I got some of my early morning purchasin…

I got some of my early morning purchasing done here when the market was at its (so far) worst of the day.  I outlined the following playbook for my Revolution Investing newsletter subscribers back on February 8:

“Here’s what my experience and analysis says on how the near-term market action will play out:

“After all those aforementioned have reluctantly covered their shorts are licking their wounds, the magnitude of these moves start to ebb. Given last Friday’s 15% single day pop in Ciena and 25% pop in JDS Uniphase, we might not quite be to this part of the playbook yet, but we’re likely very close this week and next.

“Next, the market action starts to get “toppy” and we have a few scary sell off days and/or some range-bound action with consistent lower lows, and the longs can’t remember why they were just so happy with the fundamentals and they start to worry as they see the action whittle away on their profits for the year. So they start to sell and hedge. And the markets feed on that weakness and suddenly we get a few more scary sell off days.

“The shorts come in then and, feeling reinvigorated because they think they see the price action finally starting to validate their bearish theses, they start to borrow shares and sell them into the market and buying puts and double short exchange-traded funds. That scares the bulls again and the markets fall another 1% or so on a few days and barely show any legs on the up days.

“Now, if the fundamentals of these stocks and the Fed-induced forced risk trade is going to take these stock markets into new bubbles as I’ve outlined for you guys many times in the last year, then all this aforementioned ugly action would actually be a great buying opportunity for Revolution Investors.

“Here’s what our Revolution Investing playbook says about how to invest in this set up-

“1. Patient for now and/or look at scaling into some of the short ideas in the model portfolio.

“2. Start to nibble on some stock and/or calls, depending on your risk appetite, in some of the long ideas in the model portfolio on pull backs. Use maybe 10%-20% of what you eventually want to allocate to each stock with each purchase but be patient and let them come into you now.

“3.When the markets have pulled back 5%-10% and everybody’s wondering if we’re back in bear market territory and you see the bears high-fiving in the woods and on Wall Street again, when it feels like the worst idea you ever heard was to buy a stock — any stock — because the action has been so bad and you just can’t believe we’ll ever rally again … that’s about the time you want to get aggressive and get long and maybe even cover some of those shorts you were putting on as the action is likely to get toppy right now ahead of us in mid February.”

That’s just about how things have played out and we’re now getting closer to that point of when it feels like a terrible idea to buy a stock.  Not quite there yet though, and so even as I have stepped up my aggression in scaling size today, I’m also giving myself some more room in case it does get even uglier in the next few days or next week and then if traders/bulls/investors really start panicking I’ll have plenty of powder dry and will look to take advantage of whatever opportunities the markets present for us.  I have been and will likely continue to build up more of my Corning calls today, such as the January 2012 $22.5 calls, which are 30-40% cheaper today than they were when I cautioned against rushing in to buy more of them yesterday.