Slow marketshe

The markets are just meandering around on low volume.  We probably won't see a meaningful direction until next year.  It would be nice to see a leader rotation and some new leaders emerge as some of the older leaders look maxed out.   Let's see what the new year brings...

New positions - Stock - AMZN, ORCL, NVDA

I have opened new long positions in Amazon (AMZN), Oracle (ORCL) and Nvidia (NVDA). 
Entry prices:  AMZN 182.79,  ORCL 31.85 , NVDA  14.83

Dec update

Due to a lack of time to pay attention to my positions, the majority of the positions expired worthless.  I did manage to sell some positions here and there.  So as a result, my year to date return (since I started the blog) is now back down to about 100%.  Since I was up 200%+ at the peak, the market has taken back quite a bit of the gains.  So I am going to start thinking about switching to a swing trading strategy with 2-3 month time frame (playing longer term options instead of front month positions).

Oracle (ORCL) is looking very promising.  I am eyeing the Mar 32 calls for around 1.29 each.

I am also trying to look at the big cloud computing players and determine which ones to buy (the major players are Google, Amazon, Microsoft, IBM, and Salesforce.com (CRM).  Although it is tough to enter a position in a stock that is up from 25 to 135 in the last two years.  But cloud computing is starting to take off at the enterprise level, and is a field that will grow exponentially for the next few years.  Amazon stock chart looks really good as its coming out of a 10 yr base and doesn't look too over extended.  Combine that with a high short interest, and we could be in for a nice rally soon.

Other players that will benefits from this cloud computing trend are EMC (storage) and VMWare (Virtualization platform).  I will monitor these stocks and probably take long positions when opportunity presents itself.  Dell is also getting in the space as a reseller for cloud computing.  Combine that with the fact that Michael Dell just bought a $100 million dollars worth of DELL stock, and there just might be some hope (and the stock pattern looks promising as well).  I am not sure I will get any options on that stock, but I may add some to a long term hold portfolio. 

Position Updates

I closed out the calls in STEC and YHOO.  The order for YHOO Dec 17 calls executed at 0.51 (bought around 0.50) and the STEC Dec 17 calls sold at 0.89 per share (bought around 1.20+) for a loss.  I will continue to try and close out the remaining positions since I am no longer watching the market closely.  I will be working on a Swing Trading shift in my strategy and see how that works out.

Start thinking about closing out Dec calls

It is time to start closing out the Dec calls as opportunities present themselves.  Market looks very unpredictable with drops possible.  Although you would think that with the tax deal on the table, markets would react positively (but they may not until a definite deal is reached).  Still, we won't see much of the impact of the deal until next year with the temporary social security withholding cuts, so Dec options may not perform very well.  We have about a week and a 1/2 left on those options, and time decay is about to really accelerate...

OVTI and other portfolio updates

If you haven't taken profits on your OVTI position, this is a good time to do so.   The options purchases at 2.35 were bid at 4.80 and ask at 5.00 today.

I am looking for a slow DOW day tomorrow.  A strong up day will not be sustainable by the market and will end up in a pull back next week.  I would rather see the market have a slow sideways day tomorrow and that another nice rally next week.

We need Macy (M) to start makings its move soon or the option premium will start to erode at a rapid pace.  Daily indicators are not favorable yet the weekly chart still looks promising.  Unfortunately, the play I made was with Dec options, so the stock needs to move soon.  I may be moving my targeted sell price of $5 down to around 2 or so soon. 

IPG has started moving a bit.  If the stock can move another quarter or so, I may be tempted to get out.  The Dec 11 calls are bid at 0.20 and ask at 0.30 at present.

Logitech is trying to rally again.  If you look back a few days, you will realize that the stock jumped strongly and I closed out 1/2 the position at a 200% gain.  Then the stock continued up that day, and the options were up 400 percent.  But instead of closing the position, I decided to hold onto the rest of the options.  The stock then proceeded to give back all the gains and all my option gains evaporated.  The options are profitable again, and the chart is looking good.  But I think I will get out around 2.00 if the stock happens to hit the right price point.

