Thirty
four winners, five losers for the June option cycle, grade C+. The
rallies in gold and stocks were stronger than I anticipated. My
trading account is up nicely for the month, but I lost some potential
by selling calls and having to cover for big losses on the rally.
As
always, don't get excited by the high percentage of winners. I tend
to take high probability trades where the profits are low. Those
buying 10% chance of profit options are hoping for a 10-to-1 payout.
I tend to take the other side, so the profits are tiny, the losses
potentially large.
It
is almost half way through the year. For calendar 2014, Amgen AMGN
and Valeant Pharma VRX continue to be my two best trading stocks. The
Russell 2000 IWM, Ashland ASH, Anadarko APC, Disney DIS, Gold GLD are
some more winners. Losers for 2014 include: Gilead GILD, Boeing BA,
Toyota TM, United Continental UAL.
Reviewing
the signs of a stock market top (blog entry link1), none are present.
The American Association Investors Intelligence (AAII) sentiment
bullish reading is at 35%, dropping nine percent on a slight downturn
last week (link2). Federal Express led the transports higher in a
huge up week. Yield curve remains bullish. (An inverted yield curve,
is the major warning sign of the bear, wiki link3.) While stock
advisers are extremely bullish, the rank and file investors remain
skittish, with many turning tail on a small decline. There was a
recent article about stock ownership as a percentage of population
being near record lows in the U.S.
The
bearish argument includes valuations as measured by the Schiller PE10
or CAPE (ten year average of price earnings, wiki link4), record levels of
merger activity, record levels of margin debt, some froth in certain
sectors. The larger question is will there be time to get out when
the bear comes? Odds are heavy on the yes side. There is almost
always a warning shot correction, an oversold technical rally, before
a big bear market occurs. The worst losses may tag those that buy
that dip thinking it is finally their chance to get in, after missing
most of the five year bull move.
The
elephant remains the Fed and other central banks. While the Fed is
tapering, the European central bank and Japan continue to pump money
in. The bond market seems to have disconnected from forecasts and
interest rates continue to be near record lows, despite open talk of
short term rates going to 2% and then 4%. At some point the bond
market prices this in. When will that be? Will it be an orderly exit?
Or a mad rush? I don't know those answers. For timing, sentiment and
charts tend to trump fundamentals. There have been so many calls of a
bond market top, I side with the advice of "don't fire until you
see the whites of their eyes." In other words, don't move the
money (out of bonds, or to short the bond market), until there is
clear evidence of rising rates.
As
for gold, I am not that excited by the sharp rally this week. Short,
sharp rallies often occur during bear markets. The strength in the
gold mining stocks, GDX, is a positive, but it needs to continue for
a while. Time and price are needed as evidence for the market to have
turned. U-shaped chart bottoms tend to be rare, even though we did
see a big one in 2009 in the stock market. I am
not in any hurry to buy gold or silver. Whether an intermediate
bottom has been found, only time will tell. At this point, I believe
lower lows are likely. My money is still on a trading range for gold
(short strangles, net neutral). Rising interest rates increase the
costs of carrying gold.
Position
summary:
long
AMGN APC ASH EPI EWG
long
HON JWN SLB UNH VRX WAG
net
long DIS
net
neutral DAL GLD SPY
net
short IWM
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