Monday, May 4, 2009

How a Bear Makes Money On a Day Like Today

It was unintentional and not what I wanted to happen but it goes to show that a good hedge position and strategic stops can result in a bear making money on a day like today.

First, while I am short BAC and AXP, I also have May calls on both. Both of my short positions got stopped out early even though I thought they were safe. And the calls did very well. My covered calls on SDS and on SRS both helped tremendously to cushion the blow. But they key hit were the puts on SKF. Not a big position, but a position just in case a day like today happens and a position that paid off. EEM was also a good hit as was calls on AAI that I played at the open as a speculative play.

I plan on reentering short positions sometime tomorrow. This market is crazy and I will not be over extended. You have to have hedges set up in case of a big move the wrong way.

That all being said, this market did what I thought it would not do. It went up on a Monday. I am not sure when the last time it did that. The VIX stayed pretty healthy though and Gold went up. Also, volume was low again on the market. I missed it today for sure. I got lucky in that all my hedges did very well and eeked out a very slight gain for the day. But it was bloody and if someone told me financials would do what they did, and if someone told me BAC and AXP would make jumps like they did, I would have told that person they are insane. I was wrong.

Where have the bears gone? They have gone where the MM's want them to go. Far away, taking losses. All the while, the MM's suck in the longs in a setup to crush them.

Be careful. Do not jump all in if the market pulls back to 890. A reversal does not happen all of the sudden and right away. The MM's will play you until your last penny is gone if you try to play against them. Expect the unexpected.

We are at a key support level. If it breaks, we go higher, perhaps to 930. If it fails, we probably see 890 again but not sure what happens from there.

I will post later on some potential good plays for tomorrow.


  1. what's your input on TM, im about to do a masterpiece on it..

    cliff notes version: it's gonna sell off on earnings friday

    u follow the pig?

  2. Erik, look at the chart of Toyota overlaid with the SPX. Looks like Toyota is just trading with the market. Be careful about shorting on earnings. In this market we have seen stocks miss and give poor guidance yet the stock goes up on some irrelevant news. We have stocks beat the numbers but give no guidance and the stock price go down.

    AXP comes to mind. Sketchy earnings report and it goes up. MA looked like a better number but they went down.