Year in review

Thanks for reading along all year. I'll have more time for the market and blogging in January 2007.

Looking over my trades for 2006, the bottom line is that I am up about 10% to 12% for the year. This underperformed the major stock indices. However, my style entails less risk than buy and hold. I closed out 103 trades for the year. The average holding period is 38 days. Exact performance numbers are difficult to ferret out because I move money in and out of my trading account. For the most part, it has been a good year.

Some of my winners include BAB British Air, GM General Motors, PDLI Protein Design Labs. Some of my losers include BBY Best Buy, AMD Adv Micro Devices, WIRE Encode Wiring.

Happy New Year. Cheers.

Nervous

I hear a blurb on the one-minute radio stock segment from some money manager saying there is nothing to worry about, that he is extremely bullish, that there is no reason to sell now. Investor's Intelligence also shows a high percentage of bulls. I also have this thought in my mind to buy calls. Me, the call seller wanting to buy calls. All of this makes me nervous.

Now, I've written many a time about how emotions can betray a trader (or an investor), and how they have often betrayed me. I'll stick to my knitting, meaning finding stocks where I can sell the calls, staying well diversified, and ruthlessly cutting my losses. This last bit is how I have survived in the markets as long as I have, while many a smarter and many a more nimble a trader has long since given up the ghost.

Couldn't pull the trigger (C and MRK)

Citigroup C and Merck MRK are on my short list to buy. I could not pull the trigger today, and watched C close up half a point and MRK drift down a few cents. Tomorrow is another day.

Odds favor the bulls this holiday week. With the holidays time also seems to tick extra fast for option holder. First week of the year often brings volatility.

Buy GM General Motors

Buy GM, sell the Feb 30 calls

I forgot to mention that my EWJ Japan Fund ETF was called at the 12/15 expiration. At that time, it put me 100% in cash in my trading account. Today's GM buy is moving my big toe back into the water.

The FDX setup turned into a setup all right--for the bears. There is additional risk taking a position ahead of news. Sometimes I will do it, other times, I prefer to wait until the reaction. Both styles of trading can yield profits. Options usually cost more just ahead of news.

FDX Federal Express setup

FDX has a nice looking setup for their earnings report before the open Wednesday. The chart has a nice base. Resistance is at the 52-week high of 120 if there is a blow out report. Of course, earnings could also fizzle, or be a non-event.

Dogs of the Dow (again)

This popular strategy that picks the highest yielding Dow stocks worked well in 2006. I profited from two trades in GM, a 2006 "dog" and still on the list.

Some folks like to buy these high yielders at the start of the year. As always, if a person knows someone is going to buy soon, it is often good tactics to buy in ahead of them. With that in mind here is a link the current list of highest yielding Dow stocks (link). Of these, VZ Verizon, MRK Merck, and GM General Motors look the most interesting to me.

As always, my posts are not a recommendation to buy (or sell).

How to start your day

Brett Steenbarger at TradingMarkets.com has an article about how he starts his trading day (article). Most successful traders have a daily/weekly/monthly routine. The discipline from keeping a schedule is often reflected in the discipline exercised buying and selling.

Gap trading

Article with data on gaps at Trading Markets (link). The bottom line is to trade opposite the move, eg short a gap up, buy a gap down. Keep in mind that gap days are often extremely volatile and prices can move quickly and fills can be hard to get at the price a trader wants.

I often prefer to wait until the dust settles and calmly establish my long or short a day or more later.

Best practices

A good article about best practices (link).

I did a study on my trades some years back. My most consistent winners were buy-writes (buy the stock, sell the call). Some of my worst losers were stocks that I bought on fundamental valuations. Emotion is often the enemy for traders and I am not immune. I still occasionally get that fear and go to a fight or flight response. For traders, fighting the market can be the road to the poor house. I know too many sad stories of that type. Flight often means selling at a short term low.

That said, risk control, risk management are absolutely key to staying in the game. Every position trader has bad streaks. Learning to limit the losses is a vital lesson.

Keep a journal, use it. I tell folks there are a 1000 ways to make money in the stock market. Find one that suits your personality, that you can stick with.

Big fish, little fish

Interesting article about what time of the month money managers often buy (link).

GM General Motors again under 30 after Kerkorian unloads another batch of stock. This kind of situation is akin to the little fish, with the big fish Kerkorian dictating the movement of the stock with his moves and leaks. The above article is when little fish can get in ahead of the big fish. The big fish has to come in and buy, that is their directive. What might change is that patterns become known and the big fish changes their buying patterns.

In an efficient market all information flows freely and there is no advantage. However, the real market is never quite 100% efficient and some patterns such as the monthly buying patterns, and others often persist for long periods of time.

Chasing a deer (DE)

I am late to the game on DE Deere. The chart shows a textbook base and breakout. The fundamentals also look quite decent (stats). A pullback towards the base at 90 would be the desired entry point. Another decent entry would be the 50-day-moving average (the red line in the chart link).

More ETF: PHO, PBW, FXE

Some interesting ETFs:
PHO small cap water resource ETF
PBW clean energy ETF
FXE Euro currency ETF

As always this is not a recommendation to buy or sell. In this case, it is something showing up on my radar, perhaps for action at a later time.

Lots of movers

Lots of movers on news including MDT, DE, GOOG. BA at a new all time high. GDX gold ETF moving up.

Me, almost all in cash, only position is a small one in EWJ. This doesn't mean I am bearish. My current schedule doesn't allow much time for research or execution. Given that it is often safer to sit. It is frustrating to sit, when there are so many good movers.

TM Toyota has pulled back to its breakout point. Now it is a $196 billion dollar company, so it can only grow so much. However, it is extremely well positioned vs. its main competitors.

Sell DVN Devon Energy-called away

DVN Devon is called away for a small profit.

With the DJIA at record highs it is easy to say that I would have done better sticking with my most of my recent longs. However, hindsight isn't readily available in the present. Some traders make the mistake of learning yesterday's lesson and applying it to today. If someone knows the market will advance another 3% next month, of course it will pay to be bullish and refuse to be shaken out on any dips.

The most recent example is housing stocks that gapped down at the open on Friday, but recovered most of the losses by the close. Again, the hindsight glasses always work, but are not available at the time of decision. Just when a trader becomes complacent and stops taking small losses, the market will hand out a big loss just to remind them that complacency can be dangerous.

A Riddle

Here is a little puzzle that may stymie many a professional trader. Suppose a certain stock exhibits a true (geometric) random walk, by which I mean there is a 50-50 chance that the stock is going up 1% or down 1% every minute. If you buy this stock, are you most likely, in the long run, to make money, lose money, or be flat?

Answer at the link.

HD Home Depot?

A volatile day for HD Home Depot (3-month-chart). The stock opens lower on earnings, and then rallies, closing with a big gain for the day. Is it possible that the bottom is in for housing related stocks? I've written it many times, that picking bottoms is a dangerous and not so rewarding pasttime. Reaction to news can be a useful indicator. When seemingly bad news comes out and the stock still moves up, a lot of people have already sold, and not that many are likely to sell in the near future.

Sectors topping out?

Gary Kaltbaum at TradingMarkets writes about several sectors that he believes are topping out (link). Brokerage, housing, retail are all mentioned in the article.

Again, this is one of the strongest seasons for being long stocks. However, retail stocks often stall until Christmas results come in, and are positive.

Bears skewered, also a look at TM

Democratic party gains do little for the bears. The market opens weaker, however, even groups that are expected to do much worse under Democrat rule such as tobacco and defense have a relatively strong day.

I will say that I missed the boat, thinking that the election would lead to a tradeable selloff.

TM Toyota up on good earnings, also has a pretty chart.

Gold back to $750? BA and Airbus

Clive Maund likes the gold chart (Kitco article). Of the analysts writing on the Kitco site, Maund has been as right as anyone the past several months.

I have been surprised at the two day rally. What I wrote about months ago concerning Boeing and Airbus seems to be unfolding. Federal Express cancelled their orders for the new Airbus jumbo jet and BA stock jumps.

A study on the buy/write strategy

A study by Callan Associates examines the buy/write strategy, link to PDF (need Acrobat reader).

I'll cut to the chase, the bottom line is that the basic buy/write strategy, for the study period of 1988 to present has equaled the returns of the SP500 with much less volatility. The confirms my basic belief that buy/write offers market returns with less risk.

Of course during market advances, buy/write will underperform. During flat periods and down markets, buy/writes will outperform. In down markets, yes, buy/writers will take their lumps, but if a trader continually updates their hedge, about half the loss can be mitigated. During trendless flat periods, buy/writes are one of the best performing strategies.

As for the market, I have been looking for an election related sell off. I remain almost all in cash, with two hedged positions in DVN and EWJ. I have had little time for patient market analysis, so the cliche is when in doubt, get out.

The four year cycle presidential stock market cycle points up from here. However, like I said, in my opinion, cycle work is one of the least dependable indicators. Especially when the cycle is widely known, and widely quoted like the four-year presidential cycle.

Cheers.

WFMI crash and burn

WFMI Whole Foods Markets disappoints on earnings and sales and the stock is down 16% in the after hours. (two year chart)

This is a richly valued growth stock, that has now lost it growth status. When that happens look out below. For position traders the day of news can be a difficult time to establish positions. Option premiums tend to be extra high. 50 is round number support, but people really have to grind through the fundamental numbers to see if that level is worth buying at.

