A gold pin at 45, MRK puts expire

GDX pinned exactly at 45. If the conspiracy theorists knew about options they would be writing about that, but most don't, so they don't. Some option folks believe in the power of the pin, closing at or very close to a popular strike price on expiration day. I am half and half, the strike price does seem to have some power, but only some.

Like I wrote earlier, one trade I considered was buying the Dec 45 call on GDX back in September on the breakout for about 2.5 each option. Those holding the calls to expiration are looking at a 100% loss. Hindsight traders might say they got out at the top at 53 with a 350% gain (chart). Easy come, easy go, can be the life of the options speculator.

Santa Claus rally comes to the broad market.

My short MRK puts expire worthless, for a sliver of a profit, though a huge percentage profit based on the minimum margin required to sell the put.

My schedule still is super busy with other activities, so I will not be doing much in the way of trades or posts for now. Happy Holidays to all the readers.

GDX lagging behind GLD

When the Fed did their surprise 50 basis point cut three months back, I thought it very bullish for gold. GLD is higher since then. However, GDX is just barely higher. I remember that one trade I considered was buying the Dec 45 calls on GDX. GDX traded well over 50 so a person taking the trade could have more than doubled their money with a well timed exit. The more sobering news is that someone still holding is now underwater and may take a 100% loss on expiration day.

This chart shows GDX lagging behind GLD.

My lone position is long MRK hedged. Strike price on my short puts is 50. It would take a memorable week for these options to be exercised against me.

Chicken Little and newsletters

On the Internet, on talk radio, there is a group of folks I term the Chicken Little chorus. They are always around. However, every couple of years, events raise their calls to a loud rattle, as they go about yelling "the sky is falling, the sky is falling." For most of my adult life, I can remember event after event, issue after issue where the Chicken, in various incarnations told me that the economic world was coming to end.

Here's a list of some prior events: the trade imbalance with Japan (mostly autos), the 1987 stock market crash, NAFTA, the first Iraq war and hype about elite Iraqi troops, the UAL takeover failure, the dot-com stock bubble and bust, ENRON, Worldcom, hedge funds going belly up. With each of these events, the Chicken told me the end was near and the reasons why. These days, subprime, the Chinese trade imbalance, and derivatives seem to be the hot topics.

Perhaps one day the Chicken will get it right, and the sky will fall. However, those that wait for that day, often live dim, dismal, joyless lives, in the shadow of paranoia, where most markets are manipulated, as are all news sources, except some two-bit newsletter writers that make their living by selling fear (not trading the markets).

I sheepishly admit that in my younger days, I felt a strong pull to the siren call of the doom and gloom being sold by the Chicken. The most extreme voices suggest buying gold, guns, ammo, food, and finding a bunker to live in. I find that there is a lot of really bad information being passed around the Chicken Little crowd. Don't believe the Chicken, especially when the Chicken has a newsletter to sell.

There are a lot of smarter folks than newsletter writers. If the newsletter writer is so smart, why does he/she have to hawk their newsletter to earn a few extra bucks? As always, if a reader is really interested in a newsletter, check with the Hulbert Financial Digest to get an audited track record. If they don't have a track record, the newsletter may be more in the entertainment category than the investing/trading category. That's fine for folks seeking entertainment, but not for folks seeking good useful ideas about where to invest real money.

Alive and well

I don't have much to add, my schedule hasn't allowed much time for the stock market, and that time crunch will worsen for the next month or so.

Random Roger has a compelling bearish case about SP earnings estimates being revised down (link 12-3-07). Bullish Jim did a nice study about what follows after two big up days (link 11-28-07 ).

I did manage to time the bottom pretty close with my recent sells, that never feels good. However, with my time crunch, better to be safe and take some small losses than watch the ship go down because of the equivalent of a fire in the kitchen that spreads because of carelessness.

Positions: long MRK hedged

Sell ACTIX Capital Value Fund

An ugly market day with a modest opening pop followed by heavy selling pressure during the last half hour. I will get tomorrow's price on ACTIV. It has been almost a straight ride down since I bought a scant few weeks ago.

I plan to exit my short T puts tomorrow and hold my short MRK puts.

It is no time to look to be a hero, especially for the small fish such as myself (and likely most of the readers). Yes, of course, the market could bottom right here, however, cutting losses is my style. When I think it is time to stop doing it, that is often the time the water flows off the cliff. This is a seasonally strong period for the stock market, but bulls can not gain any traction. Rallies are sharp and short and extremely difficult for position traders to get decent fills or find entry points.

Flying turkeys and waterfall declines

Some might remember an old sitcom episode where a TV station drops live turkeys from a helicopter, mistakenly believing that turkeys can fly. The metaphoric turkeys plummet down to the concrete and plop dead. Some how this seems like a good metaphor for the many stocks that have completely broken down on this Thanksgiving eve. The list of turkeys could stretch for pages and pages. Retail, banking, mortage companies are on the list with big names such as CFC, FRE, FNM, JWN, HD. So many stocks have broken under technical support, that traditional support levels look more like double edged swords rather than low risk points of entry.

As I have always written during my time blogging, buying the bottom (or selling the top) is a difficult game and rarely profitable because of the long odds. Few traders have the mindset and the execution, to do trade the turns. A high percentage that try, get in too early and then bury their heads in the sand instead of cutting their losses. The real stubborn ones sometimes lose everything instead of admitting they are wrong.

The big dollar fish continues to drive other markets and eat the other fish (gold, oil, stocks, bonds). The Fed is painted into a corner with the recession scare, combined with an anemic dollar. Further rate cuts drive the dollar ever lower, holding rates steady, means a higher chance of recession. At some point higher commodity prices from a lower dollar can also cause recession.

Be thankful and bless what you have, how ever much, or how ever little it may seem.

Happy Thanksgiving everyone.

Positions: MRK, T hedged longs

Sell GM, WFR options expire

I bought back my short GM puts early on expiration Friday. In this case, it turned out running for the exit was a good move as the persistent selling continued all day and GM closed well below my strike price of 30. Had I held on my tiny profit would be a loss, plus another commission. The puts I sold on WFR expire worthless, so I bank two small profits today.

The broad market continues to be weak, so any profits for longs are welcome. Gold had a tough week, as did oil. It doesn't look like a low risk play in either of those areas. Those that like to roll the dice can go ahead, I'll wait for a clearer opportunity.

KMX CarMax in the news, with Warren Buffett announcing a large position. A retest of the recent lows would be a good entry point. Put sellers can simulate that by selling the puts at that strike. Round number support at 20 might be another place for longs to look. As always there is a rarely an exact science or magical formula.

Positions: MRK, T hedged longs

Buy MRK, and a down week

I was fortunate enough to buy MRK before their Vioxx settlement announcment. I sold the MRK Dec 50 puts. Overall it was a dismal week for most longs.

A sharp down tick during the last half hour on Friday looks to me like some big players were exiting or going short. Constructive news for would be bulls was that the financial stocks found buyers on Friday, and US bonds went up in price. Bonds often telegraph a big tumble in the stock market, though of course this time history may unfold differently.

GDX (gold stocks) is diverging from GLD (gold bullion), with GDX ticking down even as GLD ticks up. This kind of divergence is a warning sign that the gold rally is getting long in the tooth. Just as TLT may lead SPY, GDX confirming new highs in GLD would be much more comforting for gold bulls.

Positions: WFR, GM, MRK, T all hedged longs

Buy T, Buy WFR

Buy T, Buy WFR, sold puts on these two on Monday, the T Dec 37.5 put , and the WFR Nov 65 put. Timing intraday was poor, as I bought much closer to the highs for the day, than the lows.

Lots has happened since I last wrote. A new Chinese IPO is now the most valuable publicly traded stock in the world. This makes the Chinese stock market officially a bubble. Sure the economy over there is booming, however, China's GDP is still a small fraction of the US GDP. Even though the bubble is now official, it doesn't mean it is time to short FXI. Bubbles have a way of draining most of the cash from fundamental type shorters before the bubble pops. The last stages of a bubble market often see huge percentage gains in a short period of time.

Bigger news perhaps is the super acceleration in the bull phase of gold and silver. Readers know I was clever enough to buy the breakout on gold at $700, and foolish enough to cash in those chips for meager profits very early in the move. I still have my core holdings, but the trading positions would have been nice to have at this stage. I do wish I knew what was going to happen next

Positions: GM, T, WFR all hedged longs. GM due out with earnings, also already announced a big write down and stock is down after hours. I am short the GM Nov 30 puts, so unless the sky caves in, there is enough cushion before expiration.

Bonds, gold, and the dollar

Strength in TLT a bond ETF (chart) makes me lean towards a higher stock market. The bond market often leads the stock market. The trading calendar also favors higher prices into January.

Gold makes big news closing above $800. Most of the rally has been dollar driven (chart). Oil has performed better since the Fed went to rate cutting than gold has (USO vs GLD one year chart). Those looking for a top in gold would do well to keep a close eye on the dollar. I am of the opinion that the gold bull can not over come US dollar strength. Again, for the average person, 2% to 3% in physical gold or similar hard assets is what I suggest as insurance against certain financial scenarios. Folks that want a higher percentage best know what they are doing and do their own due diligence [research].

As always, calling tops and bottoms can be entertaining, but rarely profitable. V-shaped reversals do occur, however, they are not common and when they do occur, they can be difficult to trade. Not many people can get in or out at the point of a V.

MRK, HD or LOW are more stocks that look like interesting longs (WAG, SBUX, NYT, T are some others).

