Saturday, May 30, 2009

Pring: Historic breakout for Gold?

Noted technician Martin Pring is quoted on many websites saying:
"Gold could be on the verge of a historical breakout. Watch that $990-1,000 area like a hawk."
Marketwatch link

For those that don't know Martin Pring, he is the author of 25 books on technical analysis and trading (book list). Pring's books have been used to train many a trader.

As always, technical analysis is open to interpretation. Just because someone has written books on the subject doesn't guarantee that their calls will be correct. Traders that claim 100% track records tend to be liars, and/or hindsight traders that redo their trades after the fact and only trade on paper.

The term "historic breakout" is also open to interpretation. For some, a marginal new high to $1100 would be "historic." Some are looking at the width of the channel from $700 to $1000 to get a price target of $1300. One scenario that I am looking at is a rocket ship launch on earth shattering news and huge volume that takes gold to $3000 within a year.

Stock market (SPY) closes about the 200 day-moving average. As I mentioned, one scenario is a whipsaw move, after long termers think it is safe and get back in, take it down and whipsaw them out. (Many long termers use the 200 DMA as a timing tool.) That said, I think even if this unfolds, any correction is likely to be relatively modest (10% or less).

Positions: long SPY

Thursday, May 28, 2009

Best time to buy bonds?

When is the best time to buy bonds? The common sense rule of thumb answer for long term bonds, is when the yield curve becomes inverted. An inverted yield curve is when short term bonds yield more than the long term bonds. This doesn't occur all that often. The last time was early in 2006. This Treasury dept link has data in text format for those that want to chew on some numbers.

Right now the yield curve has gotten quite a bit steeper, at least for treasury bonds. This means that despite the low yields for short term paper, it is a good time to stay with shorter maturities.

What is interesting is to compare and contrast the recent action of three bond ETFs:
TLT long term treasuries
BND corporate bond index
HYG high yield bond fund ("junk bonds")

TLT has been more volatile than BND. HYG and BND have been not gone down with TLT during the recent slide in Treasuries.

Positions: long SPY

Wednesday, May 27, 2009

Sell MON (cover short puts)

Buy back MON Jun 70 puts. Yikes. Monsanto says sales of herbicide RoundUp are way down and earnings will be hurt. Stock lower. I get out for a 100% loss (100% of option premium price, a small fractional dollar loss).

Market is acting terribly. I still am short SPY puts and that looks to be a dumb decision as well.

Long SPY

Tuesday, May 26, 2009

Buy SPY (sell puts)

Buy SPY via selling Jun 75 puts (16 points out). This looks like massive short covering after a strong consumer confidence reading. It certainly isn't the best entry point on the long side, however, there looks to be a lot of support for SPY in between 91 and my strike price. I believe there are a lot of folks still on the sidelines with cash waiting for a slight pullback to buy. SPY 75 is a 20% pullback from current levels.

TLT continues lower, and I continue to watch.

Positions: long MON, SPY

Friday, May 22, 2009

Buy MON (sell puts)

Buy MON via selling Jun 70 puts, 15 points out. Monsanto is lower after an analyst downgrade. Stock at support, even more support at lower prices.

I continue to watch TLT as it moves lower, nearing support at 92.5 to 90.

Wednesday, May 20, 2009

Vix flashing yellow, TLT TBT

Put selling, what I have been doing, may not be a good idea with the VIX going low. From a Barrons article

>>
This trading veteran, a former market maker who now trades options for his own account, believes buy writing and its cousin, put selling, makes sense when investors have correctly called the top in the VIX.

"The worst time for the play is at the nadir of VIX. That's a double whammy against you as a rising VIX, or a about-to-be rising VIX, implies not only higher volatilities, which sucks in the buy writers/put sellers, but rising volatilities almost always are a precursor to falling stock prices," my market wizard says.

Bottom line: Buyers beware.
>>

Treasuries may be an interesting play via TLT or TBT or options. The cover story of Barrons was on the prospects of Treasuries considering the looming budget deficits. Folks know that when I see a magazine cover, I am much more likely to go the other way. Treasuries also tend to be seasonal strong during June-to-September.

Tuesday, May 19, 2009

Waiting, watching, and India

As is often the case when a new option cycle begins, I am in the waiting and watching mode. There is quite of bit rollover option activity in and around expiration that generates noise. Wednesday may be an action day.

Election results in India are the catalyst for a 17% up move in their stock market. IBN and EPI are two that I am looking at. As is often the case, I prefer to wait for the dust to settle, and trade off the reaction to the primary move, than jumping into the fast market.

