Wheee, that was fun!
In yesterday’s 9:40 Alert to Members I said: “I have to go with my gut initially and stick to our plan, which is roll up the USO and DIA short plays (rolling the open puts to higher strikes).” We took two brand new short plays – one a TZA complex insurance spread that pays 100% for every nickel TZA is over $6.05 at July expiration (up to $8) and one ordinary DIA put that doubled up for the day and we took that money and ran, of course. That’s two weeks in a row we nailed it on our Monday Alerts and, as I said last week – no need to play further, just go on vaca and come back next week!
We went into the close more or less neutral other than our oil shorts, which we stuck with although we’ll keep tight stops on them if oil holds $77.50 and the market starts recovering. We got exactly the bounces off resistance we were looking for and today we find out if they were bullish pullbacks or the top of our predicted bounce zones (listed on the charts):
So holding the bounce lines we predicted way back in the crash is going to be critical. We don’t mind a bit of consolidation under those 50 dmas (red lines) while the 20 dmas (blue lines) catch up but if we fail those blue lines it will certainly be time to pull in our bullish horns and put on our bear costume. What makes investing tricky in this kind of market is that, as we were reminded in May (twice) and June (once, so far), these markets are INSANE and we can drop 500 Dow points at the drop of a hat so we MUST have our disaster hedges on at all times in order to take any bullish long-term positions and we, unfortunately, still can’t reconcile committing more than 25% of our cash to long-term positions at this time.
Staying mainly in cash is kind of annoying but also prudent. We end up day-trading a lot and I just put up a very important post on managing short-term trades that’s a must read for Members. The nice thing about having a ton of cash is we can do “stupid option tricks” – plays that are margin intensive but relatively safe like selling XLF July $14 puts for .20, which means you sell contracts for $20 each (100 options…
