Friday was just one of those days in the markets where there was a little something for everyone……..the anticipation leading up to the Fed Chairman’s speech in Jackson Hole was one of those events that feed the 24 hour cable news machine and give generally boring economists and market pundits something to talk about. Even-though I write daily about the markets, I am idea driven and look for catalysts and securities to express my views, I put my money where my mouth is, and I reserve the right to change my mind (which I do often).
I had been positioning for Friday’s double billing of an expected weak Q2 GDP reading and the lack of Fed action as it relates to stimulus dating back 2 weeks, but to be fair I had spent the week adding some fundamental long positions where I think I have identified potential catalysts while narrowing my short exposure to a portfolio hedge and some risk defined bearish bets in the banks. This is an important point, as I was hoping for a capitulation, I put on a short term bearish trade (read here) that I was resigned to losing money on if I was wrong, especially if it allowed me to protect longs and add new long positions in the face of a very volatile and fragile market. I did in fact lose most of the premium on that trade, but because I changed my mind fairly quickly Friday morning, I was more than able to make up for the losses with a few trades that I put on before noon……(Bought BAC and MS common stock-here, reduced my long JPM Sept put spread and bought an AAPL Sept Call Spread-here. Additionally it allowed me to pick on the long side in a couple “special situations” earlier in the week, where I had a quick profitable trade in Sprint common stock (booked a 10% gain in a day and added a long dated call spread-here and bought an Oct ETFC call spread-here.
So in a lot of ways I stuck to my bearish guns, but because I had been reducing my exposure, both long and short for the last 3 weeks, I was in a pretty enviable position to move my feet either way and take what the market was willing to give………I have been cautious and have repeatedly suggested reducing exposures, and not over trading, having some powder dry and most importantly not being stubborn….I have no clue whether Friday was the bottom or not, but there is no doubt that this market could make a little run into what could be a low volume holiday weekend….A close above 1200 in the SPX this week would most certainly signal a test of a huge technical resistance level at 1250, barring disastrous news out of Europe.
So I will continue to look for opportunities both long and short, I think the banks could be in the midst of a trade-able rally….I want to particularly take a look at GS and MS this week as both stocks lag their money center peers’ gains of only~8% off of its lows, vs Citi which is up almost 17%, JPM up 12% and BAC up 29%….there could be a catch up trade for the brokers……I have been saying, like most, that the market is not likely to rally without financials and that is a big reason I am focusing on those stocks, if we are going to rally, I think you will get the most bang for your buck short term in those stocks.