Wednesday, April 30, 2008

Yield curve deja vu (bullish signal)

Over at Vix and More (link) Bill Luby says the current yield curve looks like 2003. Back then, the set up brought a big bull market for stocks. As always, history rarely repeats exactly the same way, but it can be useful to find historical time frame comparisons. Yield curve has so many factors in it.

Tuesday, April 29, 2008

Gold vs. copper, GDX vs FCX

Gold continues down. GDX near important long term support at 40 (2-year chart). FCX which mines a variety of metals including copper has outperformed (chart). Another advantage of FCX is tighter spreads on the options. They are different, with FCX looking like the stronger play at the moment, but neither looks compelling at the moment.

Lately, support levels sometimes have meant little to nothing in terms of slowing or stopping downside momentum. Yous pays your money, yous takes your chances.

Positions: Long BRK.B, hedged long HON, AXP

Friday, April 25, 2008

Buy AXP (sell puts)

Buy AXP by selling the 42.5 puts
Stock is moving up through resistance on earnings, support at 45 and below

Positions: hedged long AXP, HON. Long BRK.B

Wednesday, April 23, 2008

Morons? (Cramer)

Adam Warner blogs about Cramer saying that call sellers on GOOG were morons (link)
>>
You should recognize that pretty much every outsized gain, ones where the stocks go up on small, niggling positives is about short-selling. The Google (GOOG) 480, 490, 500, 510 strikes? Tons of call-sellers, taking advantage of premiums too juicy to resist. Morons: limited upside, unlimited downside.


Breaking news: Naked call selling has unlimited upside risk. Never sell anything.

There is some validity to the notion that call shorts on expiration get trapped and are forced to chase a stock higher into the next call short. And so on.

But to call them morons is utterly.......moronic. GOOG did not just report earnings out of the blue. The date was known, the volatility was pumped, and selling options ahead of an earnings report is net-net not a bad strategy. There is an expected gain element to it, something beyond his black and white nonsense.
>>

My take: if someone bets the ranch by selling options, puts or calls, before earnings or even after, the insult might be appropriate. However, keep in mind that the volatility is in the price of the options before the report. Sometimes the option buyers win, but certainly not always. It is easy to see in hindsight what the correct play was. Ahead of the report, not so easy. If the call sellers are morons, then the call buyers must be the opposite, since they are taking the other side of the bet. We'll see if the option buyers or sellers win with tonight's AAPL report, and who the moron's will be tomorrow.

The logical conclusion that one might come to is that buying calls before a big earnings announcement is a smart move? Hardly, the road to riches over the long term, though as in the case of GOOG, there are occasional home runs. A 35 point move was in the price, and the stock got an 80 point move. How often does it happen that way? If it happens often enough the price of the options keeps going up, until again selling the options becomes the better play. Options have a way of balancing things out that way. Those that continue to make big bets and wrong bets go down with the ship, and leave the game.

Stock market is frustrating me at the moment. Gold is even more frustrating for the gold bulls, what with oil continuing to make new highs and gold lagging worse and worse.

Tuesday, April 22, 2008

Sell INTC (buy back short puts)

Sell INTC buy back short May 21 puts
I am getting out with a small profit, following my rule: "never let a profit turn into a loss." Even if it looks like the stock may hold on this unpleasant day for most stock bulls.

Positions: long HON hedged, BRK.B unhedged

Sell CAL (cover short puts)

Sell CAL buy back May 17.5 puts
CAL in free fall this morning. I getting out with a 100% loss, of course that is only a point or two on the common stock. UAL news is bad, SP downgrade on Friday, fuel prices continue to edge higher. I am taking my lumps. Crunch.

Monday, April 21, 2008

In 2025 (China) and super cycles

Interesting reading from Barron's (article)

>>
PricewaterhouseCoopers forecasts that China will be the largest economy, having surpassed the U.S. in 2025. By 2050, Chinese gross domestic product will be 29% larger than that of the U.S.
...
the fastest growing economy of the next four decades is forecast to be Vietnam, PwC says, with GDP growing 9.8% per annum, measured in dollars and 6.8% as measured using purchasing power parity.