Positions: GM hedged long (short puts expire in November)

Sell WFR, Sell BNI

Sell WFR, Sell BNI
As the market tumbles, my gut instinct is to buy the dip. I think about past times I have wanted to do that and how that often turned out badly. So instead of buying, I sell and take my tiny profits, buying back the short puts on these two stocks.

My puts were still well out of the money, and there is a strong logical argument to stand in there, even if the stocks continue to decline. As bad a streak as I have been on, seems much wiser to follow the rule: never let a profit turn into a loss.

I continue to watch that list of tax loss stocks that I mentioned earlier. It includes names such as WAG, NYT, CC, KMX, WMT, LEN. A successful retest of the lows on some of these stocks might make a decent entry point. Other stocks that I might buy include MCD and T.

Buy BNI, WFR, Hulbert market timers out

Since I last wrote, I took long positions in BNI Burlington Northern, and WFR MEMC Electronics. I sold the Nov 80 puts on BNI and the Nov 60 puts on WFR. I went long after the earnings reports.

Mark Hulbert in his Marketwatch column reports that only 7.7% of market timers that he tracks are bullish. This is a contrary indicator, and Hulbert interprets it as extremely bullish. The market rarely tumbles when so many timers are so cautious.

Also in the news, gold reaches a new recovery high. My thinking is that this current run is 90% currency driven. The huge fish from the currency markets are eating up the big fish in the gold market (the commercials with short positions), allowing the small fish in the gold pond (the speculators) to enjoy this bull run. Enjoy it while the currency fish are running amok.

Positions: all hedged longs: GM, BNI, WFR

Lifecycle ETFs, tax selling candidates

SeekAlpha article at Yahoo business. Worth a look for those that may want a one-stop way to meet time specific goals. Lifecycle ETFs are designed with a specific retirement date or other time specific goal. As the target date gets closer, the fund manager changes asset allocation to less risky investments. If they work as advertised they may have several advantages over other ETFs and other open ended mutual funds, such as lower expenses than other target date funds, rebalancing asset allocation so an investor doesn't have to do it by hand. They are new funds, so it would be foolhardy to put a lot of money into them until a track record is established.

The stock market has been rocking and rolling since I last wrote. Too many movers to recap. I will mention that BNI looks like an interesting long. Positives: Warren Buffett owns a bunch, a good earnings report, and a decent looking chart.

BGG, SBUX, WAG, WMT, WM are candidates for late October buying. All of these five are near their lows, and may see significant institutional tax selling, as the books close for many funds on October 31.

Break from blogging

My schedule is changing, so I will be blogging less frequently. I will still update on occasion, but perhaps instead of an average of four times a week, I will reduce down to twice a week, or at times once a week.

Looking back at the first ten months of 2007, it has been a mistake ridden year. My gains were smaller than my losses. I made so flat out stupid entries. The old buggaboos of greed and fear are ever present. I would like to believe that I am immune to emotions, but that would be a lie. I don't trade a mechanical system. I look at news, fundamentals, sentiment, technicals.

Overall my main trading account is down a bit for the year. Almost all of the year I have been underinvested, so the losses are small in terms of the available trading capital. The percentages are deeper in the red, when looking at the average amount invested vs. the dollar losses.
I am virtually at break even before commissions--it has been a decent year for the broker.

Like, I said, I'll still be around, but updates will be less frequent for the time being.

Positions: long GM hedged

Taking my lumps-sell BA, WM

I cover my short puts on BA, WM. Two big losers on a percentage basis.
Buy back BA Oct 95 put
Buy back WM Oct 35 put

A big ouch. I am tempted to take delivery of these stocks and ride out the storm. Instead, I decide to cut my losses, even though they are huge losses on a percentage basis.

Positions: long GM hedged

Buy ACTIX Capital Value Fund

Buy ACTIX Capital Value Fund
This is a calendar trade as the stock market enters its most bullish time of the year.

Options 101: deep in the money calls

Jennifer Openshaw at MarketWatch gives a primer on buying deep in the money call options (article). I am sure there are a fair number of novices reading along. Openshaw suggests three stocks worth a look: SBUX, DFS, FITB.

Elsewhere, it was a wide ranging day in the stock market. On some stocks, it looked to me like the market makers looked to take out stop-loss orders on the books. Sometimes errors occur on the prints, but sometimes there is a spike up or down to take out those stop orders. The print low on AAPL is 153.21, the high of the day nearly 20 points better. Strange price action that is more common during option expirations week (next week).

BA gets hit again as some analysts cut their earnings estimates because of the announced delay.

Positions: BA, GM, WM all hedged longs

Luby: When to short China?

Bill Luby at Vix and More (link) asks the proverbial question "When to Short China?" This bit applies to the game of calling top or bottom, and being the hero.

>>
remember that it is better to catch the easy middle part of the move than to call the turning points
>>

Buy BA, sell puts

Sell BA Oct 95 puts

Boeing down on delays on its new 787 Dreamliner. The plane is a ten-year long project so modest delays are average events. It would be exceptional if there were no major delays. 95 is short term support.

Positions, all hedged longs: GM, WM, BA

Rydex Internet Fund

Adam Warner (blog) has an interesting analysis on the Rydex Internet Fund. It is currently on a neutral to bearish signal.
>>
over the past seven years, whenever assets in the fund have reached the $50 million mark, it has been an apparent indication that traders in general have become overly enamored with the sector’s prospects. The go-forward returns in the sector have been sub-par
>>

With the Fed minute generated rally I was tempted at two trades: long BA, long YUM. I decided to wait for better opportunities. Gold had another constructive day, though the range for the day was again quite wide. This kind of market action is not a good situation for risk adverse position traders [me].

Motley Fool: Waiting for weakness

Kristin Graham at Motley Fool Investing (article) writes about a conversation with her father. Dad calls and wants to increase his equity exposure because the market is up 7% from its lows. Kristin counsels caution, and to wait for better prices.

>> from the article:
"But the market's going up ... and I'm missing out on gains," dad uttered these exact words to me, and I'm sure many of you have similar thoughts. It's a typical situation: The market starts recovering and embarks on an upswing. Everyone thinks it's time to get in. Sure, sometimes this is true -- but investors need to be wary at a time like this.
>>

Readers know that I often like to buy strength and sell weakness. Again, when I talk to people, I tell them there are a thousand ways to trade the market, find one that fits your personality, find one that works for you.

Buy WM, sell puts

Buy WM Washington Mutual sell Oct 35 puts, stock edges higher despite issuing an earnings warning.

Elsewhere GLD and GDX showing strength. RIMM straddle holders are close to break even, getting the good word from Jim Cramer. The employment report is being intepreted as bullish, with stock, gold up, bonds down. Retail is one of the stronger sectors.

Long GM, WM both hedged.

RIMM straddles and the last war

I met someone who signed up for an options course. The strategy that course taught was buying straddles ahead of earnings reports. There was a system, some software, and trading tactics, and of course a hefty fee. I don't know if RIMM Research in Motion met their criteria for a trade. However, it does illustrate the risk of buying straddles. Three months ago (chart), RIMM had great earnings and rose over 20% after the report. Tonight RIMM earnings look like a non-event. Non-events are death to straddle buyers.

The CBOE (quote) shows bid of 7.6 and 6.9 for the Oct 100s, or 14.50 for the Oct 100 straddle on RIMM before the report. That means the stock has to move more than 15% up or down for the straddle to be profitable at expiration. With the report out, the straddle is likely to lose more than half its value tomorrow, because the price movement is likely to be small.

Those buying the straddle, were hoping for a repeat of last quarter's stellar performance, or a terrible miss. The ads for the seminars probably said something about making money whether the stock goes up or down. Readers known that unchanged is a good thing for option sellers. As the song lyrics go, "Time is on my side, yes it is."

Hulbert: stock newsletters skeptical

At Marketwatch, Mark Hulbert reports (article) that stock newsletters remain skeptical towards the rally.

... a contrarian analysis of stock market timing newsletters suggests that the path of least resistance remains up...

As I have been writing, next week, and the week after that may be a slightly better time to buy for a holding period until early 2008.

Gold had an impressive rally from a weak open. I was tempted to buy back into GDX, but fast markets are not my favorite thing.

Long GM, hedged

Big name bottoms, and GLD timing

Some big names that are beaten down, and perhaps worth looking at for October buying include WMT, WAG, SBUX, CC, LEN. Best time is usually the last half of the month as mutual funds dump their losers for tax purposes.

One way to look at the GLD correction is to take half the time of the up move and use that as time measurement. Looking at the 6-month chart this would be approximately two weeks, making for a buy time of October 15th or so. A lot of traders focus entirely on price. Using price stops, and price retracement levels. Sometimes time measurements in the form of a time stop (letting a stock run for a set time), or in this analysis a look at time for measuring a possible correction.

As always, nobody bats a thousand.

Seasonal trade Oct 12th buy in

Seasonal tendencies are one of the weaker indicators, that said, Oct 12th looks like a decent buy in date for those looking to go long the stock market. The simple cliche is sell in May go away until October. It is October, and historically the time between now and January tends to be bullish for equities. The bullish case for stocks would be stronger had there been a September sell off this year.

Other things to look for in October are beat down stocks that are being sold by mutual funds, because their reporting year ends 10/31/07. Many funds sell losers to limit tax liabilities for their investors. I will be compiling a list. Others can look at the 52-week low lists or similar and build their own list. I tend to favor stocks that pay some kind of dividend because that shows more financial stability than stocks that don't. Some companies get in such bad shape they cancel their dividends.

