CRS Carpenter Tech

Today's most interesting stock is CRS Carpenter Tech (chart). The overall market is extended, so it is not the best time to be adding longs. However, the other side is that calling top is a poor percentage play.

Elsewhere, BIDU Baidu.com has a huge up move (chart). Bulls and bears continue to push and pull on AAPL and AMZN. These kind of glamour stocks attract so much attention that it makes them seem more risky. An analyst upgrade or downgrade, a hedge fund going long or short or unwinding their position, a major institution deciding to get in or out, can make muddy the waters for the small fish.

Holy cow, a runaway bull

I am surprised at the extraordinary strength of today's rally. AMZN Amazon is particularly impressive. Other stocks of note include CHRW which was recently called away from me. BNI is down after its earnings and would be a stock to buy today, if I had to buy something.

BA Boeing reported strong earnings, however, they did not raise their guidance. The 787 is on schedule and long term that is much more important than one earnings report.

Positions: C hedged, BA, FLR unhedged, and a lot of cash that is waiting to buy selected stocks on a pullback.

More big earnings: AMZN, PCAR, WHR

Three more stocks that I will watch after a big move on earnings:
AMZN Amazon, PCAR Paccar, WHR Whirlpool

BUCY Bucyrus, HAS Hasbro

Nice breakout in BUCY Bucyrus today (chart). It moves higher after CNH in the same industry, heavy machinery, mining supplies, reported strong earnings.

HAS Hasbro had a breakout from a shorter more extended base. Again, it is earnings that moves the stock. Hasbro benefits from Spiderman 3 coming out next month.

Earnings driven rally

I am a bit surprised by the strength into today's close. Some of the stocks in the news that I find interesting include GOOG, MHK, CAT, CAL.

My CHRW and GDX get called away today. CHRW for a breakeven loss, GDX for a breakeven gain. My roll down on GDX calls was within an hour of the low. That call buyer about tripled his money.

The leaves me with long positions in BA, FLR and a hedged position in C.

Three breakouts VMI CBE TXT

Three nice breakouts on earnings news VMI CBE TXT. All have flat bases.

GOOG Google out with good earnings after the close. UNP Union Pacific earnings boost the railroad sector, a sector already warm from Warren Buffett's announced positions.

Insiders keeping their stock

Mark Hulbert says that insiders are not selling into the current rally (article). Insiders tend to be early so this is good news as the market is near or at all time highs.

Technically, parts of the stock market look to be extended. However, other segments look like they may be ready for a sustained rally. In particular, the QQQQ has a nice tight base (chart).

Roll up and out C Citigroup calls

Roll up and out C Citigroup calls. Buy back the short Apr 50 calls, sell the May 52.5. The calls trade for less than it would cost to exit and get back in. The stock recently reported good earnings, so I roll over to the next month. C also goes ex-dividend in early May.

BA Boeing up nicely after an $5.4 billion order for new 787s is announced. The troubles at Airbus are another reason to believe Boeing will do well going forward.

Longs: BA, FLR
Hedged: C, CHRW, GDX, the last two are likely to be called away this Friday, unless I roll the calls up and out like I just did for C.

Tool time at BDK Black & Decker

Best of the bunch from today's news is BDK Black & Decker (chart). KO and JNJ also have good earnings, but those two don't look as promising to my eyes.

Citigroup C up on earnings

Citigroup C up on earnings, that's the good news. The bad news is my delta approaches zero because the short call is deep in the money. In plain English, it means I sold the call, and the call owner is making the money on the rise, not me. Such is the life of a covered call writer.

Volatility is back to pre-correction lows. This is not so good. The tax deadline passing also means the end of the IRA deadline contributions. So I am cautious, as almost always.

Positions: BA, FLR
Hedged: C, CHRW, GDX

MRK Merck and TM Toyota

Merck MRK up on good news (chart). Today's open at 49.28 looks like a decent entry point.

Toyota TM is nearing support at 120 (chart).

RIMM Research in Motion disappoints

RIMM posts disappointing earnings and is down 8% after hours.

AA Alcoa kicked off the earnings season with a good report.

Readers know that I often take positions on the basis of earnings news. The quarterly announcement is often what moves stocks. In the long term, I believe that earnings are the primary engine behind stock movement.

Buffett buying railroads (BNI)

Legendary investor Warren Buffett disclosed a large position in Burlington Northern BNI. Two unnamed rails are also in the buy in. Buffett is usually early. He has to be because of the large size of the buys and sells. BNI has a nice looking chart and looks like a good buy on a pullback. Often times, there is a significant pullback below Buffett's entry point. This would be the natural expectation if he was buying and then is finished buying.

