February is the Cruelest Month

Actually, it is the second cruelest month. September is the worst, as indicated by the table below, put together by my friends at Stockcarts.com.

I think you have to get some sort of pullback between now and March 15, like of the 2%-4% range. It’s not that we are without fundamental reasons to do so. Don’t forget, we have a sequestration deadline looming on March 1, when the world as we know it is supposed to end. However, what is more likely is that Wall Street calls Washington’s bluff, since the last several Armageddon’s have failed to materialize.

Another possibility is that it grinds sideways in a narrowing range with diminishing volatility, because there are still so many investors trying to get in. If you believe, as I do, that markets will do whatever they have to do to screw the most people, then this is your scenario.

The only choices are down, or sideways. Trees don’t go to the sky, and markets don’t go up forever. I think long side plays in equities from here on will be a story of diminishing returns.

This is why I started selling short out of the money calls and call spreads on the S&P 500 (SPY), (SPX) first thing Monday morning. In either scenario these expire at their maximum point of profitability on March 15. These will help hedge, and lower the average breakeven points of my remaining long side plays in the market.

The move we have seen in stocks this year has been one of the most extended in 18 years, since back when the Dow was trading at about 3,000. These positions will partially hedge the remaining long positions that currently bulk up our portfolio. There is absolutely no way that we will repeat the January performance in February.

Yes, this is a short position. Warning: I have issued so many Trade Alerts for call spreads in the past two months, about 60, that readers forgot what bearish trades looked like. When I issued my Trade Alert on bear put spreads this morning, some readers went ahead and bought the call spread anyway.

Advice: for these alerts to work, you have to read them first.

S&P 500 Avg

SPX 1-4-13

Lady Liberty

Looks Like Another No Show

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