COT sell signal on precious metals

Alex Roslin at Kitco Commentary (link) gives a commitment of traders (COT) sell signal on gold and mining stocks. For novices, COT is sentiment indicator tracking the dispositions of various players in the futures markets.

>> from the linked article
My new bearish signals for gold, HUI and USERX are based on trading with the “smart money” commercial traders. These guys - the commodity producers with the best market intel in most (though not all) sectors - have just increased their net short position in gold futures and options to a historic extreme that in the past has signaled a good probability of a market turn. Some extra details on my gold and HUI setups are in the notes below.

Sell GDX (buy back puts)

Taking my small profit and running. GDX hasn't been trading that well and GLD is extended out on a limb. If the dollar turns or reacts, gold will get hit hard and so will GDX. As it is gold mining stocks have been mixed despite gold holding firm.

Buy GM General Motors (sell puts)

Buy GM General Motors, sell Nov 30 puts
GM is up on news of strike settlement. Stock is around 36.

Long GDX, GM both hedged. GDX getting hit today. We will see if the "Long Beach curse" occurs this year. Often times the Long Beach coin show marks a short term top in precious metals. It is an anecdotal indicator.

Sell GLD

News of a major increase of gold reserves at one of BHP's mines hits the gold market. I take my small profit. Sell GLD. Don't let a profit turn into a loss. Recently, I let that rule slide a couple of times and it bit me. It may bite the other way now, but after a losing streak, the last thing to do is keep letting things slide.

Still long GDX hedged

Three gold price targets $750, $850, $900

Looking at the ten-year spot price chart for gold gives three intermediate price projections.

The most bullish is $950, measuring the move from $450 to $700 and projecting the same move from $700. The next would be the width of the wide triangle from $550 to $700 and adding that $150 measurement giving a target of $850. The third target would be to take the most recent trading range of about $50 to give a target of $750. Reading charts can be like reading tea leaves.
As I wrote in rock, paper, scissors, that in my experience, technical analysis and chart reading can and will be overwhelmed by external news events and fundamental news. If someone patents a device tomorrow that cheaply extracts gold from sea water, the price is going to be limit down, no matter what the charts say.

As readers know, I have been on a losing streak, so it is very tempting to cash in the most modest of profits.

Long GLD straight, long GDX hedged

Hindsight glasses

A good week for those trading with hindsight glasses. Certainly huge profits were made by a tiny percentage. Some were clever enough to out smart themselves, and may have lost money.

This was a frustrating week for me. I feel like a baseball player mired in a slump. Again, patience is the word of focus. Traders go through good times and bad times.

Buy GDX (sell puts)

Buy GDX (sell Oct 43 puts)
Sell Oct 43 puts, this is the old high.Old resistance becomes support on the breakout. Gold is moving up today. GDX is a gold stock mining index fund.

Long GDX via short puts, long a small position in GLD

Rock, paper, scissors

Sometimes a big news event comes along and swamps everything else. Such is the power of the Fed at times. Earnings are next in the pecking order. Technicals can sometimes overwhelm earnings, and the market, but those tend to exceptional cases. Further down the list are other indicators such as calendar tendencies or sentiment indicators like: insider buying, option open interest, short interest.

On a day like this, that funny line comes to mind: Lord give me patience, and give it to me now. One of the few secure thoughts I can come up with is that at least I wasn't short during this rally. I am glad that sell strangle order didn't go through, because it would be underwater with this powerful rally.

Thankfully, it is the stock market, and there are always new and interesting opportunities to evaluate.

Long: GLD, which had a tepid day as it reaches resistance at the highs from a year ago.

Rate cut excitement

Fed rate cut of 50 basis point (half a point) surprises me. I expected 25.

The two trades I consider most, and back away from, are long EWJ (Japan fund) and long GDX (gold stock fund). Why did I back away when the news is so good? In the past, when I get all excited about getting in, is exactly when I get hammered.

I often write about letting the dust settle and trading the technicals after the news is out. Option spreads went super wide just before the Fed news, and for a half hour after the news. It made it difficult to get in or out during that time period.

Still long GLD

GLD unable to hold gains

GLD pops up early, but slips to a loss to the close (chart). Not exactly encouraging behavior, but not unusual either. Some chart readers are seeing a double top where I am seeing a breakout. I've seen this pattern before, a breakout from a flat base with minor resistance at an old high just above the base.

I placed an order to sell a strangle on IWM but didn't get filled. I still feel out of step with the market. My limited trading the past few weeks reflects that.

Rosh Hashanah-Yom Kippur

David Gaffen quotes Yale Hirsh on this calendar trade at MarketBeat Blog (link). A common problem with seasonality trades, is that once a pattern becomes widely known, traders jump the trade, making the signals less reliable.

>>
What’s working now is the reverse — selling on Rosh Hashanah, buying on Yom Kippur – the idea being that more people are closing out positions in advance of spending the holidays with family.

It’s not a bad strategy. On average, from 1971 to 2005, the S&P 500 has fallen 0.4% between those days, with a number of real doozies, including a 2.2% decline in 2005 and a 1.9% drop in 2004. (The data doesn’t include 2006, when the market rose 1.6%.)

“Perhaps it’s Talmudic wisdom, but selling stocks before the eight-day span of the high holidays has avoided many declines, especially during uncertain times,”
>>

Buy GLD Gold ETF

Buy GLD on the breakout from $700
It is difficult to buy when gold is overbought and has run straight up during the short term. That said, this is a small position with a plan to double up on a pullback to support.

Gold $700

Is it breakout of fake out time for gold? Jeff Kohler cites $730 as the fulcrum buy point in his blog. The "Option Addict" rarely mentions metals or commodities, so it is more interesting than the steady drumbeat of buy-buy-buy from some of the perma bulls on other sites. Kohler mentiones the five year chart, though the 2-year chart highlights a beautiful text book base. These kind of chart formations can fuel a big bull run, so stay tuned.

Elsewhere, I am tempted to sell a strangle (both a put and a call) on IWM (index fund), but have second thoughts. This would be a bet that the index would stay in a trading range.

Still 100% in cash in my main trading account. Bull? Bear? How about chicken?

Still on the sidelines

I still feel out of step with the market. I wanted to go long yesterday, Tuesday, but thought better of it after seeing all green plus signs on my main watch list. Usually, that is a setup for at least a short term pull back. When a trader listens to the voice saying "do something," it usually ends badly. Especially if coming off a losing streak.

SHLD, BA, AAPL are some stocks I am watching to trade. GRMN, DE shot higher after I close my longs. BA is the most interesting as long term investment. There is a decent base at 90 (stock at 95/96).

Option mystery solved

Adam Warner has been writing about an option anomaly, a huge position in way out of the money options. Rumors started flying that someone had inside information about another terrorist attack and was using options to leverage their inside information. As with many wild rumors, and conspiracy theories, this wild rumor is unfounded. Turns out the trade was part of a package deal. If you are curious and well versed in options read about it here: link
Search for Dan Perper

My point is that wild rumors are easy to spread and easy to believe, and rarely are near the truth. Many newsletter writers take these rumors and half-truths (it is true that someone took that position), and twist them into stories to fit whatever they want to sell that day.

The long bond bell-wether

A bell-wether is a sheep that the flock follows. Some folks hypothesize that the long bond (U.S. Treasury 10 or 30 year) is a bell-wether for the other markets.

From TrueContrarian (link)
...long-dated U.S. Treasuries and funds such as TLT just touched their highest levels since May 15. Whenever Treasuries are setting new highs, it is just a matter of time before equities and commodities decline. U.S. Treasuries are an important vanguard of economic behavior...

(TLT chart)

Meanwhile, conventional wisdom is that a sharp decline on heavy volume followed by rally on low volume, often means the lows are going to be retested or broken. It seems I was wrong about my Friday blog entry--it wasn't too early to short. I thought the upcoming Labor Day holiday might bring an upward bias, and it still might, but it will be difficult to overcome the losses on Monday and Tuesday.

The recent market swings have been a bonanza for that tiny percentage of "hot" traders that have been in sync with the markets. Those traders, such as myself, that have been out of step, have gotten whipsawed or worse. A few that trade on full margin or use options for full leverage and also refuse to cut losses might be exiting the game for good.

Gold currents and cross-currents

From an article at Marketwatch on gold (link)

>>

Current catalysts for gold prices include: inflation, especially global inflation, geopolitical concerns, rising demand for gold, moves in the dollar and others -- in addition to the global financial crisis, said Dan Hassey, a senior research analyst for Boca Raton, Fla.-based Gold & Energy Advisor.

Some believe a lot of those factors are already in the price of gold and that's why gold has not moved much -- it's already doubled in the last five years with investors having anticipated some of these problems and bidding up the price, he said.

>>

Meanwhile back at the ranch, a good rally day for stocks (and gold). It feels too early to short, and too late to buy. Being on the sidelines during this decent rally is an uncomfortable situation. However, jumping in for the sake of doing something, just for kicks is rarely a wise move.

T-shirt: I sold at the bottom

I took a break from the markets and missed the huge Fed rate cut rally. The losses hurt, as does missing the super Fed rally. When a trader cuts losses, sometimes the turn happens right there and then. I'm sure some folks were smart enough or lucky enough to call the turn.

I start with a clean slate and will see what tomorrow brings.