Doubling down, and down, and down

Adams option blog has an entry about a trade gone wrong (link search for AMGN). It almost the opposite of the way I trade. In the blog, the trader buys some calls. When the stock moves against him, he buys more calls. Still more pain, more calls. So much capital is put into one bad position that it will take 12 consecutive winners of the size of the original AMGN position to get out of the hole that has been dug.

Sound money management is at least as important as any indicators to get in or out. A person that doubles down again and again will run out of luck. It is one thing to take a half position or quarter position, with the plan to buy the other part on further weakness. It is another to refuse to admit that you are wrong and lose big on one idea.

Windows closes after rally day

On Monday, I looked at rolling up and out on many of my hedged positions. Today's robust rally makes it that much more expensive, and less rewarding to do so.

Earnings will again be market moving news during the next few weeks with Best Buy BBY set to report tomorrow. Here is a list of a few more stock to watch.

Random Roger writes about two versions of a "lazy portfolio." Click on the link, then search for "lazy update."

DNDN Dendreon

Speaking of amusement park rides DNDN rockets (chart) up 145% today on positive FDA news. It is a tempting stock for a buy/write because of the 200% implied volatility on the May options. There is another FDA ruling due before that expiration, so the stock could see more wild trading in the interim.

I often find the day or two after the big news move as a better time to get in.

Round and round

Random Roger uses the analogy of the tea-cups ride (blog) instead of a rollercoaster. Today was another whipsaw type of day, with a strong open, a dip below the line, then a rally into the close.

Housing stocks keep falling

Lennar LEN gapped lower yesterday on poor earnings, but managed to close in the positive for the day. Beazer Home BZH is being cut 10% on news of a Federal investigation. Lennar is holding above its lows (LEN chart), Beazer is not (BZH chart).

There is spill over to the broad market. Today is not so good for my positions because my hedged positions (GDX, CHRW, C) are doing better than my unhedged positions (BA, FLR).

Smuckers SJM is up today after an analyst upgrade. The chart is a classic cup and handle breakout. I may buy on a pullback to the 50 range.

VG Vonage, straight down

Investors unfortunate enough to buy VG Vonage at IPO have seen their money disappear. In a less than a year, the stock is down 80% (chart). Many customers report positive experiences, and Vonage had a pretty big distribution. Alas, a cool idea does not a successful business make and it looks like VG may have to fold up shop without ever turning a profit or a positive quarter for its investors.

VG serves as a cautionary tale for someone investing in the next big thing.

Covered call funds

I found an old Seeking Alpha article that takes a look at covered call funds. Readers know that this is my favored strategy. For investors that want a hands off approach, these closed end funds may be worth a look. The hefty yields look attractive, however, the long term performance, and management effectiveness is still up in the air. Certainly not a place to put a lot of money, because of the short track record (the oldest fund started in 2004).

Another interesting fund is SDY, a SP500 fund that buys the highest yielders in the index.

Fed's next move

Big stock market rally today. After the minutes from the last Fed meeting were released, the Fed fund futures are now putting the odds of a rate cut at 44%, up from 26%. Traditionally, rate cuts are good for stocks.

A list for would-be traders

Paul Farrell at Marketwatch put together this list for would be daytraders (article):

1. I have lots of time to track the market and trade
2. I am very disciplined under pressure
3. Markets are volatile, but I can handle uncertainty
4. Breaking news doesn't distract me
5. Yes, it's OK if I lose money
6. I can even handle losing streaks
7. I never buy high nor sell low
8. I can make quick decisions, with no regrets
9. No, I'm not overly optimistic nor in denial
10. I can live comfortably on $50,000 a year

>>
For the most part there is a good deal of wisdom in this list. Depending on a person's chosen trading style I might disagree with some, however, most of it would be a good starting point. I tell folks that the emotional aspects are the most difficult. The analysis can be extremely complex, or fifth-grader simple. I favor simple analysis that looks at fundamentals, technicals, sentiment and the news background, rather than complex analysis that has a narrow focus.

Number eight, regrets, is on my mind at the moment. When the market makes a sharp move, such as the recent dip, there are always a lot of shoulda, coulda, woulda situations. I would like to think that I am immune from that. For the most part, I can put the past behind me, rating myself as high average or above average in that department, there times when regret does come around for a visit.