Two reasons to be long Gold

Jason Goepfert at TradingMarkets has a bullish article for gold. He cites the Yen-dollar ratio and the sentiment on the futures, with a low percentage of longs (link).

Stock Almanac 2007

I recent purchased The Stock Trader's Almanac 2007 edition (Amazon link). I owned a much older copy. Personally, I consider seasonal factors are down the list as far as effective indicators, behind earnings (fundamentals), and technical chart patterns, and sentiment.

However, I believe that traders can still use seasonality, sometimes to good effect. I recently mentioned looking for stocks making new lows in late October and late December. The reason for this still stands, institutions and individuals selling to take their losses. Many other seasonal patterns are still effective. Every year the writers and editors of the almanac update and reexamine hundreds of these seasonal patterns.

Sometimes it backfires, as it did this September in gold. September is seasonally one of the strongest months for gold, and in 2006 it turned out to be one of the worst in recent memory. However, like I said, seasonal factors are one more thing to look at, and if everything lines up just right, that perfect storm can get an added boost from seasonality.

Airlines preparing for takeoff?

Some of the airlines are in base chart patterns. For novices, bases are trading ranges where the stock price doesn't move that much. Sometimes a base can lead to a powerful advance. AMR American Airlines and LCC USAir are two stocks that I am tracking. BAB British Air has broken out from its base and is extended.

The fundamentals are not there for investors who look for earnings and a strong balance sheet. The major domestic airlines remain inconsistent on earnings with relatively weak balance sheets. However, the technicals are lining up for takeoff.

volatility (VIX) and price trends

Interesting article about the correlation between VIX, the volatility on options and stock prices going forward (link). Most suprising is number three, which goes against common wisdom >>

3) We have never had a bear market within 60 trading days of a low volatility period - Yes, we've had market corrections of about 5-6% in March/April, 2006; August, 2005; September, 1994; January, 1994; and July, 1985. We have never had a decline of 10% or more, however. The idea that we are in a complacent market period and hence due for a frightening drop is not supported by market history.

The train has left the station

Wow, the major indices continue to steam ahead.

I wanted to buy some GOOG Monday morning, but had a lot to take care of and couldn't do it. Up another 20 to 480. That 20% looks like it may come soon. That said, I think many stocks are getting extended and a sharp reversal day or two may shake out some of the bulls.

A side note, my 20th Anniversary gold eagle coin set A12, sold on Ebay for $5125 on Sunday (minus 4.7% for all the fees). Price from the mint was $2610.

Buying low late Oct and late Dec

For those investors who like to buy low this is a good time window to do so. The reason is that many institutions have a fiscal year that ends October 31. They often clear out losing stocks so they can report the loss and use it to offset any gains for the year.

For stocks with a large following of individual investors, the late December time period is another buying window. Again the reason is that many sell to report the loss.

A couple of names that come to me off the top of my head include F Ford, NYT New York Times, EBAY eBay. Barrons and many newspapers and some websites have lists of stocks moving to new lows. I found a search at MoneyCentral, but the data seems off because it includes GS Goldman Sachs on the list and it just hit a new high, not a new low (link). Ideally stocks should have solid financials and are depressed for a temporary bad new incident, not long term deteriorating fundamentals. However, in the case of poor fundamentals, this can still be a good time to buy for traders (as opposed to investors).

GOOG Google, is it madness? Sell BA

Google up big on earnings. If a person just looks at the chart, without any legends, the chart is a strong buy, with a beautiful flat base and a touch of resistance at the old highs. At $175 billion in market cap, it is not a start up company and will have trouble maintaining its torrid growth rate. However, it is the market leader, and no company has found an answer to the Google business model. The path of least resistance is higher, I would say at least 20% higher from here.

Elsewhere my BA Boeing is called away at expiration. The call buyer did much better than I did (the call seller), but I will not sneeze at a very respectable low risk short-term profit.

Sometimes the gamblers win AAPL

AAPL Apple Computer up 6% on earnings (chart). Schaeffer's reported heavy call volume ahead of the report. For novices reading along, calls are a bet that stock is going higher, puts are a bet that the stock is going lower. In this case the earnings report was good enough so that almost all the call buyers made money, in some cases a lot of money.

Sentiment indicators such as call volume are one indicator. Like any indicator, they sometimes work, sometimes don't work.

MER Merrill Lynch

MER Merrill Lynch up a tad on great earnings (chart). Schaeffer's offers a reason why (link). The 80 level is a low risk entry, but it may not get that low. Option premiums are relatively modest and buying calls might be the way to play it on the long side on a pullback.

MCD, also selling my gold eagle set

MCD McDonalds reaches a record high on a good earnings report (chart). Readers may remember that I owned MCD. Mine got called away for a tiny profit.

Elsewhere, I am selling my 20th Anniversary Gold Eagle coin set. The curious can get some popcorn and see where my set goes for (link to auction). Issue price was $2610. The most recent average selling prices have right around $5000. I wish all my stock trades could be so profitable.

Looking ahead, earnings will continue to drive stocks higher or lower. Resistance on round numbers or previous highs are often good entry points for position traders looking to go long. The converse for shorters, support at round numbers or at previous ranges are often a stopping point along a bigger move.

Gold unimpressive, eagle sets

North Korea sets off a nuclear bomb and gold barely moves an inch. I am not impressed. Sentiment on Kitco Commentary remains mostly complacent (link to index). Again, fear is bullish, glibness and forecasts of rallies to come when something is weak is not good. Too many folks are comfortable buying this weakness, for me to be comfortable buying this weakness :). Or as Groucho Marx put it, "I don't want to belong to any club that would accept me as a member."

Elsewhere AA kicks off earnings season with a dud. A down forecast from Legg Mason is troubling as brokerage is one of the leading groups in the advance. Housing continues strong. Airlines and other transports moving up as oil heads south. Oil stocks have firmed up.

For coin collector folks, the buzz is about the 20th Anniversary Gold Eagle set. Issue price was $2610 and many sets have traded above $5000, with strong offers a tad lower than that.

cash flow bearish

Carl Swenlin at TradingMarkets has a graph of cash flow, showing bearish flow despite record highs (link).

That said, the market is holding up well given the news from North Korea. South Korean stocks are being hit hard, selling in other markets around the world is muted.

No great insights

I don't have any great insights to share. I haven't posted in a while so just a hello to let readers know I am still here. I have less time for the market and for blogging.

Like many traders, I missed out on many of the opportunities in this rally to all time highs on the DOW. Like many traders, I was a bit surprised. Like many, I have been whipsawed badly a couple of times.

Like many, I remain gun shy. At this point I am underinvested, as stocks moving up decreases the delta of my hedged positions.

Positions: BA, DVN, EWJ all long stock short calls

Roll down DVN call

Damage control as oil continues to slide.

Roll down DVN call, buy the Nov 60, sell the Nov 55

Gold getting slammed today, following oil. Jumping under that knife is always dangerous.

Common wisdom

Brett Steenbarger at Trading Markets (link)
"The common wisdom--and the common human tendency--to buy when the market is strong and sell when it's weak would have lost a trader a significant amount of money."

--
Verily, common wisdom can cost traders, especially new traders who see one or two indicators working well and latch on to them and hold on to them. Markets at some level are ever changing, though at times certain scenarios do repeat.

Another interesting article is Tom McClellan of McClellan oscillator lineage does an analysis of buying and holding for the first day of each calendar month (link). Bottom line, there is an upward bias, how tradeable it is, is not covered.

Ingredients don't bake the cake

Random Roger has this great line in his stock market blog (link)
"There is no question we have the ingredients for a decline. Ingredients however don't bake the cake. ..."

Elsewhere, RIMM Research in Motion had a great day on earnings news. Round number support at 100 is a plausible entry point. A pullback to the gap would not be unexpected.

Current positions: BA, DVN, EWJ all hedged longs, long stock, short calls

Buy DVN Devon Energy

Buy/write DVN Devon Energy, buy stock, sell the Nov 60 call

Sell MO Altria

Sell MO Altria
Buy back the Oct 80 call

Stock is too weak, too volatile, so instead of updating the hedge I dump it and take my loss. Phooey. Again, this kind of event is one of the risks of stocks with decent option premiums.

Thumped (MO Altria)

News of a ruling allowing a class action lawsuit to proceed, hits MO stock hard. So far I have done nothing, but plan to roll out and and down tomorrow. The temptation is to ride it out, but temptation usually leads one down the garden path to destruction.

The main reason MO and RAI have such relatively high option premiums is what happened today, court rulings. When one wants to dance the tune (pocket high option premiums), one usually has to eventually pay the piper (volatility).

GDX gold mining ETF

True Contrarian mentions a relatively new exchange traded fund, GDX. It is gold mining stocks. Options trade for a decent premium, so it looks like an excellent trading vehicle for my purposes.

As I wrote a couple of days ago, my schedule has changed, so daily updates are on the shelf for now. I will still try to post soon after I make any moves.

Sell BA Oct 75 call

Sell BA Oct 75 call

Elsewhere, RAI Reynolds gets a downgrade, KMX up on earnings. Metals continue weak. Clive Maund posts his thoughts over at Kitco Commentary on 9/18 (link).