The STEC calls are now at a 50% loss.  If the stock is going to rally, the time is now.  I will  be happy to break even at this point.  So still continuing to hold on to the position for now.

The Merck (MRK) options are pretty much worthless but that was a gamble I took with the expectation of losing the entire amount because the reward if the stock broke to the upside was huge.  MRK, however, disappointed with their earnings and outlook, and the result was a complete loss of option value.

The YHOO options were up 100% and I didn't take the profits (not even on half the position).  That cost me and now the options are 50% of what I paid.  Maybe someone will buy them out soon or at least spread the rumor that they will :-)

I think you can see the recurrent theme here.  You should always take profits if your options jump up 100% (even if it is on 1/2 of your position).  That way you at least guarantee preservation of capital and even a small profit.

Update

Sorry for the lack of posts, but I have been unavailable due to a family medical emergency.  My dad had open heart surgery and is now recovering.  That combined with a new job have left me with precious little time for sleep let alone for stock analysis.  Hopefully, some analysis will resume by early Dec. 

The only thing I have been watching is the DOW.  The 11,000 level has held so far.  With a lot of worries in the market (insider trading scandal, North and South Korea skirmishes, lot of new news coverage about bank failures, etc.),  there is a possibility for the uptrend to resume.  So keep a close eye on the market and look for opportunities.

General

I have started a full time day job again, so there will be no during the day updates anymore.  Which makes it a bit different on playing the market.  Analysis at the end of the day and execution the next day makes trading a lot more challenging.  So the style will need to become a lot more suited for swing trading.  Last few days have been brutal to my portfolio.  The option portfolio has lost about 30% of its value while I wasn't watching. 

There is a lot of selling in the market lately.  The big players have been selling on the news.  The bull scenario is that its a pullback and with Fed pumping all the liquidity in the market, its inevitable that stocks will continue to go up.  (And there is the conventional wisdom of "Don't fight the FED").   This is now reflected in option pricing where put premiums are declining dramatically compared with a month ago.

At the same time, if everyone reaches the same conclusion and enters the market, then there are no buyers left and the market peaks leading to a big pullback.    Lot of leading stocks are already showing selling pressure.

So watch out for a big pullback possibility.  It may not portend a market top, but it could put a dent in your portfolio. 

STEM

Buying STEM stock.  Just to see what I can do with it.  Stock is trading around 1.02-1.03 range.
I am thinking it has a shot at reaching 1.50 within a month or two.

Selling 1/2 of LOGI Dec 20 Calls at 2.05

Even though I don't want to do it, prudent money management compels me to sell 1/2 of my position in Logitech calls at 2.05 for a 300% plus gain on that half of the position in less than a week.  I can see if I should let the rest of the position run for now.  Logitech is having an investor conference that is resulting in a spike in the stock price.  With Google TV devices on the market, there will be a lot of coverage for LogiTech.

Update:  12:22pm-   The options are now up to 2.85 bid and 3+ on the ask.

New Position - Macy's (M)

Buying Dec 25 calls of Macy's (M) at $1.56  (Kind of a gamble on the improving economy and the stock market advance making buyers feel better).

Earnings come out tomorrow.  Also, there are rumors that a buyout by a private equity firm may be brewing with a target price of $34-35 if they become reality.  Hence the Dec calls to give me a bit more time in case they don't beat earnings.

LOGI update

LOGI Dec 20 calls that we bought at 0.45 on Friday (Nov 5) are now bid at 1.25 and ask at 1.35.  Looks like about a 200% gain so far.  However, if momentum builds and the market cooperates, I think Logitech could hit 25 before long.

Stock Updates - RIG / YHOO / F

RIG is up strong today.  My Nov 70 Options that 2 days ago were worth about 0.30 are now bid at 1.35 and offered at 1.39.  Chart pattern looks good.  Going to see where we go for a bit longer.