Another tough week

My portfolio limps into options expiration. I am short April calls on C, CHRW, GDX and have none expiring today. My rolldown on GDX was near the short term low--it is painful when that happens. However, it is the nature of hedging and rolldowns that this can and does happen.

To all the Irish readers, or Irish in spirit, have a happy St. Patrick's Day.

SP500 downside target 134

One scenario is that this latest decline will be of the same number of points as the first drop. This would take SPY to 134 from the current 138 or another 3% lower. On the 3-month chart it takes SPY just below the green line.

Top timers still bullish, others not

Mark Hulbert reports that his top five market timers remain bullish after Tuesday's big hit (MarketWatch article). Meanwhile, the average newsletter writer is becoming much less so.

I am looking to buy selectively on further weakness. No need to hurry, bottoms usually take some time. If a fast V-shaped bottom does occur, only a very few get in at the bottom. I prefer opportunities when I perceive the odds are in my favor.

Roll down CHRW, retest of lows

Buy back the CHRW Apr 50 call, Sell the Apr 45

Whomp. The market thuds lower. Looks like a retest of the lows or worse is in the cards for the major averages. CHRW has underperformed since being added to the SP500. I am taking my lumps. At this point I am in the red for the year, thankfully my equity exposure remains limited.

In my mind it is a bit early to be adding to longs.
Current: long BA, FLR
hedged longs: C, CHRW, GDX

How one pro traded the dip

Paul Sabo writes about his trading during the recent correction (article). Bottom line result was a small profit of about 0.5%. Certainly not my style or cup of tea to go on margin and trade the SP500, however, it is interesting to see how someone else tackled the same problem that all of us had to face.

A down week

For me, this week is in some ways tougher than the previous one. Why? When the market goes down a lot, most folks lose money. This week the market stabilized, so losing money is tougher to take. Today's hit is an analyst downgrade of CHRW C.H. Robinson, sending the stock down about 5%. CHRW looks like a good buy in here, if I did not already own it.

Buy/write GDX Gold stock ETF

Buy GDX gold stock ETF, sell the April 38 call (in-the-money).

On the strength of the Hulbert article, I take a conservative position in GDX.

Buy FLR Fluor

Buy FLR Fluor

I buy a small position in Fluor. The company reported blowout earnings during the market selloff. There is an old wives tale that stocks that get to 90 almost always make it to 100. Chart looks like a classic liftoff into heavy resistance, if it can clear that, it can move much higher.

Current holdings: BA, FLR unhedged
hedged: C, CHRW

Hulbert: gold timers bearish

Mark Hulbert reports that gold newsletters have turned bearish after the meltdown last week (Marketwatch article). Hulbert also points to stock market timer newsletters moving to the sidelines, but it is not as extreme as the gold move. The index used by Hulbert moved from 75% to 0% on gold, and 62% to 23% for stock timers.

This is good news for gold bulls.

Oversold reading

TickerSense writes about the oversold condition that occurred Monday (article, chart). It is instructive to look at the chart. The similar oversold reading in the spring of 2006, was not a great time to buy, as the market knifed lower still.

Today's relief rally was certainly welcome. However, one scenario involves a retest of the lows, that retest is often a good time to buy.

What is a yen carry trade?

This week there has been talk about the yen carry trade. What is it?

from
http://www.investopedia.com/terms/c/currencycarrytrade.asp (link)

Here's an example of a "yen carry trade": let's say a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let's assume that the bond pays 4.5% and the Japanese interest rate is set at 0.5%. The trader stands to make a profit of 4% (4.5% - 0.5%), as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 40%.

--
In simple terms it means borrowing yen, then buying some other investment, usually a non-Japanese investment that pays much high interest rate than the current 0.5% that it costs to borrow in Japan.

While I'm explaining things, another popular term this week is subprime mortgages.

from
http://www.bankrate.com/brm/green/mtg/basics2-4a.asp?caret=8 (link)
Generally, subprime mortgages are for borrowers with credit scores under 620. Credit scores range from about 300 to about 900, with most consumers landing in the 600s and 700s. Someone who is habitually late in paying bills, and especially someone who falls behind on debts by 30 or 60 or 90 days or more, will suffer from a plummeting credit score. If it falls below 620, that consumer is in subprime territory.
...
Subprime loans have higher rates than equivalent prime loans.
...
A subprime loan also is more likely to have a prepayment penalty, a balloon payment, or both. A prepayment penalty is a fee assessed against the borrower for paying off the loan early -- either because the borrower sells the house or refinances the high-rate loan. A mortgage with a balloon payment requires the borrower to pay off the entire outstanding amount in a lump sum after a certain period has passed, often five years. If the borrower can't pay the entire amount when the balloon payment is due, he/she has to refinance the loan or sell the house.
--
Unfortunately, a lot of subprime loans are used by speculators. The recent dip in real estate prices, puts these borrowers (and lenders) underwater. Few thought the picture would go bad so quickly. Which brings up the cliche of the day, when things change, they often change quickly.