Buy BA Boeing and a change of schedule

Buy BA Boeing will probably sell the call tomorrow

My schedule has changed, so my trading style, post frequency, and update times, will be a bit different.

BA Boeing

I put in a limit buy order on BA Boeing today, but didn't get filled. Metals had a minor recovery day.

Sell BAB, Sell MCD called away at exp

Expiration calls away two stocks, BAB British Air, and MCD McDonalds. On both, I would have made a lot more just owning the stock outright and not selling the calls. I bought BAB a couple of days before the recent terrorist scare involving transatlantic flights. I am pleasantly surprised at the strength of the stock considering the news.

McDonalds has been one of the strongest stocks in the Dow during the couple of months I have had it. My profit is small. I was tempted to roll up and out, and may buy back in at a later date.

Current positions MO, EWJ both long stock, short calls
Everything else was sold or called away.

More blog links

Here are links to lists of top stock market blogs:
Kirk report list
Trading Markets list

This is the first I have seen these lists, so I don't have first hand opinions of these blogs. Explore and enjoy.

Gold continues to slide

That recent day when gold was up while oil was down surely got a lot of fish to bite and buy in. The decline after that day has been vicious and today the mining stocks took on more water. The HUI gold bugs index down another 4% below round number support at 300. Next stop looks to be 275 (HUI chart).

This is not the time to be a hero and call bottom. It is a time to accumulate gold, especially physical gold for the long term. Trading a waterfall decline on the long side is dangerous and risky. Shorts must also be on their toes as rallies tend to be sharp.

Buy MO Altria, add to EWJ Japan Fund

Buy MO Altria, sell the Oct 80 call

Add to EWJ, buy stock
also buy back the short Sep 13 call, sell the Dec 13 calls

GS Goldman leads the rally

I am caught flat footed by today's 100+ point rally. GS Goldman Sachs (chart) leads the way. Today's GS rally already took out the first price target of 160, distance of gap up is distance of the move (5-day-chart). The 52-week high of 169 looks to be the next target on the upside. The gap at 151 to 155 is likely support.

so much for September (gold)

Schaefer's include the comment (link):
The big loser today is metals, as the AMEX Gold Bugs Index (HUI) is down a massive 26 points or seven percent - so much for September being the most bullish month for metals

Seasonality can be a useful factor. However, I rank it down the list, below news, below technicals, below fundamentals. I was strongly tempted to stay long AU Ashanti Gold, especially after being whipsawed out of GM and JWN a few days earlier. That is often the way the market seems to work, to "trick" traders into thinking it is going one way then hammer them for being undisciplined.

I did not see much in the way of useable analysis at Kitco Commentary (link), but gold watchers can watch that space in the coming days.

Sell WYNN puts

Sell WYNN Oct 70 puts
So far I am wrong on this one and am exiting.

Sell AU Anglogold

Sell AU, buy back the Oct 45 call
I take my lumps as gold continues to crater downwards. Today could be the bottom, but I am taking the emotion out and getting out with my loss.

Word of the day: whipsaw

whipsaw:
3. To cause to move or alternate rapidly in contrasting directions: “The bond market... continues to be whipsawed by fears of rekindled inflation”

They could have also put up a picture of today's WYNN chart. Home builder stocks also see this whippy price action. These kind of wild rallies are one reason I prefer to purchase puts rather than short the stock. Sometimes the short covering rallies are extremely powerful. Sometimes a stock gets a takeover bid and gaps to the moon.

There is no right or wrong with shorting vs. buying puts. Over the years, I have found puts to fit my style and personality better.

Gold has a terrible day. The linkage to oil may be back in play, after a one day respite. NEM Newmont gets downgraded. The HUI goldbugs index (chart) is back to its breakout point of 349/350. Looks like the rally day was a phony push to get more excited bulls into the pen, so they could be slaughtered on the next leg down.

This isn't the time to be the hero, not in this treacherous market. I will stay cautious, trade small, and almost always hedge. Small, even tiny profits like today's RAI Reynolds are welcome in these stormy seas.

Short WYNN (buy puts)

Buy Oct 70 puts WYNN
Readers know I prefer to sell options, not buy them. However, for shorting, puts limit risk, and also give a time stop. The obvious downside is the time decay and the option premium. A put buyer has to be correct on direction and time--not an easy trick.

RAI Reynolds called away early for the dividend. A tiny profit, with neglible risk, and there was a chance at the 1% quarterly div.

Missing the boat

I missed the boat on HOC Holly Corp, as it continues lower.

WYNN looks like a decent short in here (chart), but I am reluctant to pay the high option premiums. The new casino in Macau just opened. The stock has had a big run in anticipation of that event. Analysts have mixed reviews on WYNN and LVS.

DVN Devon Energy looks like it wants to fill the gap. Any revenues from the oil discover are likely to be three or more years out. The more likely scenario is a takeover where some other company wants to boost their reserves, especially relatively safe reserves in U. S. waters.

Gold up, oil down, big oil find in the Gulf

Gold finally has a big up day without the backing of oil. Also in the news is a big oil find in the Gulf of Mexico. I took a good hard look at DVN today, but this wasn't the day. The rest of the market continued to have a bullish bias. The Dow was flattish, but the Russell 2000 continued strong.

Someone else made the observation that technical analysis is more like a wind sock than a crystal ball. If used properly it might also be a barometer, so folks can take shelter before the storm hits (usually the air pressure drops well before the rain and wind hit).

Landry talks about exiting too early

Dave Landry at TradingMarkets.com has an hour long video presentation at this link. One of the topics he covers is micro managing, how some of his clients can't bear any discomfort and exit as soon as the position goes against them, before the stop is hit. His term for this is micro managing.

Readers might even waggle their finger at me, as I exit to protect a profit. The difference is one of style. As I have said, I see myself as analogous to a singles hitter in baseball. Where gains are small, and the winning percentage is [hopefully] very high. Losses too are kept small. Landry's style is that of a momentum player, where home runs and doubles are much more common, but the percentage of winning trades is not so high.

In any case, if a person has time this long weekend the entire video is worth a look. It starts off a bit slow. If a person is primarily interested in Landry fielding questions on different stocks, that part is about 37 minutes into the hour long video.

Have a nice weekend.

A top in oil?

Two commentators at Trading Markets select the same topic, about a possible top in oil stocks. Here are the links to the Deron Wagner article and the Gary Kaltbaum article.

In the sector, Holly Corp, HOC has an ominous looking and clean head-and-shoulders top. It shows up best with the six-month chart. HOC options are priced with an implied volatily of 43% for the October strike. Today's price action of a gap lower and a rally, are not the best setup for buying options. Time decay is going to be a factor with the long weekend eating up several days. Another hurricane could spike oil higher, so there is significant risk of shorting vs. buying put options. Looks like a decent short play in terms of sector, and the chart, but now may not be the best time to initiate a position.

Buy Gold Eagle 20th anniversary set

Another quiet day in the stock market. Cross currents and a few minor stories, including one about my stock AU, Anglogold possibly facing power shortages because of lower hydro power in the region.

I did buy something today. The 20th Anniversary gold eagle set from the U. S. Mint (link).

XAU holds on

Another weird day, the XAU holds on to a gain, finding some buyers as spot gold takes another hit (5-day-chart XAU).

The broad market dips, and then rallies back to a positive close. The Russell 2000 has a good day (IWM chart).

Again, all this is happening on low, low volume, so while up is good for the bulls, it is not reason to get too excited.

Caught off guard

I am surprised by the strength and depth of today's rally. The non-event of Ernesto as a would-be hurricane has been the catalyst. The week before Labor Day is usually one of the lowest volume trading weeks of the year.

When in doubt stay out

Interesting article by Mark Boucher over at Trading Markets (link).

This week the market has drifted slightly lower with several of the my stocks getting hit hard enough for me to get out. Again, that is a difference between long term investing and trading. Traders that are stubborn and refuse to get out when the market turns against them, tend not to have long market lives. Value investors in particular can and do wait out times when their investments move lower.

Sell GM, Roll down AU call

Buy back the Oct 50, sell the Oct 45 call
Phooey. AU AngloGold drifts lower and I roll down the call so I am at less risk.

Sell GM, same deal as JWN, getting out before I have a loss.

Sell JWN Nordstroms

Sell JWN for a breakeven profit
CHS Chico's Fas and WSM Williams Sonoma out with disappointing numbers and high end retails get hit. I get out at before the gain turns into a loss. Last time this type of event happened to me was BBY Best Buy on a day when Brunswick had bad news. The stock, BBY fell hard and became a loser. Better safe than sorry.

1 for the bears, also MauiTrader

Bears score a moral victory today on a modest orderly decline. Schaeffer's reports (link) most sectors down, and unusually high put active in GM which generally is bullish for the stock. I own GM and it was down today, along with most everything else.

I found another blog posting real trades (instead of paper trades or analysis) at MauiTrader.

Buy AU AngloGold Ashanti Ltd

Buy AU AngloGold Ashanti Ltd
Sell the Oct 50 call
AU is one of the few gold stocks down right now. Spot gold is down a bit. I think AU will move back in line and get to break even for the day. As I wrote in a previous entry, gold looks neutral to me. Seasonally, the holiday season is when jewelry demand is highest.

