The news looming over all of us now is the government's takeover of Fannie Mae and Freddie Mac. It is reported this would be the largest bailout in the nation's history. As an American, this saddens me. It saddens me to see the government of our country turn its back on true capitalism and whore the nation's treasury for the sake of their friends. This is not how a free market behaves. Free markets – – true free markets – – are natural, healthy, and self-cleansing. Sometimes the cleansing process is painful. But what Hank Paulson and Ben Bernanke are doing is destroying the country's future for the short-term benefit of ingratiating themselves to their small body of constituents.
Having said that, as a bear, I couldn't be happier with this news. As readers here know, last week was sensational for me. But I got out of my index puts since I felt they had done their duty, and I wanted to see indexes fight their way back to their failure levels before re-entering those positions. But what would create such an opportunity? What new reason would the bulls be given to buy? Well, my friends, the reason is here. Straight from God in heaven above. Another bailout. Another white horse. Thanks, Hank. I'm not the patient sort, and this is going to let me reload without the bother of waiting around.
As for where to re-enter – – anything near 1,260 on the S&P 500 is going to get me excited.
Folks who read this blog aren't used to hear me talking about "buying calls" and "going long", but on Friday, that's exactly what I did. I loaded up on precisely those things which had made me money on the short side just days earlier……….oil………gold……….ags. This is somewhat risky, since I am betting on a countertrend movement, but that's how I am positioned. Playing both sides requires ridiculous amounts of dexterity; I'm not sure if it will pan out, but to my way of thinking, the graphs are telling me that it's time for a bounce higher before we resume the broader bearish sweep down.
One specific issue I've gone long is ABX. I'm not sure if it would push its way as high as that horizontal line; it's sort of done that already; but I think this is good for a couple of points.
A larger point move is more likely with FCX, which got near a major support level that stretches back more than a year.
I bought puts on CLX about a week ago, and it's just about the only thing I own that's in the red. I'm willing to hang on. I like the look of this chart.
Of course, I am delighted that the $UTIL finally broke down. We've been waiting a few weeks for this, and it's finally here. The FNM/FRE bailout will probably send interest rates zooming higher, and obviously that will be great for this bearish position.
As for which energy issues I've been buying, I've been focusing on those charts which have retraced to safe support levels. Let's face it – the chart below is pretty bullish looking. In some cases, I might not even hold on just for a quick bounce; there is a real argument to be made for the long-term strength of such a graph. Of course, it would have to push past its August highs. If it did, this becomes a dynamite bullish chart.
I think the investment banks could find some serious strength too. Just look at MER (incredibly, this retracement pattern goes back to 1974!) I think a ride up to the high 30s is absolutely within reason.
While energies in general have been falling, natural gas in particular has been getting just obliterated. Look at the continous contract below for the NG futures. There is a hugh amount of ownership at these price levels. I think support here will be terribly strong.
…….which led me to go long (for the first time ever) UNG…….
In some cases Friday, I was tempted to take profits, but I wanted to be in a position to take more if the fall extended. EXC was a good example. I had four puts, which about $6,000. I decided to sell half the position (for about 100% profit) and hang on to the other half. To be honest, I can't picture this falling much more right now, so I've set my stop absurdly tight. But you never know.
Well, I'm typing this from my little girl's gym, which smells like someone's jogging sock, so I'll sign off until Monday. If the rumors are true about FNM and FRE, it's going to be an amazing Monday. I get very cautious when things go this well – – I'm expecting the trading gods to come down and smack me with losses. But if one remains humble, cautious, and prudent, you can at least make sure your ego and success don't come back and force humility down your throat by means of losses.
