This past Tuesday, I made two trades on a bet that the market was going to go down. I bought a put option on F5 Networks (FFIV) and the Bear fund on small cap stocks. When the market goes down, both of those positions would have made money. I based that upon the fact that I believe the market had staged a false breakout two weeks ago and had reversed using a very strong signal in technical analysis. My second bear fund trade is an index that tracks the inverse of the market. I believed that it was in a good position to make money. My other trade was based upon the belief that the stock had run up too far, too fast and was breaking down. I had other indicators to support this theory.
Unfortunately, two days later, the market rallied hard the other way and forced me out of both of my positions. I ended up taking a big hit on my options position and a small hit on my bear fund position. Even today, the market bounced at its 50-day moving average and may be setting me up for a big move down.by staging a false rally before breaking down some more.
And then again, maybe it’s not.
I used up all of the spare funds in my account by buying two stocks that I should have bought a long time ago. One option position I took a major loss on back in June is Acme Packet Inc, a telecommunications equipment maker. This is a stock that survived the summer correction with zero loss and has continued to rally. I had been waiting for a long time to get into it, and on Thursday I did so. That was a lucky piece of timing because today, the stock moved up very large – 8.8% today. I ended up making back a good portion of my losses and so I feel good about that. This was one stock that beat me up (a lot like my girlfriend does) and I learned from that. I watched the stock for months and it is a very powerful one. I discovered that I shouldn’t bet against it.
The other stock I bought is Netflix. If you don’t know what it is, Netflix is a streaming media company that lets you view TV and movies on your computer. More and more people are abandoning cable and instead getting Netflix which lets you view stuff on demand. I originally discovered Netflix back in January when it was around $50/share. I didn’t buy it then and have been kicking myself since that time because it’s now trading at $170. It, too, got through the market correction with nary a scratch on it. It’s a very powerful stock and the company is growing rapidly. I’ve been waiting for a good buy point and this one is experiencing a flattening consolidation pattern. Hopefully it continues to rally.
Let me get one thing straight, though – I have not given up my lazy portfolio investing. I am still doing that. Trading is restricted to 15% of my total portfolio. Options trading should be maybe 5-10% at the most because every time I buy them I get my posterior handed to me.
With any luck, these stocks that I own (also have Baidu) will hold up. My technical analysis skills say that this is just a bounce and that lower prices are ahead. However, I have no capital to take advantage of that unless I buy on margin. On the other hand, we are in the strongest time period of the year historically (November – January) and we are entering into the 3rd year of a presidential cycle (historically the best year on the market). So while I think that the market should go down, my goal is to make money no matter what I think it should do. The market acts the way it acts without any input from me.
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