Sell IWM (buy puts)

Buy back short IWM Aug 74 put.
It sickens me to do this one day before expiration, with premiums through the roof. However, IWM breaks the old low at 74 with some steam. This is more than a 100% loss vs. the premium. Remember, that I described this as a fat pitch down the middle when entering the trade. Seemingly safe trades can go terribly wrong, when the market makes big moves in a straight line for six days in a row.

I am all cash for now. Time to heal my nasty wounds and clear my head. Sometimes the best thing to do is take an extended break and then come back fresh.

Good luck to anyone still in the market. Mondo money is being made on the short side. Huge losses for longs. Hedgers are losing as volatility continues to expand.

Sell HANS Hansen

Sell HANS Hansen. I am taking my loss. There was one week worth of shorts when good earnings came out. That one week is over. Support at 45 breaking down in a serious way.

Sell DE Deere (buy back short puts)

Buy back short DE Sep 115 puts
Taking a big 100% loss on the value of the puts as the stock declines over five points in one day. I got this one wrong and am taking my lumps.

SP500 now touching the 10% correction milestone. Like the major indices, my trading account is now in the red for the year. Sigh.

I live to fight another day.

Another down day

Another terrible day for the longs. My positions take another big hit. So far this week has been the worst one of the year for me. My buying strength in a weak market is generating percentage huge losses. The good news is that positions have been hedged or small or both. I will live to fight another day. Right about now, my portfolio is battered and bruised, despite a huge cash position.

Positions: long HANS, hedged long IWM, DE

Buy DE Deere (Sell puts)

Sell DE Sep 115 puts. Deere higher on earnings, 115 is below recent support (chart).

Sell GRMN (Buy back short puts)

Sell GRMN (Buy back short Aug 95 puts)
I take a huge percentage loss on my short GRMN puts. The stock slices through support at 95. I can not justify risking another big down day before expiration. Someone is dumping the stock big time and I am a little fish being swallowed up.

Wednesday has been a rally day the last couple of weeks. We will see what tomorrow brings.

Long: HANS, hedged long IWM

Van Tharp on Trading Psychology

Van Tharp series of posts on Trading Psychology (link). Van Tharp has been working with traders for 25 years on overcoming their psychological obstacles and self-destructive behavior.

Monday saw an early rally give way to a flat day at the close. Sort of the opposite of Friday, which saw a weak open give way to a flat finish.

Dramamine or Tums?

That fat pitch I saw, turned out to be a nasty cutter. It is a sickening day for longs. The NASDAQ briefly touched break even in the morning. The last five minutes into close was weak.

Positions: long HANS, hedged longs GRMN, IWM

Buy IWM fund (sell puts)

Sell IWM Aug 74 puts
Market play on this morning's weakness. The 74 strike is four points out of the money, so the market would have to get really hammered over the next weak for these to be exercised. Strike price is below the previous lows. Not exactly swinging for the fences on this one, but it feels like a fat pitch down the middle.

Buy HANS Hansen

Buy HANS Hansen, small position

Stock gaps up on earnings report. Top line especially strong. Chart is nice, though it can fade back towards the base at 41. Options spreads are very wide, so it is more efficient to buy the stock. Products include Hansen's natural and Monster Energy drinks.

Buy GRMN Garmin (sell puts)

Buy GRMN, via selling the GRMN Aug 95 puts

Garmin is in a strong uptrend. I am selling the put where I would buy the stock on a pullback to the earnings breakout.

"Coffee house" portfolio

Mentioned at Marketwatch (link):

Bill Schultheis, a Smith Barney broker for thirteen years, quit and wrote a bestseller, "The Coffeehouse Investor," for people who wanted solid returns "without spending one ounce of energy" playing the market.

... he put 40% in bonds, creating a well-diversified portfolio. His "Coffeehouse philosophy" is so simple, just three principles:
1) Build a well-diversified portfolio,
2) own the entire market with low-cost, no-load index funds, and
3) develop a long-term financial plan and save regularly.

Really a good way to go for the average person. The percentage of bonds (or CDs/cash) would be less for younger folks (age 20-35), perhaps more for those closer to retirement. Personally, I'd suggest adding in a small percentage (3%) in hard assets such as gold and/or silver.

Meanwhile the market is moving, sometimes hard and fast. Big boys (and girls) are causing the wild swings, and the little guy (or gal) is often best off waiting until the dust settles. Those that are extremely nimble can profit on this intra-day swings, however, as readers know, intra-day timing is not my strong suit. To quote Clint Eastwood: "A man has to know his limitations."

The red line (200 day moving average)

The SP500 closes under its 200 day moving average (red line on chart). Some folks including Random Roger (blog) use this for long term timing. Over the long term this indicator has been one of the best. Sure there have been false signals, and periods where it didn't work. It is so simple, that many folks pooh-pooh it. As Marty Zweig used to put it: the trend is your friend, and with today's action, some would say the long term trend is now officially down.

I missed the boat

I missed the boat on the rally. If I had to buy it might be XLF Financial fund or BRKB Berkshire Hathaway.

If the rally continues, often a retest of the top is a good shorting opportunity. Most stocks have gotten hit. Some have not rallied off their lows.

Sell BA (buy back put)

Sell BA (buy back short BA Aug 100 put)

Market action is not good. I am taking my loss and standing aside. Back to 100% cash.

Buy BA Boeing (Sell BA Aug 100 put)

Buy BA Boeing (Sell BA Aug 100 put)
BA had nice earnings and new plane launch is relatively smooth, considering that it is a ten-year-long project.

Days like this

That old 50s song, "momma told me there would be days like this," comes to mind.

Sometimes I wish I was one of those paper traders that reports their trades after the market action is history. On days like today, a person could make a theoretical ten times on their paper money. In the real world, only a few folks made money today, most lost money.

SHLD Sears-Kmart continues to slide. The puts I sold for more than a double in one day, doubled again from where I exited. That is not a good feeling. A better feeling is being 100% in cash in my trading account when the market gets hammered. Yes, some shorts made money hand over fist today. However, some of the big name stocks that have been leaders on the way up, such as AAPL, BIDU, CROX obliterated the shorts during this week of broad market declines.

Some perspective

I don't think the low is in. I did look for at least a 5% decline from the 14000 Dow top, didn't know it would happen so quickly. As almost always, I expect a retest of the lows, at least on an intraday basis. In the chaos, WFR emerges as a buy side candidate.

Adams option blog has some stats that indicate some short term upside (search for Dr. Brett reference saying on average similar declines are followed by a 1.0% up move in the next five days).

Money manager Random Roger (link) talks about the need for an exit strategy before the market is moving and adds that:
A bad few months will happen over and over in our investing lifetimes.

Buy SHLD Sears-Kmart (sell puts)

Sell SHLD Aug 140 puts
I cover my short position, well off the lows of the day, still a nice gain, especially for a one day holding period.

All cash for now.

Sell TXN (buy back short puts)

Buy TXN Texas Instruments Aug 35 puts (closing trade). I close my TXN Texas Instruments position for a loss. Don't like the chart action and market action. Overseas, a big Japanese chip maker reported poor results.

Sell RJET Republic Air

Sell RJET Republic Air for a loss. Ouch. I've had enough and am cutting and running.

Short SHLD Sears-Kmart (buy puts)

Short SHLD Sears-Kmart, by buying SHLD Aug 140 puts

I'm taking a flyer on these puts. SHLD chart looks terrible, I suspect buying is mostly company buy backs and selling is from funds. Earnings were a disaster, retail group is weak. Overall market has a whipsaw higher opening.

Elsewhere BA Boeing and AMZN Amazon lead a long list of stocks moving on earnings.

Positions: long TXN, RJET, short SHLD

Big Bananas

Most longs get a big banana today, with a steep decline in many stocks. AAPL leads the way down on reports of slower than hoped for sales of the new IPhone. TXN also gets hammered on a so-so earnings report. The puts I sold yesterday, edge up 6 cents in value (that's a loss for me) on a $1.66 decline in the shares.

TXN illustrates how difficult it is sometimes to buy options and make money. Even a steep down day with the entire market in the tank, and someone buying that put yesterday is about break even with that 6 cent gain.

I am tempted to buy puts on SHLD, or to do some kind of bearish spread on AAPL. I remind myself, that I am not that adept at navigating fast moving markets. The exception is to get out of a position before it collapses. I had opportunities to close the TXN puts at break even minus commissions, and the afternoon decline took that away from me.

I am still long RJET and that got hammered, partially because JBLU went down on its earnings.

Buy TXN Texas Instr (sell puts)

Buy TXN Texas Instr (sell Aug 35 puts).

My previous position was called aways at expiration. I roll it forward at the 35 strike. This is equivalent to putting in a buy order at the 35 level.

Still holding RJET Republic Air, earnings due out next week.

Winners and losers

CAT and GOOG are among many well known losers on this tumble down Friday. However, quite a few name stocks are up, including AAPL, BA, ISRG.

One of the more interesting winners is TPX Tempur Pedic.

After today, I will only have RJET Republic Air long. TXN is called away for a reasonable profit, and the short M put expires worthless, so the bunt single worked out.

Random Roger writes about some warning flags (link) pointed out by John Hussman, then adds this:
>>
Bear markets come so infrequently that guessing on the next one in a meaningful way is like to be the wrong trade.

>>

I see this as similar to short term traders trying to call a top, instead of selling after a top is in place. Roger is waiting for the indexes to break their 200 day moving averages, something that some folks use as an indicator of the long term trend.

