Stock Wars: Surviving the Darkside of Deleveraging...
How 'bout some tips, tricks, and techniques for surviving
the brutal attacks from the darkside, and deleveraging?
Technique #1 -- Patience.
"Never interrupt your enemy when he is making a mistake."
-- Napoleon Bonaparte
Back in May I talked about the speculation in oil, and
natural gas. I thought "time" not "tape" would determine
the top, and that patience would be both tested, and rewarded...
==========================================================================
Message 24574487
5/9/2008 8:20:46 AM
From: SliderOnTheBlack
Message # 9538
re:["After a brief 'head-fake', the "PUCK" will be @
$150 oil, and $15 natty!!!"]
I can only hope.
That's my point, stand aside and give 'em some rope.
It's not just about price.
It's also about time.
As far as $15 nat gas?
Two different sets of fundamentals, and catalysts, for oil
and gas.
If gas continues to follow oil higher, nat gas once again
becomes a discrepancy between price and risk trade - short.
I've made two massively profitable short trades against
natty over the last few years, and @ $15 summer gas -
there shall be a 3rd.
So it was written - so it shall be done.
...bank on it.
Deja Vu all over again?
The whines of the beltway dinner party cognoscenti brought
pressure on gold, on defending the dollar, and on addressing
inflation. Gasoline prices are reaching max pain levels, and
the elections are just six short months away.
Politicians may be blind, but they aren't deaf.
Don't get greedy if you're long. Natty got cut in half in
less than a month, and fell from $15 to the $4's during
the '05/'06 bubble collapse.
Banks have a mantra: "know your customer" -- traders,
ought to be heeding that same mindset right about know.
Remember, you have to have a story to sell, and a large
herd that's not in, to sell it to.
And once the music stops, there's no more story, no more
herd.... only a very large crowd, in a very small room,
with only one, very small exit door.
SOTB
===========================================================================
Time, not tape...
While Nat Gas did not reach $15, it did reach a discrepancy
between price and risk, given the fundamentals of supply/demand,
and the deleveraging in the broad market.
===========================================================================
Message 24783435
Message #10923 from SliderOnTheBlack at 7/23/2008 9:01:44 AM
Deleveraging....
I like the risk:reward in the nat gas short better than oil.
It broke first, and is at a critical pivot point right now,
with $7/$8 waiting in the wings. Now down -21% since
the 4th of July.
And it's not just nat gas & oil... the CRB is down
-10% since the 4th of July. With the US Dollar holding
up (for now) and forming a base, gold is actually
hanging tough, and continues to be stronger, and less
volatile than the gold stocks.
I think Bernanke is letting the recession play out, which
in turn is collapsing commodities, and when/if oil breaks
$110ish...and if we see any positive economic
indicators and a stable DOW... we'll see our first rate hike.
Amazing how the rise in oil and the collapse in financials,
brought the markets to the brink of collapse, and have
now turned on a dime... like doing a U-turn with the QE II.
Later tonight I'll try to post some interesting anecdotal
evidence of a serious shoe yet to drop... major cutbacks
in state and local governments due to huge budget shortfalls.
Major layoffs coming from the public sector...
We shall see if Bernanke & Co. can manage this de-
leveraging phase without having to massively re-inflate
to stop the carnage.
SOTB
=======================================================================
One technique than can keep you in the game is hedging.
You can do that via option strangles and straddles, or
merely by buying puts for insurance. And you can do it
buy shorting another sector (nat gas) that has potentially
more downside than the sector you desire to stay long in,
and maintain upside leverage to (gold).
I've talked about keeping gold (the metal, or GLD) vs.
gold stocks as your "core hold" during these corrections,
as it has had much less downside than the stocks on
corrections.
Here's how that strategy has played out over the last
couple of weeks:
Since my July 23rd post above, Nat Gas is down nearly twice
the level of Gold (And 3x the drop in Oil).
Nat Gas is down another -15% vs. -7% for Gold.
And gold stocks are down 2 x the correction in gold, with the
HUI index down -15% vs. -7% for Gold/GLD.
That hedge, should be in addition to the put/short profits
you've begun to cash in at the bottom of the HUI's trading
range here...
Message 24784986
And I said -- "begin" to cash in, because the fundamentals
for gold and gold stocks have changed. And that's where
the next debate can now begin...
Have the fundamentals for gold changed?
-- How?
-- Why?
-- What to do?
We're only beginning to cash in our puts (about half) here
on this HUI correction because of our belief that the
fundamentals have changed, and that our downside risk
for the HUI Gold Stock Index is NOW back down
to the August 2007 lows of HUI 280-300. We've continually
lowered and brought our stops down as the HUI continues
to correct. We took about half of our put profits between
HUI 385 and yesterday's 360 levels, and we are holding
the remaining half, with stops set between 385-400, in
anticipation of a potential re-test of that Aug,
2007 low.
And we've only begun to tread lightly into buying, and
re-establishing our longsided upside...via carefully
selected individual stocks, and giving up some nearterm
upside for "time" via LEAPS and long dated calls.
Remember, the last "Trading Range" in Gold, and Gold Stocks
took nearly a year and a half to play out.
More on the strategy of what to buy, and how to buy later,
as well as my thoughts on what's changed for the fundamentals
of gold... why it's changed... and what to do.
May the Force be with you,
Mo later,
S.O.T.B. |
