regular investors, short sellers and hedge funds/institutions looking to liquidate positions. When this happens, there is no point discussing fundamentals – it becomes a question of supply, demand and sentiment. Selling begets selling and nothing can abate that selling but fatigue. When shares plunge, investors become very scared, many times for good reason. Suddenly, every reason for owning the shares is now questioned and instead of logic prevailing, panic is the order of the day. This is the point of maximum pessimism, and in my opinion, the financial sector is almost at that point now. Every company is getting hammered – affecting a couple of our positions very negatively. But this is no ordinary sell off – it is an “I give up” sell off – get me out now, I don’t care what price. The shorts see this and they pile on – not because of any fundamental reason, but because they know that panic begets panic and quick money is to be made when people sell first and ask questions later. I have seen it happen often, and that is what it looks like now.
On the flipside, the harder they fall, the harder they can rebound, especially when it comes to stocks. Again, it’s a question of supply and demand. When the dust clears and investors realize that not all banks are worthless, you can see a super spike not much different than what you are seeing in oil – where oil supply and oil demand is not the short-term catalyst, but speculative fervor in the futures markets is what is dictating price.
For now, we have a lot of time on our side. And in this type of market that is what matters.
Microsoft dumped Yahoo! Inc. (Nasdaq: YHOO) unceremoniously and investors are cheering the move. Microsoft (Nasdaq: MSFT) shares have rallied nicely in the past two days and our MSFT position has room to run. Continue to hold the position .
Karim
Current Portfoli
Company / Option: Nasdaq 100 Jan. 2009 $44 puts
Option Symbol: OZC MR
Current Price: $2.17
Comments: Hold.
Company / Option: Valero Energy Jan. 2010 $60 calls
Option Symbol: YPY AL
Current Price: $5.25
Comments: Hold.
Company / Option: Blackstone Group Jan. 2010 $25 calls
Option Symbol: KJL AE
Current Price: $2.00
Comments: Hold.
Company / Option: Unisys Jan. 2010 $5 calls
Option Symbol: WUI AA
Current Price: $1.00
Comments: Hold
Company / Option: Pfizer Jan. 2010 $25 calls
Option Symbol: WPE AE
Current Price: $0.45
Comments: Hold
Company / Option: Bank of America Jan. 2010 $55 calls
Option Symbol: WBA AK
Current Price: $0.57
Comments: Hold
Company / Option: Fifth Third Bancorp Jan. 2010 $30 calls
Option Symbol: YJF AF
Current Price: $0.45
Comments: Hold
Company / Option: Sun Microsystems Jan. 2009 $5 calls
Option Symbol: XOG AA
Current Price: $0.05
Comments: Hold
Company / Option: Mylan Labs Jan. 2010 $20 calls
Option Symbol: WYQ AD
Current Price: $0.95
Comments: Hold
Company / Option: Cirrus Logic Jan. 2009 $10 calls
Option Symbol: VUR AB
Current Price: $0.40
Comments: Hold
Company / Option: Coeur D’Alene Jan. 2009 $2.50 calls
Option Symbol: ZYB AZ
Current Price: $0.80
Comments: Hold
Company / Option: General Electric – bull spread
Jan. 2010 $35 calls (bought)
Jan. 2010 $45 calls (sold)
Option Symbol: WGE AG
Option Symbol: WGE AI
Current Price: $1.80
Current Price: $0.55
Comments: Hold
Company / Option: Microsoft – bull spread
Jan. 2009 $32.50 call(bought)
Jan. 2009 $40 call (sold)
Option Symbol: MSQ AZ
Option Symbol: MSQ AH
Current Price: $1.43
Current Price: $0.17
Comments: Hold
Company / Option: Tenet Healthcare – bull spread
Jan. 2010 $5 call (bought)
Jan. 2009 $7.50 call (sold)
Option Symbol: YTX AA
Option Symbol: ONZ AU
Current Price: $1.95
Current Price: $0.40
Comments: Hold