YHOO Dec 17 options bought at 0.50 are now worth 1.15 bid and 1.18 ask for over a 100% gain.  Take profits now or let them run.  Thinking about selling 1/2 my position and keeping the rest for a couple of days.  But I just might keep them all for another day or two.

Selling F - Nov 16 options at 0.71 (0.71 bid , 0.72 ask).   Bought these at 0.40 on Nov 4.   Banking a 77% profit in 5 days.  Note:  Be careful with Ford, it may be nearing a short term peak.  If you choose to stay in,  you will need to watch it closely.

Buying - JDSU

Opening a long position (stocks) in JDSU.
Stock is trading around 11.91 at the moment.
Good article in Barron's giving momentum to stock.  Stock has pulled back some since this morning. 
Interesting factoid:  In the internet bubble days, the stock was at $1000 per share.

Selling - HPQ Calls

Closing out the HPQ Dec 45 calls around 1.13 each.  Currently bid at 1.12 and ask at 1.15

Purchased them at 0.71 cents - pocketing about a 55% gain in about 10 days.

Call Gamble - Yahoo

Rumors abound that AOL will be making a bid for YHOO.  Looking at the chart of YHOO, it is in a nice flag pattern.  So I have decided to roll the dice and buy some Dec 17 calls.  They are trading at 0.48 bid and 0.50 ask. 

Here are some big players that are reporting earnings next week.
Not sure how to feel about Solar stocks since the last two either dropped or popped and dropped.
PCLN will probably beat as expected.  FOSL has been spectacular in the last several months.

-Mon: LDK Solar (LDK)  Lions Gate Entertainment (LGF), Priceline.com (PCLN)
-Tues: Fossil (FOSL), JA Solar (JASO), Playboy (PLA), Tesla Motors (TSLA)
-Wed: Macy's (M), Polo Ralph Lauren (RL), Sara Lee (SLE), Bob Evans (BOBE), Cisco Systems (CSCO)
-Thurs: Kohl's (KSS), Viacom (VIAB), Green Mountain Coffee (GMCR), NVIDIA (NVDA), Sunpower (SPWRA), Walt Disney (DIS)
-Fri: DR Horton (DHI), JC Penney (JCP), Wendy's (WEN)

Undoubtedly, some of these stocks will gap higher, others will drop even though they will beat earnings because their runs are getting extended.  Its getting tougher to play the earnings game since the temptation is just to go long, but they can as easily drop.  Play them carefully.

Breakout Stocks - DECK and SAM

SAM and DECK both have broken out of bases today.  I wish SAM had come on my radar yesterday.  Its up over $7 today (almost 10 percent).  DECK has been a stellar stock in the past and is breaking into new high territory. 

New Position - LOGI

Logitech chart looks good.  Stock was downgraded, yet did not fall much and recovered.  Dec 20 calls are 0.40 bid and 0.45 ask.  I am taking a long position using the calls at 0.45.

New Position - IPG

The IPG chart looks pretty good.  I have played this pattern successfully a few time in the last few days.  If the market continues to show strength, we should see some upward movement out of this pattern.  The stock broke out of a nice base a while back.  It has now been consolidating for some time and should make a move if a catalyst comes about (or the market makes a strong move up).   To minimize risk, I will be buying the Dec 11 calls (bid at 0.20 and ask at 0.35).  You should be able to pick some up around 0.30.  I am looking for at least a 200% gain on this position (which would definitely occur if the stock hits 12).  It is possible for the stock to make a run for 14 before running into major resistance.

Market

Market trend now definitely seems up with the strong break to the upside thru the resistance level.  The next series of resistance points for the DOW are:  11,800/12,000  -  13,000  and then 14,200 or so.  

In yesterday's rally, the leaders lagged.  However, the leaders have all come up so much that they are near their peaks.  Make money while you can, but be careful.

