Well, for a change we have good news from the political front! Let's look at the good news, then discuss the less than good overall status of the financial world, to finally look at what to do to get ahead in a profitable way.
Good news: The rumor leaked yesterday from President Elect Obama's headquarters that Tim Geithner, president of the Federal Reserve Bank of NY is likely to become Obama's Treasury secretary - this created instant excitement after weeks of uncertainty on who would be leading the efforts to revive the US economy and solve this financial crisis. The excitement translated in a very lively bull market surge at the end of an otherwise dull and boring day. The following is a 5min chart of yesterday's Dow Jones Industrial Index, showing this cheerful up-rush at the end of the day.
Fig. 1a - Dow Jones Industrials, 5 min view
Now, that was nice, made good headlines all over the media and, as we said, made the trading day a bit more fun yesterday but for now we can only look at that as a positive start to a lot of work that needs to be done in the upcoming months to fix this deeply dented financial world. The Geithner jump up was nice but brought back only about half of the loss we had this week in the Dow (shown in the chart below), and it did that only a few hours after reaching yet another historical low that same day. So, let us hope this is the beginning of the good times to come, but let's not forget we have a long way to go before the sky is blue again.
Fig 1b - Dow Jones Industrials, weekly view
The cold un-hyped weekly history of the three indexes is in this performance comparisons chart:
Fig 1c - DJ, ND, S&P performance comparison, 1 week
And this is the YTD performance history for the indexes, with the S&P down 48%, the DJ down 39% and the NASDAQ100 down 44% for the year.
Fig 1d - DJ, ND, S&P performance comparison, YTD
This not-so-positive situation is why we keep saying that our individual investment plans need to adapt to this deeply deteriorated situation and the old "buy and hold" mantra should be left aside now. The long term bearish trend we've been dealing with for almost a year now is not broken yet.
OUR PORTFOLIO - What did we do this week? In the equities portfolio we had one week-long trade on the Q's (The QQQQ ETF that tracks the NASDAQ100 index) which was actually triggered the previous Friday, when this week's precipitous fall began.
Fig. 1e - Q's Trigger points
The trade utilized the November 32 Put option, QAVWF. The Table shows the trade delivering a very exciting 148% profit. A $2,000 trade would buy 7 contracts and the initial $2,000 would become $4,716.
Fig. 1f - This week's results
Once again, we show what a $2,000 investment would have generated (see Note 1 below). In the this trade, we could buy 7 contracts at $262 each. The trade gave a fantastic 148% profit turning the initial $2k to $4,716.
Note 1 - The table shows what you could do with a $2,000 amount utilized each trade. We are not compounding or re-investing, we buy the number of contracts allowed by the opening option price.