This is not a time for rash emotional decisions. If a person can't sleep, sell off 10% or 20% of equities. If a person has been on the sidelines waiting to get in, put in 10% or 20%. Going all-in or all-out is a losing game for average people.

Roll down C calls

Buy back the Citigroup Apr 52.5 calls, sell the Apr 50 calls.

Normally, I might just take my lumps here and move on to the next stock. However, there is multi-year support at 50 on the long term chart. I am still underwater and locking in a loss even if the stock moves higher from here. Rolling down does give me more downside protection and less exposure.

Like I wrote yesterday, the bottom is probably not in, and calling bottom or top for that matter is not a profitable game for the majority of traders.

It has been a painful week, even with my very limited equity exposure, and hedged positions, I have taken my lumps. Those still in high flying stocks or worse, on margin, are probably going to have a very long and difficult weekend.

Currently positions, all longs
unhedged: BA, hedged: C, CHRW

Buy ACTIX Capital Value Fund

I move some IRA money today into the American Century Capital Value Fund.

As always, my posts are not a recommendation to buy or sell.

A rough open this morning, followed by buying. The bottom is probably not quite in yet, however, I always tell folks that virtually no one buys at the bottom. Internet traders that don't trade real money do it all the time, often posting after the low and high of the day is printed out.

In real life, calling bottom or top, is generally not a profitable game. The traders with that kind of style often use tight stops and make six trades to catch one real bottom.

Buy CHRW C. H. Robinson

Buy/write CHRW C.H. Robinson

Buy the stock, sell the April 50 call. Stock had a nice earnings report some time back, and I've been waiting to buy this stock on a pullback. Recently announced that CHRW will join the SP500 index. The call is in-the-money, so a conservative play. Most stocks that get added to the SP500 start to trade more in line with the index. Usually that means lower volatility. CHRW options trade at a relatively high implied volatility of 32% vs. about 17% for the SP. A small bonus is that the stock goes ex-dividend 18 cents on March 7th.

Blindsided, rolldown C calls

China market cracks 8.8% in one day after a 126% run up in 2006.

I am taking some lumps. I roll down my C calls, buying back the Apr 55, selling the Apr 52.5 calls. This reduces my risk, lowers the profit potential.

Right now, the U. S. market is the tail on the dog, until events sort themselves out. I do not believe this is the time to be the hero and load the boat. I remain mostly in cash, with a small unhedged position in BA and hedged in C.

Buy C Citigroup

Buy/write C Citigroup, buy the stock, sell the Apr 55 call

Stock pulls back to 50 day moving average (red line on chart). C also has a 4% dividend, though it just went ex-dividend on Feb 1st.

Bad news that helps a stock

At Adams option blog, a paragraph about the old days of Caterpillar CAT, where earnings would be terrible and the stock would rally after each report. The writer was an options market maker for CAT. He is now observing similar patterns in housing stocks, where bad news is met by rising stock prices. Read the whole thing at the link (Wed Feb 21, Subdivisions).

Jack in the Box reports great earnings and the stock booms ahead. I am adding it to my buy-on-a-pullback list (chart).

Bad news that helps a stock

At Adams option blog, a paragraph about the old days of Caterpillar CAT, where earnings would be terrible and the stock would rally after each report. The writer was an options market maker for CAT. He is now observing similar patterns in housing stocks, where bad news is met by rising stock prices. Read the whole thing at the link (Wed Feb 21, Subdivisions).

Jack in the Box reports great earnings and the stock booms ahead. I am adding it to my buy-on-a-pullback list (chart).

Big correction coming for gold?

Is today's $10+ drop the start of something significant, or a minor hiccup?

Some discussion here about a ten-year overlay chart that shows parallels between the 1970s run up and the current run up. If the gold train does follow the same tracks, a correction to $500 could be in the cards. That's the bad news, the good news is that a rocket ride up to $2000 would follow.

I shy away from predictions. I follow the price and fundamentals and look for low risk entry points.

Pay Day

Today is options expiration day, or hopefully for option writers, pay day.