Buy M Macy's (sell puts)

Buy M Macy's (sell the July 40 puts). Macy's is up on takeover speculation. Expiration is this Friday, and 40 is support. Worst case is that Macy's plummets 10% by Friday and I get exercised, and have to buy the stock at 40. Best case is the option expires and I pocket the modest premium. In baseball terms this is like seeing the third baseman playing back and trying for a bunt single. Odds are good for the skilled bunter, however, the reward is modest, the bunt single.

My TXN Texas Instruments is likely to get called away this Friday at 35 (currently 38). I also have some RJET Republic Air stock unhedged.

For the most part today's market decline looks orderly and much needed. Railroads are up as a group on takeover rumors.

Stress test--20 questions

A "stress" test originally from the Traders Catalog and Resource Guide in a piece titled, "Killer Stress, Psycho-Drama & War-Zone Markets." Recently at Marketwatch, Paul B. Farrell (link).

>>>
Answer each question "Yes" or "No" and keep track of each:

1. You've tried more than one new investment strategy this year?
2. Feel you're buying and selling funds at the wrong time?
3. Rarely open up to anybody for feedback about your losses?
4. Subscribe to two or more newsletters, feel overwhelmed?
5. Can count on one hand all the good laughs this week?
6. Have a lingering resentment about someone or something?
7. You love cable news, but need more extra time to trade?
8. Rarely break a sweat when exercising the past few weeks?
9. Wonder whether you bet too much on recent investments?
10. Need more than three caffeine and alcohol drinks a day?
11. Feel "something" keeps you from making more money?
12. Frequently don't trust your instincts or your strategy?
13. You've had a major family or personal loss recently?
14. Believe losses are caused by the market manipulators?
15. Are you overweight and snack often on comfort food?
16. Fear future trades may fail due to a losing streak?
17. Diet and sleep are disturbed by worries about money?
18. Your retirement portfolio's not growing fast enough?
19. No vacation in a year, and lack an active social life?
20. Nothing (or everything) interferes with making money?

Now grade yourself. Add up the number of yes answers. If the total of your stressors ("yes" answers) is eight or more, then short-term trading, market timing and shorting are probably too stressful and risky for you at this time.

Dow 14000--are you on board?

The bulls continue to run. There are quite a few folks left behind, or worse short in this market. The train has left with a lot of people at the station. I am in the left behind crowd. The easy thing to do would to be to buy whatever is moving. The stubborn thing to do is to try and call "top" and start shorting. Probably the smart thing to do is to continue to sit on the sidelines and continue to look for safe entry points.

While a rising market doesn't lift all the boats, it sure helps.

Irrational exuberance? No, says Hulbert

Mark Hulbert writing for Marketwatch (article) says his newsletter sentiment indicator is bullish. Despite the rally, newsletter writers are actually becoming more and more cautious. I confess, that my gut feeling is also in this camp, that I think the rally is overdone and more downside is imminent. I looked at quite a few puts (bearish bets hoping for a decline) today.

I hate to buy into runaway strength. However, right now, that would seem a better play than buying puts. I often write that calling top is a losing game, and at this time that would be exactly what buying puts would be, a bet that I can call the top.

Good thing the weekend is here. Enjoy the long summer days.

Freedom, lifestyle and money

Market has a buy-the-dips rally. I am not impressed by either the bull or bear case. Monthly seasonality points to a dip next week. Let me again, disclaim that seasonal patterns are near the bottom of the barrel. Earnings, interest rates, technicals, assets, all rate ahead of seasonal patterns.

Ben Stein interview discussed on Random Rogers blog (link). Roger goes on about how living below ones means a person can withstand almost any financial storm.

>>
the point that he [Stein] made was that "liquid assets equals freedom." He used that phrase several times and then went on to talk about the importance of saving. He quoted his father as saying liquid assets equals security and living beneath your means equals freedom.

SHLD Sears/Kmart irrelevant?

SHLD Sears/Kmart gets hit hard today on earnings news. They also announce a $1 billion stock buy back. Seems foolish in the face of that news and the run the stock has had. I was tempted to buy puts on this one, but did not pull the trigger.

Market seasonality points to more volatility until September.

Positions long TXN hedged, RJET unhedged

Impulses AMZN, BA, FDX

AMZN Amazon up on little news. BA Boeing up on the official launch of its 777. FDX Fedex up on rumors of a buyout making the rounds at Barrons. My impulses are to short AMZN, buy BA, and do nothing on Fedex. Usually, when I get these ideas, they are the wrong thing to do so I am ignoring them. AMZN is a much higher percentage short on a new high. BA a much better long on a pullback towards the base on 90, possibly when some glitch in the new plane comes to front. It is very unusual that a long term project such as a new airplane goes out without nary a hitch. FDX looks like it is stuck in a range.

AA Alcoa is first out of the gate with earnings, and they are good but not great.

Russell changes opinion on gold

Marketwatch reports that Richard Russell is now saying to put new money into stocks instead of gold (article).

>>>

Richard Russell, editor of the Dow Theory Letters newsletter, believes we could very well see a continuation of these trends in coming months. As a result, he is now recommending that investors allocate any new monies to stocks rather than to gold.

This will come as something of a shock to gold's defenders, since Russell for several years now has been favoring gold over equities. But, on the basis of his technical analysis of gold and stocks' relative strength, Russell has changed his mind.

Russell bases his technical analysis on a ratio of the DJIA to gold. This ratio hit its all time high in mid 1999, for example, at around 43.85-to-1, which meant that "one share of the Dow would buy 43.85 ounces of gold.
By May 2006, in contrast, this ratio had declined to 16-to-1."

Buy RJET Republic Airlines

Buy RJET Republic Airlines

Airlines as a group getting a nice bounce off news from CAL Continental. RJET has their own news and that is holding the stock back. However, unlike many of the other airlines the RJET chart is still strong. This is a small unhedged position. The stock trades a bit thin at times and options have a wide-wide spread.

Positions: TXN hedge long and RJET long

A bad feeling

The worst feeling for a trader is a position that goes against you. Another bad feeling is when you failed to pull the trigger on a stock and it explodes higher. Most recent example is RIMM Research in Motion.

Elsewhere the broad market is higher, gold rallies, ODP Office Depot lower on slowing sales.

Blackberry Bonanza at RIMM

RIMM Research in Motion leaps 15% to 195/200 in after hours trading on their earnings report. Many believe the Apple IPhone will spur additional demand for Blackberries.

M for MARKET

William O'Neil in his legendary CANSLIM approach, stresses the last letter M for Market. In a TickerSense blog entry, this idea is reinforced, that it is difficult to fight Mr. Market (link), that the storm will sink all boats, as the rising tide will lift all of them. In the article 29 of 30 Dow stocks moved with the market 447 out of the S&P 500 stocks moved with the market. Long odds for those seeking to trade the other way.

VIX (Option Volatility index) is trading up, so there may be a tradeable short term washout soon. As always, virtually no one buys at the bottom, so I don't expect any different this time.

Market churns lower

Monday's reversal from a 134 point Dow gain, used up quite a bit of dry powder for short term traders. Today's smaller reversal is making folks ever more cynical of any rallies. For the most part, the retreat looks orderly. Seasonally, the summer is the weakest of the four seasons. I expect more bear market days ahead, though I doubt it will be a straight drive down.

LEN Lennar's earnings report shows that bottom is no where in sight for the housing market. Most home price declines have been modest, in the 2% to 3% year over year price declines. That won't scare anyone into selling. A few regional markets are worse, some are better.

Silver craters down 59 cents to $12.20. I think it is too early to look to be aggressive on the long side. Those thinking long term can continue to accumulate and build a long term position of about 3% in gold and silver.

My sole position is TXN hedged long.

Cover short BBY (sell the July 45 puts)

Cover short BBY Best Buy (sell the July 45 puts). I am taking the tiny profit and running. Broad market is rallying, BBY is not. Front month options are always risky to own, a profit is there now and I am taking it.

That leaves me with long TXN as my only position.

Sell MRK (Buy back short July 50 puts)

Sell MRK (Buy back short July 50 puts) big percentage loss on option, about a dollar on the $50 stock. I don't like the way MRK melted through support at 49. As always, my posts are not a recommendation for readers to buy or sell.

Positions: long TXN, short BBY, both hedged positions

Bears finally score

The Bears finally win one. Of the stocks I am holding:
MRK Merck gets hit hard on an analyst downgrade. The glass half full interpretation is the filling of the gap. (I am short the July 50 MRK puts)

BBY Best Buy breaks support at 45. I am looking for 43.25. (long the July 50 puts)

TXN Texas lower, still above strong support at 35. (long stock, short the July 35 calls).

The calendar still has a bullish bias until early July. The election cycle is modest support. However, as of this writing, I am looking for more bearish days into the summer. July to early October are statistically a weak time for the stock market (sell in May and go away and buy back in October).

Short BBY Best Buy (buy July puts)

Short BBY Best Buy (buy July puts). BBY lower on earnings miss of 10 cents. Stock has minor support in the 45 area. However, in my experience, support often folds when the news is bad. This is also a decent time of the cycle to be long options.

IDV High yielding foreign stock ETF

Article on the new ETF, symbol IDV. I recently wrote about Aussie banks looking like an interesting play. This new ETF has a heavy weighting in Australia, and financial stocks. The chart with the article shows a 40% one year gain in the index that the fund is going to mirror.

Barron's column recommends

Adams option blog, quotes Barron's option column, where Goldman strategists recommend selling three-month puts on Target (TGT), AT&T (T), PepsiCo (PEP), Coca-Cola (KO), Comcast (CMCSA), Oracle (ORCL), Sears (S), IBM (IBM), Wells Fargo (WFC), Merrill Lynch (MER), Johnson & Johnson (JNJ), Morgan Stanley (MS), Amgen (AMGN), General Electric (GE), and Disney (DIS).

