Thursday, July 30, 2009

Luby: Line in the Sand

Bill Luby at Vix and More (link) writes about the "line in the sand" for the bears at 1000 for the SP500 futures. (SPY is the ETF that is close to the SPX futures and is the one I typically trade.)

>> Bill Luby wrote:
Sooner or later, the bulls will run out of steam, the bears will get tired of retreating and we will have some semblance of a top. With SPX 1000 just around the corner, tomorrow the last trading day of the month and a number of overbought signals being pushed to extremes, today or tomorrow looks like a good place for any bears left alive to make their stand.

>>

It reminds me of a story, I believe it is from the first "Market Wizards" book. Anyway, the story is about a commodities trader who is has been heavily long a certain commodity for several weeks. Another trader asks "where is it going?" To make it relevant to the current setup, the answer would be "SPX is going to 1000." Where is it now? SPX 992.

Upon thinking a moment about that setup, the trader liquidated most of the long position. Sometimes it is that clear, if a person stops to think that the target price is less than 1% away. For position traders that are straight up long, there is little need to squeeze out the last percentage point. For hedgers, option traders, the math and analysis can get much more complex.

Long INTC, IWM, XLE, MTB, CELG, AMGN

Wednesday, July 29, 2009

Buy AMGN (sell puts)

Buy AMGN via selling Aug 50 puts, stock at 62.65. Amgen was up on earnings yesterday. Support at 57 gap. In an odd twist, put premiums increase this morning, despite a slight bump up in the stock. Might be due to some option broker recommending some of those options, or spreads using those strikes.

Stock market had a relatively sleepy Monday and Tuesday. Bias is still to the upside. There is so much upward momentum, it will take more time, or more news to roll it over. For the intermediate term investor, I am thinking late August may be a time to lighten up. Again, these are just idle thoughts, not intended to be advice.

Long INTC, IWM, XLE, MTB, CELG, AMGN

Sunday, July 26, 2009

What if you've made your nut?

In a comment to a Roger Nusbaum blog entry, someone poses that question (link).

>>Anonymous said in a comment...
In many ways, what you're exploring here Roger also applies to retirees who have already made their nut, regardless of whether they enjoyed a triple along the way or not. Risk adjusted return is critical for us, which generally translates into a safe income stream with some growth to cover inflation.
>>

The stock market went up 4% this past week, 11% for two weeks. If it kept going up 11% every two weeks, it would about quadruple in 28 weeks (14 weeks would be a double, another 14 weeks, another double). Let's say that scenario is unlikely. However, it does demonstrate how powerful rallies can be and gets to the point of Roger's column and musings.

This is a trading blog, and I report my short term trades. I talk about my long term investments tangentially. Every person's situation, risk tolerance, is going to be different.

Friday, July 24, 2009

Upside target SPY 105

The market had several good reasons to go down today, disappointing results from AMZN, MSFT, lower consumer confidence readings. Instead, buyers came in, and the broad market closed modestly higher. If the stock market was ready to go down, -200 on the Dow would not have been surprising given the news.

There is a gap on the SPY chart around 105 back in October 2008 (one year chart). This looks to be a decent exit point for those investors wary of the rally and wanting to lighten up.

Long CELG, INTC, IWM*, MTB, XLE*
* IWM and XLE positions are near delta zero, meaning that moves in the underlying currently have near zero effect on the price of the options because they have moved so far away from the strike prices.

Thursday, July 23, 2009

Buy CELG (sell puts)

Buy CELG via selling Aug 47 puts
Celgene higher on earnings and full year projection. Support at 47.5, stock at 54.75.

Stock market rally booms ahead. For Elliot wave folks it looks like a fifth wave up from the March lows. After that is anyone's guess, but the old clichés about don't fight the Fed, don't fight the tape comes to mind. Fed continues to accommodate, tape is strong. A third cliché might be: don't fight earnings.

If earnings are up (above consensus estimates and whisper numbers), stocks tend to go up. So far, there have been a lot of high profile upside earnings surprises, and comparatively few misses.

Long INTC, IWM, XLE, MTB, CELG

Tuesday, July 21, 2009

The rally keeps rolling

The Nasdaq has its 10th up day in a row, the longest such streak in 12 years. SPY rolls up its sixth winner, and reaches another new high for 2009 (marketwatch article).

Earnings have been the story, or non-story. There have been some noteworthy winners such as INTC, IBM, CAT. The misses have been mostly mild. I am of the school of earnings, that long term, earnings are the primary driver for stock prices. This quarter, for the most part, earnings have been good. There have been isolated misses such as LMT (down 7 today on earnings), and a mild decline for GOOG.

My new position in M & T Bank gets off to a poor start. I attribute the decline to lackluster results at STT. In the worst case, an exercise if MTB falls below 45, it isn't a bad stock to own.

Yes, readers may notice that this is different talk than last year when I cut my losses ruthlessly. The new talk is about doubling down (INTC), and taking delivery in stock if the strike gets hit (MTB). Why is that? First, the market is acting a lot better than it was a year ago. SPY remains well above the 200 dma, so that means the long term trend for now is up. Support levels seem to actually provide support. Last year, support levels, were often the best place to initiate short positions as others stepped in to buy.

A second reason is that overall, I remain underinvested in stocks, despite the four tiny long positions (below). Adding on weakness would be a way to get more money working.

With all that, August and September can be treacherous months for the stock market. This year, I think it will be September/October that brings back some of the rollercoaster down drafts. I think August might see a lot more of these slow moving summer vacation trading days.

