Behold the Philly Bank Index. You’ve likely seen this chart before, but the carnage has worsened since the last time we posted it. It’s not a pretty sight.
Wall Street’s downward spiral has made many clever folks look foolish. Nearly two months ago, Goldman Sachs tried to do a little bottom fishing. On May 5, Goldman advised clients that it was time to start buying financial stocks again. As you can see from the chart above, that didn’t work out too well.
So Goldman did something out of character for a Wall Street house -- it apologized. (The only decent thing to do, really, when the anvil one recommended catching falls straight through the floor.)
The stock market continues to look terrible. Pundits are now wringing their hands over the looming 20% down mark. Apparently there is some magical property assigned to 20% that makes it a bear market.
For those of us who have been watching with a sober eye (rather than cheerleading), the sudden outburst of concern seems a little goofy. First off, not everything is in a bear market; commodities are still doing quite nicely, thank you very much. Secondly, it’s a bit silly to act as if current market events are a big surprise. Many saw this day coming from a long way off.
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There have been ample opportunities for traders and investors alike. On the nimble side, my friend Cash McDash has made out like a bandit by going short. He’s shared more than a few of those short plays too, right here in Taipan Daily. In an environment like this, catching the downdraft in weak new issues has been like shooting fish in a barrel. Not every single time, of course, but often enough to be well worth it.
For those less inclined to shuck and jive (trade in and out), Adam Lass has been beating the drum for limited-risk put options. These puts have a two-fold utility: They hold good profit potential as standalone positions, and can also act as hedges for the long equity portion of one’s portfolio.
On May 20, Adam beat the drum harder than ever. Based on one of the “most reliable technical signals of the past 10 years,” he urged WOW readers to buy puts on DIA, the Dow Jones ETF.
In a direct quote from the issue, Adam said, “In a volatile market like this one, it’s always a smart idea to carry a position that offers you downside protection, and the DIA September 127 puts (DAW UW) certainly do the trick.”
If you had followed Adam’s May 20th advice, your DIA puts would be worth 164% as of Friday’s close. (And there’ll be more where that came from if the market continues to fall.)
It’s rough out there to be sure... but there is still good money to be made. Adam believes the Fed will most likely “talk a lot and do nothing, rate-wise, until January.” This means that inflation will be “a fact of investing life here in the states for months, if not years, to come.” No doubt his WaveStrength Options Weekly readers will be prepared.
Adam was just roaming the canyons of Wall Street a few days ago. He sent over a quick note on the Goldman Sachs mea culpa and the general cockamamie state of things. Take a look.
Warm Regards,
JL