Pro’s
It’s earnings season and so far the results have been pretty good.  Profits are up, guidance is for the most part more positive than negative.  Unemployment is down, companies are cash rich and expectations are for a strong retail holiday season.  That all sounds good huh.   See, the recovery is HERE.

Cons
Not so fast, although the above is true, although profits are up, gross margins are not.  The jobless rate has not come down.   Companies are buying back stock or buying other companies, but they clearly are not hiring.  There is talk of quantitative easing (in essence printing more money to stimulate the economy) but that is a short term fix that will cause more damage long term  Not to mention the rising deficit.  Need I say more.

So now it’s your turn to weigh in.  Please leave a comment and let me know what side of the fence you are on and why.  Your opinion matters!

As Geithner said recently, “We can’t devalue our way to prosperity”, but isn’t that exactly what the government is doing?  We continue to spend, spend, which puts downward pressure on the dollar.  Interest rates are akin to zero and now we are hearing about the upcoming QE2, which will send the dollar even lower.  So is this really a good thing for the stock market long term.? Clearly NO!  If we don’t get spending under control we should expect to see a near collapse of the dollar.

Net net, not a good thing for the US economy and were on shaky ground as it is.

I anxiously await what’s next.  I’m still expecting a significant downturn and I’m even more convinced of the inevitability of it now.   So how do I intend to protect myself and make money on the downturn? I’m trading debit spread puts and I’m trading deep out of the money calls on the VIX.  More on the specifics on my VIX strategy tomorrow.

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I’m a pretty conservative investor  – with the exception of my last post – The Debit Spread – and I look to basic fundamentals when it comes to the market. Well over the course of the last year and a half, I’ve had to release my mental hold on the belief that the market moves based on economic fundamentals.    I think the market has changed, and I think it has changed for the long haul.  I totally get that although the US stock market is made up of US companies, most of the companies making up the DOW are global companies with an increasing percentage of their profit coming from overseas.      I’m not referring to that, I’m referring to a market that now moves with much greater volatility on emotion.  Emotion often times a result of NEWS!     We seem to have gotten away from the fundamentals of how our American companies are prospering and seem to trade with what gets reported by CNBC.  Now don’t get me wrong, I love CNBC, it just seems to me that the market is overly bullish without the basic fundamentals to back it up.

We are in a new era of the US stock market – low volume, electronic trading, flash crashes, and emotional trading.  I’m trying to get used to the new world, adjusting my strategies along the way.  Having said all that, there is one thing I’m sure of, even though the rules may have changed, there’s still money to be made!

Happy trading!

The one trade that I’m experimenting with (read, it’s a gamble so don’t necessarily follow my lead!)  is the debit spread.  I believe the market will go down sometime in the near future – (clearly a directional trade, which I usually avoid, but in this market I’m willing to take my chances) – so I BUY a debit spread – I’m trading the S&P, a 10 point spread expecting the market to take a down turn and when it does, I sell the position for a profit.  Warning!!!  This only works when you are predicting the direction of the market and you are correct!!  What I specifically like about this strategy, which by the way is a 360 degree turn from the iron condors I usually trade, is the cost to get into the trade is small, your losses are finite, limited to only the amount it cost you to buy into the position and your profit is huge if you call it correctly.    Okay, I’m becoming a glorified gambler – and I like it.

Happy Trading!

I’ve been silent over the last month, for a number of reasons.  I, like many I’ve talked to in recent weeks got caught in the unexpected (and as I’ve blogged, unsubstantiated) market rally and lost some money, but more importantly have found myself questioning my strategy in this volatile market.  I’m back in the game with a different attitude and a more conservative strategy.  I’m still trading the iron condor but I’ve diversified my strategy and have moved to a more conservative ROI expectation.  I have found that in the current market, you can’t count on what has worked historically to continue to work now.  The market is changing.  Once upon a time the market reflected the performance of  American based corporations and reacted accordingly.  More and more the US stock market reflects global economic conditions and even more concerning is the market movements that are a result of electronic trading.  Now I am not against electronic trading, I like other investors depend on it.  But after the “flash crash”, you have to wonder, can that happen again.  Going forward it one thing you can take to the bank, the market has changed and it would behoove you to recognize that and trade accordingly.

Happy Trading!