Thursday, April 30, 2009

April recap at Marketwatch

From an April recap article at Marketwatch (link)

>>
"The earnings season in general has been better than expected, with 68% of the S&P 500 reporting upside surprises, and we're three-quarters of the way done," said Art Hogan, chief market strategist, Jefferies & Co.
...

Historical trends bode well for the U.S. stock market in looking 10 to 12 months ahead, yet Greenhaus also cautions the shorter-term picture remains a choppy one, given "low earnings visibility, macroeconomic uncertainty and a volatile political environment."
>>

Elsewhere, FSLR burns the shorts with an upside gap on strong earnings. I kept waiting for FSLR to come back during the day, but mostly, it kept powering on up.

Long MCD, VMI

Tuesday, April 28, 2009

Free lunches? Not for long

Adam Warner has been writing about gaming the triple ETFs with late day buying, or selling and rebalancing. This weekend there was an article in Barrons mentioning this tactic, and the author was swarmed with armchair punters asking questions. Warner posts part of the response (link):

>>
I'm sorry if I left the misimpression that I was offering some sort of "how to" guide to game the ETF action near the close. In fact, I was alarmed and dismayed at the number of folks who seem interested in trying this. Don't. The people who employ many PhD.'s and much computing power in this area have already crunched the math and written the algorithms to try and exploit these factors.

Most likely they're busy working on ways to get on the other side of this trade already. If anything, the widening recognition of these effects suggest that the game is getting too crowded to continue "working" in a reliable fashion. As soon as you think you have figured out a way to get a free lunch, the market typically presents you with the check....
>>

The last bit is illuminating. Any time a new sure-fire indicator, or sure-fire trade surfaces and gets publicized, traders typically rush in, trying to gravy train. Often times, it becomes so skewed that the opposite trade becomes the money maker, at least in the short term. This is how markets work, and why it is difficult to beat the market over time.

Novices sometimes believe all they have to do is read a book and identify a chart pattern or two, perhaps a seasonal tendency or two, and it will be free lunches all around. Usually, such lunches tend to be taken away quickly.

As I often mention, risk management, right sizing of positions, money management are at least as important as figuring out up, down, or sideways.

As for the market, much fuss over the swine flu. I don't have much to add, other than noting resilience in most stocks. If the market wanted to tank big time, the news background was there for it to happen. That said, there is a seasonal tendency for a couple of hard down days, early May.

Long MCD, VMI

Sunday, April 26, 2009

Another "good" idea: 130/30 funds

This week's Barrons has this blurb (link)
>>
Quant funds -- also pummeled in last year's selling storms -- typically buy "high quality" stocks and short "low quality" ones, as defined by balance sheets and valuation and other factors. It's been precisely the wrong approach lately, as low-priced and financially shaky stocks have led.
>>

Back when the bull market was going strong, 130/30 hedge funds sprang up like weeds. The concept is to buy the best stocks, short the worst and profit on both sides. The "problem" is trying to find that dividing line. An 130/30 fund shorts what they see as the 30% of stocks that are going to move lower, and then use that money to leverage 130% long on stocks that will move higher.

When it works, the profits might be substantial. When it doesn't, it is crash and burn time. Leverage and shorting can produce particularly large losses. As stocks move from column "A" to column "B" huge swings might occur. Not only would the stock be sold, the stock would be actively shorted.

The old Will Rodgers saw comes to mind:
"Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it."

Friday, April 24, 2009

C'est la vie

While the stock market went down for the week, breaking a string of six up weeks, it was a tough week for bears. Many big name stocks, such as AAPL, AMZN moved higher on earnings. After Monday's big sell off, and so many earning reports, it looked like it might be another good week for put buyers and others betting on down moves.

My two positions did not benefit much from today's rally. I was watching a list of six other stocks (DO, NOV, CHRW, CNX, SLB, AMGN) that I might want to get in on a pull back but no dice. Those six all held steady or moved higher, while the two I did pull the trigger on faded. C'est la vie (such is life).

Bonds are sending mixed signals. Treasuries TLT are moving lower. Investment grade corporates BND are steady. High yield bonds (or junk bonds) HYG are moving modestly higher. GLD had a good week.

Long MCD, VMI

Wednesday, April 22, 2009

Buy MCD (sell puts)

Buy MCD via selling May 50 puts
Stock waffles on earnings report, moving higher early, now lower. Chart support at 51.

Long VMI, MCD

Tuesday, April 21, 2009

Too small a window

This morning's early sell off was a window for would be bulls to sneak in. It closed quickly after Treasury Secretary Geithner made some positive comments. I didn't get in the window.

My VMI position saw a huge drawdown during Monday's sell off. Often that much of a quick move would have been enough for me to be stopped out. The price action in the stock wasn't as scary as the movement in the option price.

