Saturday, January 31, 2009

Stocks -8% in January, gold up

I am hearing mixed reports regarding the severity of the January stock market decline. Whatever the case, it was a bad month for bulls. Annualize 8% down every month for 12 months and that would be the worst year ever. It would not be 96% down (8% x 12 months), more like -64% (0.92 ^ 12, where 0.92 is an 8% loss).

The markets aren't acting the way I expect them to. I'm sure I'm not the only one that is at a loss. My one trade for the month was a break even loser, meaning I lost the commissions and the spread. However, on low priced options that translates into a big percentage, though a small dollar amount.

Gold has shown some spark, breaking out to new all time highs in Euros (link to various gold charts).

Wednesday, January 28, 2009

Fed Toolbox

Fed meeting today with some coverage talking about the Fed "toolbox." How the Fed is buying mortgage securities to keep those rates low, and how it may start buying Treasuries for the same purpose.

I am surprised at the strong stock market today. There are some parallels to the market action in January 2008 with a drop into option expiration then a rally later in the month. As always, calendar patterns of that sort, I rate amongst the least reliable of indicators.

Tuesday, January 27, 2009

Frustrating market

It has been a frustrating market for me. I got whipsawed out of TLT. For many stocks the range is both narrower than I anticipated when looking at a couple of weeks time, and then wider than expected when looking at one or two day time periods.

Ah well, patience. Clarity will come, as will profits. For me, trading for the sake of trading, often leads to losses.

Friday, January 23, 2009

Sell TLT (cover short puts)

I cover my short March 90 puts for a small loss. TLT has dropped about six points since I got in. I could have waited for my stop loss price to be hit. However, the TLT options often have wide spreads. I saw a 10 cent spread on my option and hit the ask. The bid was the same as when I got in, despite the big drop in the underlying.

I don't like the way bonds are trading. It used to be that bad economic news would help the bonds, but it hasn't been that way this week. The 50-day moving average just got taken out.

As for the stock market, the 5-year chart looks like crap, and shows the potential for a lot more downside. That said, short term, if SPY goes back to the low at 74/75, it may be worth a look on the long side. It depends on how it gets there.

No positions

Wednesday, January 21, 2009

Big Blue saves the day

Good earnings and outlook from IBM spur a relief rally. Bonds get slammed as many might be moving money from Treasuries back into stocks, at least for today. I looked at going long IBM and/or ABT but didn't pull the trigger. If IBM pulls back to around 86, it may be worth another look.

Positions: long TLT

Tuesday, January 20, 2009

Felix the Bear

No, not Felix the Cat, it is Felix Zulauf quoted from the Barrons roundtable part II.

Seeking Alpha link
>>
The "Obama hope" will peter out some time in Q1. S&P could easily fall into the 400-600 range over 2010-'11.

...
Gold is the only currency that won't get devalued. It will be revalued. Should double in two years. (If the Fed's liabilities had to be covered in gold, it would sell for more than $6,000/ounce.)

>>

I'm not saying I agree with Mr. Zulauf, but it is an interesting perspective.

Friday, January 16, 2009

Expiration Friday

I wouldn't read much into the action in any market today. Option expiration can muddy the water, so that getting a clear read is difficult.

Long TLT

Wednesday, January 14, 2009

Back to the lows?

There is minor price support right here for SPY. If that is broken, next support is at the lows around 75.

The rally seems like such old news now. That said, the market is oversold, and if it gaps down at the open on the AAPL news (Steve Jobs taking a medical leave), it might be a trading opportunity for the nimble. I am looking at expiration on the 17th.

Positions: long TLT

Tuesday, January 13, 2009

SNE, XME and Waterford

Waterford Wedgwood, the maker of classic china and crystal, filed for bankruptcy protection on Monday. This might be interpreted as bad news for other luxury product makers.

Sony announces an annual loss for the first time in 14 years. Is this the end of an era? Or it is just a normal ups and downs of a business cycle and well-managed companies with solid brand names will come back? I would tend to bet on the later, though it may take some time. Not all the big names will make it through to see the next up cycle, so as always, diversification and right sizing of positions is essential.

XME the metals mining ETF is looking very interesting as a long. Call it gut feeling or the "curtain of doom" that is surrounding these deep cyclical stocks. Alcoa just reported poor earnings. On a retest of the 52-week lows (ten points lower than the current 26.90), I may look to take a shot on the long side of XME.

Monday, January 12, 2009

Buy TLT (sell Mar 90 puts)

Buy TLT via selling Mar 90 puts

Chart is text-book, sentiment is good. This is longer than I usually go out. I still feel like I am in "chicken" mode so the puts are way out of the money (23 points out).

Friday, January 09, 2009

Poor tape action and some thoughts

Stock market fades as the day went on. Bonds open lower, then rally, then fade. I mull going long on APOL and also TLT but don't pull the trigger. After a couple of months away from trading, I feel extra cautious. SPY looks a lot more interesting as a long at 85 than it does here.

Some might ask why I would buy bonds (TLT) if I think it is a bubble? Bubbles have a way of going much further than anyone expects. This one is only about eight weeks old and TLT is a classic breakout chart that may run for that many months before the run ends.

I would be hesitant to buy any so-called "Obama" stocks such as infrastructure plays. These things have a way of taking a long time to develop, and longer time to reach the earnings line. There is likely plenty of time to get in, after the earnings are reported.

Also in the news, my broker, ThinkorSwim is being bought out by TD Ameritrade. I may eventually be looking for another broker.

Wednesday, January 07, 2009

January effect

This time of year, much is said and written about the January effect. The tendency of the stock market to echo the January movements through out the entire year.

Adam Warner (link) cites a study that shows that there is some weak linkage, but that at least five other months have as much predictive power. The cynical person might conclude that "January is usually up, the stock market usually moves up for the year, that is all there is to it."

That said, it worked last year, and in the stock market, what has been working most recently, is what many traders use.

Monday, January 05, 2009

Bond ETFs TLT and HYG

One of the more interesting charts is TLT (one year chart). It is a textbook breakout from a base that is now pulling back. The 50-day moving average is around 107/108 and that would be short term support.

I wrote about the "cash bubble," where no one wants any risk and have been willing to get zero return in exchange for absolute safety. Some of that is unwinding, at least temporarily. The high yield bond ETF, HYG has seen a strong 25% rally off its lows (chart2).