The rally continues

A tame inflation number adds fuel to the fire for the bulls. Option expiration bias was up, probably because of the 400 point Dow tumble earlier in the month, got a lot of bears to buy puts.

Notable stocks moving lower today include BA and BNI. Some breakouts that I observed include HANS, FFIV, ASCA, KNDL.

Positions, long TXN and MRK both hedged

Buy MRK Merck (sell puts)

Sell the July 50 puts on MRK Merck (equivalent to buying the stock and selling the July 50 call). Chart shows decent support at the 49 to 50 level.

Gold looks terrible

Gold has another bad day, chart looks terrible right now. I still have a long term bullish bias towards goal because of macroeconomic factors. If I did not have that bullish view, it looks like a short in here with the failed rally to bring in another wave of would-be-bulls.

TXN Texas Instruments narrows their guidance and the stock gets hit. The long term chart has that amazing breakout from a five year base. It isn't often that a stock bases for such a long time, and because of that I'll give it some more rope.

Market is sending mixed signals. Bonds are still leading the way lower. Big name leader stocks such as AAPL, AMZN, GOOG have not capitulated. It is difficult for me to believe that the leaders will not get hit before this is over. If they don't a rally back to the just made highs would be a low risk shorting opportunity.

Steel down on NUE forecast

Nucor NUE down hard on a disappointing forecast. Bias is down though shorts have to pick their spots.

I did nothing on rally day

I looked at several stocks including MRK, SNY, DDS, and did not pull the trigger on any. It is difficult to sit still when the market is moving, though often times that is better than jumping into a fast moving river and getting swept away.

Only position: TXN hedged long

Sell JWN (cover short puts), Aussie banks

I buy back the Nordstrom JWN July 50 puts, equivalent to selling out of a long position. Rule #2 is never let a profit turn into a loss. A big percentage gain if looking at the option position only, a tiny barely measurable gain if looking at the price of 100 shares of Nordstroms stock.

Market looks terrible, even though big name, big cap leaders such as AMZN, AAPL, GOOG, RIMM are still up today. This looks like a case of frustrating the shorts. When the majority of shorts capitulate and cover, these leading stocks will get hammered hard.

Aussie banks look like an interesting play. ANZ, NAB, WBK are three that I am looking at. They are high yielders. The Australian economy benefits greatly from the boom in metal prices. All of them have had a good run, so it isn't like getting in on the ground floor. No options, and light volumes, and often wide spreads are considerable negatives for traders.

Best time of month for options

From Adams Option Blog (link)
>>>
Well, as a general guideline I would time option purchases around this. In other words, the end of the week post-expiration is the best time to buy options.I would confirm this anecdotally (with a big caveat being the timing of holidays).

Conversely, the best time to net-sell options is early in a calender month, about a week before expiration.

Again, I am going to insert a caveat here. These are normalized options with 30 days of duration. I wouldn't go crazy selling near month options with a week to go. It's a VERY risky strategy.

Market leaders: AAPL, AMZN, CROX, GOOG

An observer might not think that today is a down day, given the leadership on the Nasdaq gainers board (FRT link). Also in the news has been a couple of sharp down days in the Chinese stock market, and weakness in bonds. The latter seems more of an immediate concern for U. S. stock traders. Weakness in bonds also correlates with higher mortgage rates. Housing stocks have come off their lows, however, a significant bump up in mortgage rates will quickly derail any positives.

Positions: long TXN, JWN both hedged positions

Sell CYPB Cypress Bioscience

I sell CYPB Cypress Bioscience for a loss (sell stock, buy back the June 17.5 call).

News is a secondary offering of 4.7 million shares at 15.5. Yuck. The stock may recover, but cutting losses is my style. When I think it is time to bend the rule, that is often the worst time to do so. This is big percentage hit for such a short holding period, but knowing that this is a speculative stock the position size is small.

Buy JWN Nordstroms (sell puts)

Sell July 50 puts on JWN Nordstroms. This is equivalent to a buy/write. Another equivalence is putting in a bid to buy JWN at below 50. I like today's recovery from a weak opening and decent support at 50 (chart).

Shorts target AMZN Amazon

Schaeffer's (link) says AMZN Amazon is the target of put buyers and short sellers. It wasn't enough for the stock to jump and demolish an army of bears. New bears are lining up, or old bears doubling their bets. Odds favor another spike up, or sideways action. Any corrections will tend to be shallow as all those bears will want to cover. As of this writing 18% of the entire float is now short, a number that has gone up considerably from the day the stock jumped.

As I always say, calling tops is a dangerous and rarely profitable game. A lot more would be top calling bears will likely be wrong before the top in AMZN is in.

Two more reasons for concern

The Chinese stock market is selling off on news of an increase in taxes on stock transactions. It will be interesting to see how much linkage there is.

Another reason for concern is the weakness in the U. S. Treasury bond market. Here is a chart of TLT, a U. S. long bond exchange traded fund (chart).

On Tuesday, my CYPB Cypress Bioscience sold off on apparent profit taking. TXN Texas Instruments is my only other position.

Band picks NWS, TGT, TOL

Richard Band cited in a MarketWatch article picks NWS News Corp, TGT Target, TOL Toll Brothers (article). Band remains bullish on the market saying that at what should be a rollicking party half the guests are asleep.

Quite a few folks missed this rally, or like me have been uninvested. This means there is a lot of dry powder to fuel a run to higher highs. It is unlikely to be straight up, however, when there is are a lot of folks looking to get in, corrections tend to be shallow and quick.

Buy/write TXN Texas Instruments

Buy/write TXN Texas Instruments, sell the July 35 call. TXN breaks out from a five year base. Strong support at the gap at 34 (5-year-chart).

Positions: CYPB, TXN both hedged, long stock, short calls.

Buy/write CYPB Cypress Bioscience

Buy/write CYPB Cypress Bioscience
Buy the stock, sell the Jun 17.5 call. I am impressed with the stress in this speculative issue with most stocks moving lower today. Bears may get frustrated on CYPB and some may move on to greener pastures. A lot of longs got burned on DNDN and either are out of the game or gun shy.

NTAP Network Appliance is down on poor earnings projections. I'll watch it and look for shorting opportunities.

CYPB Cypress Bioscience

I was tempted to buy CYPB Cypress Bioscience (chart) today, as it doubled in price on news of positive drug trial results. It is a $500 million company after the jump in price, and only has one drug. The recent disaster in DNDN Dendreon, makes a lot of bulls extra cautious, and bears extra greedy. That kind of sentiment makes for a bullish scenario.

Elsewhere retailer TGT Target reports good results and the stock gaps higher, only to fade by the end of the day. JWN Nordstrom follows a similar pattern. It looks to me, that a major player such as a mutual fund or hedge fund is unwinding a large position, selling some every day for the past three weeks or so. For JWN, 50 looks like support (chart).

The path of least resistance is higher

The path of least resistance is higher. Yes, the market is over extended on the upside. However, a lot of folks are cautious, myself included, and that will limit any downside. Another cliche that comes to mind is "never short a dull market." Today's market action, other than a few special situations, qualifies for dullsville.

MGM the casino operator is in the news. Readers will remember I bought puts and got out at break even. The huge gap open up is one reason I prefer buying puts to shorting stocks. However, that is my personal preference, not necessarily something that will work best for everyone. If positions are small, shorting stocks is not inherently any more risky than buying put options. The devil is in the details of money management and how much is allocated to any one position.

A couple of stocks I am watching closely as potential longs include JWN, TXN, KMX.

High level breakout on AMZN Amazon

A high level breakout on AMZN Amazon punishes the bears. Arrogant shorts publicly announce taking on large new or additional short positions. I interpret this to mean AMZN is likely to go higher. My technical projections are 73 to 78 (chart) with the stock currently at 68. Risk is high for both longs and shorts.

To think I made money buying puts on AMZN just a little while back. Today I am tempted to go long, however, that would be more of an excitement and sentiment trade than a risk-reward analysis.

Elsewhere, CPB Campbell Soup has decent earnings. JWN Nordstrom and JCP Penney had good earnings last week. WFMI Whole Foods Market is opening up some large stores with a higher level of service. WFMI is a fallen star, having lost its luster. Moving more up market may help. Valuation of the stock is reaching a reasonable buy level. Technicals still look weak, with a projection to 35 (currently 39 to 40).

No current positions.

Case Studies by Jeff Kohler

Something worth sharing: some entries and exits with charts by Jeff Kohler (link).

Market seems incredibly strong, with buyers coming into every dip. Options expiration is tomorrow (Friday). It will be interesting to see if the bullish bias continues, or even picks up after option expiration.

If I had to buy today: EWJ Japan Fund ETF and BRKB Berkshire Hathaway
If I had to short: AMZN

Gold continues to be high risk, low reward for longs. Clive Maund observes a continuing large number of commercial shorts and speculator longs, making for very high risk for short term longs at Kitco Commentary (link). I don't see it as a good time to be short gold either.

What year is it in China?

True Contrarian (link) and Random Roger (link) both mention China in their latest entries. Mr. Kaplan at True Contrarian sees a late stage bubble. Mr. Nusbaum the ETF investor reports a recent IPO going up 71% on the first day. Nusbaum is primarily interested in what spillover a correction or crash in China will have around the world.