New Position - Momentum Play - F

Ford (F) is up on strong Oct sales today.
I already have a long stock position in F.
Opening new Nov 16 calls at 0.40  (be careful buying, there are weekly options that expire earlier than that out there- these expire on 11/18.

Update on CSTR

CSTR has recovered most of the lost ground for the day.

The NOV 65 calls (purchased at 0.75) are now bid at 1.05 and ask at 1.15
The Dec 65 calls (purchased at 1.94) are now bid at 2.35 and ask at 2.50.

CAT, of course, is trading higher.  But a very important lesson is not to complain about making money.  Don't let the fact that you decided to sell and make a profit cloud your judgment next time around.  You can always get back into the position if the opportunity is there. 

The market is strong.  However, a lot of my patterns might be approaching peaks - can't say if it will be next week or next month, but it goes without saying that be careful out there.  We may see a wave 5 out there, which would mean strong move to the upside in a short amount of time before the peak is hit.  The question is whether I will have the courage to short the market when the time comes...

New Position - CSTR call options

Buying Nov 65 calls for CSTR for  0.75.
Buying Dec 65 calls for CSTR for  1.94

I am already long in CSTR stock. 
The stock broke out of a flag pattern recently.  If the pattern repeats we could see a huge gain here.

Market / Position Update - CAT

Close out your position in Caterpillar (CAT) Nov 80 calls.  Calls are bid at 3.35 and ask at 3.40.  The entry price was around 1.26 so this is a nice 165% return for less than a week.  Stock will probably go up farther but since my options are Nov options, I am closing out the position.

BID, of course, if back up.  Trying to decide if I should play it again or not.  There are plenty of other opportunities in the market these days.

I got into ISRG 3 or 4 days ago.  Still pretty reluctant to recommend it because it is a very high risk stock if the market drops.  But so far, the stock has been climbing for me.  So far so good.

CSTR is still hanging out around 60.  I will probably add to that position at some point in time.

New position - STEC / Other updates

Opened a new call position in STEC - Dec 17 calls for 1.20  -  Options are currently bid at 1.16 and ask at 1.26.

BID plunged over 2 dollars this morning without any reason or news.  That means sellers came in around the point where the recent previous high was challenged.  The Dec 40 options went down from near 7 to around 5 at this time.  Will continue to monitor and decide whether to take profit or continue to let them run.

Update:  I decided to sell the BID calls and bank the profits.  I don't like the chart at this time.  Although it will probably continue to go up now that I am exiting the position.  Selling the options at 4.70 - Remember this is pure profit since 1/2 of the position was closed earlier for 100% profit.  This banks about a  95% profit on the whole position.

I am getting concerned about the  market nearing a top.  The market has been acting strong.  But continue to watch closely for signs of weakness.

CAT (Caterpillar) Update

CAT seems to be picking up momentum.  The options I got for 1.26 are now trading at 1.88 bid, 1.90 ask (after they made a trip down to 0.80).  Will continue to follow and determine exit point. 

DOW seems to have good momentum at this time.  Indicators seem like this might be the try that gets us into new highs.

Position Updates

Closed out CSTR calls at 11.20 for almost a 200% gain.  Holding onto the stock.
Closed out PWER puts for 0.40 for a 50% loss.
Holding onto the PWER calls.  They are trading at 1.35 at present, since stock has given up a dollar since open.  Plan to hold those since I liked the earnings and the growth news.  Let's see where we go after the morning frenzy is over.  The external news to watch out for would be if the Republicans take back the house in the elections, what happens to the Solar stocks?

Update:  Looks like the right play was to sell the PWER calls at the open and hold onto the puts.  Stock has now given up all its gains.  If you sold your calls at the open, congrats.

After Hour update

MicroSoft blew out earnings and stock was up strong after hours.  That may translate into a strong opening tomorrow, especially for tech stocks.

CoinStar blew out earnings and stock was up almost 15% after hours to 53 and change on huge volume.

PWER blew out earnings and stock was up almost 14% after hours to 13 and change.


