Sell ACTIX Capital Value Fund

An ugly market day with a modest opening pop followed by heavy selling pressure during the last half hour. I will get tomorrow's price on ACTIV. It has been almost a straight ride down since I bought a scant few weeks ago.

I plan to exit my short T puts tomorrow and hold my short MRK puts.

It is no time to look to be a hero, especially for the small fish such as myself (and likely most of the readers). Yes, of course, the market could bottom right here, however, cutting losses is my style. When I think it is time to stop doing it, that is often the time the water flows off the cliff. This is a seasonally strong period for the stock market, but bulls can not gain any traction. Rallies are sharp and short and extremely difficult for position traders to get decent fills or find entry points.

Flying turkeys and waterfall declines

Some might remember an old sitcom episode where a TV station drops live turkeys from a helicopter, mistakenly believing that turkeys can fly. The metaphoric turkeys plummet down to the concrete and plop dead. Some how this seems like a good metaphor for the many stocks that have completely broken down on this Thanksgiving eve. The list of turkeys could stretch for pages and pages. Retail, banking, mortage companies are on the list with big names such as CFC, FRE, FNM, JWN, HD. So many stocks have broken under technical support, that traditional support levels look more like double edged swords rather than low risk points of entry.

As I have always written during my time blogging, buying the bottom (or selling the top) is a difficult game and rarely profitable because of the long odds. Few traders have the mindset and the execution, to do trade the turns. A high percentage that try, get in too early and then bury their heads in the sand instead of cutting their losses. The real stubborn ones sometimes lose everything instead of admitting they are wrong.

The big dollar fish continues to drive other markets and eat the other fish (gold, oil, stocks, bonds). The Fed is painted into a corner with the recession scare, combined with an anemic dollar. Further rate cuts drive the dollar ever lower, holding rates steady, means a higher chance of recession. At some point higher commodity prices from a lower dollar can also cause recession.

Be thankful and bless what you have, how ever much, or how ever little it may seem.

Happy Thanksgiving everyone.

Positions: MRK, T hedged longs

Sell GM, WFR options expire

I bought back my short GM puts early on expiration Friday. In this case, it turned out running for the exit was a good move as the persistent selling continued all day and GM closed well below my strike price of 30. Had I held on my tiny profit would be a loss, plus another commission. The puts I sold on WFR expire worthless, so I bank two small profits today.

The broad market continues to be weak, so any profits for longs are welcome. Gold had a tough week, as did oil. It doesn't look like a low risk play in either of those areas. Those that like to roll the dice can go ahead, I'll wait for a clearer opportunity.

KMX CarMax in the news, with Warren Buffett announcing a large position. A retest of the recent lows would be a good entry point. Put sellers can simulate that by selling the puts at that strike. Round number support at 20 might be another place for longs to look. As always there is a rarely an exact science or magical formula.

Positions: MRK, T hedged longs

Buy MRK, and a down week

I was fortunate enough to buy MRK before their Vioxx settlement announcment. I sold the MRK Dec 50 puts. Overall it was a dismal week for most longs.

A sharp down tick during the last half hour on Friday looks to me like some big players were exiting or going short. Constructive news for would be bulls was that the financial stocks found buyers on Friday, and US bonds went up in price. Bonds often telegraph a big tumble in the stock market, though of course this time history may unfold differently.

GDX (gold stocks) is diverging from GLD (gold bullion), with GDX ticking down even as GLD ticks up. This kind of divergence is a warning sign that the gold rally is getting long in the tooth. Just as TLT may lead SPY, GDX confirming new highs in GLD would be much more comforting for gold bulls.

Positions: WFR, GM, MRK, T all hedged longs

Buy T, Buy WFR

Buy T, Buy WFR, sold puts on these two on Monday, the T Dec 37.5 put , and the WFR Nov 65 put. Timing intraday was poor, as I bought much closer to the highs for the day, than the lows.

Lots has happened since I last wrote. A new Chinese IPO is now the most valuable publicly traded stock in the world. This makes the Chinese stock market officially a bubble. Sure the economy over there is booming, however, China's GDP is still a small fraction of the US GDP. Even though the bubble is now official, it doesn't mean it is time to short FXI. Bubbles have a way of draining most of the cash from fundamental type shorters before the bubble pops. The last stages of a bubble market often see huge percentage gains in a short period of time.

Bigger news perhaps is the super acceleration in the bull phase of gold and silver. Readers know I was clever enough to buy the breakout on gold at $700, and foolish enough to cash in those chips for meager profits very early in the move. I still have my core holdings, but the trading positions would have been nice to have at this stage. I do wish I knew what was going to happen next

Positions: GM, T, WFR all hedged longs. GM due out with earnings, also already announced a big write down and stock is down after hours. I am short the GM Nov 30 puts, so unless the sky caves in, there is enough cushion before expiration.