Bubbles do tend to pop, though most of the time they expand far beyond the wildest projections of fair value. When a bubble is forming far away, it is more difficult to collect anecdotal evidence. Anecdotal doesn't survive backtesting, and it isn't a surefire indicator. However, in the case of bubbles, it can be powerful.

Closer to home, the U. S. stock market had another bull day. Gold and silver got hit hard. Those that bought last week on the $15 down day in gold are underwater. Some novices that bought that dip, may be in the wishing and hoping mode, rather than managing their risk.

JBX Jack in the Box

JBX Jack in the Box up on earnings. JBX saw a pop on Monday after TV comments by Jim Cramer, and had a nice pop at the open today (3-month-chart).

Another Cramer mentioned stock, and one that I had a position in, AAPL Apple, slides on news of AMZN Amazon launching a music download service. I covered my short near the all time high of 110 on Tuesday and now it is in the 105 range :(.

Mistakes are average, losses are going to happen. No one bats 1000, except perhaps a few specialists that get out immediately after they get in and have access to the order book. The only others that bat 1000 are those paper traders that post their entry and exit well after the events have taken place.

Traders, in particular, need to recognize that losses will happen and not take any one loss or gain to heart. It still hurts when something like this happens. The best thing for a person to do is look at the entry and exit objectively and try to learn from the experience.

My personal style is to cut losses, usually very quickly. Other traders and investors can be, and have been successful with other styles.

Cover AAPL and SPY shorts (sell puts)

Sell SPY Jun 149 put
Sell AAPL Jun 105 put

These shorts are not working out. I am taking my lumps. May expiration is this week, and Wednesday is often rollover day. Option premiums get hit hard on the out month during the rollover process.

I took big percentage losses on these puts options, however, actual dollar amounts are not that big.

Airlines stocks falling

Higher oil and worries about a slowing economy have hit many of the major airline stocks hard. UAUA United, AMR American, LCC U.S. Air are all in waterfall declines. CAL Continental is holding. Overseas, BAB British Air, RYAAY Ryan Air are also breaking down.

These would all be high risk shorts or longs at this point in time. Why it is relevant is that transports sometimes lead the market. The rail sector has been supported by Warren Buffett's interest. Without that it could look like a real bloodbath in the Dow Jones Transports. As is, the transports confirmed the recent high in the industrials. Some will say that the numbers are the numbers and that no matter the reason, a new high is a new high.

Sell ACTIX Capital Value Fund

Sell ACTIX American Century Capital Value Fund

This is long term money, away from my trading account. Sell in May, buy in October has become somewhat of a market cliche. However, when the market has gone almost straight up for six weeks now, it seems like an especially good idea.

Bears get spanked--ouch

Tame inflation data sends the bears scurrying. I continue to hold my puts on AAPL and SPY. My puts got hit hard on today's rally. AAPL makes a new all time high. The only saving grace is that these are small positions, and downside is contained to the total price of the option.

Short SPY Spyders ETF (buy puts)

Buy SPY Jun 149 puts
SPY is the Standard and Poors 500 index ETF

Downside target 145 on SPY.

Short AAPL Apple (buy puts)

Buy AAPL June 105 puts, Apple Inc

Stock looks extended, yesterday's high is resistance. Apple is one of the leaders in this bull market, and if the bull is ready to rest, as I believe, it will get hit hard. Short interest is small, so any buying big enough to move this big stock is going to come from fund managers or other big boys. The Apple story is still exciting, with the new IPhone coming out, high Mac computer sales, record IPod sales, however, all of that information is in the price. All of that and then some.

GLD Gold year to nowhere

I haven't mentioned gold recently. There is not much to write about. Gold remains in a relatively narrow range and looks like it is building a long term base (2-year-chart). The recent weakness is only a buying opportunity for scalpers. The upside remains limited to the old highs from last May. The downside is all the way back down to 600 (60 on GLD). The chart for GDX Gold stock ETF doesn't look much either, with limited opportunities at significant risk for longs or shorts. Readers know that I favor high probability trades with at least the perception of low risk.

The broad stock market is getting hit today. Is this the start of a bigger sell off? If I had to bet, I would bet yes. The 12 month calendar seasonality is against the market now, though the presidential election cycle still counts as bullish. Sentiment is again complacent. The market news seems dominated by mergers and shooting stars on earnings news. Most of the earnings movers are getting to their price targets lickity-split without much correction.

Mergers and acquistion activity, I see as bullish. However, the house of cards can tumble if a high probability merger falls through and the merger arbitrage scalpers get the rug pulled out from under them.

Well, like gold's year to nowhere, this blog entry doesn't have much new to report, that most readers don't already know.

Easy come, easy go DNDN Dendreon

DNDN Dendreon completed a round trip rocketship ride, from 5 to 23 and now back to 6 (3-month-chart). Last month, promising data from one of their drugs launched the stock to the moon. Today's plummet due to the Federal Drug Administration requesting another clinical study.

Elsewhere, the Fed stands pat, and the market drops for about 15 seconds before rallying. TXN Texas Instruments raises its targets on gross margins. B Barnes Group up on earnings.

FLR Fluor got a $1 billion contract to do work in Saudi Arabia and trades above 102. I can only shake my head because I sold early yesterday in the 95 range. The conference call went well, and the good news from FWLT Foster Wheeler give FLR a boost.

One bullet I dodge is TM Toyota, which was down a bit on earnings. Sometimes it is mystifying why stocks move on their earnings, sometimes it is clear. Another stock I am watching is GTRC Guitar Center. GTRC was up on earnings. It has a market cap of $1.5 billion (stats).

Positions: none, all cash for now

Sell BA, cover MGM short

Sell BA, Sell MGM May 65 puts

More of a market decision than an individual stock decision.

This leaves me all in cash for now. Cash can do wonders for clearing the mind.

Cover AMZN short (sell puts)

Sell AMZN May 65 puts. I don't like the tape action in AMZN and I cover my short. I kick myself for missing the shot down below 60 to take out stops. Poor intraday timing costs me a good chunk, as it did in FLR, which has rallied a bit after the weak open. Good thing I am not a daytrader, because these kind of missteps would cost me my lunch every day.

Currently:
Long BA
Short MGM (puts)

Sell FLR

I sell FLR at the market this morning a few moments after the open. I get a decent fill on my order as the stock fluctuates widely during the first few minutes.

Visions of sugar plums, then FLR

This morning BA up, FLR up, MGM down, AMZN down hard, a nice day for my account balance with my four open positions all going my way.

Then after the close FLR earnings are disappointing and the stock tumbles in the after hours. I bought after the previous earnings report, and plan to bail out tomorrow.

I could write more cliches, but will spare you.

AMZN puts, short Amazon

Buy AMZN May 65 put. Like I wrote early, Amazon came into earnings with seven days worth of short interest. Well, today is day seven. Yahoo takeover rumor adds support to the segment. A pullback to 60 would still remain full bore bullish. A pullback to the breakaway gap at 52.5 would also be a normal move.

Puts on MGM Mirage

Buy MGM May 65 puts. Mirage the hotel and casino company is down after earnings yesterday. After some early buying on an SP upgrade, it is now below support at 65. Technical short term price target is the 57 range. I think it is worth a shot on the May puts, though I may bail out before the price target.

Doing nothing, Citigroup called away

C Citigroup called away before the dividend date. After all my in and outs and hedges, the net-net is a small loss after commissions.

If I had to buy, I'd buy BNI Burlington Northern or BRKA Berkshire Hathaway.

If I had to short, MGM Grand, AMZN Amazon, ADM Archer Daniels Midland would be the top candidates.

I don't have to do anything. The market looks extended to the upside, however, the steady strength is not something I want to short.

Other stocks in the news include EL Estee Lauder, which is down today after a penny miss on earnings. The down move seems like an over reaction. Unfortunately, option premiums are small even with the down day.

MA Mastercard

MA Mastercard is the latest in what have been a series of big movers on earnings news.

My Citigroup will probably be called away for the dividend. That will leave me with BA and FLR.

Bears at bay

The Dow Industrials push to a new high, frustrating a legion of bears.

AMZN Amazon has another rally day. When the earnings came out there were seven days worth of short interest. One thought is that the short covering would run out after seven days. The counter thought is that many traders shorted the gap up and will have to cover at ever higher levels. To my eye, speculative puts might be worth taking a shot, looking for a pullback towards the gap at 52, ten points from today's close.

CRS Carpenter Tech

Today's most interesting stock is CRS Carpenter Tech (chart). The overall market is extended, so it is not the best time to be adding longs. However, the other side is that calling top is a poor percentage play.

Elsewhere, BIDU Baidu.com has a huge up move (chart). Bulls and bears continue to push and pull on AAPL and AMZN. These kind of glamour stocks attract so much attention that it makes them seem more risky. An analyst upgrade or downgrade, a hedge fund going long or short or unwinding their position, a major institution deciding to get in or out, can make muddy the waters for the small fish.

Holy cow, a runaway bull

I am surprised at the extraordinary strength of today's rally. AMZN Amazon is particularly impressive. Other stocks of note include CHRW which was recently called away from me. BNI is down after its earnings and would be a stock to buy today, if I had to buy something.

BA Boeing reported strong earnings, however, they did not raise their guidance. The 787 is on schedule and long term that is much more important than one earnings report.

Positions: C hedged, BA, FLR unhedged, and a lot of cash that is waiting to buy selected stocks on a pullback.

More big earnings: AMZN, PCAR, WHR

Three more stocks that I will watch after a big move on earnings:
AMZN Amazon, PCAR Paccar, WHR Whirlpool

BUCY Bucyrus, HAS Hasbro

Nice breakout in BUCY Bucyrus today (chart). It moves higher after CNH in the same industry, heavy machinery, mining supplies, reported strong earnings.

