Wang’s Happy Trading

Submitted by Luck-o-the Irish

Make no mistake about it…tomorrow is going to hurt. Barring some lifeline thrown by the Fed, in the form of a premarket 75 bps rate cut, tomorrow will be a day we may all be chanting “Redrum” by the time that it is over. As I type this, I see the Hang Sang is down over 5% just minutes after opening. The Nikkei has been volatile early, but is now down over 4% as well as the Shanghai index being down over 4%. All of this after already taking a drubbing on their Monday session. The US futures have stabilized after being limit down yesterday, but I think much will be determined by action in Europe, the Fed’s action (or inaction), and some earnings reports. Although I’d liken a good earnings report to throwing rocks at the Great Wall of China in hopes of breaking it down. It would be wonderful if we could all say that we saw this coming and we are perfectly position, but unfortunately that is not the case for most. A few traders lucked out and are holding lots of cash going into Tuesday, thanks to the option expiration that just passed us, and to them, this week (not necessarily tomorrow) may present a wonderful opportunity.
Happy, Dragon, and I spent several hours on the phone today talking about the market and reviewing charts and strategies, so that we could all handle the week as best as possible. As for me, many of you already know, that I am short the IWM going into tomorrow, have lots of SPY puts from last Wednesday when the S&P 500 broke below 1360, and have been hoarding shares of FXP (the 2x inverse of the FXI) for the last two weeks now, but even in looking over everything I don’t know that that will be enough to completely stave off the slaughter in the morning. Fortunately, as I have advocated many times, my portfolios often carry high cash positions and/or hedges, so I am going to be looking for both short and long term opportunities. First things first…don’t panic. You can’t change the open by yourself. Deal with it. It would be great to say, if only, or I wish I had… or any of those things, but we have to play the hand that we’ve been dealt, so unless you are completely wiped out, you still have a “chip and a chair” and the game will go on with you in it.
Now…on to the week. Here is what I am currently looking at and ideas that I am playing with:
1) If I buy any shares of ANYTHING other than a currency basket, I am going to purchase puts to offset any continued possible downside. Corrections and bear markets can be nasty. Just when you think we are oversold, and can’t be sold any more, you will find your holding overly over sold and be done just like that. I talked about this on the board on Friday, that all new long positions were being opened with put protection. You have no idea how glad I am of that right now.
2) I am watching the 11,400 to 11,500 range on the Dow and 1250-1260 on the S&P 500 as possible temporary bottom. Once we get a bounce, I suspect that any bottom put in tomorrow will have to be retested in the near term. Everyone and their brother is watching for a spike on the VIX (into the 30s), so we’d be fools not to put that on our radar, whether you believe in it or not.
3) Short side:
T - looking to short via put below 36 (not much support until the high 20s)
OIH - This thing could head to 140 if it doesn’t firm up soon (remember Happy and I were already on puts on this about 18 points ago)
USO - Happy, OD, and I discussed this one in great length. A movement below 69 could be a real nice put play
COF - Already on Feb 45s, and no plans on selling those yet
XLE - Not as excited by it as OD, but man, those puts volumes are HUGE.
AAPL - under 160 and earnings that don’t excite sends this to 140 in a blink, and 125 if the market stays weak. It does have upside potential. I already have it strangled at 155p and 180c. Most likely I will have a spread/combo play on this tomorrow
4) Long side:
MSFT - Buying long term on any big dip tomorrow
ORCL - great numbers, chart looks solid. Probably a place for what is considered “safe tech” money
MO & JNJ - watch earnings on JNJ. Defensive players will run here first, so we might see quick. MO looks to have support around 73, and that could make a good entry point
TKC & VIP - both will get slammed, but they are some of the highest quality emerging market telecom plays out there. Best suited for the longer term.
ADS- possible arbitrage play. Will try to put together a spread on this
5) Pair trades (will be discussed more in depth on a post this week)
a) Short XLF, Long STT, BLK, USB, LM
b) Short RTH, Long GES, CROX, DECK, TGT, and HD (lowest weighting on HD, highest on CROX and TGT)
c) Short XOM, Long CVX (equal dollars)
d) TriTrade (post will follow on this), but it is a market neutral strategy that involves going long an index ETF, SHORT the Ultra index of that ETF (2x Long) and SHORT the ultra index (2x inverse) of that ETF in equal net shares and equal net dollars. i.e.) Long 42 sh QQQQ; short 64 shares QLD, short 11 shares QID

There are some thoughts to get your day going. I will be up early as the news should be sensational tomorrow. If you are lucky enough to get to watch Jim Cramer live, then I would imagine that it will look something like a Gallagher show with spit and watermelons pieces flying everywhere as he slams his fist and sprays his words. You can’t ever argue with that guy’s spirit!