I would like Threaders to consider the following thoughts
for the purpose of general discussion. Recent market
activity has induced me to buy Jan OEX puts and
reexamine my bullish outlook of the last three years.
FWIW I have consistently lost money on put protection
and, as such, my track record in this regard is dubious.
I was, however, very bearish throughout 1987 and have
begun to see disturbing similarities. My puts will allow me
to remain fully invested on a cash basis with no margin.
If the market returns to all-time highs I will be very happy
to lose my put premiums and leave money on the table.
But I advise caution here and encourage discussion in
order to, possibly, return the insights I have received
from the many knowledgeable posters on SI.
(1) A 1000 point drop in the DJIA is not inconceivable and
should be viewed as a possibility. After all, such a decline
would only return us to Jan'97 levels and has happened
many times in the past on a percentage basis.
(2) A 1000 point drop would not have to occur in one day.
But let me describe such a scenario. Sunday evening
Hong Kong drops another 10% or more followed by same
in Europe. A 10% decline in the U.S. is 770 points
which would may have to be distributed over two days
due to "circuit breakers". The overnight hand wringing
could push subsequent selling even further.
Alternatively a bearish trading pattern like this last week
could continue for several weeks. That either situation
is plausible should be cause for concern or prudence.
(3) The timing of the Swiss Central Bank study on gold
sales was the worst public comment I've seen since
James Baker in 1987. Given market nervousness, they
showed incredible stupidity releasing a report that further
eroded a perceived "safe haven". Traders now are unsure
if the $16 drop Friday was due to the study or to the Bank
of China selling gold to defend Hong Kong.
(4) Few governments have successfully pegged their
currency after the market decides otherwise for them.
The Hong Kong authorities may introduce further
unwanted volatility into the market rather than helping it.
(5) A bond market rally has resulted in a rally for stocks
almost every time during the last 3 years except for
this week. This suggests that profit taking and flight
to quality is underway.
(6) Credit swap spreads have reportedly expanded by 50 to
75 bps. or more during the last 2 weeks again illustrating
a flight to quality.
(7) CBOT grain prices followed the stock market on
Friday suggesting liquidity concerns by speculators.
(Grains ended up before further DJIA erosion at the close.)
(8) Nervousness still exists over the Japan banking,
insurance and property sectors. This uncertainty
would be heightened by further HK declines since
40% of foreign debt in HK is held by Japanese banks.
(9) I could be totally wrong and hope I am.
But I have traded, observed and studied many markets
for many years. I find it troublesome that so many
SI Threaders are fully margined and have no cash for
further allocation to obvious bargains. I cannot
explain today's market activity or such low current
values for AMAT,CPQ,INTC other than to stand back,
revise my outlook and advise caution to so many posters
that I have engaged in dialogue and enjoyed reading.
(10) The purpose of these comments is not to provoke
fear or panic. I am very long Tech. stocks.
I don't want or mean to sound pompous, officious
or crazy. And of course I run the risk of sounding like
a complete fear-stricken idiot to many serious Bulls.
However, my investment strategy is also long term. I bought
puts because I hate giving my profits back to
potentially stampeding short term investors.
I had to get this off my chest tonight. I must retire
now and will check replies, if any, tomorrow. Please
avoid the SI tendency to shoot the messenger. I'll
check back over the weekend when family time permits.
P.S. I do not adhere to technical analysis but traders
that do have the 200 day M.A. in sight which could be
easily broken on Monday or next week. A herd of elephants
could happen.
P.S.S. For the market to rise I think its essential that
AMAT report a great outlook and PPI/CPI are well behaved. |