Bonds, gold, and the dollar

Strength in TLT a bond ETF (chart) makes me lean towards a higher stock market. The bond market often leads the stock market. The trading calendar also favors higher prices into January.

Gold makes big news closing above $800. Most of the rally has been dollar driven (chart). Oil has performed better since the Fed went to rate cutting than gold has (USO vs GLD one year chart). Those looking for a top in gold would do well to keep a close eye on the dollar. I am of the opinion that the gold bull can not over come US dollar strength. Again, for the average person, 2% to 3% in physical gold or similar hard assets is what I suggest as insurance against certain financial scenarios. Folks that want a higher percentage best know what they are doing and do their own due diligence [research].

As always, calling tops and bottoms can be entertaining, but rarely profitable. V-shaped reversals do occur, however, they are not common and when they do occur, they can be difficult to trade. Not many people can get in or out at the point of a V.

MRK, HD or LOW are more stocks that look like interesting longs (WAG, SBUX, NYT, T are some others).

Positions: GM hedged long (short puts expire in November)

Sell WFR, Sell BNI

Sell WFR, Sell BNI
As the market tumbles, my gut instinct is to buy the dip. I think about past times I have wanted to do that and how that often turned out badly. So instead of buying, I sell and take my tiny profits, buying back the short puts on these two stocks.

My puts were still well out of the money, and there is a strong logical argument to stand in there, even if the stocks continue to decline. As bad a streak as I have been on, seems much wiser to follow the rule: never let a profit turn into a loss.

I continue to watch that list of tax loss stocks that I mentioned earlier. It includes names such as WAG, NYT, CC, KMX, WMT, LEN. A successful retest of the lows on some of these stocks might make a decent entry point. Other stocks that I might buy include MCD and T.

Buy BNI, WFR, Hulbert market timers out

Since I last wrote, I took long positions in BNI Burlington Northern, and WFR MEMC Electronics. I sold the Nov 80 puts on BNI and the Nov 60 puts on WFR. I went long after the earnings reports.

Mark Hulbert in his Marketwatch column reports that only 7.7% of market timers that he tracks are bullish. This is a contrary indicator, and Hulbert interprets it as extremely bullish. The market rarely tumbles when so many timers are so cautious.

Also in the news, gold reaches a new recovery high. My thinking is that this current run is 90% currency driven. The huge fish from the currency markets are eating up the big fish in the gold market (the commercials with short positions), allowing the small fish in the gold pond (the speculators) to enjoy this bull run. Enjoy it while the currency fish are running amok.

Positions: all hedged longs: GM, BNI, WFR

Lifecycle ETFs, tax selling candidates

SeekAlpha article at Yahoo business. Worth a look for those that may want a one-stop way to meet time specific goals. Lifecycle ETFs are designed with a specific retirement date or other time specific goal. As the target date gets closer, the fund manager changes asset allocation to less risky investments. If they work as advertised they may have several advantages over other ETFs and other open ended mutual funds, such as lower expenses than other target date funds, rebalancing asset allocation so an investor doesn't have to do it by hand. They are new funds, so it would be foolhardy to put a lot of money into them until a track record is established.

The stock market has been rocking and rolling since I last wrote. Too many movers to recap. I will mention that BNI looks like an interesting long. Positives: Warren Buffett owns a bunch, a good earnings report, and a decent looking chart.

BGG, SBUX, WAG, WMT, WM are candidates for late October buying. All of these five are near their lows, and may see significant institutional tax selling, as the books close for many funds on October 31.

Break from blogging

My schedule is changing, so I will be blogging less frequently. I will still update on occasion, but perhaps instead of an average of four times a week, I will reduce down to twice a week, or at times once a week.

Looking back at the first ten months of 2007, it has been a mistake ridden year. My gains were smaller than my losses. I made so flat out stupid entries. The old buggaboos of greed and fear are ever present. I would like to believe that I am immune to emotions, but that would be a lie. I don't trade a mechanical system. I look at news, fundamentals, sentiment, technicals.

Overall my main trading account is down a bit for the year. Almost all of the year I have been underinvested, so the losses are small in terms of the available trading capital. The percentages are deeper in the red, when looking at the average amount invested vs. the dollar losses.
I am virtually at break even before commissions--it has been a decent year for the broker.

Like, I said, I'll still be around, but updates will be less frequent for the time being.

Positions: long GM hedged

Taking my lumps-sell BA, WM

I cover my short puts on BA, WM. Two big losers on a percentage basis.
Buy back BA Oct 95 put
Buy back WM Oct 35 put

A big ouch. I am tempted to take delivery of these stocks and ride out the storm. Instead, I decide to cut my losses, even though they are huge losses on a percentage basis.

