Weekly Market Assessment
Ask and you shall finally receive! After months of worry about the need for a "true" correction, we got it! It came accompanied with so much panic that it looked as if it wasn't going to stop. On Wednesday, the Dow open down 150 points, and within a few minutes, had dropped further to 470 points. In what took approximately 9 months for the Dow to achieve, was completely wiped out in just a few short weeks! Wow, this is what happens when people are complacent and are asking for volatility. You want fear, well, there it is. Try watching your account in free fall while also trying to frantically figure out what to do! Margin calls where sent out and people were forced to liquidate to cover their over leverage accounts. This allowed the strong hands to scoop up stocks at a 10 and even 20% discount from their highs, reached in September. Dividend yields jumped and long term investors went bargain hunting to captured a higher yield on blue chip companies that were on sale. Beggars cant be choosers. So, for all those, including myself who wanted a correction, cant complain and be picky about how it came about! Although, fast and scary, it was a 10% correction!
There is a term I have mentioned before called "capitulation". Capitulation is when investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It's usually indicative by panic selling. Sound familiar? If this recent correction holds true and we continue on our way up, then capitulation is what we saw in its true fashion. In the first 45 minutes of trade, 80% of the average volume was traded. Investors were forced to liquidate to cover margin calls followed by the shear panic of how fast we where falling. The 10 Year Treasury Bond yield dropped to 1.87%, not seen since May 2013, while the VIX (volatility Index) jumped almost 50% and the DOW down 400+ points in minutes. Scary, crazy and panic simply cannot describe ones emotions when such events like this happens. So to end on another well know saying; be careful what you wish for, you just might get it!
The Rant: Going Off on a Tangent with My 2 Cents
So much for believing in "Frances Illiad to Make a new Offer for T-Mobile US next week- WSJ." Mentioned last week, Illiad was going to be making another "new" bid for T-Mobile. Well, this week came and no new bid came, however, what did come out on Monday was Illiad has now "dropped its plans to acquire T-Mobile." Last weeks news release about a renewed bid for T-Mobile really screwed a lot of people over. As I mentioned, I traded out of my T-Mobile common position and into my November "CALL" option positions for these very reasons. Little capital exposure with same upside potential. It still amazes me how that statement is aloud to be released knowing that millions of dollars are at stake. It also supports the fact that many people still do not trust the market and this adds additional fuel to that fire. Why even allow a statement like that to be released?
Making the Watchlist: Below are the stocks that I will be looking at over the coming months. I will provide the the current stock price and why I am watching them. I will comment on them as I continue to keep an eye on them. You will be able to see and follow their growth and/or decline. Chart links may be attached.
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk:
S&P 500 (SPX) -No Trades
SPDR S&P 500 EFT (SPY)- Follows the S&P 500 however it costs 1/10th the price to purchase options. With the crazy swings in the market this week I had to put on options however I didn't want to lock up that much capital while still having the upside or downside appreciation. I have bought weekly "PUTS" 186 and 183 to protect my net long positions.
Lakeland Industries (LAKE)- still holding this stock after it went from $5 to $34 and now as of today has fallen as expected to below my purchase price now at. I will continue to hold this stock short as the company is fundamentally not as strong as it current price suggests. This insane run up was caused by the Ebola outbreak.
Netflix (NFLX)- After reported disappointing earning after the close on Wednesday the stock sold off ~$100. On Friday morning I picked up weekly "CALL" options at $360 and the also bought a Vertical "CALL" spread at 345/350. Sold both these position the same day for a 5% and 3% quick scalp trade.