...
Mexico's bonds, rated triple-B or the equivalent, have seen their yields decline below what the bonds of triple-A-rated General Electric pay. That bears repeating: Triple-B Mexico bonds yield less than triple-A GE debt.

Mexico's benchmark dollar-pay bonds due 2015 yield 4.65%. A triple-A GECC bond due 2012 yields 4.65% while a GECC issue due 2017 yields 5.33%.

>>

Like I said interesting reading.

In a separate article there is discussion of 60 year-super cycles that suggests a top in bonds, with much higher interest rates on the way, sooner rather than later, and a top in commodities in about one year give or take.
article

Friday, April 18, 2008

Buy HON and CAL (sell puts)

Buy HON via selling the May 55 puts
HON higher on earnings, solid support at 55 to 57

Buy CAL via selling the May 17.5 puts
Fare hike is good news, earnings just out were not a disaster. Strike price on puts is at the lows so there is chart support.

Positions:
Long CAL, INTC, HON, MON hedged (with MON expiring today)
Long BRK.B

Thursday, April 17, 2008

Earnings giveth and taketh

GOOG makes for the third big name tech related stock with booming earnings, INTC, IBM, and now GOOG. Some other stocks didn't have such good news such as NOK and PFE. Some stocks fell on what looked to be decent reports such as EBAY, and some rallied on what on the surface looked to be bad earnings such as MER.

As always, my opinion is that earnings are the main engine for stock performance, more important than most other factors.

I got crunched today in BRK.B and am none too happy. I am tempted to double up the position--we'll see. MON short puts are expiring tomorrow, stock is up 15% since I wrote the options. I am also short the May 21 puts on INTC. I was tempted to buy some IBM, but missed the best time window. I reminded myself that it is easy to get overconfident and have the market crunch me like a cat playing with a mouse.

Wednesday, April 16, 2008

Buy Berkshire Hathaway BRK.B

Buy Berkshire Hathaway
BRK.B is about 1.5% off its 2008 lows, while SPY is about 4% off the March lows. The anecdotal side is that some BRK.B holders may have sold recently to pay taxes.

Positions:
long INTC hedged
long MON expiring this Friday 4/18
long BRK.B

Buy INTC (sell puts)

Buy INTC by selling the May 21 puts
INTC higher on earnings and outlook

Gold booming up this morning. Interesting.

Tuesday, April 15, 2008

Farrell: Investors are irrational

On Marketwatch, Paul B. Farrell writes (link)

>>
No matter how much new information, facts, data, tips, slogans, theories and systems are pumped into your brain by these well-intentioned "investor education" programs, irrationality always trumps rational thinking. Seriously, think about the wealth of new online resources and technologies since the 1990s "information revolution." Has it helped? No. In fact, just the opposite: The investor's brain has regressed, becoming less intelligent and vastly more irrational. You simply cannot make an irrational brain "less irrational" by filling up it up with more information!

>>

Cynical to be sure. The cliche is that a fool and his/her money are soon parted. The corollary is that you can't save every fool in the world.

Elsewhere earnings continue to move the markets. Big fish INTC had an overall positive report, despite missing estimates, and that will likely drive a whole herd of stocks higher, just as GE's miss drove the entire market lower. Like I wrote, the earnings sword cuts both ways.

Adam Warner at his blog writes
>>
GE lays an egg, the market gets nervous that it's not just financial that will take earnings hits and everyone wants puts in CAT and HON and I imagine Whirlpool and a host of others too. Clearly there is money flow into puts, but is that really smart money, with the implication that you want to follow it?
>>

Is that "smart money" or are they sheep?

Gold continues to underperform oil, continuing to send mixed messages.

Friday, April 11, 2008

Billy don't be a hero

I resist the temptation to buy IWM (actually sell puts as usual) near closing time. The market looks to me like it is prime for a decent rally from here. The topic is the title of an old song: Billy don't be a hero, don't be a fool with your life. How many times have I written that calling bottom and rushing in to buy is a difficult game, and often means more risk than reward.

With hindsight glasses, I should have stayed short SMH, short VLO, and even long NKE. Overall with this skittish market, it is better to be a live chicken with a few pecks of profit than a brave and dead tiger that stood his/her ground.