A test for gold

Clive Maund on Kitco commentary called this week's drop in spot gold in his Monday 8/14 article with charts. The XAU chart is a Rorschach test of sentiment. Some might see an ominous head and shoulders top forming. Some see the pennant that Maund writes about. Some see the uptrend intact and connect the dots on the lows. The first interpretation is bearish, the second neutral, the third bullish. Depending on which camp a person leans towards each has its merits.

As always price action is where the rubber meets the road. Pennants tend to be boring for most traders as the price swings get smaller and smaller as the point is formed. However, this is exactly the kind of a price action that buy/write strategies work well. Option premiums do reflect that diminished volatility so profit potential is limited.

KGC Kinross has held up well considering the decline in gold prices (chart). My purchase of a couple of physical gold coins could definitely have been timed better. The price went up for a couple of days but is now a good $25 an ounce lower than my buy times.

Buy RAI Reynolds American

Buy RAI Reynolds American
Sell the Sep 62.5 call (in-the-money)
Dividend plus option premium play on news.

Positions: BAB, EWJ, GM, JPM, MCD, RAI
All hedged, long stock, short calls, JPM to be called away today

HPQ pop and then fizz

HPQ Hewlett Packard/Compaq pops higher at the open. It traded as high as 37.25 premarket. It dips below 35 before finding some trader support (5-day-chart). I had this stock earlier, but got spooked and sold out, leaving a lot of money on the table.

A buy/write strategy will leave a lot of profits out there if a stock rockets higher. However, over time they do as well as buy and hold with less risk. It is not so easy to buy and have a stock immediately go up. If it were, everyone would do it ;).

Last month's option expiration week had a bearish bias. This week, so far has favored the bulls. It is often like that as traders get conditioned to expect something, and then the market does the opposite.

Breakout or Fakeout?

Dave Landry at TradingMarkets presents some evidence in his article. Here is another chart (3 month SPY candlestick).

Meanwhile GLD is tightening its range (chart). Yesterday's up day for mining stocks while the spot price went down telegraphed today's firmness in the spot price.

Buy GM General Motors

Buy GM General Motors
sell the Sep 30 call

Today's morning rally has almost all stocks on my list green.

Peace Rally

Stock markets all over the world rally after a ceasefire in Lebanon (link). The U.S. rally fades by the close, so traders are still nervous in what is a trendless treacherous market.

GM gets a downgrade, F an upgrade. GM under 30 looks very interesting.

The bearish case

Gary Kaltbaum makes his bearish case at the Trading Markets site (article).

The market continues in its whipsaw ways, the latest being gold. Yesterday, on the bomb arrest news, gold fell, and today's gold rally failed (5-day-chart). It is harder to make a bullish case when gold can not go up when there is news.

Personally, I have that radioactive feeling at the present and remain in the bunker.
I have been overtrading the past few weeks and while that is good for the broker, it is not so good for me. For every trade, the spread and commission is a little nick and over the course of time, a trader can bleed that proverbial death of a thousand cuts.

Positions: BAB, EWJ, JWN, JPM, MCD
all long stock, short calls, also have lots of cash

Nasty selloff

A rather nasty sell off in the blue chips. Good earnings from DIS Disney and CSCO Cisco Systems give the market a morning lift, but sellers move in and send the DJIA to a triple digit closing loss. The market has to be frustrating for many, as some bears probably covered into the morning strength, and some bulls bought, then they got whipsawed.

There is an old cliche: "Don't argue with the market." No one person or firm is bigger than the market. The corollary might be "The market is always right." Traders try to add liquidity to profit off short term fluctuations or imbalances, but overall these are sound words to live by. The market continues in an overall sideways pattern.

I'm keeping my powder dry for now, but that can change in a moment, if I see a low risk entry point (long or short).

hop, skip and jump on Fed news

The market drifts lower into the event, then rallies for two minutes before falling off. The news is about as expected. Schaefer's (link) reported high call activity in QQQQ prior to the news. This kind of sentiment lowers the odds of any significant rally.

The Bear got me today

Market close--looks like I got owned today. Much of my selling was near the lows and I took some losses that would be back to gains by the close. Some days the bear gets me. Today was one of these days. My winning percentage took a hit with three losers and one winner for closed trades.

Tomorrow is another day, and next week another week of trading. Good luck to all those reading.

Sell HPQ, IWM, XLE, PGR

I don't like the way the market is acting. I sell HPQ, IWM, XLE, PGR

Right now it looks like I hit the local low. Sigh. Such is life. PGR Progressive sold for a big loss. HPQ a small profit. IWM a break even loss. XLE for a small loss.

Roll down BAB call

Roll down BAB call British Airways

Buy the Sep 75, Sell the Sep 70
BAB out with earnings and has disappointing comments about the rest of the year. Stock takes a 7% hit in London. Phooey. There is always this chance going into an earnings release.

PGR Progressive also out with earnings and stock drifts higher.

Positions, all long stock, short calls
BAB EWJ HPQ IWM JPM JWN MCD PGR XLE

Buy JWN Nordstrom, Buy BAB British Air

Buy JWN Nordstrom's
Sell the Sep 35 call

JWN higher as retailers report monthly sales results. Earnings due out Aug 17th. Decent option premium out to September.

Buy BAB British Air
Sell the Sep 75 call

Airlines moving higher as oil prices dip.

Sell ADM Archer Daniels Midland

Sell ADM Archer Daniels Midland
Buy the Aug 40 call
Stock acting poorly after earnings two days ago (3-month-chart). A retest of 40 looks possible and that would take away almost the profit from my buy/write. Again, this market is so difficult, I am taking my profit while it is here.

Also in the news, SBUX Starbucks is the big name bombshell of the day with disappointing same store sales.

Low VIX (Volatility index)

The VIX is almost back to serene levels (chart). For beginners, VIX is the volatility index for CBOE options. Volatility means how fast stocks are moving, though generally a high VIX occurs during steep market declines, while quiet markets or steep rallies usually produce a decline in VIX.

Some folks call VIX a fear indicator. Conventional wisdom is that a low VIX is a sign of complacency and dangerous for bulls. Low volatility translates into lower option premiums. Used in isolation by itself, VIX is a poor timing tool. A low VIX may persist for some time before a decline begins. A high VIX may go much higher before a bottom is in place. I see it as a confirming indicator, and a quick sentiment gauge. Right now, VIX is telling me to continue to be cautious.

Some pundits are predicting a fall low for the stock market. Seasonally, August has been one of the worst months for the stock market. Like the VIX, seasonal factors are not enough to trade on by themselves, but one more thing to consider.

WFMI Whole Foods Markets lower

Whole Foods Markets down on earnings (chart). Even with the decline, it remains richly valued. There is a shift towards the type of food WFMI sells, however, competition from other stores stiffens as they start to stock the same or similar products. If anything WFMI looks like a chart. However, with a steep decline and a gap open lower, it is quite oversold. A rally back up to the gap would be a place to buy puts or short.

Gold and silver rally today. I bought a couple of gold coins during the past week.

Buy IWM, Buy XLE

Buy IWM Russell 2000 exchange traded fund
sell Aug 68 call

Buy XLE Energy exchange traded fund
sell Aug 58 call

The calls are slightly in-the-money, so there is a modest cushion, and not much upside.

Another rally day

Another good up day, with a high ratio of advancers to decliners (link). The stocks that are down seem to have news. I place a buy order for IWM Rusell 2000 ETF but get cold feet and cancel it. GM General Motors up ten days in a row (chart). The cliche is that when the last bull buys in, a corrective decline will set in.

I am uncomfortable with a high percentage in cash, and yet am having trouble finding decent entry points and pulling the trigger. Better to be patient and wait for low risk opportunities, than to trade for the sake of trading.

Does the dog wag the tail (NEM)?

NEM Newmont Mining earnings report sends the stock lower (chart). Spot gold moves up. XAU gold index lower. So the question is does the tail wag the dog or does the dog wag the tail? NEM hedges by selling futures against production.

am not a gold stock specialist and it is a bit much to try and sort out off the cuff. Traditional analysis would say that the divergence of a lower XAU with higher gold prices is bearish for the price of gold and for mining stocks.

AET Aetna bombs out along with CI Cigna. My position in PGR Progressive feels some of the shock waves. Casino stocks are weaker driven by earnings news from HET Harrahs and PENN.

Amazon dot bomb

Amazon dot bomb is an old phrase that was popular during the Internet bubble days. Many bears went broke shorting AMZN and other Internet darlings. Today, AMZN is 20% lower on poor earnings and guidance. I did not have the nerve nor the desire to try and trade AMZN today. Fast markets are not the best place for position traders. It is often easier and better to let the dust settle and see where support and resistance is established after a big volume news day. Day traders tend to want to move to the next hot stock and that is often where position traders step up to the plate to provide liquidity.

Today's dollar losers list features other household names such as Boeing, Panera Bread (the old Au Bon Pain), Black and Decker, Norfolk Southern. General Motors and Diamond Offshore are some of the gainers moving on earnings.

Trigger lock

I didn't pull the trigger today. I watched X US Steel, IWM Russell 2000-ETF, SNDK Sandisk most of the day but did nothing.

I wrote about feelings not having a place in the market. I can hedge that statement. When getting out, due to a stop loss, or the market moving against a person, feelings are often a trap. When getting in, this can often be the case, but it is not near as dangerous when feelings warn against entering a position. There is always another stock to buy or short. There is always another day to trade. Compare this to being in and refusing to get out, or doubling up on a losing position. For most mortals feelings will betray a trader. A few have the gift, but even those gifted traders have to exercise discipline at times.