Positions: long GM hedged

Buy ACTIX Capital Value Fund

Buy ACTIX Capital Value Fund
This is a calendar trade as the stock market enters its most bullish time of the year.

Options 101: deep in the money calls

Jennifer Openshaw at MarketWatch gives a primer on buying deep in the money call options (article). I am sure there are a fair number of novices reading along. Openshaw suggests three stocks worth a look: SBUX, DFS, FITB.

Elsewhere, it was a wide ranging day in the stock market. On some stocks, it looked to me like the market makers looked to take out stop-loss orders on the books. Sometimes errors occur on the prints, but sometimes there is a spike up or down to take out those stop orders. The print low on AAPL is 153.21, the high of the day nearly 20 points better. Strange price action that is more common during option expirations week (next week).

BA gets hit again as some analysts cut their earnings estimates because of the announced delay.

Positions: BA, GM, WM all hedged longs

Luby: When to short China?

Bill Luby at Vix and More (link) asks the proverbial question "When to Short China?" This bit applies to the game of calling top or bottom, and being the hero.

>>
remember that it is better to catch the easy middle part of the move than to call the turning points
>>

Buy BA, sell puts

Sell BA Oct 95 puts

Boeing down on delays on its new 787 Dreamliner. The plane is a ten-year long project so modest delays are average events. It would be exceptional if there were no major delays. 95 is short term support.

Positions, all hedged longs: GM, WM, BA

Rydex Internet Fund

Adam Warner (blog) has an interesting analysis on the Rydex Internet Fund. It is currently on a neutral to bearish signal.
>>
over the past seven years, whenever assets in the fund have reached the $50 million mark, it has been an apparent indication that traders in general have become overly enamored with the sector’s prospects. The go-forward returns in the sector have been sub-par
>>

With the Fed minute generated rally I was tempted at two trades: long BA, long YUM. I decided to wait for better opportunities. Gold had another constructive day, though the range for the day was again quite wide. This kind of market action is not a good situation for risk adverse position traders [me].

Motley Fool: Waiting for weakness

Kristin Graham at Motley Fool Investing (article) writes about a conversation with her father. Dad calls and wants to increase his equity exposure because the market is up 7% from its lows. Kristin counsels caution, and to wait for better prices.

>> from the article:
"But the market's going up ... and I'm missing out on gains," dad uttered these exact words to me, and I'm sure many of you have similar thoughts. It's a typical situation: The market starts recovering and embarks on an upswing. Everyone thinks it's time to get in. Sure, sometimes this is true -- but investors need to be wary at a time like this.
>>

Readers know that I often like to buy strength and sell weakness. Again, when I talk to people, I tell them there are a thousand ways to trade the market, find one that fits your personality, find one that works for you.

Buy WM, sell puts

Buy WM Washington Mutual sell Oct 35 puts, stock edges higher despite issuing an earnings warning.

Elsewhere GLD and GDX showing strength. RIMM straddle holders are close to break even, getting the good word from Jim Cramer. The employment report is being intepreted as bullish, with stock, gold up, bonds down. Retail is one of the stronger sectors.

Long GM, WM both hedged.

RIMM straddles and the last war

I met someone who signed up for an options course. The strategy that course taught was buying straddles ahead of earnings reports. There was a system, some software, and trading tactics, and of course a hefty fee. I don't know if RIMM Research in Motion met their criteria for a trade. However, it does illustrate the risk of buying straddles. Three months ago (chart), RIMM had great earnings and rose over 20% after the report. Tonight RIMM earnings look like a non-event. Non-events are death to straddle buyers.

The CBOE (quote) shows bid of 7.6 and 6.9 for the Oct 100s, or 14.50 for the Oct 100 straddle on RIMM before the report. That means the stock has to move more than 15% up or down for the straddle to be profitable at expiration. With the report out, the straddle is likely to lose more than half its value tomorrow, because the price movement is likely to be small.

Those buying the straddle, were hoping for a repeat of last quarter's stellar performance, or a terrible miss. The ads for the seminars probably said something about making money whether the stock goes up or down. Readers known that unchanged is a good thing for option sellers. As the song lyrics go, "Time is on my side, yes it is."

Hulbert: stock newsletters skeptical

At Marketwatch, Mark Hulbert reports (article) that stock newsletters remain skeptical towards the rally.

... a contrarian analysis of stock market timing newsletters suggests that the path of least resistance remains up...

As I have been writing, next week, and the week after that may be a slightly better time to buy for a holding period until early 2008.

Gold had an impressive rally from a weak open. I was tempted to buy back into GDX, but fast markets are not my favorite thing.

Long GM, hedged