HAS Hasbro had a breakout from a shorter more extended base. Again, it is earnings that moves the stock. Hasbro benefits from Spiderman 3 coming out next month.

Earnings driven rally

I am a bit surprised by the strength into today's close. Some of the stocks in the news that I find interesting include GOOG, MHK, CAT, CAL.

My CHRW and GDX get called away today. CHRW for a breakeven loss, GDX for a breakeven gain. My roll down on GDX calls was within an hour of the low. That call buyer about tripled his money.

The leaves me with long positions in BA, FLR and a hedged position in C.

Three breakouts VMI CBE TXT

Three nice breakouts on earnings news VMI CBE TXT. All have flat bases.

GOOG Google out with good earnings after the close. UNP Union Pacific earnings boost the railroad sector, a sector already warm from Warren Buffett's announced positions.

Insiders keeping their stock

Mark Hulbert says that insiders are not selling into the current rally (article). Insiders tend to be early so this is good news as the market is near or at all time highs.

Technically, parts of the stock market look to be extended. However, other segments look like they may be ready for a sustained rally. In particular, the QQQQ has a nice tight base (chart).

Roll up and out C Citigroup calls

Roll up and out C Citigroup calls. Buy back the short Apr 50 calls, sell the May 52.5. The calls trade for less than it would cost to exit and get back in. The stock recently reported good earnings, so I roll over to the next month. C also goes ex-dividend in early May.

BA Boeing up nicely after an $5.4 billion order for new 787s is announced. The troubles at Airbus are another reason to believe Boeing will do well going forward.

Longs: BA, FLR
Hedged: C, CHRW, GDX, the last two are likely to be called away this Friday, unless I roll the calls up and out like I just did for C.

Tool time at BDK Black & Decker

Best of the bunch from today's news is BDK Black & Decker (chart). KO and JNJ also have good earnings, but those two don't look as promising to my eyes.

Citigroup C up on earnings

Citigroup C up on earnings, that's the good news. The bad news is my delta approaches zero because the short call is deep in the money. In plain English, it means I sold the call, and the call owner is making the money on the rise, not me. Such is the life of a covered call writer.

Volatility is back to pre-correction lows. This is not so good. The tax deadline passing also means the end of the IRA deadline contributions. So I am cautious, as almost always.

Positions: BA, FLR
Hedged: C, CHRW, GDX

MRK Merck and TM Toyota

Merck MRK up on good news (chart). Today's open at 49.28 looks like a decent entry point.

Toyota TM is nearing support at 120 (chart).

RIMM Research in Motion disappoints

RIMM posts disappointing earnings and is down 8% after hours.

AA Alcoa kicked off the earnings season with a good report.

Readers know that I often take positions on the basis of earnings news. The quarterly announcement is often what moves stocks. In the long term, I believe that earnings are the primary engine behind stock movement.

Buffett buying railroads (BNI)

Legendary investor Warren Buffett disclosed a large position in Burlington Northern BNI. Two unnamed rails are also in the buy in. Buffett is usually early. He has to be because of the large size of the buys and sells. BNI has a nice looking chart and looks like a good buy on a pullback. Often times, there is a significant pullback below Buffett's entry point. This would be the natural expectation if he was buying and then is finished buying.

Doubling down, and down, and down

Adams option blog has an entry about a trade gone wrong (link search for AMGN). It almost the opposite of the way I trade. In the blog, the trader buys some calls. When the stock moves against him, he buys more calls. Still more pain, more calls. So much capital is put into one bad position that it will take 12 consecutive winners of the size of the original AMGN position to get out of the hole that has been dug.

Sound money management is at least as important as any indicators to get in or out. A person that doubles down again and again will run out of luck. It is one thing to take a half position or quarter position, with the plan to buy the other part on further weakness. It is another to refuse to admit that you are wrong and lose big on one idea.

Windows closes after rally day

On Monday, I looked at rolling up and out on many of my hedged positions. Today's robust rally makes it that much more expensive, and less rewarding to do so.

Earnings will again be market moving news during the next few weeks with Best Buy BBY set to report tomorrow. Here is a list of a few more stock to watch.

Random Roger writes about two versions of a "lazy portfolio." Click on the link, then search for "lazy update."

DNDN Dendreon

Speaking of amusement park rides DNDN rockets (chart) up 145% today on positive FDA news. It is a tempting stock for a buy/write because of the 200% implied volatility on the May options. There is another FDA ruling due before that expiration, so the stock could see more wild trading in the interim.

I often find the day or two after the big news move as a better time to get in.

Round and round

Random Roger uses the analogy of the tea-cups ride (blog) instead of a rollercoaster. Today was another whipsaw type of day, with a strong open, a dip below the line, then a rally into the close.

Housing stocks keep falling

Lennar LEN gapped lower yesterday on poor earnings, but managed to close in the positive for the day. Beazer Home BZH is being cut 10% on news of a Federal investigation. Lennar is holding above its lows (LEN chart), Beazer is not (BZH chart).

There is spill over to the broad market. Today is not so good for my positions because my hedged positions (GDX, CHRW, C) are doing better than my unhedged positions (BA, FLR).

Smuckers SJM is up today after an analyst upgrade. The chart is a classic cup and handle breakout. I may buy on a pullback to the 50 range.

VG Vonage, straight down

Investors unfortunate enough to buy VG Vonage at IPO have seen their money disappear. In a less than a year, the stock is down 80% (chart). Many customers report positive experiences, and Vonage had a pretty big distribution. Alas, a cool idea does not a successful business make and it looks like VG may have to fold up shop without ever turning a profit or a positive quarter for its investors.

VG serves as a cautionary tale for someone investing in the next big thing.

Covered call funds

I found an old Seeking Alpha article that takes a look at covered call funds. Readers know that this is my favored strategy. For investors that want a hands off approach, these closed end funds may be worth a look. The hefty yields look attractive, however, the long term performance, and management effectiveness is still up in the air. Certainly not a place to put a lot of money, because of the short track record (the oldest fund started in 2004).

Another interesting fund is SDY, a SP500 fund that buys the highest yielders in the index.

Fed's next move

Big stock market rally today. After the minutes from the last Fed meeting were released, the Fed fund futures are now putting the odds of a rate cut at 44%, up from 26%. Traditionally, rate cuts are good for stocks.

A list for would-be traders

Paul Farrell at Marketwatch put together this list for would be daytraders (article):

1. I have lots of time to track the market and trade
2. I am very disciplined under pressure
3. Markets are volatile, but I can handle uncertainty
4. Breaking news doesn't distract me
5. Yes, it's OK if I lose money
6. I can even handle losing streaks
7. I never buy high nor sell low
8. I can make quick decisions, with no regrets
9. No, I'm not overly optimistic nor in denial
10. I can live comfortably on $50,000 a year

>>
For the most part there is a good deal of wisdom in this list. Depending on a person's chosen trading style I might disagree with some, however, most of it would be a good starting point. I tell folks that the emotional aspects are the most difficult. The analysis can be extremely complex, or fifth-grader simple. I favor simple analysis that looks at fundamentals, technicals, sentiment and the news background, rather than complex analysis that has a narrow focus.

Number eight, regrets, is on my mind at the moment. When the market makes a sharp move, such as the recent dip, there are always a lot of shoulda, coulda, woulda situations. I would like to think that I am immune from that. For the most part, I can put the past behind me, rating myself as high average or above average in that department, there times when regret does come around for a visit.

Another tough week

My portfolio limps into options expiration. I am short April calls on C, CHRW, GDX and have none expiring today. My rolldown on GDX was near the short term low--it is painful when that happens. However, it is the nature of hedging and rolldowns that this can and does happen.

To all the Irish readers, or Irish in spirit, have a happy St. Patrick's Day.

SP500 downside target 134

One scenario is that this latest decline will be of the same number of points as the first drop. This would take SPY to 134 from the current 138 or another 3% lower. On the 3-month chart it takes SPY just below the green line.

Top timers still bullish, others not

Mark Hulbert reports that his top five market timers remain bullish after Tuesday's big hit (MarketWatch article). Meanwhile, the average newsletter writer is becoming much less so.

I am looking to buy selectively on further weakness. No need to hurry, bottoms usually take some time. If a fast V-shaped bottom does occur, only a very few get in at the bottom. I prefer opportunities when I perceive the odds are in my favor.

Roll down CHRW, retest of lows

Buy back the CHRW Apr 50 call, Sell the Apr 45

Whomp. The market thuds lower. Looks like a retest of the lows or worse is in the cards for the major averages. CHRW has underperformed since being added to the SP500. I am taking my lumps. At this point I am in the red for the year, thankfully my equity exposure remains limited.

In my mind it is a bit early to be adding to longs.
Current: long BA, FLR
hedged longs: C, CHRW, GDX

How one pro traded the dip

Paul Sabo writes about his trading during the recent correction (article). Bottom line result was a small profit of about 0.5%. Certainly not my style or cup of tea to go on margin and trade the SP500, however, it is interesting to see how someone else tackled the same problem that all of us had to face.

A down week

For me, this week is in some ways tougher than the previous one. Why? When the market goes down a lot, most folks lose money. This week the market stabilized, so losing money is tougher to take. Today's hit is an analyst downgrade of CHRW C.H. Robinson, sending the stock down about 5%. CHRW looks like a good buy in here, if I did not already own it.