Wednesday, September 23, 2009

23/09: FOMC communication sends shares down

U.S. markets spent today in a tight range of slight gains, until the 1:15p CDT release of the FOMC communique, at least. Post-release saw a push higher, but the last hour of the trading day witnessed an intensifying -- and very significant, I believe -- sell-off. Here's a one-day'er of the S&P500:

The day's open, high, low and close were, respectively: 1073, 1080, 1060 and 1061.

I am inclined to believe that the late-afternoon sell-off will continue into the open of trading tomorrow. Such is often the case with intense late-day action. Furthermore, many leading stocks witnessed their own dramatic, high-volume sell-offs in the 2p (CDT) hour, further supporting the hypothesis of a weakened market at tomorrow's open. The biggest question right now is whether the sell-off intensifies into a downtrend of several days, one that would take the S&P500 to 1050 or below, say to the region of 1020-30.

I held positions in Oct $6 LCC puts and was also long LCC shares throughout the day (both were overnight positions from at least yesterday) and sold both at approximately 2p, just before the downturn in the markets. Fortunately, I sold the puts at a respectable gain ($1.40, versus a $1.20 purchase price last week), while the position in long shares was a wash (sold for $4.68 versus an average purchase price of about $4.73). It's essential to explain that I entered the long equities position during yesterday's AH market, after which LCC dropped suddenly from a close of $5.23 to the region of $4.75, spawned by a news release of forchcoming fresh share issuance by the company. I took the long position, of course, because I wanted to secure the handsome AH profit (as I could not sell the puts in the AH market).

I do have a regret with the LCC trade -- that I did not exit the puts when LCC spiked downward to $4.40, a definite resistance level, during the beginning of today's market day. I, foolishly, was waiting for $4.20 (greedy, greedy!). Here's a 10-day of LCC:

Finally, I entered a position of Oct $185 GS puts during the market's sharpening sell-off of the afternoon. In minutes of extreme frustration, I tried to first execute a trade in $190 puts, but the price kept racing away and I was unwilling to chase it. Unfortunately, the price just would not come back, and I lost about give percent of the price over the course of a few minutes, all without managing to make the trade. Extremely frustrating, to miss out on such profitability in such a short instance. I switched sights onto the $185 puts -- but I made the same mistake again, though to an even greater magnitude. I tried a $6.15 bid when the bid-ask spread was about a nickel or dime greater, and I kept chasing unsuccessfully as the price of the underlying GS shares accelerated towards the downside. $6.30. $6.50. $7.00! And finally I got the bastards, but only for that rich price, a full 15 percent over what I could have obtained but minutes earlier. I was nearly trembling at this point.

Fortunately for me, the puts closed the session at a spread of 7.25/7.40. But I'm under no illusions that I might want to sell early in tomorrow's session, perhaps even into the anticipated decline at open to 183.00, where I might be able to fetch 7.50-7.70. The risk of a rebound to the upside is significant, particularly because I entered so late today. I don't know whether I can stomach much loss, particularly as it's going to accrue awfully quickly. A 10-day of GS follows:

Good luck tomorrow!


As the reader can see, it's been another extended period since the last post (though, at least, now measured in days, not weeks). I hope to pull together a string of consecutive days, going forward; perhaps -- if the stars should align -- I might even not miss a day for a good, long while. Ah, that'd be grand!

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