Two home runs for the home team.  Happy Trading.

CoinStar

CSTR is one of those stocks that I like.  Management seems to know what they are doing and they have some high profit businesses (coinstar machines and RedBox dvd rentals).  Earnings are coming out after close today.  Options are pretty expensive - so I decided to play the long side only (risky) - Dec 46 calls for about 3.80 each. and opened a long position in stock at 46.22

New Strangle Play - PWER

Solar stocks have a bright horizon if the US continues to invest in alternate technology.  One of the stocks reporting earnings today after close is Power-One (PWER).  A strangle play on it is Dec 12 calls (trading around 1.00 on the ask) and Dec 10 puts (Trading for around 0.85).  I already own FSLR but sold covered calls on it earlier, so my potential gains on that stock are limited.  I am opening new strangle positions in PWER.

FORM Option Update

The call options for April 10 at currently bid at 0.95 and ask at 1.15.  So there is already a gain of 50% or better.  However, I think I am going to hold on for a while.  I have a lot of time (6 months) on this.  So I'll see how my will power holds out.  There is a shot that the stock may reach 15 by then.

New position Update - CAT, OVTI, NTGR

You know me.  I tell you to stay focused and careful, and then sell a lot of my holdings, but yet, I can not seem to stay out of the market.  When 90%+ of your trades are profitable, you must continue to trade and take advantage.

So I thought I'd take a long flier on Caterpillar.  The chart looks good.  CAT doesn't report earnings until Jan, but its sitting at the cusp of breakout from a long cup and handle formation.  My main concern here is the large amount of calls sharing the position with me at the Nov 80 point which will act as overhead resistance, but can also serve as the catalyst to propel higher if the stock successfully moves beyond the 80 mark.  But if the stock hits 80, I may cash in and take whatever gains I have by then (which needs to be soon).  The calls were trading around 1.26 at time of purchase (CAT is down now so they should be cheaper).

The second position I entered today is a long call position in OVTI - OmniVision Technologies.  The stock is trading in the neighborhood of 26 dollars and I bought the Dec 26 calls for 2.35.  OVTI reported good earnings and the stock busted out a base (cup and handle) on strong volume.  Let's see how this plays out.

Update 10:30 AM

NTGR (NetGear) broke out of a base and looks like might have a shot at hitting 35 soon.  Opened a call position in Nov 32 calls for about 0.85 each.

BID - Update - New Position - FORM

I closed out 1/2 of my position in BID Dec calls for 5.30.  The calls had a cost of 2.15 - so a 100% profit.  I will continue to monitor the stock today and decide whether to take the profits on the rest of the position or see if I can make it to the target of $50 per share at which point the calls will be worth $10.   The other option would be to close out the current $40 calls and buy the $45 calls for around 2.20 or so.

FORM is a stock that is getting hammered today. But the weekly indicators are not showing that the selling can continue for long.  So I am going to take a chance.  Buying April '11 - $10 calls for 0.60 (Bid is 0.55 and ask is 0.70 but my bid at 0.60 executed almost instantly).  I know, this is kind of long term for me - I usually can't hold onto any position for 6 months - but this is one of my long shot gambles.  Lets see how it plays out.

New position - HPQ options

Reentering long on HPQ Dec 45 calls at 0.71
Stock looks like it has broken the downtrend line but it might take a while to turnaround.
So decided to enter with cheaper options with a bit more time than front month options.
If stock gets to 45 by the Nov 20th or so, we can easily see a doubler here.

Market outlook 10-26-2010

With Halloween fast approaching, the traders are out in bear costumes today and practicing their growling.  The markets are down, although they have recovered a bit from their session lows.  With the market patterns signaling a pullback, I am hesitant to enter new positions.  I did, however, enter a new long position in Ford (F).  They reported good earnings and continue to perform well.  Even though the short term indicators are not confirming an up move soon, the long term trend is turning positive, and I decided to get back into the stock at this time.  