TXI and LEA will be called away. TXI for a smallish gain, LEA for a decent one, though most trader types would call 5% small.

The QQQQ chart looks like a nice base. There is healthy skepticism about this rally. It has been a long time since even a 2% correction on the Dow. Despite that, the old cliche is "don't fight the tape," from Marty Zweig and others. The markets wants to go higher, it is usually a money losing proposition to fight it. Yes, there are any number of clouds on the horizon, including low levels of mutual fund cash, topping action in leading stocks such as GOOG and AAPL. The bulk of the evidence is on the bullish side for now. Some stocks I am looking at include: C Citigroup, CHRW C.H. Robinson, EL Estee Lauder.

Open positions after today: long BA Boeing.

Free trades!?

Wells Fargo and Bank America are offering a promotion with free trades, when a person maintains a minimum balance ($25,000 for 100 free trades and $36,000 for 360 free trades). I saw this on Schaeffer's option site (link).

How much gold is enough?

Random Roger answer the question, how much gold (link). The bottom line is about 3% in GLD, and 3% in a mining stock, and 2% in a related industry such as timber or chemicals.

My own suggestion has been and continues to be 2% to 3% in physical hard assets, such as gold coins, silver coins or similar bullion items. If a person wants some equity in the form of mining stocks that is separate in my mind. For long termers a little dab will do.

Lear LEA accepts Icahns offer

Lear LEA accepts Carl Icahns offer to buy the firm.

The stock is pulling back today, and is up over 25% since my buy in. The bad news is that I sold the calls and will only get 5% of that move. This is one of the signficant risks when selling covered calls. If a nice buyout offer comes along, upside is limited to the call premium. Still, I will take a 5% profit in five weeks with low perceived risk, over and over and over.

My LEA will get called when options expire on Friday, February 16th. Cheers.

Under Armor UA

Under Armor UA gets a bump up after a positive mention on Jim Cramer's Mad Money show on CNBC. Looking at the stats, it is a growth stock, a pricey one. The chart looks better than the fundamentals.

Toyota and Cisco

Toyota and Cisco report good earnings. TM continues to take market share from struggling Ford and General Motors. I've owned TM in the past, and if it pulls back to the 50 day-moving-average (red line in chart), that looks like a low risk entry, about 129 right now).

CSCO surprises to the upside. That stock had a nice bounce off its 50 day ma in November (chart).

I try to keep things simple. For technical analysis, the 50 day, and 200 day simple moving average, candlesticks, and MFI (a momentum indicator). For fundamental analysis, I look at summary page and key in on price-to-sales, sales growth, return on equity.

Two bullish arguments

Gary Kaltbaum at Trading Markets (Bulls in Full Control article) and Mark Hulbert at Marketwatch (Transports lead the way, article) make points for the bullish case.

Stocks are skittish, often over-reacting to earnings. Stocks such as Estee Lauder (cosmetics) and C.H. Robinson (transport) both had huge jumps on better earnings. There are many other stocks where a few pennies better or worse move the stock a huge percentage. For a position trader, these stocks are moving too fast on the day of the announcement. The next few days often bring a much safer entry point.

Positions: long TXI, LEA, BA

Google

Google is the headline stock of the day. The earnings were good, and the chart was poised for a breakout. However, the price action in the stock fizzled. I would lean towards the long side, though neither side is compelling at the moment.

Someone else pointed out that Google is a relatively low volatility stock, in terms of historic price action (chart). The large point moves translate into small percentage moves.

Buy BA Boeing

Buy BA Boeing, stock is higher on earnings. Both the top line revenue, and bottom line earnings are strong. There is some uncertainty with the launch of the 787 coming up. However, there is also strong upside with this more fuel efficient plane coming online.

Current positions LEA, TXI , BA
LEA and TXI hedged, BA a small unhedged position

Volatility remains low

AdamsOption blog cites the low volatility and that options continue to trade for higher value than the historically low volatility. (link)

>>> quote
There are 2 conflicting directional interpretations here as far as I am concerned. 1) The low-low stock volatility is bearish from a complacency standpoint. and 2) the *overbid* options are bullish, mainly because the market is overpricing *accident* risk relative to the actual behavior.

My total guess is that all this combined is moderately bullish.
<<< end quote

Current positions: TXI, LEA long stock, short calls

Sell WDC Western Digital

WDC down after its earnings. I bail out for a small loss. I do not see a good choice as far as rolling down, or rolling out the option.

