Friday, March 2, 2007

Market Commentary

Here are some thoughts about the current market conditions.

We have been in need of a correction after this bullish uptrend since August 06. Did we expect that kind of drop? No. Are investors on nerve right now? Yes. Will selling continue? I think so. Is it time to start looking for a short off a bounce? That's what I think. Are defensive stocks safe? Depends on how long you hold them and if you believe in dollar cost averaging. Here's some sobering realities.

In October 1987. GE saw its stock close at 50.75 on Friday, October 16, 1987. On the following Monday, known as Black Monday, it dipped to as low as 38.75. Even a safe, defensive stock like JNJ had more than 18 percent of its value disappear during that awful day.

I love it. Please investing world let the hedge funds have their year. More panic, more money for the contrarians and less for the herd.

Still in cash position right now looking for shorting opps.


teapot said...

how to u look out for a good option to buy?? any secret or tip??

tmk0427 said...

Thanks for your question, Teapot (interesting name too). Unfortunately, I don't operate the blog anymore (got caught up in another project). There really is no secret to picking a good option to buy. If you are speculating that a particular stock or index is going to go down or up over a short term basis, then you can enter a long call or long put position. What's important to know about options is that they are depreciating assets much like a car over time. However, it's important to note that even though options decay over time there is also an implied volatility factor that needs to be assessed before entering any position. In other words, generally speaking, it may not always wise to go long a call or put after an important event has occurred such as an earnings report or an analyst upgrade/downgrade, or a merger, or a split, or a sales forecast adjustment just to mention a few events that cause spikes in implied volatility. Mostly because it means that the expected move of the underlying stock price is typically already priced into the stock and hence the option premiums. However, if you have a longer time horizon and have some staying/buying power then longer term options may make sense primarily due to the leverage effect inherent in option premiums versus outright stock buying even on margin. I hope that helps with your question and I wish you the best of luck.