Tuesday, March 31, 2009

All quiet on the options front

From Barrons online (link):

>>
"It's so quiet here," a trader on a major options desk said on Tuesday, requesting anonymity because he is not allowed to speak to the media. "It's hard to buy the market after this run-up, and it's hard to short when you may be in the middle of a strong bear-market rally."
>>

That about sums it up. I was tempted to do a couple of trades today, then told myself, that better, lower risk, opportunities are coming. Soon.

Monday, March 30, 2009

Could have been worse

Monday's stock market decline could have been much worse. Some modest buying during the last hour brings the market off the lows. Bulls need not take too much heart from this, but bears can be discouraged. I didn't find much going cheap. I was thinking the rally would hold until Wednesday or so, obviously that was a bit off.

I am still waiting on the sidelines, the market remains too fast for my taste.

Friday, March 27, 2009

Expert advice lowers brain activity?

Future Pundit has an article citing lower brain activity after an expert gives their advice (link).

This makes some sense on a lot of levels. If a person is given a puzzle or a decision to make, and then someone else tells them how to solve the puzzle or recommends a course of action, that person is less likely to spend time thinking about the question.

As for the stock market, I think the rally phase isn't done yet, but it is getting close. A lot of shorts got burned by huge moves in popular stocks for shorting such as FSLR. The scare caused by the Treasury action got unspooked a day later by a successful auction. It is that kind of market, where markets move quickly.

No positions

Wednesday, March 25, 2009

Treasury auction spooks market

Another wild day, as the stock market stumbles after a weak Treasury auction (link), then rights itself and powers into a strong close.

When the Fed announced its $300 billion buy back of Treasuries, I expressed skepticism and said to see what the market verdict would be. A good bit of that day's gains in T-bonds has been given back, stocks have continued higher, gold has mostly held its gains. As always, I find it useful to listen to what the market is saying.

Tuesday, March 24, 2009

Time and price

SPY has completed the 50% price retracement, when measuring from the January high to the recent low. The time for this retracement isn't up yet, another week or so, would be my expectation and then another leg down.

The Fed and Treasury might have really burned some shorts by making some key announcements when they did. Some would say it is on purpose, some would say the powers that be aren't that smart.

The announcement of the $300 billion buy into Treasuries just after SPY completed the trip to the price target and a lot of technically oriented shorts got in. The unveiling of the new asset plan over the weekend after option expiration had the potential to do a lot of financial damage to position traders that were short.

Some might call that blatant manipulation, some might call it smart tactics. Whatever, traders need to stay on their toes, no telling what other surprises they have up their sleeves.

The market is moving too fast for me to get a clear read. Like I wrote at the beginning of this entry, perhaps in a week or so, the water will be clearer.

No positions

Friday, March 20, 2009

2-0-1 for March, Fed buying Treasuries

For the March option cycle: I have 2 winners, 0 losers, 1 breakeven profit (AZO).
The two winners are little minnows (DNA, ROH), but I will take them. I am slightly in the red for 2009, with a record of 2-2-1 (wins, losses, ties).

I am not sure what to make of the Federal Reserve buying Treasury bonds. I have heard some comments such as: "it's like moving money from one pocket to the other and saying you've doubled your money." I am known for letting the market talk and me listening. With that in mind the huge rally (biggest one day up move since 1962) in bonds is worth listening to.

We will see if the bond rally can hold, or will fade. If it is just a money shuffling scheme as some are saying, in theory, the market figures that out soon and bond prices will fall back.

No positions

Wednesday, March 18, 2009

Wild witching Wednesday

Wow, wild witching Wednesday (the Wed before option expiration) makes for a breath taking day for most markets. The Fed plan to buy Treasuries shakes up most markets: bond yields fall, stocks rally, gold moves up.

Before the news, I placed an order to sell Apr 25 puts on DRI splitting the bid/ask, but the huge rally meant the order didn't get filled.