Long MON hedged

Cover short SMH (buy back short calls)

Cover short SMH, buying back the short SMH Apr 31 calls for a tiny profit, but a profit.
I am nervous about this market. The earnings sword cuts both ways. Today's bad report from bellwether GE can be easily followed by good reports from other companies. One factor in my decision is that Vix and More (link) reports a lot of puts being traded, so a big stock market decline would be unlikely and a fierce rally would not be unusual.

Thursday, April 10, 2008

Short SMH (sell calls)

Short SMH the semiconductor ETF via selling the Apr 31 calls

Semis up on upgrades and Bank America analyst comments. Chart shows resistance at 31, that and the good news upgrades, looks to be a good window to short the stock.

Elsewhere, Mark Hulbert notes the unusual bearishness of gold newsletters (link). Another feather for the bullish case.

Long MON hedged, Short SMH hedged

Gold:cup half empty or half full?

The half full side is the decent rally given the news back drop of IMF gold sales. The half empty side is that crude oil makes a new high and gold is still 10% off its high. Gold and oil have had a strong correlation. I am undecided, so the appropiate cliche is: "when in doubt, get out."

Elsewhere, I was tempted to buy BA on Tuesday, but got cold feet in front of the news. The delay on the 787 Dreamliner was already in the stock, and the news that current year estimates would hold sent the stock up. Volatility drained out of the options after the announcement.

Positions: long MON hedged

Tuesday, April 08, 2008

Lazy Portfolios

Paul Farrell at MarketWatch writes about so-called Lazy Portfolios (article)
>>
Follow these guidelines:
  1. Asset allocation outperforms stock picking
  2. Compounding builds long-term asset values
  3. No-load index funds beat actively managed funds
  4. Buy and hold, adding new money from savings
  5. Market timing and active trading is a loser's game
  6. Trust yourself, you're the expert, do-it-yourself
The simplest one listed in the article is the 2nd grade starter:
60% Vanguard Total Stock Market Index
30% Vanguard Total International Stock Index
10% Vanguard Total Bond Index

As always for the average person, one of the best ways to go is diversifying into age appropiate investments, and dollar cost averaging. It may not be exciting, but it is effective.

Sell WM buy back puts

Sell WM buy back short Apr 9 puts
News isn't so great. Getting out with a break even profit.

Positions: long MON hedged

Monday, April 07, 2008

Buy WM, sell puts

Buy WM via selling the Apr 9 puts
Stock higher on news. Support at 10, and more at 9. Close below 10 is mental stop.

Friday, April 04, 2008

Bill Gross: "T-Bonds overvalued"

Bill Gross, chief investment officer of Pacific Investment Management Company, or PIMCO on bonds:

"I think Treasuries are the most overvalued asset in the world, bar none" (Reuters article)

>>
Coming from him, that is something that makes me sit up and take notice because bonds are his primary business. Barrons also has a bearish column on bonds (link). Given all this bearishness, bonds are likely to push higher in the short term.

Meanwhile, Friday's stock market action is encouraging. If the stock market was going to tank, it had every opportunity to do so, with the weak employment report, and decent rally this week for longs to go home for the weekend flat with a profit. Some sectors are still weak, including big banks, and airlines. With the terrible news in airlines this week, it is a time to be looking at them. Though, as always, calling bottom is rarely a profitable game.

As for gold, it had a relief rally after the big plunge. Seems that the coupling to oil, remains very strong. I still think lower lows are likely for gold, though, the secular bull still has a long time to go. This means short term lower, long term much higher. I still don't like the risk/reward for traders--readers know I am not a gunslinger who likes making the big bets.

Positions: long MON hedged

Wednesday, April 02, 2008

Buy MON (sell puts)

Buy MON (sell Apr 95 puts)

Earnings good, guidance conservative. Mental stop on a close below 100.

Tuesday, April 01, 2008

Boom goes the dynamite

Wow, I didn't expect the huge stock rally today, or the huge decline in precious metals.

Both situations were building up pressure. April is the best month for stocks since 1950. There may be some selling during the middle of the month to pay income taxes.

I was tempted to get on board the bull bandwagon, but reminded myself of the many whipsaws that have come after recent booming up days. All 30 Dow stocks were up. There will be lower risk times to get in.

Flat with no trading positions.