Current positions:
ADM, EWJ, HPQ, JPM, MCD, PGR
all are hedged, long stock, short calls

Buy HPQ, Buy ADM

VLO Valero Energy and MAR Marriott International called away on expiration, so there is a big pile of cash to be put to use.

Buy HPQ Hewlett Packard/Compaq, sell Aug 32.5 call

Buy ADM Archer Daniels Midland, sell Aug 40 call

Not the best timing of the day for my buys. However, waiting for perfection is a dream, not the reality of trading. It is usually BSers playing with fantasy money that always seem to buy at the low tick of the day, not real traders working with real money.

As an aside, precious metals continue lower. Anecdotal sentiment is poor with newbies looking to buy in and posting bold predictions of higher prices. Anecdotal stories can be powerful. XAU holding up relatively well this morning considering the drop in the gold spot price. I am tempted to nibble here, but gosh, gold looks lower to these eyes. $600 is minor support, but real support is at the recent lows (3-month-chart) around $550.

Oil stocks up despite a drop in crude.

Sell BA Boeing, roll PGR call down

Sell BA Boeing, sell the stock, buy back the Jul 80 call
I exit with a breakeven profit, one of those where the broker makes more than I do.

Roll down PGR call, buy back the Aug 27.5 sell the Aug 25 call

It is a tough market. After the big rally day, both BA and CAL looked like they would be called as they rallied well into the money. Then the rug got pulled out and I got out. The word of the day is frustrating. My secure thought is that in this tough market I am finding a way to ferret out small trading profits.

Earnings news dominates right now. There have been nice gainers, bombshells, and non-events.

For some measure of stability, I am looking at IWM Russell 2000 ETF because the options trade nicely with decent premiums (3-month-chart). IWM has given back all of its gains from the big rally day. I am also looking at HPQ today, as it declines in sympathy with the DELL news of a weaker PC market.

Sell CAL Continental Airlines

CAL earnings $1.93 three cents better than estimates of $1.90, but the stock opens lower and falls. I get out while I still have a small profit. Poor execution on the exit costs me, and as of this writing it is trading well off its lows. That big dip may well have been to take out stop loss orders sitting on the books. With the market the way it has been, booking a profit seems like a wise idea, even though it is a small profit, even just two days from expiration.

BA, MAR, VLO almost certain to be called away tomorrow, and that will leave me with a big pile of cash.

EWJ, MCD, JPM, PGR are other hedged positions (long stock, short calls)

A ridiculous rally

Yesterday was a tough day for my account. I sold my BBY at what felt like a bottom and it was close in time if not in price to a local bottom. I bought CAL and BA and watched them get hammered moments after I bought in. After the close, I told someone that tomorrow is another day. Indeed.

Today is a different day. As of this writing 28 of the 30 Dow stocks are up (link), with only MO Altria and XOM Exxon/Mobil down. Every time I line up a stock to buy it seems to jump before I can get in. Intraday swings are wide, and that makes for opportunities.

No one knows what the next couple of hours will bring, but for now I am enjoying the big rally day. Cheers.

Buy BA Boeing, CAL Continental Airlines

Buy/write BA Boeing
buy stock, sell the Jul 80 call

Buy/write CAL Continental Airlines
buy stock, sell the Jul 30 call

As of this writing both stocks are dipping and moving against me. The small premiums of the front month calls are small comfort.

current positions, all hedged, long stock, short calls:
JPM, MAR, MCD, PGR, VLO, BA, CAL
MAR and VLO are in the money and may be called this Friday at expiration

Sell BBY

Sell BBY Best Buy
sell the stock, buy back the Aug 47.5 call

BBY is again lower on a brokerage downgrade and lower sales projections from TGT Target. I have a strong feeling that this is the low, at least an intermediate term low. However, the loss has become too large, and my feelings have little to do with the market. So sell it is. The hindsight glasses show that I should have taken the profit when it was still available is so clear now. I did that on SHLD Sears/Kmart and a couple of other positions and it avoided the nastiness of riding out a decline.

Best Buy has been a bad luck stock for me, this is the second time I have been in it and taken a loss.

Sell KMX, Rolldown BBY (vacation)

Exit KMX position (CarMax used auto dealer)
Buy back the July 35 call, sell the stock

Roll down and out on BBY (Best Buy retail electronics store)
Buy back the Jul 50 call, sell the Aug 47.5 call

You guys have not been taking good care of this market while I am vacation.

Happy 4th of July

Blogging will be light as I take off for some holiday travels.

I could not pull the trigger on Friday or today. Stocks I wanted included BA, MER, CEPH, RIMM. RIMM had a nice quarter. With resistance at 70, it looked like a relatively safe play. CEPH is similar with round number resistance at 60.

GM was the best performing Dow stock for the 2nd quarter, and one of the best stocks overall with a 40% gain for three months. Who knew? Not me, and with my hindsight glasses, I regret not buying back in when it dipped again below 20.

Have a safe and festive holiday. I will check in from time to time during the next couple of weeks, but I will not write entries every day. Cheers.

White hot nuclear market

Fed comments add gasoline to a hot market. The strength is quite amazing and surprising to me. I am hard pressed to find minus signs, either in groups or in individual stocks. Bonds, gold and stocks are all higher. If I came in short any of these, I would definitely be covering because the pain would be too great.

As is, I have some hedged longs, and would like to add more. It is difficult to find anything that hasn't already moved. AMLN, BA, BRK and MER are the most tempting. RIMM reports earnings after the close. I don't think I want to roll the dice on this one.

I remind myself that there is always another day, another opportunity. Jumping into a fast market can be quite exciting. However if a person is on the sidelines, it more often times than not pays to wait for calmer waters and clearer opportunities.

Take your CAKE, churning GLD

CAKE Cheesecake Factory down on lower guidance. The stock remains richly valued given the modest growth prospects. Tough to short or to buy puts when a stock has been sliding down then gaps lower (chart). CAKE does look like it will go lower before finding a bottom, however, today is a high risk entry point for both longs and shorts.

Most of the market is waiting for the smoke to clear from the Fed announcement tomorrow. Often times the initial reaction to Fed meetings is a head fake. I still have some cash looking for good longs.

I haven't written much about gold, silver and copper. Gold seems to be churning to try and form a bottom. I think there is still a lot of speculative excess in the metals and the market churns to frustrate both bulls and bears. So while I have taken a look at a few gold stocks, I am not close to pulling the trigger (chart). Again, this does not look like a low risk entry point.

Retest for bonds, gold and stocks?

It is an oddity, with GLD gold, TLT bonds, and SPY stocks all looking like they want to retest their recent lows.

It seems more like the absence of news that brings in all the selling today.

It is so tempting to buy, but not many stocks have reached bargain basement levels, despite the down day today.

$90 billion in mergers

Another big day for acquisitions, with JNJ Johnson & Johnson spending $16 billion for Pfizer's consumer brand name division. PD Phelps Dodge announces two huge acquisitions in metals and mining.

Conventional wisdom interprets this as long term healthy, because the very smart bean counters find value in buying whole companies at a premium to current valuations. They find this cheaper than trying to replicate said business, or see unique assets that can not be duplicated.

Also in the news is Warren Buffett giving away 80% of his personal fortune. BRK stock is under a bit of pressure with more uncertainty and the likelihood that more shares will be on the open market as foundations may sell a modest amount to fund their projects.

Home sales stronger than expected. LEN Lennar earnings ahead of estimates but they guide lower.

APC takeovers, CNX and SIX

Spotlight is on oil as APC Apache (correction Anadarko Petroleum) announces two major mergers today. APC is down on the news. CNX Consol Energy is being added to the SP500 index at a yet to be announced day. CNX stock leaps on that news and the positive aura of takeovers. SIX Six Flags rides the rollercoaster down on disappointing guidance and lower theme park attendance.

I am looking to buy more stocks. My VLO position is down to delta 10 (moves 10% as fast as the stock moves) because it is well in the money. Rather than try to roll up the VLO call, I am content to leave well enough alone for a smallish profit. BAB British Air got hit yesterday on news of a price fixing investigation. Other airlines escaped untouched, but usually it takes more than one airline to fix prices.

Under the weather (empty post)

I am not feeling so well, mild fever, coughing, sore muscles. So I'll skip my blog entry for the day.

Bull run and AMLN

Who knew? A meek open with flat futures turns into a powerful rally with a 4-to-1 advance/decline ratio and most industry groups participating.

FDX Federal Express, and MS Morgan Stanley, lead the charge. Even Darden Restaurants DRI (chart) with earnings right at estimates gets a nice bump up. AMLN Amlin Pharma gets an upgrade and is higher. The chart looks nice, the back story is that they can't make enough of their new diabetes drug to meet the enormous demand. The stock fell in the short run on this news, but in the long run this is bullish news. The stock is a tough one to evaluate because it is $5 billion, but still considered a developmental/research company.

A look at Sequoia Fund's top holdings

Looking at the holdings of mutual funds can be a useful tool for investors. The Sequoia Fund (home page) is closed to new investors. It is run by managers who share the investment philosophies of Benjamin Graham and Warren Buffett. Looking at their top holdings (link), it is no surprise that Berkshire Hathway (the Buffett holding company) is their largest holding.

