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Calling All Bargain Hunters
Author: Ravi Prakash (info)
Website: http://www.optionstradinglessons.com/
Posted: February 18th, 2008 at 8:13 am EST
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“Markets can remain irrational longer than you can remain solvent” is one of my favorite quotes by John Maynard Keynes. Traders should keep that in the back of their mind at all times. It applies to bull and bear markets. More downside remaining in the recent carnage on Wall Street? It would seem so based upon the articles I have read on the web and print. Then again many of these experts work at firms that are writing off billions in bad deals. So who knows the truth? Nobody. The best you can do is to protect yourself by having a strategy that involves volatility. Having a fancy degree and armed with several billion does not guarantee success (think insolvent hedge funds). I have far more respect for the Stock Market today than I did the first time I traded a stock in 1987.
The economy is falling apart in many areas and our Congress spends time trying to find out if an athlete took drugs. I am sorry but I still feel we would be better served by firing all of them and getting in fresh people. (Yes, I am naive and not an insider.) We also had Mr. Bernanke talk to Congress. He of course failed to provide the same thrill and excitement. He feels the economy will do just fine. Fine being a relative term. The latest consumer confidence index indicates otherwise. He also hinted at maybe another cut in interest rates, but that did nothing for the natives on Wall Street. That is because the Street knows exactly how few bullets he has left in his monetary gun.
The major indices did manage to add a few points this week. I also see that the VIX lost about 10% this week. The odds of the indices having a spring high in the next couple of months looks better now. The one negative thing I do see is that the VIX on a 10 year chart indicates far more downside for the Markets over the next couple of years. On the upside I see that the DOW Transportation continues to look good and being a leading indicator might be signaling a rally later on this year. I finally looked at the US Dollar chart and that also shows signs of potential upside in the coming months. The Euro is showing signs of weakness.
Next week is a short 4 day week but there will be a lot of earnings news. Good earnings could provide decent support and may even lift the indices. The Market remains volatile and daily swings of 10 points or more for certain stocks remains quite common. Personally, I have never been good at day trading the wild swings. I have tried it several times and found in the end I lost more than I made. So my suggestion for those of you with extra money burning a hole in your pocket, buy a good stock and park your money in it while the Market sorts out the current mess. If you are holding good stocks consider using options to cover your risk. For example, sell some CALL options against that holding. Sooner or later the wind-sock will show a steady wind direction.
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Authors, Economics, Investing, Options, Ravi Prakash, Stock Market, Trading
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