Dear OA

I got an email over the weekend that triggered some deep meditation on my end. It was to the effect of “where do we go from here?”

Those are my favorite emails, considering that each day we are here our actions are geared towards where we think we are heading. However, I took time to think deeply in regards to the last several months. Not only about the tremendous success we’ve had, but also the excitement, the traffic explosion, the community development, and then the changes to all of that in the last three months.

It reminded me of two very similar points in time over the last 5 years. Two specific points in time where the crowd had shifted from full blown over-confidence mode, from points where the money made was easy, to a prolonged period of difficult market conditions. These difficult market stretches did their worst on the retail investor, and are the only two “behavior gap” reference points over the last 5 years that have stood out to me like they do today. In other words, the average investor “generally abandons investments at inopportune times.” That’s a polite way of saying that investors panic when the market goes down and they sell out, often near the lows. Example:

These two other points in time were the late summer of 2010….

And pretty much all of 2011…

I’ve gone back and studied these charts so much that I can freehand them blindfolded. What makes them significant, aside from how they follow our sentiment philosophies, was the mood and behavior of traders during these time frames. See, we can measure this by our interactions, traffic, comments, memberships, cancellations, etc. Those of you watching have seen this happen slowly over the last few months. The attitudes in the chat, the number of comments, the traffic stats, etc were all exploding as we headed into January. Now days, its a ghost town.

As I pondered this over the weekend, I was calmed by the fact that in the last two instances as mentioned above, I went into some of my best trading performance stretches of my career. After the market shakes you down, conditions start to get easier. As I went back to look over my notes from these tough periods in time, I noticed that every time, the ticker symbols I traded on the way out were a little more conservative, the vehicles I used to trade them were more conservative, and I stuck with that theme until new leaders emerged.

I’ve got a new group of stocks we’ll be focusing on for the next week or so. I’d to see folks transition away from the things that aren’t working, and start focusing on new ideas and fresh perspectives.

Today’s After Hours with Option Addict will start immediately at market close today. At this time we’ll start talking up these new ideas.

OA

Having trouble finding words here today, especially with YGE trading down 15%. Having rode this in December from $4.30 to nearly $8, then back to breakeven as of yesterday, I open up to stare down a nice sized loss, for the first time since purchasing this stock. I refuse to ride a loss like this much lower, especially since I had always figured I would exit just under $4 if it traded there. At the least, I might reduce the size of this position if I attempt to ride it out.

You know, every few years you encounter a behavior or market personality you feel you’ve never seen before. After having gone through 2011, I thought I’d seen it all. As I’m driving home from the hospital the other night, I hear the evening headlines over the radio, followed by the words…”and on Wall Street the Dow finished down 16 points, just off its all time highs” and I laughed out loud.

If you are deploying the same set of strategies used last year, you are facing a steep list of disadvantages here. I have only a fraction of the number of positions I manage on average and have been doing a lot less these days, waiting for a better table to sit down and play at. At this rate, I think it takes at least 2 weeks for option premiums to settle, as we get through earnings and assuming we don’t see the market fall apart in that same time frame.

In the end, I still think we’re in the aversion phase of sentiment. Even if there were an easy trade here, how many of you would actually take it?

Despite an alarmingly fast sell-off at the open, stocks have found buyers from below this afternoon. This was the key tell for our sentiment count, and so far there are a considerable number of buying tails out there today.

Let’s make certain that stocks are going to hold these gains, but this could be a big win for the bulls here.

Watching X for a long.

OA

I bought shares of MHR at $8.48. The stock has been trading well and energy is steady bid.

Waiting for a little market weakness to step into some leverage.

OA

Sorry to leave the group guessing. I’m just barely getting up and trying to move around a bit. Surgery went well, but the pain was a little more than I thought, so I loaded up on meds and have been sleeping for the last 24 hours.

I see our trades are looking good. Let’s plan on a brief meeting after the close today, to review some ideas for the upcoming week.

Thanks,

OA

After Hours with Option Addict members, the room is open. In spirit of the long holiday weekend, we are now up and running. Starting early, so you can get to your weekend plans.

See you inside,

OA