Other stocks on the Sequoia list include PGR (which I own), TJX, FAST, WMT, IDXX, EXPD, WAG. What these stocks have in common are what all Buffett/Graham type stocks will have: stable business models, sound management, decent balance sheets.

Nice up day today. I still expect the major averages to retest their recent lows. However, there are some opportunities in the mean time.

Current positions, all hedged longs:
BBY, EWJ, KMX, JPM, MAR, MCD, PGR, VLO

Buy JPM J.P. Morgan

Trade
Buy/write JPM, buy the stock, sell the Aug 40 call

Stock at support. Also goes ex-dividend on July 3rd. If called for the dividend it will be a nice gain in 16 days. If not, the dividend adds to can add to total return.

Tough day in the oil patch, strong one for airlines.

Buy KMX Car Max

Trade

Buy/write on KMX
buy stock, sell the July 35 call

sell the PGR Aug 27.5 call

KMX is up on earnings report. They are also a possible long term growth play, with a market cap of $3.5 billion, and 71 stores, that leaves a lot of room to grow. KMX is starting to gain some national brand recognition. Other types of stores have fallen to the chains, office supply, hardware, drug stores, so KMX has a shot at it.

The sleeping point

Paul Van Eeden writes about the sleeping point at Kitco Commentary (link). The cliche meaning is if investments are keeping a person up at night, he/she has too much in, and needs to sell some until they can get a good night's rest.

Trade
Sell EBAY (option exercise)
Sell WCG (option exercise)
Option expiration sees EBAY and WCG called away, PGR option expires worthless, will probably look to sell the August 27.5 call next week. It is refreshing to see some green plus signs on the spreadsheet in the net column.

May margin debt down

An article at TheStreet.com talks about a steep decline in margin debt. The decline is the steepest since the 9/11 meltdown. Conventional wisdom would interpret this as bullish, because a lot of weak hands have folded.

Fool.com has a blurb about brokerage stocks (link). The writer believes more patience is warranted. MER is one stock I like with a base about 10% below its current 67.

Airlines are one of the very few groups to be up again today. Bank stocks are very active. One cliche is that volume precedes price, so the big volume may be a precursor to an up move. JPM is the bank stock I am watching most closely.

It is pins and needles time for a lot of players today on option expiration Friday. If it is typical, a lot of stocks will close right at a popular strike price so both the puts and calls expire near worthless.

Bernanke Bulls--holy cow

Fed chair Bernanke comments set off the running of the bulls. It is amazing and yet typical of the market for sentiment to turn on a dime. VIX, the volatility index collapses as the market rallies.

Some other stocks I resist buying are CAL, MER, DCX. Several of the stocks I dumped this week and last week have rallied since I sold. That is the way of the world, lots of sellers create bottoms, lots of buyers create tops. I can move forward to new trades.

The urge to buy (retest expected)

A nice recovery rally. I feel a strong urge to buy more. There is a good chance that a retest or even lower lows are in the cards. Today's opportunities look like slim pickings. Housing stocks are up, despite another brokerage downgrade. Some big name techs such as AAPL, MSFT are not participating in the rally. I am not smart enough to figure out if they will eventually join. What looks likely is that big players are switching out to other more promising sectors.

JPM, AMX, DCX are some stocks I am watching to buy.

Buy MAR Marriott Hotels

Trade
Buy/write MAR Marriott Intl
buy stock, sell the July 35 call

Marriott has good fundamentals (stats) and support right at 35. It has held up well in this down market.

Current positions, all are hedged, long stock, short calls:
BBY, EBAY, EWJ, MCD, PGR, VLO, WCG and MAR

EBAY, PGR, WCG options expire this Friday June 16.

Buy BBY, sell SHLD, TrueContrarian

Trade
Buy/write on BBY Best Buy
Buy the stock, sell the Jul 50 call (in-the-money)

Sell SHLD Sears/Kmart
Never let a profit turn into a loss, is a guideline that I use to help keep my morale up. Stock is getting hit, so even though fundamentals are sound, I am dumping.

Best Buy out with good earnings. 50 looks like a good level to be buying (chart). By selling the July 50 call, that brings my price below 50 if it dips. If it doesn't, I make a small profit.

Gold stocks starting to looking interesting. True Contrarian (link) has been bearish on metals and mining stocks during much of the rally earlier this year, has set this level on the gold bugs index as a possible buy point. For stock market bulls, his predictions of 7% yield on the SP500 are either terrifying or dismissed as idiotic. In any case, this fellow has had a good month being long bonds and short metals. The beginning of the year was not so good and he endured far more pain than I could have when his metals shorts were down 30% or more. Enduring that kind of loss is not a recipe for longetivity for traders. Investors, especially value investors sometimes will succeed by doing so, especially if they buy and sell in small increments.

Another roll down this time VLO

Trade
Roll down VLO Valero call
Buy the 57.5 sell the July 55 calls

More damage control as the market turns against me. I wish I had done more selling. It is not pretty by the close of trading. Sure is tough being a new Fed chair. Bernanke has his work cut out for him. Right now, the stock market has learned to fear his remarks. It is useful to remember that investors are only one constituency, and a rather small one for a Fed chair. While I don't think Bernanke wants to be remembered for causing a crash, he only has half an eye on the market.

Disney down, GLD below 60

DIS Disney down, after a brokerage downgrade and a $63 million dollar opening weekend for its new animated feature "Cars." Tough crowd. MVL Marvel Entertainment didn't get a pop when the movie X-Men (licensed property) had a good run. So even though seemingly everyone knows movie attendance is down, expectations still run high. Sometimes there is information that everyone acknowledges, and yet the market has not taken it into the price.

GLD the gold ETF dipped below 60 on Friday. It was tempting with the discount from spot ($608 at that time), however, the chart still looks lower to me. I don't trade enough size to warrant the arbitrage risk for $8 on $600. The discount may persist or news may move the market.

As always it is dangerous to try and be the hero and call bottom, even on intermediate declines. Usually a second entry, on a retest of the bottom is a much safer entry point. V-shaped bottoms do occur, but only like 1% of people can boast they bought at the bottom. I don't like those kind of odds.

Support at 10500/10600

Looking at the DIA charts (3-month, 2-year) there are two signs pointing to 10500/600 as a possible bottom.

The market is still skittish. Schaeffer's reports wide mood swing on XLE, the oil stock ETF (link). Swinging from lots of puts being bought yesterday, to lots of calls being bought today.

Some stocks I am watching include DCX, JPM, BRKB.

I am certainly taking my lumps (sold ATK for a loss yesterday), but my losses are contained. I am most nervous at the moment about my EBay position (chart) as it sinks today. There is support a few ticks lower at 30, and expiration can not come quickly enough (Friday the 16th). However, in this market support sometimes only provides a very short term uptick. I'll keep that in mind, if and when DIA touches 105/106.

One of the few shelters continues to be long bonds. Again, TLT will look a lot more interesting to me on a retest of its recent lows (3-month chart).

Sell ATK, Buy VLO Valero Energy

The blogger host site has been having problems on and off during the day.

Trades
Sell ATK taking a loss. Stock still looks okay, but I have reached my loss limit.
Buy/write VLO Valero Energy
Buy VLO, sell the July 57.5 call (in the money)

I am impressed at the tape action of the oil stocks with the news back drop. The VLO chart actually looks lower to me, but tape action and news say it is a good time to buy.

I got rolled (EWJ)

Yesterday's morning rally was a headfake and I got taken. All those morning plus signs turned mostly red by the end of the day. Today's European central bank interest bank rate increase doesn't help. Even the positive geo-political news is ignored, so this looks ugly.

Trade
Roll down the EWJ call from 14 strike to 13 strike
Buy the EWJ Sep 14 call, sell the Sep 13 call

Thank goodness this was a small position. When the market dives, covered calls offer little protection. Flat markets or slightly up markets are the ideal environment. Rolling down, or rolling down and out is a way to update the hedge.

Precious metals and foreign stocks are getting slammed today. Bonds are offering some shelter from the storm. With relatively high money market rates, some people are parking their money.

Buy EWJ Japan

Trade

Buy/write on EWJ Japan exchange traded fund
Buy the stock, sell the Sep 14 call

I may buy more EWJ, if it continues to dip.

Current positions all longs:
ATK, EBAY*, MCD*, SHLD, PGR*, WCG* and now EWJ*
* hedged positions, long stock, short calls

A good day for my holdings. Often times days like this are a good time to sell, but I am not moving as of this moment. SHLD reached my first target, but looks like it wants to continue to move higher. EBAY, PGR, WCG options expire June 16.

Buy MCD McDonalds

Trade

Buy/write on MCD McDonalds (fast food chain)
Buy the stock, sell the Sep 32.5 call

A conservative trade, selling the out month in-the-money call, based on overall market feel than anything else.

The long term chart of the overall market doesn't give me a warm fuzzy feeling. However, I believe a short term bounce is sooner rather than later. Because of my skepticism at the long term prospects, I haven't made any buys in my long term retirement accounts.

