It’s official (or semi-official, anyway), we are in a recession.

While we’ve been using the "R" word for ages, finally Jeffrey Frankel of the Business Cycle Dating Committee (who are in charge of declaring recessions) agrees, saying: "The weight of evidence is now overwhelming: We are currently in recession."  Despite this "stunning" revelation, our nation’s top economic thinkers are still unclear as to the timing, asking: "Did it start at the end of 2007, when employment and the other indicators peaked?     Or was the stimulus from the government and from exports enough to postpone the turning point, and did the recession thus only start towards the end of the summer, when the financial crisis intensified very sharply?   I am afraid that we need to wait for some more data and some more (regularly scheduled) revisions before we will know."  Gee Jeff, let us know when you get a fix on it will you?

For a more informed look at how screwed up things are, check out "The Financial Crisis From A-Z" a tragically funny article from Forbes.  You know things are bad when top financial writers turn to gallows humor when discussing the economy, part of the process of depersonalizing something that is going to die…

I’ve been saying for a while that the various stimulus…

If this market hasn’t convinced you that buy and hold is a gamble - I don’t know what will.

Holding any stock for more than a day has been a sure recipe for heartache (sometimes just an hour will do it) but we have been having a good time, during our member sessions, bottom fishing and concentrating on plays that give us much better prices than the ones paid by the average retail investor. 

There are, of course, many, many stocks trading at multi-year lows and it’s still important to select ones that have strong underlying fundamentals that we actually don’t mind holding long-term but, as long as you are willing to own 200 shares of a stock - this system can reliably give you a 10-20% discount off the current market price.  It’s simple, easy to follow and is ideal for trading in a volatile market.

Of course when we buy any stock or long-term option position, we should be scaling in.  In other words - we don’t assume our timing is perfect and we enter a position in stages.  In our strategy section I discuss the 20% entries and the various rules for that so I won’t get into it here but, effectively, selling puts and calls against a stock entry is a way of automatically following the scaling system without having to monitor your position that closely.

Let’s say, for example, we want to buy C at $10.80.  If our goal is to buy 200 shares we buy instead 100 shares and also sell the Dec $10 put for $1.15.  Additionally, we sell the Dec $10 call for $2.05.  The two sold contracts reduce our net basis to just $7.60 and w…

Can we hold S&P 900 today?

It didn’t take us long to go negative yesterday.  My opening comment to members at 9:36 was: "I don’t think I’d want to be rushing in to chase things at the moment, that was a big gap up and strains credibility as the Dow leaps to 2.5% ahead of everything else."  We set some watch levels like NYSE 6,000, Russell 515, S&P 950 (see David Fry’s Chart) - all of which quickly failed and left us with a negative bias.  4 minutes later we shorted USO, which I thought was some low-hanging fruit at $53 and the $61 puts quickly hit our 25% goal (and $50 target) for a day trade.

By 9:46 we were back in the DXD Dec $65s at $11.75, which finished the day at $14.95 and remain excellent protection since the Nov $78s can be sold to cover at $5 if the market turns (and we can only hope it does).  Obviously they were much higher during the day as DXD topped out at $78 before pulling back.  We ended the day still bearish and my 3:41 comment was: "…

Wow - We expected an up move in the FXI but this is incredible!

The Chinese government rolled out a massive $586Bn stimulus package that amounts to roughly 16% of China’s entire GDP - that would be like the US dropping a $2Tn check on the economy (which is actually the exact amount I recommended for Obama’s New New Deal package so maybe they are onto something). The plan includes spending in housing, infrastructure, agriculture, health care and social welfare, and features a tax deduction for capital spending by companies.  That’s right conservatives - capital spending tax cuts are now communist!

