Today's action is indicative of
investors' nervousness.
Gold pushed easily through $1600 US an
ounce as investors and world governments
hedge themselves against further
deterioration of the Euro, sovereign
debt woes and the US Debt Ceiling issue.
With the market down almost
from the open and because I have no idea where the
market may be headed, I felt it prudent to
sell 20 of my SPY puts and I am continuing to hold
the remaining 10 SPY puts. I think investor
concerns will still push the market to retest the
200 day moving average, and losing such a terrific
rally from just a few sessions earlier is a real
blow to the market.
Many analysts feel the bull
market ended in May. The recent strong run up and
then sell off certainly would support that argument
and I imagine it has caught a lot of investors off
guard.
Calling market direction is a
difficult task. I am wrong as many times as I am
right. However the whole concept of using the ETF
Hedge through SPY Puts is to keep building up the
cash I make through every profitable trade. That way
my cash cushion gets bigger and bigger to help
"cushion" me for those times when I will be wrong.
Therefore since I had 30 puts, I took some profits
by selling 20 of them, in order to defray any
possible loss from here should the market turn right
around and try to run back up and it could easily
happen.
If the European Central Bank
and European Union get their act together and set up
real solutions then that could stop the sovereign
debt crisis for a while longer. The same with the US
Debt Ceiling issue, which I am sure will get
resolved. These two events could propel the market
higher.
Last year on the
SPY Hedge trade I made $65,000 and
this year I am
up just 21,000 so the market is still showing
some resilience still. But the XLF is down even
lower today which remains a poor sign. There are
just so many negative signs that any bounce up
really will be suspect for a while.
Therefore I sold 20 SPY puts,
added a huge profit to my cash cushion and am ready
for either a bounce back up or a drop further down.
My best guess is, the market
will retest the 200 day moving average.
With the July options expiry I
have a lot of cash freed up. I plan to put it to use
over the coming weeks and months, particularly if
more weakness enters the market, putting some of my
favorite stocks on sale.
In Canada, bank stocks got hit with declines across
the board. Investors are nervous and with that
nervousness comes concerns about all banks Canada
included, and their exposure to European Debt and US
Debt.
All banks, whether Canadian or not, will be hurt
with any kind of sovereign default. Investors don't
believe that these banks will not see any losses.
Therefore investors sold the Canadian Banks. Even
National Bank of Canada was sold which is a Quebec
based bank which invests in primarily Quebec was hit
by a 2.21% decline, among the largest downturns.
This shows investors being very nervous but it also
shows that it was over valued and still is at $77.50
A few more days of selling in
Canadian Banks and I will be back looking to sell
puts on them again. Royal Bank for example has
October $50 puts today selling for over 2%. Just a
little more pressure and Canadian banks will be
attractive again.
