Friday, January 20, 2006

Bears Have Their Day

Today seemed like the perfect storm. First, you had the poor earnings from Citi, GE, and Motorola. That started the selling early. Second, today was options expiration, so I think that exacerbated the selling. Third, you had a big spike in oil prices, so that didn't help. And you had leaders like GOOG experiencing their biggest drops in quite some time.

All of the above led to the largest declines for the major indexes in roughly two years. Could you have seen it coming? Not really, but if you have been reading my concerns about bullish sentiment in things like the put/call ratios, you might have surmised that there was too much complacency in the market. And that sets you up for a day like today.

So if you raised some cash recently, then you can let the selling bring down the stocks you have been watching, and take advantage of the pullback.

Thanks for reading, and have a great weekend.


At 9:16 AM, Blogger riyaz said...

Well, I had raised some cash, so I put it to good use.
Added some JPM, re-purchased JNJ and also built some short term position (long) in SPY.

If you have any comments on two of the stocks I own but am skeptical about, I would appreciate it:


At 9:42 AM, Blogger P Laird said...

I also raised cash. I have bought the mar 370 puts on Google. I think the stock will retreat out of the nose bleed section before earnings later this month.

At 1:50 PM, Blogger J. Kahn said...

I can't really give you specific advice on your stocks, but what I would say is just to make sure you manage your risk.
If we are entering a correction, you might want to set a stop-loss somewhere, just to protect your capital. You can always look to re-enter your positions when the market finds support.

At 1:52 PM, Blogger J. Kahn said...

Be careful with out-of-the-money puts. If the stock doesn't break below your strike, all of that premium in the option price will begin to erode quickly.


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