Covered call on SDS

Thursday, February 25th, 2010 | Vance Harwood

Did covered calls on SDS (double short S&P 500).  Bought SDS at 35.86, sold March 34 calls at 2.37 for a net investment of 33.52.    Extrinsic value is .48, so the max profit potential is  .48/33.52 = 1.4%

2004 Redux–into a negative trend line?

Thursday, February 18th, 2010 | Vance Harwood

I’m continuing with the hypothesis that there are a lot of similarities to the 2003/2004 market that might help  predict the future action of the market.   Clearly volatility is higher now than the 2003/2004 period, and the transition from upward trend line to a sideways market has been scarier–but these are scary times.  Looking back at 2004, the market went into a slightly declining trend, the highs and lows decreasing a slight 0.25 point per month.   The range between the highs and lows was about 4.5 points.  I can imagine, looking at the graph that we have touched the bottom line of the 2010 trend line, which is about 5 points below the 2004 bottom line.

Will the market come roaring back and challenge the 2004 top trend line, or will the old bottom become the new top?   With higher volatility I would expect the range to be wider, but I would be surprised to make it all the way back to the 2004 top trend line.   I’m guessing we’ll see around 112 to 113 as the top.

S&P 500 2004 vs 2010 with trend lines, click to enlarge

S&P 500 2004 vs 2010 with trend lines, click to enlarge

Rally or Fall — this week should tell

Monday, February 1st, 2010 | Vance Harwood

I’m don’t pay much attention to the month of the year predictors for the stock market such as “As January goes, so goes the year”. As this post points out, the statistics are hardly overwhelming.   There are tax and cultural reasons (year end, lots of time off/holidays) that reasonably give December and January some seasonal effect, but as far as predictors go, it is hard for me to see how one month can set the trajectory in a causal sense for an entire year.  I don’t give a lot of credence to matching charts from years past either, but if they are similar situations (e.g., bull market recoveries after a severe bull market) I do think they have some predictive power.

I updated my 2004 to 2010 S&P 500 comparison with another week of data.   In 2004 it wasn’t until August that there was a correction of the magnitude we saw last week.  We are within a 1/2 point of exceeding the low point of 2004 of $107.    The normalized volume correlation between the two years continues to be good,  we will see if we bounce back from corrections like we did in 2004, or are we looking at fearful times ahead..