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.