Bears skewered, also a look at TM

Democratic party gains do little for the bears. The market opens weaker, however, even groups that are expected to do much worse under Democrat rule such as tobacco and defense have a relatively strong day.

I will say that I missed the boat, thinking that the election would lead to a tradeable selloff.

TM Toyota up on good earnings, also has a pretty chart.

Gold back to $750? BA and Airbus

Clive Maund likes the gold chart (Kitco article). Of the analysts writing on the Kitco site, Maund has been as right as anyone the past several months.

I have been surprised at the two day rally. What I wrote about months ago concerning Boeing and Airbus seems to be unfolding. Federal Express cancelled their orders for the new Airbus jumbo jet and BA stock jumps.

A study on the buy/write strategy

A study by Callan Associates examines the buy/write strategy, link to PDF (need Acrobat reader).

I'll cut to the chase, the bottom line is that the basic buy/write strategy, for the study period of 1988 to present has equaled the returns of the SP500 with much less volatility. The confirms my basic belief that buy/write offers market returns with less risk.

Of course during market advances, buy/write will underperform. During flat periods and down markets, buy/writes will outperform. In down markets, yes, buy/writers will take their lumps, but if a trader continually updates their hedge, about half the loss can be mitigated. During trendless flat periods, buy/writes are one of the best performing strategies.

As for the market, I have been looking for an election related sell off. I remain almost all in cash, with two hedged positions in DVN and EWJ. I have had little time for patient market analysis, so the cliche is when in doubt, get out.

The four year cycle presidential stock market cycle points up from here. However, like I said, in my opinion, cycle work is one of the least dependable indicators. Especially when the cycle is widely known, and widely quoted like the four-year presidential cycle.

Cheers.

WFMI crash and burn

WFMI Whole Foods Markets disappoints on earnings and sales and the stock is down 16% in the after hours. (two year chart)

This is a richly valued growth stock, that has now lost it growth status. When that happens look out below. For position traders the day of news can be a difficult time to establish positions. Option premiums tend to be extra high. 50 is round number support, but people really have to grind through the fundamental numbers to see if that level is worth buying at.

Two reasons to be long Gold

Jason Goepfert at TradingMarkets has a bullish article for gold. He cites the Yen-dollar ratio and the sentiment on the futures, with a low percentage of longs (link).

Stock Almanac 2007

I recent purchased The Stock Trader's Almanac 2007 edition (Amazon link). I owned a much older copy. Personally, I consider seasonal factors are down the list as far as effective indicators, behind earnings (fundamentals), and technical chart patterns, and sentiment.

However, I believe that traders can still use seasonality, sometimes to good effect. I recently mentioned looking for stocks making new lows in late October and late December. The reason for this still stands, institutions and individuals selling to take their losses. Many other seasonal patterns are still effective. Every year the writers and editors of the almanac update and reexamine hundreds of these seasonal patterns.

Sometimes it backfires, as it did this September in gold. September is seasonally one of the strongest months for gold, and in 2006 it turned out to be one of the worst in recent memory. However, like I said, seasonal factors are one more thing to look at, and if everything lines up just right, that perfect storm can get an added boost from seasonality.

Airlines preparing for takeoff?

Some of the airlines are in base chart patterns. For novices, bases are trading ranges where the stock price doesn't move that much. Sometimes a base can lead to a powerful advance. AMR American Airlines and LCC USAir are two stocks that I am tracking. BAB British Air has broken out from its base and is extended.

The fundamentals are not there for investors who look for earnings and a strong balance sheet. The major domestic airlines remain inconsistent on earnings with relatively weak balance sheets. However, the technicals are lining up for takeoff.

volatility (VIX) and price trends

Interesting article about the correlation between VIX, the volatility on options and stock prices going forward (link). Most suprising is number three, which goes against common wisdom >>

3) We have never had a bear market within 60 trading days of a low volatility period - Yes, we've had market corrections of about 5-6% in March/April, 2006; August, 2005; September, 1994; January, 1994; and July, 1985. We have never had a decline of 10% or more, however. The idea that we are in a complacent market period and hence due for a frightening drop is not supported by market history.

The train has left the station

Wow, the major indices continue to steam ahead.

I wanted to buy some GOOG Monday morning, but had a lot to take care of and couldn't do it. Up another 20 to 480. That 20% looks like it may come soon. That said, I think many stocks are getting extended and a sharp reversal day or two may shake out some of the bulls.

A side note, my 20th Anniversary gold eagle coin set A12, sold on Ebay for $5125 on Sunday (minus 4.7% for all the fees). Price from the mint was $2610.

Buying low late Oct and late Dec

For those investors who like to buy low this is a good time window to do so. The reason is that many institutions have a fiscal year that ends October 31. They often clear out losing stocks so they can report the loss and use it to offset any gains for the year.

For stocks with a large following of individual investors, the late December time period is another buying window. Again the reason is that many sell to report the loss.

