LOL!'s Market Timing Newsletter

[Fermion]

You call a $0.13 move on a $80 equity a pop?

 

[LOL!]

It is not an equity fund.

 

[MichaelB]

Uh-oh, BND popped a little bit early:

Fed announcement. Or non-announcement, as it were..

 

[LOL!]

Clearly, somebody leaked the news a few minutes early.

 

[LOL!]

Some equity ETFs popped very nicely for an hour, then settled negative for the day.

My recent BND purchase seems to have worked out as I expected. BND is up 0.57% for the day closing at its highest level with no fading at the end like stocks did. Only a couple of other ETFs that I track did better and they are interest-rate sensitive: TIP (TIPS) and VNQ (REIT index).

Of course, if I had bought an equity fund instead of BND, then I would have made more money since equities have gone up the past couple of days, but I would have taken on more risk than I wanted to as well.


Did anybody go in and out during this afternoon's ups and downs?

 

[NW-Bound]

Right after the Fed decision came out, I added to my GE and an EM ETF positions. The EM was meant as a short-term bet, while GE is one of my core holdings for dividend. Well, they went up, then fizzled out like Utrecht predicted earlier.

But with the Fed delaying the rate increase again, I am tired of holding my breath. I may start to shift some of my cash paying peanuts into blue-chip dividend stocks that pay at least 3%. Many of them are a lot less expensive than earlier this year. A few are down -20% or more. I guess that's good enough.

 

[utrecht]

Some equity ETFs popped very nicely for an hour, then settled negative for the day.

That was exactly what I was talking about. It happens every time. Whatever the big move is, its wrong and you should fade it.

I used the swings to close out the trades I already had opened when they swung in my favor.

AAPL Sep/Oct 110 spread.
Paid 1.39
Sold for 1.25 (it was worth .97 before the announcement)
-10% loss
Worth 1.25 now

WYNN Sep/Oct 70 spread
Paid 1.37
Sold for 2.70 (worth 2.65 before announcement)
+97% profit
Worth 2.90 now

GOOG Oct/Sep 620 spread
Paid 12.30
Sold for 13 (worth 11 before the announcement)
+6% profit
Worth 10 now

Avg profit of 31.5% of the 3 spreads

Also used the announcement to sell my
XLU Nov 42/44 call spread
Paid 0.52
Sold for 1.00 (worth .70 before the announcement)
+92% profit
Worth .77 now

You can see how much these trades swung and then reversed during the volatility of the announcement.

I also sold some GOOG Nov 600 puts before the announcement for 14.80. They are down to 13.05 for a 12% profit already (even though you dont really calculate profits that way when you short puts). I could close the trade with 12% of the max profit right now.

 

[Running_Man]

That was exactly what I was talking about. It happens every time. Whatever the big move is, its wrong and you should fade it.

I used the swings to close out the trades I already had opened when they swung in my favor.

Well the market was up 100 then FED announcement and then immediately it was down 65 points, reversed went up to +140 then back to down 65. Number one there was not a "big move" off of this announcement, there was non reaction. If you are making profit on interday moves of +- 200 dow points that is a really fine degree of accuracy you hold

 

[Mulligan]

Right after the Fed decision came out, I added to my GE and an EM ETF positions. The EM was meant as a short-term bet, while GE is one of my core holdings for dividend. Well, they went up, then fizzled out like Utrecht predicted earlier.

But with the Fed delaying the rate increase again, I am tired of holding my breath. I may start to shift some of my cash paying peanuts into blue-chip dividend stocks that pay at least 3%. Many of them are a lot less expensive than earlier this year. A few are down -20% or more. I guess that's good enough.

Why NW, you aren't turning into a "dirty yield chaser" are you? I got yelled at by my HSA brokerage account today. I sold off a couple minor yield chasing preferreds and rolled them into some more WFC-L. Seems they don't let you use unsettled funds to trade with. My main brokerage has no problem with it provided I don't sell the new issue before settlement occurs. Oh well, live and learn. They let the trade go through "this time".


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[utrecht]

Well the market was up 100 then FED announcement and then immediately it was down 65 points, reversed went up to +140 then back to down 65. Number one there was not a "big move" off of this announcement, there was non reaction. If you are making profit on interday moves of +- 200 dow points that is a really fine degree of accuracy you hold

I dont understand your post. A good trader will make a killing on swings of 200 points intraday when they come in a predictable way and when it happens in minutes. That's not a big move? From up 100 to down 65 in 2 minutes? Then back up 140 and back down 65?

I dont watch the DOW. I watch the SP500. When the announcement came it was at 200.90. It moved up immediately to about 201.60 which is not as much as it normally does in a spot like this, but even so, it reversed very quickly and went back down to 199.40. That's a 1% swing from top to bottom within about 3-4 minutes. There's a lot of money to made there. The first move was a head fake which is what I said. I didn't trade the move this time because I used the move to close some positions I had open, but if I hadnt been busy with those trades, as soon as it started reversing I would shorted something. It works almost every time.

