Tuesday, October 6, 2009

06/10: Bulls continue the charge; 52-week high for bellweather Goldman Sachs

Markets today extended their impassioned reversal from the pullback of last week, with the S&P500 crossing back above 1050. The intra-day low, high and close for the index were, respectively: 1042, 1061 and 1055. Here's a ten-day chart from bigcharts.com:

Stepping back for a moment, the story of the markets for the past few sessions has been one of uncertainty. Is the economy really in a V-shaped recovery? Are we headed instead for a double-dip recession? Or where in between those opposing diagnoses do we really lie?

Last week, of course, witnessed the publication of several disappointing economic indicators, including poor numbers on Midwest manufacturing activity, in the general ISM manufacturing sentiment index and, finally on Friday, with the September unemployment figure.

This week, in contrast, the mood has been more buoyant, and chiefly due to Monday's release of an upbeat services sector ISM reading, at 50.9 (where values over 50.0 indicate expansion). From a technical perspective, bulls may be headed for a capitulation rally, which would take the Dow to 10,000 or just a hair shy thereof -- at the very least. While I prefer the S&P500 for my daily market snapshots, there is no denying the immense symbolic value of the Dow's approach to and touching of 10k.

Much hinges on the upcoming earnings period, which will kick into high gear later this month. Here, focus will be particularly sharp on companies' reported revenue figures.

My own trading of the past few days has been spotty, although my most recent transaction, entered on Monday and unwound today, has been positive. This particular position was a long in Oct $185 GS puts. And I was the definite beneficiary of a long-odds GS collapse in midday (earlier in the day, GS was busy setting fresh intra-day 52-week highs). I exited the puts near the intra-day low for GS on a gain of about 6 percent on the derivatives -- far better than the unrealized double-digit percentage losses that I faced immediately after the open. As the session wore on, GS rallied anew and I re-entered the puts position, paying $4.10 per contract. Going into the overnight, I'm sitting on a slight gain, although everything obviously depends on the sentiment of tomorrow's early trade. I'm looking to exit the puts expeditiously, as they are out-of-the-money (OTM) -- i.e. all time value -- with but two weeks until expiry of the contract. Aren't I a reckless one! :)

Here's a 10D of GS:

Good luck tomorrow!

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