As readers know, I am not big on predictions. While they can be fun, I see predictions mostly as entertainment. The money is made by making and executing trading plans, right sizing of positions, managing risk. I post my actual trades a few minutes after I get the fills. That info is more substantial than any predictions that I may make.

Long INTC, IWM, XLE, MTB

Monday, July 20, 2009

Buy MTB (sell puts)

Buy MTB via selling Aug 45 puts
Buffalo headquartered M & T Bank moves higher on earnings, support at 45 (chart). Puts are now 11 points out with the stock at 56.30.

Long INTC, IWM, XLE, MTB

Friday, July 17, 2009

1-0 for July expiration cycle

The record is 1 winner, zero losers for the July cycle. I also have some open trades (IWM, XLE, INTC for August). I remain up a tiny bit for the year (less than 1% based on the capital available in the account).

The week is wild up 7% week for SPY. Who knew? Certainly not me. It makes me wish I was wildly bullish. I could not get bullish fast enough, and stuck to my knitting of low risk, low reward types of positions. All I have in my take-home fishing bucket is the one little guppy trade, TM Toyota for the month of July.

Long IWM, XLE, INTC for August

Wednesday, July 15, 2009

Buy INTC (sell puts)

Buy INTC via selling Aug 16 puts, stock at 18.01

INTC higher on earnings and guidance. Plan is to double down if the stock fills the gap (chart) at 17, depending on how it gets there.

Stock market is punishing the bears today. There are lots of them are prowling. So far SPY has held the 200 day-moving-average (chart2), I confess I thought a whipsaw lower was much more likely.

Meanwhile, the "chickens" are running from Treasury bonds, with a second big down day in a row. Bonds yields are getting closer to the targets some pundits have been predicting.

Long TM for July
Long IWM, XLE, INTC for August

Tuesday, July 14, 2009

Pins, round numbers and magnets

With option expiration this Friday, Bill Luby at Vix and More has an article about how round numbers act as magnets and how to trade that tendency (link). A pin is when a stock closes at an option strike price on expiration Friday. Example: IBM closes right at 100 causing all the calls and puts at that strike to expire worthless.

>>
Rather than look as round numbers as potential areas of enhanced support or resistance, I like to think of them has having a strong attractive power, almost as if they are large magnets. In some indices and stocks, prices tend to linger near round numbers for longer periods than a random distribution would suggest.

One way to take advantage of the attractive tendencies of round numbers is to sell options at or near that strike. Straddles, strangles, butterflies and iron condors would certainly be appropriate choices, but I have personal preference for strangles, with their wide maximum profit zone and simple construction/position management.
>>

Quiet market today, the dog days of summer are upon us, with many traders taking vacation. Volatility, and option premiums are down.

Long TM, IWM, XLE

Monday, July 13, 2009

Buy XLE (sell puts)

Buy XLE via selling Aug 35 puts

XLE down to support around 45, puts are way out. It is a way to get a tiny bit more bullish exposure, without chasing the overall market rally. ThinkorSwim analyzer software says 2.2% chance of moving below 35 before August expiration.

I had a strong intuitive feeling to sell SPY puts or BA puts this morning, but I ignored it, and then the market popped up. Most of the time those intuitive feeling trades get me in trouble.

Long TM expiring this week
Long IWM, XLE for August

Saturday, July 11, 2009

Tbond game of chicken

The majority of bond market pundits predict higher yields by the end of the year, and yet yields on bonds fell for the fifth week in a row. It is like a game of chicken where most believe prices will end up lower, but week after week bond prices continue to climb as yields continue to slide. Meanwhile, stocks experienced their fourth losing week in a row. Oil and gold are also at minor lows.

This Reuters article touches on some of the points (link).
>>
[ten year treasury yielded touched] 3.261, the lowest since May 21 ...

A Bloomberg survey of banks and securities companies projects the yield will be 3.61 percent by year-end ...
>>

Mark Hulbert makes a strong argument that longer term, yields will be higher and bond prices lower, in this Barrons article (link2).

The open question is why are bond prices moving higher, when longer term most think they are going lower? The obvious answer is that most believe that short term, bonds will move higher, and that they will be smart and nimble enough to sell their bonds before the fundamentals take hold.

Long TM, IWM

Thursday, July 09, 2009

Buy IWM (sell puts)

Buy IWM via selling Aug 39 puts, stock at 48.21, support at 47.50. IWM is a smaller dollar amount than SPY. Calendar tends to be weak. At a strike nine points and 20%+ lower from here, it would be a buy-on-weakness in the worst case scenario of IWM declining 20% by August expiration.

Long IWM, TM

Wednesday, July 08, 2009

Adam Warner on UNG

I mentioned UNG in a past post, and some other blogs are recommending it for purchase. UNG is a relatively new product and there are issues. Adam Warner at Daily Options writes about some of them (article).

For now, I would steer clear. No need to get too cute on something I don't quite understand.

Long TM

Tuesday, July 07, 2009

Head and shoulders on SPY?

SPY forming a small head-and-shoulders formation (3 month chart). If the neckline is broken, the downside target is SPY 80.

BA broke round number chart support at 40. At this point, 37.5 looks likely. I've also been looking at some railroad stocks, BNI, CSX, and they have been acting poorly. XME, XLE, UNG are also of interest. Earnings will tend to dominate the news during the next few weeks.

Long TM

Thursday, July 02, 2009

The Sirens call

Today's market action was a strong lure for those that are mostly out. To me, it is like the mythological siren's call (Wiki reference link). The stock market just had its best up quarter since 1998, VIX showing signs of complacency, MACD and other long term timing tech indicators giving buy signals.

Despite the down day, SPY isn't down to the first support at 87.5.

Long TM