Trading Methodology regarding Uncertain Foreign exchange market

Trading Methodology regarding Uncertain Foreign exchange market

These last couple of weeks we have observed considerable volatility without prices heading anywhere, from the Middle East erupting, Europe encountering monetary distress, a devastating earthquake in Japan, weakening Chinese exports and nonetheless poor domestic jobs development. Nonetheless this is really a trader's dream market.

It is usually the unexpected Black Swan occasion that turns out to become the force that begins the domino impact and the world is hardly a stable place. Correct now I do not see that chance so long as Saudi Arabia stays peaceful. So, I stay bullish but I'm aware of the potential pitfalls. They held a "Day of Rage" within the Center East and nobody came to protest. So far, I still believe the US will emerge because the only safe market in unstable globe. This really is at least till the 1st quarter earnings begin coming in then I may flip much more cautious.

To keep issues in perspective most main US financial indicators remain constructive. Economic growth is still improving. Power prices, nonetheless higher moved lower this week. Investor sentiment, a contrary indicator, is decrease, a lot lower. Bespoke Investment group reviews, ".at the current degree of 35.98% bullish sentiment is at the lowest level because September 2nd which was much more than 500 S&P points ago!"

The Japanese earthquake and tsunami are front and center but I'm most concerned about a nuclear leak. This could kill the recent push for nuclear plants within the US. There is really a light in the end with the tunnel with higher energy prices and it's not a locomotive coming at us. When, not if, gas prices pass $4.00 I think there will be substantial movement to natural gas (NG) in a big way. Obama will be dragged kicking and screaming from clean coal and green technology. Green energy is too expensive and needs subsidies to survive. NG is the equivalent $24 a barrel oil. A move there would require a substantial investment in infrastructure but would create 100,000s of new jobs and for the 1st time ever we'd be energy independent. I can't figure why this really is taking so long.

I'm concerned that Joe Public who sold over $30 billion of his equity holdings near the March '09 bottom only to re-invest that same $30 billion recently at 2-1/2 year highs. His timing leaves a lot to be desired.

The strategy of lengthy term buy and hold is dead. It has been for some 10-12 years now. To survive a trader must trade and think like a hedge fund professional, primarily becoming a proactive trader. Build a couple of core positions that you believe in and trade in the extremes. The stock goes higher, sell some and buy the shares back. If it goes lower add a couple of much more or sell some puts. After it rallies sell the additional shares or sell calls against shares or cover your naked puts. If your shares go even higher sell shares and buy OTM calls. If the stock continues to rally sell higher strike calls, creating a bull spread. Even higher sell your lengthy calls and roll-up and over to a calendar spread. Meanwhile you can continue to sell your remaining shares nonetheless higher. This really is the position NET traders find themselves in BTX because the stock has gone from $2-$3 to almost $10. BTX dropped back to $6.00 where we re-loaded the boat with new calls and options. The stock is now over $8.00 and we have started to buy September 10 strike calls and hope to sell the $0.70, June 7.50 strike calls we recently bought at over $2.00 and so on and so on.

We recently bought a large position in SIGA near $12.50. The stock traded down to $10.40 afterwards on a contract award delay. A week later when it looked like SIGA was in-line to get the $500 million contract after all, the stock rallied to $15.50 in a couple of weeks. I started to sell some of my shares above $14.00 right into $15.50. I had even much more to sell higher. In a CC (conference call) Wednesday after the close, management affirmed that SIGA was prepared to deliver product 18-24 months after getting the contract. The market took this news as bad news. However, this was the expected outcome. SIGA was $11.92 Friday morning. We're long again at a lot better costs. I'm expecting the contract to become awarded at any time and the stock will trade between $18 and $20. Over time, I expect SIGA will sell a lot higher with or without a better market over the next 2 years.

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