Sunday, March 22, 2015

47-9-2 for March, grade B-

I count forty seven winners, nine losers, two break even trades for the March option cycle. As always, a reminder to new readers, don't get excited by the high win percentage. 80% to 90% is about the odds when I go in. Profits tend to be small, and losses can be large. So B- is about right for 81% winners (47/(47+9+2)=81%) because it is around the expected win rate for my style of trading.

It is close to the end of the 1st quarter so I'll update the year to date gains, not including dividends.

SLV +6.5% Silver
IWM +5.3% Russell 2000
TLT +4.4% US 20 year bonds
SPY +2.4% S&P 500
EEM +2.0% Emerging markets
GLD +0.0% Gold

With a late burst Silver takes the suprising lead. Bonds and stocks also had a good week. My trading account is up about 6% in round numbers, which I see as good not great. I know that +6% for 11 weeks sounds boring to many option traders. Risk can translate into reward in options, if a person is correct. I never had much luck buying options, only selling.

Market commentary: Predictions are mostly for entertainment. My market timing skills tend to be about as good as flipping a coin. That said, the bull market is intact for stocks. Bear market intact for gold and silver. 

Some talking heads are talking about a bubble in IPOs and biotech. I got too cautious too early on the biotechs I am trading (AMGN ILMN VRX). Another strong group has been healthcare (UNH), and that group may be nearing a similar blow off top situation. Sometimes a steep rise evolves into another flat base instead of the downslope of a parabola.

There aren't hard numbers about what defines a blow off top. It is more of a picture on a chart. During major tops such as SLV experienced, it doubled the 200 day moving average before peaking. TSLA did similar during its huge run up, but then made higher highs, even after going to 100% above its 200 day moving average. 

Another thing to look for is a 30% to 60% up move during a short time period. Again, no hard definition for short time period, but 30 to 60 days is the ball park I am looking at. So a 30% to 60% gain in 30 to 60 days, after a doubling in stock price or more in the prior year, two, or three years. Lots of wiggle room in that barn, but it may be worth looking for blow off tops for some stocks. Timing the time tends to be difficult, but it can be an entertaining game. In a blow off, smart money tends to be selling at 30% or more, under the ultimate top.

Winning tickers so far for 2015 include: ILMN FDX UNH WHR PANW XOM. Some of this is straight risk/reward and implied volatility. I took some bigger risks on some of these tickers and for some the higher than market IV rewarded me. A remarkable bit of trivia is that I don't have any losing tickers so far for 2015. HON, UNH and XOM have been frustrating at times, but all are at a profit for the year.

Going forward? Again, I fall back to my post Tea Leaves for a Market Top (link). Until we see a divergence in transports (IYT), an inverted yield curve (short term interest rates greater than long term rates), a confirmation of a bear market move by breaking through technical support, the bull market is intact. 

Sentiment is a bit mixed. I mentioned the large crowds at the local stock market meetups. Best to sit near the exit in case someone rings the bell to get out, but for now stay at the stock market party.

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