Too hot to handle PJC Piper Jaffrey

Logic tells me to buy PJC. It was up nicely after earnings, and pulled back to support. However, the weakness today is enough to make someone air sick. Looks like yesterday's breakout was a fakeout and now all the oxygen is being drained out of the trap. (3-month-chart).

Ebay up, little guys win

Ebay the online auction company up on earnings after the close. Schaeffer's (link) has been reporting a lot of speculation on calls by small timers. Conventional wisdom would be to take the opposite side of this trade and sell calls or buy puts. This time the call buying speculators seem to have won and beat the "house."

Pick up STX Seagate

STX earnings better than expected, stock trading up in after hours. This benefits my WDC Western Digital.

Airlines hit hard today. Oil rebounds. Gold very strong--I might add to my surprise. I have been accumulating more gold coins. I suggest all investors have some money in hard assets such as gold coins, silver coins or the like, as insurance against bizarre events and a hedge against the possibility of hyper inflation.

Bad news at Boeing BA

BA down hard today on an analyst downgrade. The report cites potential price increases by suppliers for the new 787, also possible a top in this cycle of airline orders.

As readers know, I am long term bullish on BA and will look for a low risk entry point.

Pin collectors (options expiration)

Over at Adams option blog, he writes about pins and why they happen (link). Adam also mentions AAPL Apple Inc and GS Goldman Sachs as pin candidates.

For novices reading along, a pin happens when a stock closes right at a strike price. Each option has a strike price. For example, I own WDC and am short the Feb 20 calls. WDC closed just a bit above 20 today. If it closes right at 20, all the puts and calls with a strike price of 20 expire worthless. All the option sellers would like this scenario and often will use their resources to nudge a stock to get it to pin.

Once in a while I will look for a scalp trade where there is decent premium left during expiration week. Of course, sometimes these can blow up, and the profits tend to be tiny. However, the annualized rate of return can be quite high for a day or a few days holding period.

AAPL and INTC

INTC disappointed, and AAPL flew past estimates. INTC down hard today, though it is not the bellwether leader that it used to be. I can remember times when a bad report from Intel crushed the entire market.

Apple Inc reported after the close and did well. It also has the hot new I-Phone scheduled for June shipment. AAPL is extended and a high risk stock at this point.

Tops are formed when there are a maximum number of buyers--that is usually when the news looks great. I'm not calling top for Apple, and if I did, I would not play it. Picking the top is not a profitable game. It is usually much safer and more profitable to go short on the first rally.

Buy LEA Lear Automotive

Buy/write LEA Lear Automotive
Buy the stock, sell the Feb 30 call

LEA higher on earnings projections. They are an auto parts provider. Classic case of stock running into old resistance at 30. Stock is still cheap (stats) to my eyes, with an eye popping price-to-sales of 0.10 and sales projected higher.

As always this is not a recommendation to buy or sell.

Current holdings: LEA, TXI, WDC all hedged, long stock, short calls.

A one year wonder

Mark Hulbert at Marketwatch writes about the top performing stock newsletter for 2006 (link). The short and sweet version is that this newsletter turned in a +75.5% gain for the year. However Hulbert takes a look at what might happen if a person took the top newsletter each year for the last ten and followed them for a year. This produced a dismal return.

A couple of sites/writers have posted some eye opening performance numbers for 2006. Some are looking for clients. Hulbert provides a service in that he does real world performance that mimicks what actual subscribers might be able to duplicate. Some will tout big numbers, however, a real world analysis shows that subscribers could not humanly duplicate them.

Like others, I could put any number out there and start trolling for paid clients. However, without someone to verify the record, I would not put a lot of stock into what someone writes.

As always, I am not here to sell you anything, or to recommend stocks to buy or sell. This public journal helps keeps me true to myself and my investment philosophy.

Gold (and silver), C and SNE

Clive Maund titles his article "Bottom Fishers Beware" (link). I tend to agree, mostly on the complacent attitude of the long term bulls. Not a one of them seems to be running
scared or talking about dumping their holdings. This means the correction has more to run, it may mean more time in this price range, or lower prices. Time sometimes is as good as price--it certainly is for option sellers.

C Citigroup and SNE Sony are two stocks on my current short list of candidates to buy. No one is going to get rich on either of these stocks. However, that is fine by me. To go back to a baseball analogy, I look for bunt singles or clean line drives with an occasional double down the line. I'm not a home run hitter. In the past, when I swing for the fences, I either strike out or lose patience and sell for a small profit.

There are a thousand ways to make money in the stock market, find one that suits your personality.

