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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Stephen M. DeMoss who wrote (28005)	9/30/1999 2:11:00 PM
From: Fun-da-Mental#1	Read Replies (1) \| Respond to of 99985

Stephen, re. how to profit from a downtrend, my strategy is to buy puts on or short financial sector companies whose profits will be hurt by a decline in the market. That way if the market corrects they get hit with a double whammy of declining profits combined with a bad environment for all stocks. Last year when the market dropped 20%, most brokers and investment banks dropped at least 50%. Puts on these companies are priced higher than index puts, due to their higher volatility, however I think the put prices do not fully account for the potential of these companies to crash in a bear market, so these puts represent good value. A more speculative put/short is MSFT. It held up during the market correction last year, so it gives the impression of invincibility, and so out-of-the-money puts are very cheap. However if PC sales slow down, MSFT is going to be hurt just as badly as the hardware companies, plus its P/E valuation is much higher so it has further to fall. Thus MSFT puts might be a bargain too. I'm buying puts with expiry 3-6 months from now. I think that time frame offers a risk/reward ratio I'm comfortable with. Fun-da-Mental

To: Stephen M. DeMoss who wrote (28005)	9/30/1999 5:58:00 PM
From: Jacob Snyder	Read Replies (1) \| Respond to of 99985

re: "What play to the short/put side would be the best." I've got 9% of my money in Nasdaq 100 puts, bought between 9/14 and 9/24. My reasoning is: 1. I'm not clever enough to pick individual stocks that will go down most if the market tanks. 2. good liquidity on the qqq options, and I've had good luck "negotiating" with the market maker to decrease the spread I pay. 3. this index comprises the big cap techs. These stocks, collectively, are the most "in-favor" group, and are the most overvalued. Although they have high earnings growth, their PEs are even higher. Going through the top 10 companies (its a market-cap weighted index), they are all at the top of their historical valuation range, and that range is wide. Their PEG ratios are all 2 or worse. 4. I see inflation in 2000 (for reasons posted earlier). When that happens, PEs will contract, and the highest PEs will contract the most. 5. The other groups that have led the market over the last 3 years (financials, drugs, internets, etc) have all stumbled, one by one. The big cap techs are the only ones where I can still buy puts at the very top. I hope its the top, anyway. 6. If I had to pick individual stocks, I'd pick PFE, AOL, and MU as the most puttable.