Later, it moved back up to about 202.90 (a 1.5% move) and again it reversed quickly back to about 199.40. Another 1.5% move down. Again, lots of money to be made there if you anticipate those moves and what Im saying is it happens almost every time there's a big announcement like this.

 

[Fermion]

Right after the Fed decision came out, I added to my GE and an EM ETF positions. The EM was meant as a short-term bet, while GE is one of my core holdings for dividend. Well, they went up, then fizzled out like Utrecht predicted earlier.

But with the Fed delaying the rate increase again, I am tired of holding my breath. I may start to shift some of my cash paying peanuts into blue-chip dividend stocks that pay at least 3%. Many of them are a lot less expensive than earlier this year. A few are down -20% or more. I guess that's good enough.

Write some covered calls. Turn a 3% dividend into a 6% dividend, even with a call that is 10% out of the money. Worst case you make 16%.

 

[LOL!]

Thanks for comments everyone.

I had my "trading platform" open around 14:00 so I could see any action. I also did a video capture of the display, so that I could play it back if things went fast. Much to my surprise, trading was lethargic in the two ETFs that I was interested in. For instance, BND had about one trade every 10 seconds. Because there was no volume I got bored after 4 minutes and stopped watching closely. BND took slow and steady chug upwards for the next two hours which suited me just fine.

 

[utrecht]

If you wanted action, you shouldve watched the interest rate sensitive stuff like VNQ and XLU.

VNQ jumped 1.7% in 2 minutes, then fell 1.25% in the next 5-6 minutes and zig zagged a few more times.

 

[NW-Bound]

Why NW, you aren't turning into a "dirty yield chaser" are you? ...

Dirty or not, I am tired of holding my stinkin' cash, and I do not like bonds. The Fed made me do it.

Besides, like I said, quite a few blue-chip stocks are down significantly from their earlier high.

Examples:

MMM - down -16%, yield 2.9%
JNJ - down -13%, yield 3.2%
VZ - down -13%, yield 5.0%
PG - down -25%, yield 3.8%
WMT - down -30%, yield 3.0%
MRK - down -15%, yield 3.3%
DD - down -37%, yield 3.2%

And the above are just Dow 30 components too. If I buy them now or add to my positions, am I not true to form as a "market timer", like my self-proclamation?

Write some covered calls. Turn a 3% dividend into a 6% dividend, even with a call that is 10% out of the money. Worst case you make 16%.

That has always been the plan. In a poll earlier this year about market expectation for 2015, I said the market would be fluctuating +-10% this year because P/E was already too high, plus the bull market had been long in the tooth. So, selling covered calls was the plan.

However, there were diversions in life like RV'ing, home fixing, partying, wedding in the family, etc... and I have not been as active in the market as I should. But it all changes now.

 

[NW-Bound]

Write some covered calls. Turn a 3% dividend into a 6% dividend, even with a call that is 10% out of the money. Worst case you make 16%.

By the way, you are too bullish. Worst case the stock drops 20%. After 3% dividend+3% option, I still lose 14%.

 

[Mulligan]

Dirty or not, I am tired of holding my stinkin' cash, and I do not like bonds. The Fed made me do it.

Besides, like I said, quite a few blue-chip stocks are down significantly from their earlier high.

Examples:

MMM - down -16%, yield 2.9%
JNJ - down -13%, yield 3.2%
VZ - down -13%, yield 5.0%
PG - down -25%, yield 3.8%
WMT - down -30%, yield 3.0%
MRK - down -15%, yield 3.3%

And the above are just Dow 30 components too. If I buy them now or add to my positions, am I not true to form as a "market timer", like my self-proclamation?



That has always been the plan. In a poll earlier this year about market expectation for 2015, I said the market would be fluctuating +-10% this year because P/E was already too high, plus the bull market had been long in the tooth. So, selling covered calls was the plan.

However, there were diversions in life like RV'ing, home fixing, partying, wedding in the family, etc... and I have not been as active in the market as I should. But it all changes now.

Many of your above examples proved to me I had to find a niche I can live with. Last year when JNJ dipped below 100 I was really hot on the trail to buy me a 100 shares for starters. But then held back. When it dropped even lower I didn't want to buy because I knew it would go lower. A person cant make many trades with that pitiful trading mentality.
But I did manage to step out of preferred arena for a minute two weeks ago to throw caution into the wind and actually buy 500 shares of EDE. My only common stock (ok, barely a common as its a utility) is already up a buck, but I only bought it for the 5% yield that is due for another divi bump.


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[NW-Bound]

It's too tough to get all out at the top, or get all in at the bottom. Nobody is that good, and if some manage to do it one time, chances are slim that they can do it again.

So, if I sell a stock when I think it is ripe for picking, and able to buy it back later for less, I call my trade successful even if it drops lower. And I like to buy bigger names that are not likely to go bankrupt. With stocks that people consider "buy-and-hold", if I can do a few trades to pick up a bit extra, I am happy.

