Tuesday, December 02, 2008

REALITY AND TRADER REALITY...

Tonight let's discuss...the difference between reality and trader reality a bit. It's very important in this market, or any market frankly, to know the difference. I get asked a lot how I can trade from the long side when I am so utterly disgustingly bearish overall. It's not easy at times. If I stop and think about it then I couldn't, I mean I really feel that this market is more vastly overvalued then just about any time in the history of the market. It very well might be the most overvalued ever. I'm not exagerating. It's interesting, today Bill Gross from Pimco, who CNBC has on all the time for in depth opinions said that he feels that the market is overvalued. CNBC mentioned it but didn't give it a lot of air time. It's frustrating that there is such a bias, but it's ok, as a trader its better for us for the market to stay as high as it can for as long as it can. Eventually it'll see the other side of 5000 in 2009 more than likely, but for now the more 270 point nonsense ralies we get, the better! As a trader you need to wipe the slate clean every day. There are days, honestly, where I have a harder time doing it then others. Today was tough because we had that mid day crushing where the market went red briefly and sucked a lot of shorts (including me) in. I thought we would roll over, which was wrong obviously. And, that's the thing about this market, its not like any other market I've ever seen or traded. I've made a boatload of money this year, my best year in many years, but the thing is, it's a tough market on any given day. What you have to remember is that the market WANTS to go up. So, at any given time it'll do just that, for often no rhyme or reason. Look at GS, which we've crushed for huge profits. It closed today only down like .75. I want to reiterate how absurd GS is. No one who owns it or likes it has any real reason to own it or like it. They have NO earnings, will not have earnings for a long time, and have huge debt burdens in a DEAD business. In order for GS to justify a $65 price they have to earn at least $5 or $6 a share. And, that's even expensive historically for GS or any broker or bank that is mature. Reality is they will have to ultimately earn somewhere around $8 or $9 to justify a $65 price point. The chances of GS earning that much in the next 5 years is VERY remote. I think I'm being generous saying very remote, I really think there's literally no shot. Today the WSJ said that they would report a loss of $2 BIL this quarter. Do you know there were "analysts" on CNBC today saying that GS is a buy. Why? The usual, they are the smartest guys and will figure it out! Some knucklehead on CNBC said that he has a $100 price target on it. Why? I mean, are you kidding me? GS at $100 on NO earnings for the foreseeable future? Hence my point, you can't use logic in this market, and you can't get stuck on reality. Reality is GS is worth $3 a share. Yes, thats reality. Most of the banks are worthless, so $3 may be generous for GS. And, I honestly feel that GS will see under $10 at some point. But, it may trade to $100 before that happens and so if you just take GS short then you have to be prepared to ride it for a potentially huge loss before you get a gain, and if I am wrong then you get smoked. So, trader reality is, you short it when the time is right, or you short it and be willing to stop out and reset if your timing is off. And, you even go LONG GS, which we have, when the time is right. Hell, GS could even end up on the January Effects list! Doubt it, fyi, but hey, anything is possible! Speaking of which, our 1st January Effect stock is ROCKING! Hopefully you guys all signed up for it, the class is next week and you will probably regret it if you miss it! SIgn up NOW for the class, I think I have some really nice plays for us. CY was the 1st one, and so far so good! We'll see what shakes. Wednesday it'll be interesting, if we gap down it should be fadeable, if we gap up then it'll get a bit hairy. I really am not sure here. I think we can go higher, but I certainly wouldn't go out on a limb, this is one of those times where I am neutral and try to trade intraday hopefully on the right side of things. So, I stay neutral and watch for choice trades. We'll get some clarity soon. Did anyone notice that its now a clear, so far at least, trend that when Obama speaks the market rallies into him opening his mouth? That's why I think we should get a rally into his inaugaration that is very profitable. And, then when people realize that he's not the Mesiah, he's just a dude we call President Obama, the market will get the massive selloff I think is a pretty sure thing in 2009. We'll see soon enough, but at least we shouldn't get totally crushed market wise for a while here. That's a very good thing for us. Very good.
Pick your spots, and trade to win! RULE! Michael "Waxie" Parness

1 comment:

beach2788 said...

An analogy would be, the light was green at the intersection, I have the right of way, BUT there is a MACK truck coming up fast to the red light, I do want to be in the hospital claiming , "I was right, I was the right, the light was green". Morale , don't argue with a MACK truck, you won't win.

Waxie has been dead on, but now it looks like the market want to go higher, even though not justified. I see a general rally, then into Obama taking office, and also funds lining up infrastructure plays, suchas Foster-Wheeler.