Thursday, August 21, 2008

Potential "Long Financials Trade"

Above is daily (XLF) Financial Select Sector SPDR ETF chart.
Looking at the chart I tend to say that last month XLF was undergoing shaky consolidation within $19.50 and $22.60 limits on diminishing volume. It is quite possible that financials are attempting to establish "real bottom" ( I prefer to totally ignore for "bottoming purposes" light oval back in mid July as it was a "puke point", which should not be measured, explained and just "luckily" was extremely profitable traded at the time of that post. position in "consolidation box" can be viewed in my twisted mind as potential "low risk/calculated reward/highly unlikely unexpected big gain" long trade. Stop is very clear (too clear for everyone I'd say) < 19.05, unless XLF will gap down on "anticipated news of another big dropping shoe" like LEM, MS or I prefer GS due to huge commodities exposure and nicely formulated calls on "oil to $200 this year" - may be they had "a lot to dump" - I know that everyone always has a hidden agenda).
First target is 20MA=21.20 as of today's close, next = 22.60 where it just might get interesting,....but very unlikely.

Anyhow, I was building Sep19 long calls position for the last 2 days, was quite puzzled by today's bigger than it was suppose to be time decay on premiums and chaotic action of XLF itself - something is going on.
I hope XLF will open slightly lower tomorrow (but no lower than 19.60) where I will add some more calls.

Energy/metals and everything listed here: Long XLU, SRS, SKF,DBA, IGE, EWJ short XLF, XHB, SMH, IWC, BBH, IBB as of Aug exp date trade worked out nicely, total net profit on committed capital is over 120% in just few days ( OIH, XLE calls mostly and IBB and individual biotech cos. puts ).

As of today I am mostly in cash, commodities countertrend move looks exhausted and calls for, least to say, consolidation.

P.S. I really enjoyed reading today's post on NoviceBear - you might as well.
Have a great weekend..