And then, there are more volatile ETFs that I trade short-term for fun, but short term to me means days or weeks, not intraday like Fermion does.

 

[LOL!]

^Yep, too many people get down on market timing if market timing is not absolutely perfect. For myself, I keep track of my benchmarks for comparison.

Perfection is not required since I am not trying to make a killing, but I want to hit singles and doubles consistently. That does not mean I do not strike out sometimes. So YTD I am ahead of my benchmarks, but more fun for me is that I am almost back to the portfolio value at the beginning of August when markets started to swoon. The trades I made in that last week of August were some of my best.

 

[Mulligan]

^Yep, too many people get down on market timing if market timing is not absolutely perfect. For myself, I keep track of my benchmarks for comparison.

Perfection is not required since I am not trying to make a killing, but I want to hit singles and doubles consistently. That does not mean I do not strike out sometimes. So YTD I am ahead of my benchmarks, but more fun for me is that I am almost back to the portfolio value at the beginning of August when markets started to swoon. The trades I made in that last week of August were some of my best.

I didn't mean to imply it wasn't a good idea to do it. Actually I wish I could. I was just referring to myself. I have about got my portfolio set up to buy and hold forever and collect the high yielding dividends. That really is the only way I feel comfortable. A man has got to know his limitations as they say. I will clip my 6.25%-7.25% divis and move on.


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[audreyh1]

I don't have the guts. Do you?

The winds of hurricane eye are strong and go in opposite directions on the opposite side of the center. So one might get 80+ mph winds in one direction, then 30 to 60 minutes later after a little calm, 80+ mph in the other direction. One has to be prepared for all possibilities.

Especially today. It went down, then big up, then down again wiping out any gains. Pretty volatile.

 

[Fermion]

By the way, you are too bullish. Worst case the stock drops 20%. After 3% dividend+3% option, I still lose 14%.

You are not using the correct frame of reference. In the frame of reference where you would be invested in the market anyway (and taking the full 17% loss), the worst case is a runaway market which leaves you with only a 16% gain. All of the other cases you come out ahead vs someone who just straight buys the stocks on this dip.

 

[NW-Bound]

Our perspectives are different. You worry more about missing out on a bull market, but I am also thinking about the lossy side.

I think we all can see that with covered calls one gives up some upside potential in order to reduce the downside risk. It's a trade-off that I am willing to make because I do not think the market will shoot to the moon from its currently high P/E, yet does not crash. Your worst case would make me ecstatic.

It may be time for Schiller to be proven right. And so, another alternative is sitting out of the market in cash, which I would do if I were so bearish.

 

[Fermion]

I think you misunderstand me. I am saying I agree with you that covered calls reduce risk because they give you a bird in the hand in exchange for not being able to look in the bush.

They blow everything else out of the water in a decades long stagnant market. Imagine 20 years of everyone earning just 3% dividends while you earn 6%.

 

[NW-Bound]

I think you misunderstand me. I am saying I agree with you that covered calls reduce risk because they give you a bird in the hand in exchange for not being able to look in the bush.

OK, I think we were talking about different aspects of the same thing.

They blow everything else out of the water in a decades long stagnant market. Imagine 20 years of everyone earning just 3% dividends while you earn 6%.

Well, that would be nice, although the crazy market may surge resulting in your shares getting called and you are now faced with waiting for a re-entry point. And in a bull market you may be out for a looong time. It's no free lunch.

I have done mostly covered calls of individual stocks, and mainly holdings that I thought were overbought and due for a correction soon. This is of course a chicken form of market timing, and that has backfired some time.

Here's a scenario. You buy stocks A and B at $100 and write calls for them both at $110. Stock A surges to $130, while stock B slumps to $70. Because stock A gets called, you now have $180. But if you did not write the calls you would still have $200.

Speaking of stocks getting called, I recently remembered owning BTU, a US coal miner, prior to the Great Recession. In 2008, my options got called and I "lost" the stock before it peaked out at $88, and I kicked myself for that although I already made good money. I was watching it for a re-entry, but I got distracted by the Great Recession, and never got back to tracking that sector. Just yesterday, remembering this stock, I looked it up to see where it was. Trading below $2 now, because coal is now a dirty word! Yikes.

 

[LOL!]

So with today's sell-off in the equity market and the gains in the bond market, there is a lesson and this is what I think the lesson is:

The equity ETFs that I look at ended up today priced at about where they were on Monday. These ETFs went up through the FOMC announcement.

In contrast, the bond ETFs dropped in the couple of days before the FOMC announcement and then went up with the announcement and continued up today.

It appears to me that many folks wanted a rise in Federal Funds Rate. The anticipation was palpable. Bonds dropped, but since equities rose, then fell, this portends what will happen the next time the FOMC is expected to raise rates and then follows through:

1. Equities will go up in the few days beforehand and then stay up.
2. Bond funds will go down in the few days beforehand and then stay down.

What do you think?