A couple of names that come to me off the top of my head include F Ford, NYT New York Times, EBAY eBay. Barrons and many newspapers and some websites have lists of stocks moving to new lows. I found a search at MoneyCentral, but the data seems off because it includes GS Goldman Sachs on the list and it just hit a new high, not a new low (link). Ideally stocks should have solid financials and are depressed for a temporary bad new incident, not long term deteriorating fundamentals. However, in the case of poor fundamentals, this can still be a good time to buy for traders (as opposed to investors).

GOOG Google, is it madness? Sell BA

Google up big on earnings. If a person just looks at the chart, without any legends, the chart is a strong buy, with a beautiful flat base and a touch of resistance at the old highs. At $175 billion in market cap, it is not a start up company and will have trouble maintaining its torrid growth rate. However, it is the market leader, and no company has found an answer to the Google business model. The path of least resistance is higher, I would say at least 20% higher from here.

Elsewhere my BA Boeing is called away at expiration. The call buyer did much better than I did (the call seller), but I will not sneeze at a very respectable low risk short-term profit.

Sometimes the gamblers win AAPL

AAPL Apple Computer up 6% on earnings (chart). Schaeffer's reported heavy call volume ahead of the report. For novices reading along, calls are a bet that stock is going higher, puts are a bet that the stock is going lower. In this case the earnings report was good enough so that almost all the call buyers made money, in some cases a lot of money.

Sentiment indicators such as call volume are one indicator. Like any indicator, they sometimes work, sometimes don't work.

MER Merrill Lynch

MER Merrill Lynch up a tad on great earnings (chart). Schaeffer's offers a reason why (link). The 80 level is a low risk entry, but it may not get that low. Option premiums are relatively modest and buying calls might be the way to play it on the long side on a pullback.

MCD, also selling my gold eagle set

MCD McDonalds reaches a record high on a good earnings report (chart). Readers may remember that I owned MCD. Mine got called away for a tiny profit.

Elsewhere, I am selling my 20th Anniversary Gold Eagle coin set. The curious can get some popcorn and see where my set goes for (link to auction). Issue price was $2610. The most recent average selling prices have right around $5000. I wish all my stock trades could be so profitable.

Looking ahead, earnings will continue to drive stocks higher or lower. Resistance on round numbers or previous highs are often good entry points for position traders looking to go long. The converse for shorters, support at round numbers or at previous ranges are often a stopping point along a bigger move.

Gold unimpressive, eagle sets

North Korea sets off a nuclear bomb and gold barely moves an inch. I am not impressed. Sentiment on Kitco Commentary remains mostly complacent (link to index). Again, fear is bullish, glibness and forecasts of rallies to come when something is weak is not good. Too many folks are comfortable buying this weakness, for me to be comfortable buying this weakness :). Or as Groucho Marx put it, "I don't want to belong to any club that would accept me as a member."

Elsewhere AA kicks off earnings season with a dud. A down forecast from Legg Mason is troubling as brokerage is one of the leading groups in the advance. Housing continues strong. Airlines and other transports moving up as oil heads south. Oil stocks have firmed up.

For coin collector folks, the buzz is about the 20th Anniversary Gold Eagle set. Issue price was $2610 and many sets have traded above $5000, with strong offers a tad lower than that.

cash flow bearish

Carl Swenlin at TradingMarkets has a graph of cash flow, showing bearish flow despite record highs (link).

That said, the market is holding up well given the news from North Korea. South Korean stocks are being hit hard, selling in other markets around the world is muted.

No great insights

I don't have any great insights to share. I haven't posted in a while so just a hello to let readers know I am still here. I have less time for the market and for blogging.

Like many traders, I missed out on many of the opportunities in this rally to all time highs on the DOW. Like many traders, I was a bit surprised. Like many, I have been whipsawed badly a couple of times.

Like many, I remain gun shy. At this point I am underinvested, as stocks moving up decreases the delta of my hedged positions.

Positions: BA, DVN, EWJ all long stock short calls

Roll down DVN call

Damage control as oil continues to slide.

Roll down DVN call, buy the Nov 60, sell the Nov 55

Gold getting slammed today, following oil. Jumping under that knife is always dangerous.

Common wisdom

Brett Steenbarger at Trading Markets (link)
"The common wisdom--and the common human tendency--to buy when the market is strong and sell when it's weak would have lost a trader a significant amount of money."

--
Verily, common wisdom can cost traders, especially new traders who see one or two indicators working well and latch on to them and hold on to them. Markets at some level are ever changing, though at times certain scenarios do repeat.

Another interesting article is Tom McClellan of McClellan oscillator lineage does an analysis of buying and holding for the first day of each calendar month (link). Bottom line, there is an upward bias, how tradeable it is, is not covered.

Ingredients don't bake the cake

Random Roger has this great line in his stock market blog (link)
"There is no question we have the ingredients for a decline. Ingredients however don't bake the cake. ..."

Elsewhere, RIMM Research in Motion had a great day on earnings news. Round number support at 100 is a plausible entry point. A pullback to the gap would not be unexpected.

Current positions: BA, DVN, EWJ all hedged longs, long stock, short calls