Roll down TXI, Buy WDC

Roll down the TXI call, I don't like overall market action. A roll down involves moving the strike price lower, this reduces exposure and limits upside. Buy the Feb 70 call, sell the Feb 65 call. TXI got a mention at Motley Fool (link) as an "all-star" stock.

Buy/write on WDC Western Digital. Stock is lower on an analyst downgrade. Windows Vista has huge capacity requirements, so many folks that want to upgrade to that operating system will likely have to upgrade their hard drives.

Buy TXI Texas Industries

Buy/write TXI Texas Industries
Buy the stock, sell the Feb 70 calls. TXI up on earnings. It is in the cement business (profile). TXI has a market cap of $1.6 billion--a much smaller cap stock than I often buy.

I found the stock when looking through Fidelity's small cap fund's top holdings. Traders can often piggyback on good research by seeing what fund managers are buying or holding. This means someone with a good education and significant time and resources took a close look at the stock and thought it worthy.

Sell GM, gold, LCC

Sell GM, buy back the call

Bank America analyst downgrades GM. I get out with a breakeven profit, living up to one of my rules:
-> Never let a profit turn into a loss.
That isn't set in stone for everyone, but I find it to work well for my trading style.

The stock market booms ahead, as oil turns lower. Gold's morning rally has turned into a route. The XAU is getting hammered as is the trading gold stock index ETF, GDX. I am tempted by the oils, but they have already lived up to making a new high when the commodity fails to make a new high.

I am close to pulling the trigger on LCC USAir, then it booms ahead. Best not to chase. As I wrote earlier, I expect more volatility for early January. I do not expect a smooth ride up, if up is the direction.

Year in review

Thanks for reading along all year. I'll have more time for the market and blogging in January 2007.

Looking over my trades for 2006, the bottom line is that I am up about 10% to 12% for the year. This underperformed the major stock indices. However, my style entails less risk than buy and hold. I closed out 103 trades for the year. The average holding period is 38 days. Exact performance numbers are difficult to ferret out because I move money in and out of my trading account. For the most part, it has been a good year.

Some of my winners include BAB British Air, GM General Motors, PDLI Protein Design Labs. Some of my losers include BBY Best Buy, AMD Adv Micro Devices, WIRE Encode Wiring.

Happy New Year. Cheers.

Nervous

I hear a blurb on the one-minute radio stock segment from some money manager saying there is nothing to worry about, that he is extremely bullish, that there is no reason to sell now. Investor's Intelligence also shows a high percentage of bulls. I also have this thought in my mind to buy calls. Me, the call seller wanting to buy calls. All of this makes me nervous.

Now, I've written many a time about how emotions can betray a trader (or an investor), and how they have often betrayed me. I'll stick to my knitting, meaning finding stocks where I can sell the calls, staying well diversified, and ruthlessly cutting my losses. This last bit is how I have survived in the markets as long as I have, while many a smarter and many a more nimble a trader has long since given up the ghost.

Couldn't pull the trigger (C and MRK)

Citigroup C and Merck MRK are on my short list to buy. I could not pull the trigger today, and watched C close up half a point and MRK drift down a few cents. Tomorrow is another day.

Odds favor the bulls this holiday week. With the holidays time also seems to tick extra fast for option holder. First week of the year often brings volatility.

Buy GM General Motors

Buy GM, sell the Feb 30 calls

I forgot to mention that my EWJ Japan Fund ETF was called at the 12/15 expiration. At that time, it put me 100% in cash in my trading account. Today's GM buy is moving my big toe back into the water.

The FDX setup turned into a setup all right--for the bears. There is additional risk taking a position ahead of news. Sometimes I will do it, other times, I prefer to wait until the reaction. Both styles of trading can yield profits. Options usually cost more just ahead of news.

FDX Federal Express setup

FDX has a nice looking setup for their earnings report before the open Wednesday. The chart has a nice base. Resistance is at the 52-week high of 120 if there is a blow out report. Of course, earnings could also fizzle, or be a non-event.

Dogs of the Dow (again)

This popular strategy that picks the highest yielding Dow stocks worked well in 2006. I profited from two trades in GM, a 2006 "dog" and still on the list.

Some folks like to buy these high yielders at the start of the year. As always, if a person knows someone is going to buy soon, it is often good tactics to buy in ahead of them. With that in mind here is a link the current list of highest yielding Dow stocks (link). Of these, VZ Verizon, MRK Merck, and GM General Motors look the most interesting to me.

As always, my posts are not a recommendation to buy (or sell).

