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Jul 30 2009
2009
CANADIAN STOCK TRADES
These are the trades I did following the March 2009 Decline
Return To Canadian Stocks Index

A stock market decline like that seen from Sept 2008 through into March 3 2009 are rare events. A decline that large usually is followed by a enormous run-up. It's a rare chance to purchase stock, hold it for a few months without covered call writing.  


Naked Puts and Covered Calls work well, but in a rapidly advancing market I believe buying and holding stocks for a short period is best. The last market rapid advance was in Feb 2003. Opportunities such as these come only once in a while. When they do it is not the time for covered calls, but a time to buy and hold for short period.


Here are the indicators I followed which seemed to point to a market up turn after the March 3 decline.

 
Vectorvest did not call a market up, but did indicate that the market appeared itching for a rally. The MTR timing model (
www.mtrig.com) on March 13 2009 gave a Market Up signal. There were other indicators as well.
In November 2008 Laszlo Birinyi called an S&P bottom at around 750. In January he reiterated his position and again on March 3 he said the market was extremely oversold. However one thing that did catch me was that all three times he indicated that all the usual technical models were not reliable this time, down.  Here is what he said: A few things caught our eye. One was that we started to have some very bad days in November (2008) but the market still recovered. On Dec. 5 (2008), the unemployment news was really terrible and yet the market recovered that day, with the S&P closing up 3.7%. To us, those are signs of a positive market where people are starting to look beyond the bad news.

He also indicated that the greatest decline in a bear market are at the end of the bear decline at around 70%. He then named some companies he liked, including GE, with a dividend yield then of 8% on the common stock. I have found Laszlo Birinyi to be very accurate on many of his calls. I watched Louis Rukeyser on Wall Street Week and Laszlo was on often and sometimes he would be the host when Louis was away. I really miss that show. Today almost all the financial shows are like watching entertainment tonight.  

The next indicator was the number of naked puts I had written for Jan and Feb. They had all expired worthless. This is unusual for me if we are in a bear market. Normally on so many positions I will be assigned at least 5 when we are in a declining market. However Jan and Feb I was not assigned at all. This told me that the decline could be reaching a climax and the Bollinger band by Mar 3 was at its narrowest. The last time this had happened to me was in Nov 2002 to Feb 2003 when the market was still being called a bear market. In Feb 2003 I had gone in and bought stocks and then worked with a stop loss, but I did not sell CCs at that time. This was another reason to buy the stocks I did.

While it is true that the 10-20-30 rule did not give a buy signal in early March, the 10-20-30 rule (click to review 10-20-30 strategy) did show that the 10 day SMA was turning up and volume was picking up after the plunge around March 3 2009.  Also I use the 10-20-30 rule primarily to buy and sell naked puts not so much for stocks although I do plot it before buying stocks. This 10 day SMA (Simple Moving Average) was turning up on all the stocks I follow, not just a handful. This told me a trend change could indeed be happening. 

 

As well the bearish indicator was at an all time high. The number of bearish analysts was more than 70%, normally a sure sign to me that we are going to see a reversal.  Also the PE ratio on the S&P was below 12X, and dividend yields were very high. Bank of Montreal in Canada was paying over 10% on the dividend. Royal Bank was at 9%. In fact all the large Canadian Banks had unbelievable dividend yields. At 10% on Bank of Montreal, you could buy it and tuck it away for years which I did. The dividend alone would pay you to hold the stock. The last 15 bear markets had seen a PE of no lower than 10.8 on the S&P. I felt that buying when I did, made sense as I saw little more downside, but if there was I believed I would be able to sell CCs against my stock purchases. 

 

Last was the VIX. If you look at the VIX chart, you can see that the climax in volatility was actually in October 2008 not March 2009, and from there is had continued to decline. On October 20 the VIX hit a high of 89.3, but on March 3rd it only hit a high just above 52. The trend in the VIX was down. This told me that the sellers were getting tired. Just like the rally since March, the VIX had continued to decline throughout the rally. You can see it in the premiums of options, that continued to decline. Right now (March 13 2009) I think the VIX could work its way to 20, which is where it was last August 26 2008.
 

Here are the stocks I bought in March 2009 and sold in May - July 2009. After selling, I returned to my usual strategy of covered calls and naked puts. At the time of selling I felt that the stocks were fairly valued and returned the funds to my covered call portfolio.  

 

Date Stock & Symbol Action Capital Invested (includes Commission) Profit/Loss Return
Mar 10 09 ROYAL BANK OF CANADA RY 2000 Shares Purchased @ 30.10 $60,207.00    
Apr 21 09 ROYAL BANK Dividend 2000 X .50   $1000.00  
Jul 23 09 ROYAL BANK Dividend 2000 X .50   $1000.00  
Jul 30 09 ROYAL BANK OF CANADA RY 2000 Shares Sold @ 51.00 $102,193.00 $41,986.00 69%
Mar 12 09 CIBC (BANK) CM 2000 Shares Purchased @ 42.10 $84,207.00    
Mar 25 09 CIBC Dividend 2000 X .87   $1740.00  
Jun 25 09 CIBC Dividend 2000 X .87   $1740.00  
Jun 29 09 CIBC (BANK) CM 2000 Shares Sold @ 65.00 $129,993.00 $45,786.00 54%
Mar 23 09 QUADRA MINING QUA 3000 Shares Purchased @ 5.40 $16,207.00    
Jul 24 09 QUADRA MINING QUA 3000 Shares Sold @ 10.00 $29,993.00 $13,786.00 85%
Mar 10 09 TALISMAN (OIL) TLM 1000 Shares Purchased @ 12.35 $12,357.00    
May 27 09 TALISMAN (OIL) TLM 1000 Shares Sold @ 18.00 $17,993.00 $5636.00 45%
Jul 09 Total Dividends earned Earned on above positions $5480.00    


Total Capital Invested: $172,978.00
Total Dividends Earned: $5480.00
Capital Gain: $101,558.00
Total Capital Available: $280,016.00
Return: 61.87%

Here are the stock trades I did in my US Portfolio following the collapse of Sept 2008  March 2009
Here are the stock trades I did in my Canadian Retirement RRSP Portfolio following the market collapse of Sept 2008  March 2009


 

 

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Disclaimer: There are considerable risks involved in all investment strategies. Trade at your own risk.
Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed or presented are financial advice, trading advice or recommendations. Fullyinformed.com is a private website. Everything presented and discussed are the author's ideas and opinions only.
By using this site, you agree to be bound by its terms of use. The full terms of use can be read here. If you do not agree to the terms of use, do not use this site. The author of fullyinformed.com assumes no liability for topics and ideas discussed, errors and omissions, ads and their content and external links. Any corporate insignia used are registered trademarks of their respective company or corporation and are being used for identification purposes only. All material copyrighted by FullyInformed.com. Reproduction in whole or in part prohibited. Copyright 2008

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