Current positions all longs:
ATK, EBAY*, SHLD, PGR*, WCG* and now MCD*
* denotes hedged positions, long stock, short calls

Next year (a personal reflection)

I attended a memorial service yesterday. My friend died at 63. She was the picture of health, working out at the gym several times a week, watched what she ate, a part-time massage therapist. Cause of death, a brain aneurism. There were no warning symptoms, only a sudden death, a terse announcement, a quickly assembled memorial.

Back at home, her husband talked about some of the things the wife wanted. New furniture, a new car to replace her aging Chrysler. To which the husband responded "next year." Oh, they both watched their pennies.

So many times, investors focus on ending up with the highest net worth at the end of their lives. "Next year" may not come, enjoy the time we have. Good health and blessings to all.

Sell CTX (crap)

Trade

Exit CTX buy/write for a loss, buy back the call, sell the stock

The worst part is making a typo on the order screen that costs me an extra 18 cents or $18 on the execution. That is life, however, it is the first time I can remember making a mistake like that. Maybe there is another, but it would be many years back. The new software and the wanting to exit added to the possibility of mistakes.

CTX can not get out of its own way, with no bounce even on today's rally. Calling bottom is a difficult game, even with the margin of error of selling the in-the-money call. I am taking the loss and am out. Again, there is always a chance that my selling is near the bottom, however, each trade has a risk when going in, and this is all I can stomach for this one. Tomorrow is another day and I will live to see it. Holding on to losers can often mean a long ride down.

Lower lows

Market closes at it the low for the day. Ouch. Bad day for bulls with most of the pre-holiday gains gone. A gap open lower tomorrow might be a time to add to longs. It isn't a time to play hero (it never is). However, it is a time to find quality stocks and add to positions.

During my time away, I bought CTX Centex, a housing stock. It is underwater.

I did nothing today, except watch all the red minus signs become larger. I am looking to buy in my long-term retirement accounts, but so far nothing. In that way, the decline is a good thing.

Third time is a charm

Another day of pop then drop. An early pop gives way to selling. Market losses are modest and many stocks actually have a positive day. However, the stocks I own were hit relatively hard, so no joy here.

The cliche is never to buy the first rally. What I often observe anecdotally is that the third rally attempt is the one that sticks after the first two fail.

I will be out of town for a few days and I will not be blogging. I'll be back Tuesday. Hopefully there will be more green than red by then. See ya.

Buy EBay

Trade

Buy Ebay stock, sell the June 30 call

June expiration will arrive quickly with the first Friday on 6/2/06, and a Monday holiday next week. Ebay looks oversold and worth a high probability shot at the capturing the premium (chart).

EWJ Japan ETF steady despite another hit to the Nikkei over night.

TOL Toll Brothers stock is up despite lower guidance (headlines). A lot of the bad news is already in these housing stocks.

Copper stocks lead the industrial and precious metals on a bounce back rally. (Yahoo leading and lagging industry groups).

More hedging PGR

Trade

Sell PGR May 27.5 calls against stock

At Friday's expiration BAB British Air called away at 60.

Market continues lower, though not violently. LOW Lowe's down even though earnings beat estimates. Talk of a slower housing market and a soft landing hurt the stock. DDS Dillard's up on earnings. Would be more interested if I didn't already own some SHLD Sears/Kmart, but will keep an eye out.

EWJ Japan fund is cratering, 13.5 or so looks like a better entry point than today's 13.94. TLT 20-year bond ETF is showing signs of life. A retest of recent lows around 83 would be my preferred entry point to go long.

Option speak: delta neutral

Delta neutral is a term that option players sometimes use. In common use, it means that a position does not change as the stock price changes. What? Why would anyone want a position that doesn't change with the stock price? Isn't it all about being long or short and being right? Option players often use strategies such as spreads, straddles, butterflies, iron condors. Many make their money by being delta neutral and making money on the time decay. For those who want to know more, here is the CBOE link.

My BAB British Air went to delta neutral this morning, but it wasn't necessarily a good thing. The stock is up big on earnings. However, I sold the May 60 call, so see no benefit from today's increase in price. Such is life for someone doing covered calls. The premium seems so small when there is a big jump up in price, or a big decline. I remind myself it is about the odds, and the odds favor the option seller.

Buy Sears SHLD, discussion on gaps

Trade

Buy SHLD on earnings news

Blowout earnings at Sears/Kmart. Same store sales down.

Sears had another gap open back in mid-March (3-month-chart). On that gap, the stock trading up about the width of the gap. That is the classic technical analysis, the move after the gap open will be equal to the gap up. Time will tell if this holds true with today's gap up open.

Current holdings:
ATK Alliant Tech (defense)
BAB British Air, hedged (airline) may be called Friday
PGR Progressive (auto insurance)
SHLD Sears/Kmart (retail)
WCG Wellpoint, hedged (healthcare benefits)

Whack

Market is getting hit. Producer Price Index number is not pleasing to traders. Trading curbs are in effect, limiting futures and options related trading programs.

This is the Wednesday before options expiration, so some of this selling is probably option related. The VIX (implied volatility on options) is up, but to me it is not high enough to signal a buy.

My instinct is to wait for the dust to settle, though there are any number of stocks I am looking at. Bonds are also lower, so there are not that many places to hide.

Cruise to no where CCL

CCL Carnival Cruise Lines down today on disappointing earnings and lower guidance (chart). Looks like a good short if it can rally near today's open of 44.20. Looks like 45 would bring in lots of sellers. I was long CCL a good while back, but deteriorating fundamentals and a rich valuation compared to RCL, are negatives.

JBX Jack-in-the-Box at a new 52-week high (chart) on earnings news. That makes MCD, YUM and JBX all in the same industry doing well.

Target missed (TGT)

TGT Target stock lower after coming a penny short of estimates (chart). Selling seems a bit much considering the news, but I did not buy it.

Other stocks of interest today, include BWA Borg-Warner. VLO Valero Energy dips to support at 60.

Gold and silver shatter to the downside. These markets are too fast for me to want in long or short. In my opinion, fast markets are best left to the daytraders and floor traders.

That makes two

Two down days now. What comes to mind is that the Fed is watching, and further weakness will make it more likely that they stop raising rates, or at least pause. If the market goes into the tank, the Fed does not want to be blamed for it, especially with a new Fed chief.

That said, this is no time to be a hero. In my experience, one of the most dangerous times to buy is on the first dip. Same will hold true for bullion on the first big dip off these highs. That dip may attract a lot of buyers and they made get trapped.

I will stay patient and not make any quick moves. It is tempting to take a flyer on some speculative stocks. My mind is more focused on what some may think are unexciting stocks such as MCD McDonalds, and EWJ Japan ETF.

TM Toyota announced earnings and the stock went down. I owned TM earlier. Further weakness may provide a decent entry point. Toyata is poised to take market share all around the world. GM General Motors has had a nice rally off the bottom, however there are still some structural disadvantages that are very difficult to overcome over the long haul.

Silver at $15, market down 141

Silver pushes to a new recovery high, trading over $15 today. This makes it up $2 since the first day of trading of the ETF. Pundits that predicted a dump after the ETF launch look wrong. Not even the blockbuster news of Buffett selling his 130 million ounces of silver caused barely a ripple.

The retreat in the stock market looks orderly. Looking at the volume leaders, nothing stands out. The market is overbought, so a decline is normal. Let's see if the QQQQ can hold support at 40 (chart), right now at 40.70.

I am looking to buy some ETFs (exchange-traded-funds), the Japan ETF, EWJ, Australia, EWA, and Canada, EWC in particular. A long term shift to raw materials being more valuable will be a great boon to Australia and Canada and the ETFs are a way to play them. The ETFs provide diversification, and liquidity. I am in no hurry on these and may look to gradually build up a position.

Fast Food and the Fed

The Federal Reserve continues it series of seemingly unending rate hikes.

YUM (KFC and other restaurants) moves higher on an analyst upgrade. MCD McDonalds has a beautiful looking chart. It is a mature company. It has survived the mad cow scares, the super size movie and price wars in the segment. I'd like it a lot more under 35 (currently 35.90+) so I can sell the 35 strike price calls.

CSCO Cisco has a disappointing report and is lower. The household name tech leaders from 1999/2000 have mostly fallen on hard times. CSCO, DELL, EBAY, MSFT, INTC were all huge winners during the decade of the 1990s and have all disappointed along with the Nasdaq that they dominate. And those big names have done better than some of the dot bombs such as CMGI which is down 99% from its all time high.

Buy WCG Wellpoint, gold nears $700

Trade

Buy/write on WCG, Wellpoint Healthplans on earnings news
Buy the stock, sell the June 45 calls

Meanwhile gold pushes near $700. I am amazed at the strength. This is a once in a twenty-year kind of run. I am sorry that I only made very modest profits from it. However, my secure thought is that Warren Buffett did not fare much better on his silver. There is always going to be another chance, however, this powerful kind of move is rare. With MarketVane sentiment so one-sided, it is very rare that the vast majority are right.

Again, calling "top" or shorting this kind of momentum is one of the most dangerous games a trader can play. Legendary trader Paul Tudor Jones made his name by selling short at the top or buying at or near the bottom in many markets. He is one of the few that can do it profitably. Many other traders are wrapped up in ego and being right than making a profit and limiting losses. Jones also says that he often is wrong six or seven times before actually calling the turn successfully. He uses tight stops to limit losses and gets out when the market proves him wrong.