Long VMI

Saturday, April 18, 2009

1-0 for April expiration cycle

I have one trade for the April option cycle, a winner in AZO. That small and useful profit puts the blog reported trades into the black for calendar 2009. Hooray!

SPY is up 21 points off its low around 66, with this the sixth up week in a row. Like I often write, only a few lucky folks (and a lot of liars and hindsight traders) bought at the bottom. Almost everyone (including me) was skeptical after the 400 point Dow up day that started this rally. Few believed it would continue to run for another six weeks, almost straight up, forming a rare V-shaped bottom on the chart.

That said, the long term SPY 5-year chart still looks like heck (link). Lower lows are out there, but not in the near term. For the time being, the bear has been turned back. I believe any dips are likely to be contained by support at SPY 75.

SPY closed 12/31/08 at 90.24 and is only about three points away from going positive for the year (87.08 today). Meanwhile, GLD has gone negative for 2009, starting the year at 86.52, and now at 85.22. Who would have imagined that stocks and gold would be about even for the year at this date? Not me.

I took a glance at seasonal tendencies for GLD and further weakness into June/July is indicated. The caveat, as always, is that seasonal indicators are among the weakest and least reliable, and that news events can overwhelm technical or seasonal indications.

I go into the May cycle long VMI.

Friday, April 17, 2009

Buy VMI Valmont (sell puts)

Sell VMI May 50 puts, stock up on earnings. Good fundamentals (stat page link), decent chart (link2). I may double up if the stock falls back to fill the gap at 55, currently 63.9 up big on the earnings.

Positions long VMI, AZO (expiring today)

Wednesday, April 15, 2009

Barrons: Stage set for bears?

Michael Khan, in a recent Barrons article on technical indicators pointing to a stock market decline.

>> ...
The stage has been set for the bears to take over, and while they have not done so yet, the risk for investors jumping in now is just too high. ...
>>

Articles like these in popular publications lessen the odds of the outlined decline. Today's late rally on "witching Wednesday" (Wed before options expiration, shows resilience. If the market wanted to go down, today was a good day to take it down, with a weak earnings report from goliath Intel.

Long AZO

Tuesday, April 14, 2009

Cold feet on GS

I didn't pull the trigger on GS today. The chart is a nice short set up (link). Earnings were good, but secondary offering is going to mean dilution. First thought was to sell out of the money calls. Premium from call sale didn't seem worth the risk, even though the percentage of success was high.

Other movers include GWW, DNDN. I don't have much to add. The stock market is a bit overbought. I continue to be cautious as I have been for the past six months.

Long AZO expiring Friday 4/17

Thursday, April 09, 2009

The bearish case (Barrons)

Barrons presents some bearish technical arguments (link).

>>
Put together the mediocre momentum, falling volume and sentiment that shows the rapid loss of fear and we get a recipe for a selloff.
>>

There is another article in Barrons about using puts to hedge (link2).

Mix it all in the bowl, and the most likely scenario seems to be sideways with a slight downward bias. Of course as RIMM demonstrated with its recent 20% up day, individuals stocks can have big moves on their earnings.

Wednesday, April 08, 2009

The other shoe?

Bill Luby at Vix and More writes about traders waiting for the other shoe (link).

>>
... it is clear that there is a strong contingent of veteran investors who anticipate not only that the next shoe will drop soon, but that the fallout will be at least as bad as what we experienced during the October-November peak of the crisis.

While I am not ruling out anything at this stage, I do not see the VIX spiking above 60 in the near future, nor do I even see a VIX above 50 as a likely scenario.
...
>>

The other shoe is one scenario, however, it seems to me that too many traders are skittish, and thinking that the current rally will be like the Dec 2008 rally, quickly folding and eventually making new lows. Right now, the anecdotal sentiment is such that it makes a quick return to lows unlikely.

What seems more likely to me, is that any short term decline will find support at SPY 75. April is traditionally one of the best months for the stock market, with late IRA money often flowing in, as well as any tax refunds being reinvested in stocks.

Having said that, I don't see that much that seems worth taking a position in. I'll keep looking.

Position: long AZO

Tuesday, April 07, 2009

Earnings season

Stock market down hard today. There is minor support at 80 and then at 75. "Earnings season" starts officially today with Alcoa (AA). More than any other factor it is earnings that drive stock prices.

Long AZO

Thursday, April 02, 2009

Buy AZO (sell puts)

Buy AZO via selling Apr 135 puts. AZO lower today after analysts downgrades. Chart support at the breakout gap from 140 (to 150).

Mark to market--wow

Wow, the stock market roars to life when the new rules for mark to market accounting are announced. Financial companies have been wanting this.

I think I will go back to the drawing board. I sat out most of this rally. Thankfully, I am not short. If I was, I would cover. The timing of this latest announcement had the potential to do a lot more damage to shorts.