How to start your day

Brett Steenbarger at TradingMarkets.com has an article about how he starts his trading day (article). Most successful traders have a daily/weekly/monthly routine. The discipline from keeping a schedule is often reflected in the discipline exercised buying and selling.

Gap trading

Article with data on gaps at Trading Markets (link). The bottom line is to trade opposite the move, eg short a gap up, buy a gap down. Keep in mind that gap days are often extremely volatile and prices can move quickly and fills can be hard to get at the price a trader wants.

I often prefer to wait until the dust settles and calmly establish my long or short a day or more later.

Best practices

A good article about best practices (link).

I did a study on my trades some years back. My most consistent winners were buy-writes (buy the stock, sell the call). Some of my worst losers were stocks that I bought on fundamental valuations. Emotion is often the enemy for traders and I am not immune. I still occasionally get that fear and go to a fight or flight response. For traders, fighting the market can be the road to the poor house. I know too many sad stories of that type. Flight often means selling at a short term low.

That said, risk control, risk management are absolutely key to staying in the game. Every position trader has bad streaks. Learning to limit the losses is a vital lesson.

Keep a journal, use it. I tell folks there are a 1000 ways to make money in the stock market. Find one that suits your personality, that you can stick with.

Big fish, little fish

Interesting article about what time of the month money managers often buy (link).

GM General Motors again under 30 after Kerkorian unloads another batch of stock. This kind of situation is akin to the little fish, with the big fish Kerkorian dictating the movement of the stock with his moves and leaks. The above article is when little fish can get in ahead of the big fish. The big fish has to come in and buy, that is their directive. What might change is that patterns become known and the big fish changes their buying patterns.

In an efficient market all information flows freely and there is no advantage. However, the real market is never quite 100% efficient and some patterns such as the monthly buying patterns, and others often persist for long periods of time.

Chasing a deer (DE)

I am late to the game on DE Deere. The chart shows a textbook base and breakout. The fundamentals also look quite decent (stats). A pullback towards the base at 90 would be the desired entry point. Another decent entry would be the 50-day-moving average (the red line in the chart link).

More ETF: PHO, PBW, FXE

Some interesting ETFs:
PHO small cap water resource ETF
PBW clean energy ETF
FXE Euro currency ETF

As always this is not a recommendation to buy or sell. In this case, it is something showing up on my radar, perhaps for action at a later time.

Lots of movers

Lots of movers on news including MDT, DE, GOOG. BA at a new all time high. GDX gold ETF moving up.

Me, almost all in cash, only position is a small one in EWJ. This doesn't mean I am bearish. My current schedule doesn't allow much time for research or execution. Given that it is often safer to sit. It is frustrating to sit, when there are so many good movers.

TM Toyota has pulled back to its breakout point. Now it is a $196 billion dollar company, so it can only grow so much. However, it is extremely well positioned vs. its main competitors.

Sell DVN Devon Energy-called away

DVN Devon is called away for a small profit.

With the DJIA at record highs it is easy to say that I would have done better sticking with my most of my recent longs. However, hindsight isn't readily available in the present. Some traders make the mistake of learning yesterday's lesson and applying it to today. If someone knows the market will advance another 3% next month, of course it will pay to be bullish and refuse to be shaken out on any dips.

The most recent example is housing stocks that gapped down at the open on Friday, but recovered most of the losses by the close. Again, the hindsight glasses always work, but are not available at the time of decision. Just when a trader becomes complacent and stops taking small losses, the market will hand out a big loss just to remind them that complacency can be dangerous.

A Riddle

Here is a little puzzle that may stymie many a professional trader. Suppose a certain stock exhibits a true (geometric) random walk, by which I mean there is a 50-50 chance that the stock is going up 1% or down 1% every minute. If you buy this stock, are you most likely, in the long run, to make money, lose money, or be flat?

Answer at the link.

HD Home Depot?

A volatile day for HD Home Depot (3-month-chart). The stock opens lower on earnings, and then rallies, closing with a big gain for the day. Is it possible that the bottom is in for housing related stocks? I've written it many times, that picking bottoms is a dangerous and not so rewarding pasttime. Reaction to news can be a useful indicator. When seemingly bad news comes out and the stock still moves up, a lot of people have already sold, and not that many are likely to sell in the near future.

Sectors topping out?

Gary Kaltbaum at TradingMarkets writes about several sectors that he believes are topping out (link). Brokerage, housing, retail are all mentioned in the article.

Again, this is one of the strongest seasons for being long stocks. However, retail stocks often stall until Christmas results come in, and are positive.

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.