Daily Stock Market Equity and Options Trading Commentary

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Monday, April 20, 2009

At Least S&P Held Above 830 Good Sign

I take the S&P 500 holding over 830 on a day like this as a good sign. Being down less than 5% on the day after the current administration announced new "banking plans", is not the worst thing that could have happened. However I think it could get uglier if we get below 815 tomorrow. If that happens, I think there is a good chance we could see the S&P 500 back down to the 780 range soon. Today I sold some covered calls for the 55, 60, and 70 strikes on my BGZ, which I am hoping won't come near those strike prices.

So the bulls had a bad day in the market and now it's back to doom and gloom. It wasn't the first bad day, and it won't be the last. Today all I heard was doom and gloom comments from people, some saying "we've rallied 6 weeks in a row and now we're "due" for a correction". Sorry but the market isn't "due" to do anything. Each and every day is independent, and the market's performance is mostly based on that day's major events. Of course there are indicators which signal a higher probability chance of the market changing directions, but nothing is 100% guaranteed. For people to develop a gambler's fallacy is absurd. Let's compare the stock market to the game of roulette. For those who don't know, it is a casino game which is a wheel and has 38 slots of which a ball can land in. Numbers 1-36 are either black or red, and numbers 0 and 00 are both green. The odds are always in the casino's favor. It is unlikely that the ball will land on a red number 50 times in a row, but mathematics tells us there is a small chance it could, so the same goes for the stock market. If only positive news about the market/economy was released everyday, we would likely keep going higher. Same goes for the stock market depreciating if only negative news came out everyday. However the chances of just good or bad news coming out every day is extremely unlikely, just like a ball landing on red 50 times in a row ( .000000000000005949%). I understand I wrote a couple days ago stating the market looked tired and was indicating a bit of a sell off, and was going to have a hard time moving higher without extremely positive news, but I never said it was for sure going to sell off. The moral of this post, is that you cannot believe people who are overly pessimistic, or optimistic for that matter. This is because they may be acting in self-interest, and could be attempting to sway the markets (lame attempt, but the only people it usually hurts are those small investors who get spooked on one person's thoughts or comments). Stop panicking about what other people say and do your own homework to determine your trading/investing.

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