Stock And Option – Intraday Comments For Nov 08 2012 – Market Direction

My Market Direction article yesterday after the market closed is what I am now acting upon. I will be posting updates to the Corrections and Bears Category on the members website shortly, but this morning I have closed some out of the money naked puts that are profitable to raise my cash levels. I have also rolled down a number of naked puts in preparation for a market direction correction.

On my long-term portfolio of stocks I have commenced selling in the money covered calls as per my article on the members section last night. Members can review that article here. I will be posting more tonight and through the coming days.

All my corrections related trades and their explanations will be posted in the Members Section under the Corrections and Bears Category as they occur. In this way I hope to show how I handle a correction to both profit and protect.

This morning I have raised a lot of cash by buying to close my various out of the money positions that are in a profit position. I also have put in place my put ladder strategy on a number of stocks which I have used in all the past corrections and bear markets. I will be posting articles about this strategy shortly.

Stock and Option – Dow Jones Index

The Dow Jones Index this morning has continued on its path lower as it begins to move beyond the 200 day moving average. This morning there was a slight push higher but then the selling increased and the Dow moved lower. The 200 day will now become resistance. Any push back up to the 200 day I will be used for shorting type opportunities such as buying more Ultra Short ETFs like SDS which is for the S&P 500 and the DXD which is the Ultra Short for the Dow Jones. I would anticipate from yesterday’s move lower than this correction could move lower by perhaps as much as 8%.

Dow Jones Market Direction

Dow Jones Market Direction

It’s hard with any correction to pick with strong certainty how low the correction could go. There are of course, support levels that can be picked on all the indexes but I like to use another strategy to follow the move lower in the indexes to determine whether my positions in the Ultra Short ETFs should be closed to catch even more downside action after a little bounce. I will post that to the Members section shortly.

Market corrections are filled with excellent profit-making opportunities. There is of course the inevitable downside action, but there is also the big bounces back before more selling pushes the indexes even lower. These excellent profit-making opportunities can be played by any investor willing to learn a few strategies and then apply them to their positions whether they be through Ultra Shorts or even through Put Selling, put buying and covered calls or even naked calls. I stay away from many other more complex strategies like iron condors and butterflies during market corrections primarily as I have little need of them and they always entail more commission charges and have more positions that need to be adjusted. A naked put on the other hand is simply that – a put. It’s one position that needs to be adjusted and one commission each time it is adjusted.

I will be posting more on those strategies in the Corrections and Bears category of the Members Section in the coming days and weeks as I do expect this correction will be with us for a few weeks.

Obama 2008

in 2008 when Obama was elected President, the markets corrected by 8% and took 4 months to recover. I had hoped that there would have been a honeymoon period for stocks following this election. This time around 2012 is not 2008 and I am not anticipating any kind of market crash, but that said, investors tend to panic, a lot, and any signs of a steeper slope can bring out sellers in droves which can push the stock markets to extremes. This is the nature of markets and has been since the days of Rome.

Investors Are Drive By Fear

Investor sentiment is driven by fear and anxiety. Investors fear they will miss a rally and fear they will get caught in a downturn. The anxiety is heightened by this fear. Thinking that as an investor I can trade without any emotion is unrealistic. This is why I developed and use strategies that demand consistency. Even in the worst of economic conditions, it is the consistency of my trades that has made it possible to profit from corrections and bear markets as well as protect positions.

Rolling Down Covered Calls

For example I have rolled much of my personal long-term portfolio down into in the money covered calls as explained in last night’s article on the Member’s forum. Again here is a link. This is a consistent step that I always do when the market breaks the 200 day moving average.. I have been wrong many times and the market instead of plummeting further, stalls and recovers leaving my in the money covered calls that I rolled down to, even deeper in the money. But I have lots of strategies to rescue those iin the money covered calls so deciding to roll down for protection at the 200 day signal is a non-emotional step. If wrong I have non-emotional steps to repair the trades. If right, then my portfolio is not only protected but earns more profit while the market gyrate back and forth.

Using Put Ladders To Eventually Own Shares At Fire-Sale Prices

A put ladder is another fine example of an unemotional trade. The strategy is clear, concise and easy to follow. The goal is to end up picking up stocks at fire-sale prices or being paid handsomely even if they actually never go on sale. This is just another strategy that is designed for market corrections and bear markets.

Break The Emotional Element In Investing

If as an investor you have solid strategies that can provide profit and protection even in the worst of markets, you can break that emotional element that tugs at you to keep “adjusting” a trade or jumping in and out only to find that there are only losses, no profits. It is consistency of applying proper strategies that helps to defray emotions and keep investors steady when a market corrects and volatility whipsaws prices. Market corrections are scary things but if you have a plan and the strategies to profit and protect your portfolio you can rest easy knowing that you will come out of the correction unscathed.

  • I cannot judge that far ahead but I would think at this stage unless the bulls can get a catalyst and earnings improve to support higher valuations, we should see a bounce at some point and then more selling. I would expect a 10 to 15 percent correction which is a normal event in a bull market. If it gets worse then we are probably going to enter a new bear but it is still too early to judge.