Monday, September 29, 2008

Happy New Year!?


After the historic 700+ point drop in the Dow today, I felt the need to get back to the blog.  What a great time to be a trader.  All we have ever cared about is volatility, and we have plenty of that lately.  Speaking of which, the VIX traded at near historic levels on Monday.  I am going to be looking for a rally in the next few days.  This high reading in the VIX historically has been associated with nice bottoms.  We truly had fear and panic in the markets today.  Besides the VIX, you will also want to look at money inflows/outflows from the different sectors to confirm the bottoming action.  You have every talking head on TV saying how scary the market is and don’t invest, etc.  Again, that is usually associated with a short term bottom.

Being a great trader is about finding an edge and then exploiting it.  Sometimes the edge comes from the strangest places.  I am usually watching CNBC, but today an astute trader turned to a competing channel because the $700 billion bailout vote was being televised on a different channel without commercials.  (CNBC had commercials)  As the votes started to come in and time was expiring for all votes to be counted, it looked like the bill was not going to get passed.  I flattened out before the vote, even though I expected the vote to pass.  However, my opinion quickly changed.   As each and every vote was tabulated, more and more were in the Nay column.  I quickly shorted the market and was rewarded nicely and quickly.  We took out the 1136 S&P low by some 20 handles!! 

Today showed me why it is crucial to be able to react on a dime.  It is a lot harder to react when you have a large position on.  However, if you scale out before an economic number, or congressional vote you can see the forest thru the trees.  I have heard countless times over the last few months how something can not go lower.  How can WaMu possibly go any lower?  What about AIG, WB, MER, FNM, FRE, LEH and the list goes on and on.  Today we had the biggest point drop ever in the DJIA.  NEVER say that something can not go lower.