Sorry it has been so long; I have been out of the market for the last two weeks studying for my World History test (grades 7-12), which I thankfully passed.
We sold most of our stocks and went into half cash again after the Fed spoke in September, (when they decided not to raise rates). Janet Yellen’s message conveyed one of caution, that overseas growth maybe slowing more than expected, which is preventing her from tightening on rates.
I took this as a sign that we should watch emerging markets data closely, and that bad news will now be viewed as bad news (what we really want), while good news will actually start to count as good news.
In the past, this notion was flipped.
We wanted bad news in the past because it meant the Fed would not raise rates yet (which the market puns felt was necessary, since the economy could not stand on its own two feet yet with a rate hike).
Now, however, anytime that we don’t raise rates will be viewed as a sign of weakness, since investors now feel the economy is ready to take the training wheels off (have interest rates raised).
Into the strength today, I am selling Disney (DIS) for a small gain, and adding more into our leveraged favorite: UPRO. We are also selling CLR into the strength (up 9% this morning), and switching into Chevron (CVX) as it has a better risk/reward, more stability, and a 5% dividend (subscribe for portfolio).
We are now in half cash and half UPRO, trying to lock in shares around this bottom of $50-$55 in UPRO. Updates to follow.
One more thing, people say the bounce at $50 in UPRO was “a retest of the lows”.
Well, the lows are actually considerably lower, at the flash crash lows from August. But, I will go ahead and consider these recent lows as “the lows” everyone keeps referring to. I guess, just like in 2014, a flash crash doesn’t count as a correction.
Either way, we will play the hand we are dealt.
Moving into Disney’s (DIS) call options since I really regret selling the stock. I feel this best of breed can go to $110 in the short term easy, and is on the verge of breaking out. So, I bought some out of the money (OTM) Nov 20′ $115 calls to get some added leverage on the move.
Each of the contracts were selling for .42 cents, and I bought 4 contracts. I will look to add more on a dip.
Buying the option in DIS while being leveraged to UPRO is risky, but not as dangerous as one would think; the option defines the maximum I can lose. Plus, Disney is a large company, so its options are pretty liquid and less volatile.
I also bought a $2,000 SPXU short to protect the portfolio in case UPRO falls (subscribe for portfolio).