Sell AMZN and September morn

Sell AMZN by buying back short Sep 67.5 puts
I am cutting back my long exposure as the stock market declines, and am getting out at break even on AMZN. "Never let a profit, turn into a loss."

For the stock market, it looks like traders are getting in early on September's track record as the worst month. Mark Hulbert reports the stats at Marketwatch (link).

The average change for September is -1.13%. As of this writing SPY is down -1.28% for the day. So while the calender tendency is measurable, it may not be worth trading, because some folks may be jumping before the month starts.

For a dog days of summer week before Labor Day, this one has been eventful with relatively big moves. Hurricane Gustav has been one catalyst.

Positions: short USO, long BUD, MCD

Short USO (sell calls)

Short USO via selling Sep 122 calls

USO is the oil ETF and is bumping higher on storm warnings in the Gulf of Mexico. The calls are well out of the money, and oil has already run some on the rumor.

Positions: short USO, long AMZN, BUD, MCD

Weak dollar = bargains, gold bottom?

Jesse Felder blogs about the weak dollar translating into bargains for foreigners (link).

At Kitco commentary, Clive Maund updates his technical look on gold and reports that the bottom may be in (link2). To me, the recent lows now look like a good entry point.

Monday was a rough day for the stock market, but it was on the lowest volume of the year. More than a few traders are taking this week before Labor Day off. Enjoy the last few days of summer.

Positions: long AMZN, BUD, MCD

Missing post: 3-1-1 August, GLD 72.5?

Hmm, a post that I remember writing isn't on the blog.

It was a recap of the August expiration cycle, 3 winners, 1 break even, 1 loser. Unfortunately, the one loser (buying AAPL calls before earnings) was bigger than all three winners put together, so I have a net loss for the August cycle.

I also posted a downside chart target for GLD of 72.5 (translates to spot gold at about $735). With this weeks action, the recent low becomes a focal point.

Buy BUD (sell puts)

Buy BUD Budweiser via selling Sep 60 puts

Even if the takeover deal falls through, it is unlikely that the stock will fall below 60.

Positions: long AMZN, BUD, MCD

Trend following or trend fading

Adam Warner reports that in 2007 selling rallies and buying dips in the stock market was better than buying on strength and selling weakness.

>> Warner quoting Dr. Brett (link):
When the S&P 500 Index (SPY) has been up for the past one and three days, the next three days average a loss of -.30% (80 occasions up, 83 down). When SPY has been down for the past one and three days, the next three days average a gain of .22% (82 up, 51 down). If traders wait several days for a trend to assert itself and then jump on board, they are likely to start in the hole.
>>

This is in contrast to what worked for 40 years:
>> Warner quoting Rob from Quantifiable Edges
... "buying after strong days and selling after weak ones worked well for 40 years. In 2000 that changed, and the last year and a half is the worst it has ever been with regards to follow through."
>>

Markets do change. When a pattern becomes widely known, it often stops working.

Buy MCD (sell puts)

Buy MCD McDonalds via selling Sep 57.5 puts

MCD moved higher after strong same store sales, pulled back after an analyst downgrade. Chart has a shelf of support at 60.

Positions: long AMZN, MCD

Buy AMZN (sell puts)

Buy AMZN via selling the Sep 67.5 puts

AMZN recently bumped higher on news of strong Kindle sales (Kindle is a book-like electronic tablet). Stock has faded back to that point. Chart shows support at 67 level.

Positions: long AMZN

Ugly day for stocks (FRE, FNM)

So far it has been another ugly day for the stock market. Freddie and Fannie (FRE and FNM) featured in Barron's and it wasn't good news. These familiar names drive the stock market lower. A retest of the recent lows at SPY 120 may be in the cards (currently 127.7). Option volatility as measured by VIX has picked up a little, but still isn't registering much fear.

Flat - No current trading positions.

GLD crumbles

GLD now below 80. Spot gold still above $800. What would make me think "bottom" is for some of those newbie gold buyers to throw in the towel and dump their holdings. Instead, anecdotally from the coin board, many of the newbie crowd seems to be doubling up, or even making first purchases. This is not a good sign for gold bulls.

The stock market and me are out of sync. I have looked at quite a few trades and every time the warning buzzer goes off in my brain and I do nothing. That's okay. Option premiums are going down because late August tends to be a quiet time in the American stock market. I don't want to make that assumption, because much of the world seems to be on their own timetable.

The Israel/Iran situation remains on the burner and while there is a chance that it will be a non-event like when Israel took out a Syrian nuclear reactor, it might be a major market mover. In my mind, the most likely time is early October, after the high holy days in Israel, and before the U. S. election. Everyone else also knows this, so it isn't a tradeable edge.

Positions: long BUD, IBM both looking good for tomorrows expiration

Futia sees dollar bull market

Carl Futia writes about a dollar bull market (blog link, search for the August 11, 2008 entry if you are reading this later). His target is 110 on the dollar index (currently mid 70s).

If it unfolds like Futia is calling it, oil and gold will be much lower, possibly $500 USD on gold, if gold stays at it current level in Euros. Gold is cratering lower today (Kitco price link), even on the news of the Russian invasion of Georgia. As I have been writing, oil is the dog, gold the tail. Support and resistance on the gold chart are dangerous to trade when gold is trading in this fashion.

Normally, I would look at $800 as a hard line in the sand for gold. However, the lyric from the song the Gambler comes to mind, "know when to hold 'em, know when to fold 'em." The ever defiant permabull gold camp has seen a 22% haircut off the peak $1040 on Bear Stearns weekend. That is acceptable for long termers, but to my mind, unacceptable for traders. Taking those kind of hits means those players may have to leave the game as they go down with the ship. I remain long term bullish on gold for macro economic reasons, but for trading, the legendary Ed Seykota called these factors "funny-mentals," and felt they were basically useless for short termers.

I was caught flat footed by Friday's mega stock market rally, having taken my SPY profit on Thursday's decline. These things happen. I still feel out of synch with the market, and remain in a defensive mode. Grasping for trades often leads me into trouble.

Positions: long BUD, IBM both expiring this Friday and looking good

Sell SPY (buy back short puts)

Sell SPY covering short Aug 119 puts

Even though the probability of these options coming into the money is tiny, I don't like the way the market opens and slides. I am getting out with a tiny profit, decent in percentage terms, but tiny in real dollar terms. "Never let a profit turn into a loss."

Positions: long BUD, IBM

Buy SPY (sell puts)

Buy SPY via selling Aug 119 puts

Buying ahead of a Fed meeting can be risky. However, today's meeting is widely seen to be a non-event. The minutes, or comments might move the market, but no interest rate move is predicted. The strike price of puts are 7 points out, and below the recent lows.

Positions: long BUD, IBM, SPY

Sell FSLR (buy back short puts)

Sell FSLR via buying back short Aug 230 puts

FSLR is now down after the earnings report, despite blowout numbers, and a supportive chart formation. Stock is down 15 points since I sold the puts (was 295 now 280), but because the expected volatility dropped, the put declined in value and I can get out with a break even profit. "When in doubt, get out."

Positions: long BUD, IBM