No trading positions

Friday, May 15, 2009

2-0 for April

Two winners for the April option cycle, MCD and VMI. Both positions experienced steep drawdowns, but I stuck with them. The pullbacks in these two stocks gave me pause when considering other longs. I waited for pullbacks in several other stocks and they did not come, or were too shallow.

So, what now? I am in the economist mode, "on the one hand, on the other hand." On one hand, the rally off the lows is extended. On the other hand, a lot of folks are looking for a steep drop. This week, SPY was down about 5%. That's pretty steep for one week, but in the context of a 32% gain off the lows, 5% isn't so much.

Wednesday, May 13, 2009

Two books about options

Bill Luby at Vix and More (link) mentions two books:

Trading Options at Expiration
Strategies and Models for Winning the Endgame
by Jeff Augen
Amazon link

and

The Volatility Edge in Options Trading
New Technical Strategies for Investing in Unstable Markets
also by Jeff Augen
Amazon link


The first focuses on the three days before expiration and explores strategies such as ratio spreads. The second is described as an academic book. Like virtually everything else in this blog I make no recommendation.

Stock market not doing too well this morning. We will see if the selling storm intensifies, or the sun will come out with a rainbow again like other recent selling squalls.

Long MCD, VMI

Tuesday, May 12, 2009

No vertical

I considered shorting SPY today by doing a vertical put spread, selling the Jun 75 put, buying the Jun 85 put. The stock market selling squall again dissipates quickly. Quite a few folks missed the rally and want a pullback to get in. The sell in May folks are also wanting a sell off. Only rarely does the market give the majority what they want.

Long MCD, VMI both expiring this Friday

Sunday, May 10, 2009

200 day moving average

SPY is within spitting distance of its 200 day simple moving average (one year chart). One scenario is for it to cross, get a few long termers in and then whipsaw them out. Some use the 200 dma as a long term timing indicator.

Long MCD, VMI

Friday, May 08, 2009

Bears on the run

The market reaction to the employment report and the stress test has the bears scurrying for cover. The stock market bears are already battered and bruised after eight weeks of almost straight up rally, which has sent SPY up over 30% from the lows.

Obviously, some traders have made huge money during this run. Especially those very few lucky ones to load the boat at the bottom. V-shaped chart bottoms are rare, and notoriously difficult to trade.

For long termers, there are going to be much lower risk buying opportunities down the road. Right now, it is high risk to be shorting as well as adding longs. That familiar tune is one that many a trader has been repeating during the eight week rally.

Long MCD, VMI

Thursday, May 07, 2009

Treasury bonds falling

Treasury bonds continue their recent slide. Here is 5-year chart of the 30 bond yield (link). At 4.28% the move from the panic low of 2.8% December 2008 is dramatic.

Stock market is down. I don't think this squall will get particularly nasty.

Long MCD, VMI

Wednesday, May 06, 2009

"Hedge hog" sighting

Two of the bloggers I read, recently hedged their longs, Nusbaum at Random Roger (link), Frankola at Student Stocks (link2). Random Roger hedges with SDS, the student BGZ. Frankola with BGZ already got stopped out on this morning's early pop, if he did what he wrote.

It is interesting for me, to see the market veteran ETF heavy Random Roger, and the finance major student with large positions in speculative stocks, both come to the same crossroads at the same time.

Readers know that in this trading blog, virtually every position I initiate is hedged when I go in. The strength in the market and the quietness, makes me believe it is unlikely for a big drop at the moment. There was a market squall overnight with U. S. stock futures down overseas, but by the time the New York open came, more news had come out and the storm had passed.

In reading Random Roger's blog, I find he is often early (as am I). So while it is getting late at the party, I think it is a while yet before the bears show up and take away the punch bowl.

MCD finally acting better. For long termers it is nothing to get excited about. For me with short puts expiring on 5/15/09, it may be all I need.

Long MCD, VMI

Monday, May 04, 2009

I didn't expect a big rally

Wow, 200 points up, SPY now up for the calendar year (since Jan 1)! If anything I would have bet on a 200 point down day or two during this time of May.

MCD didn't participate, and that is distressing. MCD has good chart support at 51. That list of stocks I was watching have all moved up without me loading up.

There are quite a few articles about "sell in May and go away" [until Halloween] floating around. Hard for me to see that working so easily and smoothly with so much publicity around it. Often times once a simple indicator such as seasonality gets widely published, it tends to stop working, sometimes the reverse trade becomes the new winner.

Long MCD, VMI