Good trade on the Q's. I am in just about where it closed. I am looking to get out by Tuesday. If the Q's close under $39 on Monday, which it could based on the last two closes, then $38.87ish, is a big support level. The puts could run to $1.50? That's a short term target here. I'd love to see $2, which would be $38.50 or less by Wed. I think the odds are pretty good for that to happen, but I don't want to push it.
Now, the seasonality has the market falling the next week and a half to two weeks. After that, there is a big cycle top Aug 26 to the 30th, in which the market should sell off pretty dramatically into Oct. Sep could be a very ugly month. There are so many clear support levels now that it will be obvious if the market just wants to fall off the cliff.
So, keep your trades small on the short side between now and late Aug. The theory is that the market right now is discounting a possible late 2009 recovery in terms of news. The market always prices in before the actual news comes out. The question is, what happens next year? That could be the imputus to sell off, plus the cycles.
Now, everyone on CNBC screams about fundamentals and how they justify the market moving higher, not 120 points in two weeks, but higher. Well, let's look at that scenario:
The SPX this year looks to come in around $55 per share combined earnings. That means, if you take all 500 companies and you average their total EPS on GAAP, you get $55 per share. The market is considered 'fairly valued' around a multiple of 15. If you multiply 15 x $55 per share, you get an SPX fair value of 825, or looking at it another way, putting the market right now 16% OVER valued at 990ish.
But the market looks forward, not back. It's 'assumed' that the SPX could do on the HIGH end $70ish per share as 2010 being a recovery year. Okay, at $70 x 15 you get 1050, or putting us 6% UNDER valued.
Seems simple. But the problem with that is back in 2007 when the market was making new highs and the SPX was trading over 1500, the combined EPS was 'expected' to come in at $99, but never did and was actually doing around $90. So, how the hell is the SPX going to come in nearly what it was doing at the peak of the bubble in 07? Huh?
You see why I say to not listen to the constant drumbeat of market pumpers on CNBC? We could be trading at 2000 on the SPX with the current EPS coming in at $50 and they'd still be telling you to be buying.
The point of all this is that you have to look at those numbers to know where you're at at all times. This way when you hit resistance like we have, you know if it's a good time to short, like I do. But not big yet. I think there's a fortune to be made on these QQQQ puts. But wait for the perfect time. There is this small fall early next week, but a big pop into end of Aug. Or, it could be just another retest of the Nasdaq 2000 level/SPX 1000 and then a decline into Oct.
We'll see!
I want to SELL the BAC calls we bought with a limit of .70. They're currently at .84. This way we get out at open on Monday. I don't like the fact that the market is at this major resistance level. BAC is a DOW stock and could fall very quickly with the rest of the market. There'll be another time to get in, but I think things are on the verge of changing to the downside for a correction.
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