Long DNA, ROH expiring Friday 3/20

Tuesday, March 17, 2009

Strong close

Some bears took heart on Monday, with the mid-day rally fizzling. Tuesday shows strength into the close and hits the bears over the head again. Normal bear market rally action would take us to SPY 80, about 20% off the lows and chart resistance.

I look at quite a few of the movers such as AAPL, FSLR, NUE. At the end of the day, I conclude that I am blundering around looking for a trade to make because I have mostly sat out what is now about a 14% rally off the lows. Wednesday before option expiration may bring more wide swings. I may look for some more cigar puff options into expiration, right now pickings are slim, or seem too risky for the premium being offered.

Long ROH, DNA, both expiring Friday 3/20

Friday, March 13, 2009

Four up days in a row

Friday makes four up days in a row. I wish I could go back in time and load the short term boat on Monday. I am sure I have lots of company.

Short, sharp rallies are normal activity during bear markets, and for now this fits that mold. There is chart resistance at SPY 80, so SPY 79/80 might be a place to look for shorts. I am leaning that way already, I remind myself that I tend to be early.

Enjoy the weekend.

Long DNA, ROH

Thursday, March 12, 2009

Impressed by the rally

I am impressed with the strength of today's rally. I still think it is mostly short covering and short term traders. SPY is about 13% off its recent low. So if this is a typical 20% bear market rally, that means it is 2/3 over. Of course, the stock market has been anything but typical lately.

I feel a strong urge to add longs today. That often means we are closer to the top. I resist the urge. Good news is that the DNA merger deal seems signed and sealed now. For now, I am content with the two small minnows in my net, while waiting for a better chance at some bigger fish.

Positions: long ROH, DNA

Wednesday, March 11, 2009

Buy DNA (sell puts)

Buy DNA via selling Mar 70 puts. Another deal, though this one isn't approved yet. Support at 82 if the deal fails. Those familiar with the Buffett biography “The Snowball,” this is a cigar puff option. Odds seem extremely high that the option expires worthless.

As for the overall market, there is some follow through this morning. I won't get too excited about it, though.

Positions: long ROH, DNA

Tuesday, March 10, 2009

Buy ROH (sell puts)

Buy ROH via selling the Mar 60 puts. ROH looks like a done deal with the stock trading very close to the deal price of $78 (77.82). There is a sliver of premium left in the puts, so some level of disconnect or some folks feeling the need to hang on to insurance.

As for today's rally, I often get burned when chasing, so don't want to do that. There are some stocks that I am looking at.

Sunday, March 08, 2009

Barrons 10 stocks for the long haul

Stockpickr.com takes a look (link).

KOF MSFT ACE WYNN EMC
CERN WLP GOOG EBAY CVS

As always, do you own diligence, and don't believe everything you read in the papers or on the Internet.

Friday, March 06, 2009

It could have been worse

Lower lows means the bears are still in the captain's chair even though SPY eeks out a gain on Friday. We did get a decent morning rally, likely due to short covering, then the seemingly relentless tide of selling came back. The strength into the close might again be short covering. Shorts had a huge money making week, so some may want to cash some chips and celebrate the weekend.

To my mind, there are so many cross currents in the market, so little clarity. Yes, the nimble and the bold (and the lucky) can make money, but I am neither nimble nor bold. The not so nimble, and the foolish can lose their shirts.

The prior low on SPY didn't hold, so that is bearish. There is enough energy for a huge stock market rally winding and winding like a spring. So far it is all potential energy. If I miss a rally, so be it, I'll live another day. Compare that to many would-be market heroes and TV personalities that have called a dozen market bottoms since 2009 started and have huge losses to show for their efforts.

Thursday, March 05, 2009

Sell AZO plus coffee shop predictions

Sell AZO via covering short Mar 125 puts
Stock market is in full melt down mode as I type, making new lows yet again. I step aside and get out with a breakeven profit (commissions are more than my profit).

