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.