I believe that every successful trader must find a way to manage the risk, or their number will come up and they will no longer be trading. Diversifying, hedging, limiting losses are some of the techniques that I use. Others manage their risk in different ways. There are a lot of ways to do it, and there is no one-size fits all way.

Buffett sells his silver

At the annual meeting, Buffett says he sold his silver (article). He says he bought too soon and sold too soon. That is almost a necessity when the dollar amounts are so large, however, certainly waiting a bit would have resulted in more profit.

The market is relatively quiet, with a couple of takeovers dominating action. Aluminum is the top performing group, oil related top the losers.

Warren Buffett looking for ideas

Schaefer's Research (link) reports that Warren Buffett asked his shareholders for ideas on companies to acquire at their annual meeting. The stocks BRK.A and BRK.B are an interesting investment. An article in Barron's earlier this year says the stocks are cheap at current prices.

One bit of trivia, BRK.A traded under $40 per share during the 1973/74 bear market. It is now about $90,000, no splits. A hundred shares could have been purchased for $4000, and would be worth about $9 million today--that is one reason Buffett is the second richest man in America.

Buy ATK Alliant Tech Systems

Trade
Buy ATK on earnings, nice chart, valuation reasonable (stats).
Current holdings:
BAB British Air, hedged
PGR Progressive (auto insurance)
ATK Alliant Tech Systems (aerospace/defense)

Elsewhere, oil is up today. One of the more interesting things about the gold rally are days when oil is down and gold is up. Oil hasn't made much of push higher, while gold has continued to run. Gold has reached the target at $675. I exited my positions very early in this run and missed out on the bulk of the profits.

This isn't the first time that has happened and it is something I can look at. BA Boeing is another stock I sold in the early part of its up move, so it is not limited to metals. There are many other examples if I go back and look for them.

Good news and higher stock prices

Expeditors Int'l and Priceline are among today's gainers on earnings. PCLN, I mentioned a while back. The gain today seems more than enough given the modest news backdrop.

WFMI Whole Foods and OATS Wild Oats Markets are also up on news, and in my opinion, it is similar, the gains seem to be more than enough based on the news. So even though some of these stocks look good, I am not a buyer at the higher prices.

Dodging a bullet (PDLI)

Readers know that I recently changed brokers, moving from Brown & Company to ThinkorSwim. I sold all my holdings to start with a clean slate, and also to avoid any time in limbo while the account gets transferred. One of the stocks was PDL Biopharma. PDLI is down hard on its earnings report. I probably would still have it, had I not been changing brokers. It is better to be lucky than good.

I wrote about limiting losses on Monday this week. Unfortunately, when a stock gaps down on news, losses are going to happen. I don't like having stop loss orders on the books, because stops can be picked off. There is no sure fire solution and each trader must find his/her own way to manage the risk. Sooner or later, bad news comes. On average events like this are once a year, or once every few years, but if a person is active in the markets their number comes up. Best to have a plan, before the sh*t hits the fan.

Yesterday's dump in silver stocks was mostly due to news from Bolivia. They are nationalizing some mines and investors will get little or nothing. Stable governments and the rule of law are often taken for granted by American investors. History buffs know that nothing is for certain, especially over the long haul.

Silver and silver stocks

Silver is up over $14 again, while the mining shares are taking a hit. Not much news on the wires to account for this kind of percentage move, so rumors and interpretation are bandied about. This is not the time for me to step in and be the hero. Someone may know something that I don't. In any case, fast markets are not a good time for position traders (like me). If someone else wants to be the hero, they are welcome to don the cape.

TXU a Texas utility moves up on a nice earnings report, a bit extended to buy right here, but maybe on a pullback. TLT the bond ETF is nearing longer term support at 82 (83.60+ today) and might be a good time to accumulate. Other earnings movers include ARJ and GPI. GPI is a used car dealer chain, also does financing and repair. It is interesting to see this stock so strong when auto parts and manufacturing have been so weak. ADM reports strong earnings. With the news about ethanol, and plans to increase production to mix with gasoline, there is a story behind it.

Why cutting losses is important

Looks like I got whipsawed out of my positions on Thursday. It is frustrating, however, I remind myself of the importance of cutting losses. For relatively new investors, it is a math lesson. If a stock goes down 10% and is sold and put into a new stock the new stock has to go up about 11% to get the account to break even. Doable, but not easy.

If a stock is down 20% and then gets sold, the new investment will have to go up 25%. The math is $1000 - 20% = $800. To get $800 back to break even, requires a 25% gain. At the extremes, a 50% loss needs a double, a 100% winner to get to break even. A 75% loss will need a 300% gain ($1000 becomes $250, it is a long way to $1000 when starting at $250).

I had a bad day and it rattles me. I remind myself that a healthy mentality is that of a baseball relief pitcher. Mistakes happen, and percentages are what matter. I've been telling some people about Bill Gates' bad day when Microsoft took a hit. Gates lost approximately $5 billion in one day. Of course he still had about $45 billion after that loss, so no need to take up a collection for him just yet.

China rate hike (ouch)

First rate hike by China's central bank in 12 years, to 5.85% from 5.58%, creates selling in the morning. I sell NX and WIRE.

Trades
Sell NX
Sell WIRE
Both hedged positions

The broad market is rebounding as I type so it may be a mistake to get out. However, in my overall strategy, each trade has a limit as to how much of a loss I will take. I got out and will live to fight another day. It is easy to argue with the market and find reasons, real or imagined to justify holding on or adding more, however, stubbornness in traders (vs. value investors) is rarely rewarded.

Central bank rate hikes are rarely a positive sign, despite the rally in the U.S. with the Fed barrage of hikes. Old timers might know what I mean about rate hikes, the newer traders would wonder what the fuss is about.

Buy Encore Wiring WIRE

Trade

Buy/write on WIRE Encore Wiring (profile)
buy the stock, sell the May 40 call

I am selling the in-the-money call, making this a relatively conservative trade with small upside and higher odds of success. The catalyst is a blowout earnings report. I am not all in because a slow down in housing means less new wiring and the stock has had an amazing run from 8 to over 40. So far, any slowdown in housing has not impacted this company. The market capitalization is $900 million which is another reason to be a bit cautious.

Elsewhere, BUD Budweiser reports earnings and trades up. Beer is a mature market, and BUD has 50% share. If the option premiums were higher I'd be tempted.

BA Boeing reported nice earnings, opened lower then rallied. I sold my BA too soon, seven points lower.

Current positions:
WIRE Encore Wiring hedged
NX Quanex (steel) hedged
BAB British Air hedged
PGR Progressive (insurance)
* hedged means I own the stock and am short the call

NutriSystems NTRI

Almost everyone can see the social trend of weight and weight control. NutriSystems is up 33% today (chart), and is a ten-bagger just this year with a 52-week low of under 7. It is difficult to buy after a stock has had this kind of run. However, there is no chance I would want to short this kind of momentum.

Elsewhere, earnings from US Steel X, and Steel Dynamics STTX depress the sector. I am tempted to add to my position in Quanex NX as it dips to support below 45. No need to do so, so soon. Patience and eroding premiums are the friend of the option writer.

Pop-pop fizz-fizz seems common. PGR Progressive popped up on a 4-1 split announcement, but has come fizzled. Many other stocks that popped have also fizzled. It seems like the exception is stocks that can keep running. The pullback is often a good time to get in.

Rally in Bonds

Trades
ABX Barrick Gold called away at option expiration
PDLI PDL Biopharma April option call expires worthless
Sell PDLI to finish closing account as I move to another broker. Both ABX and this batch of PDLI are closed at just above break even, with commissions equaling or exceeding my profit.

Bond market continues a modest rally from an oversold condition. TLT is an exchange traded fund of 20-year US Treasuries (chart).

RMBS Rambus which was down on a rumor, gets a positive jury ruling and shoots up. All the options are tanking because a much bigger move was expected on both sides.

TZOO Travel Zoo continues an amazing rally since announcing its earnings. It shot up 42% on the day of the announcement to 29 and is now at 51! Holy Toledo.

Oil leads gold, silver and other metals lower. The steel stock NX I bought on Friday is tanking. ACI Arch Coal another stock I considered is leaping up again. This kind of event keeps me humble.

BEAV B.E. Aerospace up on earnings and I've added it to my watch list.

Bought NX Quanex

Trade

Buy/write NX Quanex
Buy the stock, sell the May 50 call

A picture perfect chart base and upward earnings guidance are the impetus to buy this steel stock.

Current holdings:
PDLI PDL Biopharma (slight chance of it being called)
ABX Barrick Gold (certain to be called away today)
BAB British Air (hedged)
PGR Progressive (auto insurance)
NX Quanex steel (hedged)

Elsewhere, Google reports blow out earnings and booms higher. Google announcing earnings just before options expiration creates a real crap shoot situation for option traders. Dell gets slammed by an analyst and almost becomes interesting on valuation. One "magic" number is one-times sales (currently at 1.17 times at $27 per share). Dell would have to drop to about $24 for that 1.0 price-to-sales ratio. Ebay and Intel continue lower after their earnings. Google is not providing much of a halo effect for other tech stocks.

Oil stocks provide leadership for the broad market. Oil also leads a recovery in both gold in silver after yesterday's dump, the precious metals have recouped a good deal of the losses. Again, my opinion is that these volative markets, especially silver, are only for the most nimble, or those looking to average in or average out of a position.