This is an exciting start to this weeks G20 meeting on Saturday as the 20 largest economies of the World converge on Washington to discuss ways to turn the global economy.  Actually, to tell you truth, they only seem to know one way and, if China’s action today is any indication, we can expect Trillions of bailout dollars to rain down on the global economy.  The image on the left is the same image I used on Thursday morning when the BOE turned on the money faucet with their 1.5% rate cut, sending us into bullish energy and commodity plays that should follow through nicely this week as the G20 seems perfectly content to inflate their way out of this crisis. 

China’s financial system remains largely unscathed by the global credit squeeze, but prospects for the country’s continued rapid growth have quickly …

Well that was a lot of work to lose 400 points for the week!

On the brighter side we’re up 500 points since October 10th and it’s starting to look a little bit like some healthy consolidation forming a bottom around 8,500.  8,500 is close enough to 40% off 14,000 for us to use the rounded numbers for a top and bottom and, as we form a new base, I’ll be adjusting our upside expectations accodingly but it’s pretty clear that we’ll be testing the 9,000 line next week and Robin Hood’s Dow chart gives us a pretty clear indication of the very hard road to recovery that lies ahead of us.

We had a fantastic week with many great trades as we were right on top of the market moves all week.  In last weekend’s wrap up I said: "We have the election to distract us on Tuesday and that is also keeping a lid on the financial news as most papers are concentrating on the election so it may go unnoticed on Monday that no additional funding is pouring into the markets.  We have a lot of data hitting the wire… after which the market mood may change quite a bit."  Well, that was pretty much exactly what happened, with the marke…

It’s all about the Qs today.

As David Fry’s chart indicates, we are down in that channel below our much-watched 32.50 line that makes or breaks our rallies and just above (as of yesterday’s close) the death line at 30.  If the Qs go below 30, we have to throw up our hands and sadly go back to weighted bearish but I just can’t see it as even these terrible earnings reports we’ve been getting this quarter do not justify a 5-year retrace in stock prices for the index, 45% off last year’s highs.  I laid out my technical case in last night’s Big Chart review so I won’t go back into it here but we are as comfortable as we can be using options spreads to give ourselves a 20% discount on entries at this point as we feel that the 50% line (off the highs) will be holding and we’re very comfortable holding long-term at that level and generating an income selling calls every month for as long as we remain in what would have to be a very prolonged recession to keep the markets at that level.

We have no intention of giving up that 30% on the bear side that will guard us against a Great Depression-style sell-off should a major bank, GM or a country fail in the next 6 months but, hopefully, every week we go without such an event we will see a few more investors move some cash off the sidelines.  We get to, hopefully, move past GM and F earnings today and they are expected to be a disaster.  A lot of yesterday’s selling was based on rumors that GM was not likel…

"What are they doing here?  They’re selling Mortimer - God help us, We’ve got to get to Wilson and tell him to sell…  Wilson, you idiot, get back in there at once and sell, sell, sell!"

That’s from my favorite movie scene in Trading Places and yesterday reminded me of that as blind panic once again took over the markets.  Eddie Murphy’s trading advice from earlier in the movie (2:40 on video) was very appropriate as we went bottom fishing during the carnage today.  In a similar trading session he said: "It’s Christmas time. Everybody’s uptight.  Pork belly prices have been dropping all morning.  So everybody’s waiting for them to hit rock bottom so they can buy cheap.  The people with pork belly contracts are thinking,   ‘Hey, we’re losing all our money and Christmas is coming.  ‘I won’t be able to buy my son the GI Joe with the Kung Fu grip.  ‘And my wife won’t make love to me cos I ain’t got no money.’  They’re panicking, screaming, ‘Sell, sell.’  They don’t want to lose all their money.  They are panicking right now. I can feel it.  Look at them….  I’d wait till you get to about 64, then I’d buy.  You’ll have cleared out all the suckers by then."

We’re still not sure whether we cleared out the suckers or whether we were the suckers at a falling knife sale, but we maintained our 50/50 bias despite the carnage today and picked up upside plays on QLD, UYG, GOOG, LVS, DRYS, CAL, ABX, XOM, USO, JPM, UWM, LDK and CMI all b…