Sunday, February 27, 2011

What's Next?

Four months later and not much has changed. The market, coming off its worst week of 2011, has still seemed to climb higher at almost every inflection point. Back in September, I recommended calls on three ETFs; GLD, SLV, and DBA. Since then silver has hit 30-year highs, gold all-time highs with a recent $100 bounce, and several commodities have hit generational highs. The recent turmoil in the Middle East has provided increased volatility, and despite our chief economist's assertions that we have no inflation, a $15 spike in oil was all it took to cause a market plunge.

I'm sure that the market will continue to reward any decrease in oil price as it did Thursday into Friday, as if $98 a barrel is not inflationary. The bigger concern should be the rapid fashion in which these large African nations were so easily overthrown, like pulling back the curtain on the Wizard of Oz. Food shortages in India have become a concern, and several weather related incidents have only conspired to put pressure on ag prices.

The next few months should be interesting. I think weekly options continue to provide the extra leverage we like in the meantime as poor earnings are punished to the tune of 15% daily losses as we saw withe Cisco and HP. Next month we have yet another review of banks' fortitude, with the outcome sure to reveal the ability of JPM and WFC able to easily pay a dividend while Citi and BAC languish. This will provide an excellent opportunity to either hedge XLF or buy calls on XLF while shorting the losers.

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