Friday may bring a big rally on the employment report, but readers know my rule: "Never let a profit turn into a loss," especially after a losing streak.

I was at a coffee shop and heard two predictions on the stock market. For three years from now, one predicted Dow 12000, the other said 15000. I didn't offer my extremely gloomy numbers that I recently wrote about (3000 Dow), not wanting to sour the mood. This story does not reassure me because if means there are still more investors to sell. If I had to bet 12000 vs. 4000 Dow in March 2012, I would say the odds are higher for 4000.

Keep in mind, that I generally avoid making predictions. I see predictions more as entertainment than as useful for trading. I usually look for a move, and trade the reaction from that move, instead of trying to predict.

No positions

Wednesday, March 04, 2009

Relief Rally and the GE bogeyman

The stock market gets a relief rally. News from China about a government stimulus program over there, cheers some investors.

GE doesn't benefit and continues its race to the bottom (link to Marketwatch article). The dividend cut was a good reason for many to sell. Where is the bottom? I don't know. Readers will remember, that I don't like playing that game. I'd rather see a bottom established and then retested before going long.

With that in mind, the Tuesday low on SPY is an intriguing chart point. I think the market has one more sell off before a modest multi-day rally can take hold.

Positions: long AZO

Tuesday, March 03, 2009

Buy AZO (sell puts)

Buy AZO via selling Mar 125 puts

AZO higher on earnings. People are keeping their cars longer and spending more at the Autozone stores. Company doesn't issue guidance. Support at 145, 135, and the latter would be the mental stop, currently around 152.

It is a bit scary selling puts in this stock market. The chart looks good, and the earnings look decent. The balance sheet not so much, but this is only for the 17 days until option expiration.

SPY limbo, how low can it go?

At times like this is a good to take in some historical perspective. Henry Blodget at BusinessInsider has this on P/E ratios (link).

[these numbers are if earnings don't grow and SPY just goes down to the targets]
>>
... if the S&P fell straight to the high-end of its previous trough range (8X PE, or 460), it would fall another 35% from today's level (700)

If the S&P fell straight to the low-end of its previous trough range (5X PE, or 300), it would fall another 55+% from today's level.
>>

So, the market is not historically cheap yet, not based on current earnings. SPY 300!? Dow 3000? That would not be a pretty picture and would likely coincide with a major economic depression. Let's hope things don't get that bad. The chart does project that low. SPY 600 is some support, but it is not major support on the long term chart, not really.

I didn't get the smash down at the open that I was looking for. It is a good time to be patient for positions traders, considering the severe oversold condition and huge downside momentum. Being oversold makes it risky to be short, the downside momentum makes it risky to be long.

Monday, March 02, 2009

Another ugly down day

Monday is another ugly day on the downside for stocks. If we get a gap down equal to today's move on tomorrow's open, it might be worth a shot at the long side, but only for the short term. Down 10% in three day is extra oversold, but as we have all learned oversold often turns into oversold-er. Sentiment still hasn't reached fever pitch, so there are more people to sell.

To be honest, I am a bit shellshocked at the rapidity and severity of the downside action.

Sunday, March 01, 2009

Buffett: "Small birds at a Badminton game"

Business Week has an article about the annual letter from Warren Buffett at Berkshire Hathaway BRK.A and BRK.B (link).

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"By yearend, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game."
>>

Yikes! Buffett points out specific stocks where he was the shuttle hit by the racket. Conoco Phillips bought when oil was peaking, and two Irish banks that seemed cheap when bought, but declined another 90% from the buy in price.

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"Last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year.

"I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.

"I made some other already-recognizable errors as well. They were smaller, but unfortunately not that small. During 2008, I spent $244 million for shares of two Irish banks that appeared cheap to me. At yearend we wrote these holdings down to market: $27 million, for an 89 percent loss. Since then, the two stocks have declined even further.

"The tennis crowd would call my mistakes 'unforced errors.'"
>>