-- Posted Wednesday, 14 November 2007 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Wednesday, November 14, 2007
“Phenomenally accurate forecasts”
DaBoyz seized bears hard by their scrota yesterday, hoisting stocks as high as possible in anticipation of the next, all-but-inevitable, cascade. We fought the tape all day long in the chat room, reminding ourselves as stocks rampaged higher that there still looms for Americans a debt deflation, a real estate implosion to rival that of the 1930s, and, most immediately, a recession that almost certainly has begun but which has not yet shown up in the laughable statistics that Uncle Sam puts out each month.
Thinking about such things ahead of yesterday’s rally was what kept us adamantly in harm’s way during the day. And while we were able to reassure ourselves that the rally was nothing more than a routine short-squeeze in a heavily oversold market, we realized by day’s end just how completely the world’s worries can melt away when stocks are lunging relentlessly higher, even without good reason.
By day’s end, discretion had prevailed over valor, and we spread off our Citigroup puts against some at-the-money QQQQ calls. This is a backspread position, and it will work best if Friday’s option expiration keeps the stock market well spooked for the next few days. We won’t mind one bit if our December Citi puts lose 95% of their value, so long as the offsetting QQQQ calls keep rolling higher. While the puts lost a little more than half their value yesterday, falling from 1.65 to 0.80, the worst they can do now is fall the remaining 80 cents to zero. The calls, on the other hand, can keep rising with no theoretical limit, and even a modest rally from here would more than pay for a total loss on the puts.
As for the stock market’s needing “good” reasons to rally, we should never lose sight of the fact that it is invariably “bad” reasons that drive the most powerful uptrends. That’s because, while merely bullish buying is a function of optimism, short-squeezes are caused by unmitigated panic. For this reason, we can infer that it is not bulls who push stocks through heavy layers of supply, but bears caught in the ringer. It also follows that the buyer of shares at the very top of a parabolic rally will almost invariably be a bear with guts, conviction, good common sense and pockets that are deep, but not quite deep enough.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2007, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Wednesday, 14 November 2007 | Digg This Article | Source: GoldSeek.com