On a side note, my BID options are up 100%, but greed is winning out and I am holding out for more gains at this time.

Position updates

While I was out of town, Chipotle earnings came out (CMG) and the stock jumped 23 dollars in a day.  What a miss for me since it has been my favorite stock (and restaurant) for a long time.  I will look for another opportunity to enter the market.  I had recently exited my position due to market conditions.  I also closed out my IBM call options (Dec 45) for 1.50.  The net strangle result was even for me.  I will look for the right opportunity to reenter IBM long position.

Thinking about selling 1/2 my position in BID.  The options have almost doubled in price.  So thinking about locking in profit on 1/2 the position and letting the rest of it run.  I have the Dec 40 calls on BID.  But have not yet decided.  The daily chart looks pretty strong.  And I just might be inclined to let it run a bit longer.

Market update

As I said earlier, the market has reached the point where a pull back was imminent - since we were at the point of a previous high.  Either we will make a double top here or pull back and form a handle to the cup and handle formation.   China raised interest rates unexpectedly, which apparently was the excuse the sellers were looking for to seize control.  I just closed my HPQ options position (since it was profitable) to lock in gains.  But it is a pretty bad day for bulls.  I definitely think more selling is in the wings.  Normally you will see three down days when a pullback occurs (assuming its just a pullback).   Continue to monitor the situation closely and don't let all your profits evaporate.

RIG Update

Closing out long position in RIG stock.  Taking around a 3% gain in the position. Will consider closing the options later (which have gone from a 30% gain to a 20% loss overnight).

And, Of course, Goldman Sachs takes off today after my options expired.  

IBM Strangle Update

IBM Dec 40 puts are around 5.50 or so.  Closing out the position for puts.  Holding onto the calls for now.

Afterthoughts:  Now I do think that IBM price would lean towards 133 area, but I still sold my puts ?  Why?  (Minimize dollar exposure ?  I recovered $5.50 of the almost $7 investment and expect the stock to go back up again so holding onto the calls for now).  - Once I figure out my own psychology, maybe I can become a better trader...

IBM - AAPL update

After hours IBM is down about 5.5 and Apple is down about 20.

New position - Sothesby - BID

Chart for BID looks really good.  Taking a position by purchasing Dec 40 calls.  Calls are bid at 2.05 and ask at 2.20 (I got in at 2.15).  Stock has finished a cup and handle formation in weekly - and in daily with pullback.  Will watch this closely.  Stock has a shot to get to 50 if momentum continues.

Market

As the DOW approaches a previous high, we could either make a double top or this could be the point where we pull back and form the handle of a cup and handle formation.  Either way, I am getting pretty nervous and sitting with a finger on the mouse button just a click away from being in cash.  Unless IBM has a blowout quarter, we could see a pullback after earnings.  A major miss by a big player can put the brakes on the market.  Be careful in your trading.

FSLR Update

Sold Nov 150 covered calls on FSLR for 7.00 each.

HIG contemplation

I am really confused about holding onto the HIG position.  The upside down head and shoulder pattern in the daily chart appears to be holding with support found at the neckline.  At the same time, some of my trusted indicators are not confirming a continuation in the uptrend (although I suspect it will hold).  The position is holding about a 30% gain so far. I am thinking about closing the position and taking the gain and minimize my stress level (there is something to be said about that).  Bid is around 2.97 at this time.

Update:  Closed out the HIG position even though the long term profit potential is high.  Will continue to monitor and reenter as appropriate.

IBM Strangle

Opening a new strangle on IBM.  The stock looks like it may be getting a bit extended after breaking out of a long base.  (So overall bias is bullish - if you were to hold a longer term position, it would be to the long side).  Just to give me a bit more time (and the premium difference wasn't too much), I have decided to open Dec 145 calls and Dec 140 puts.  If the stock drops at earnings, I can cash out the puts and hold onto the calls since I don't think the base breakout would fail. IBM calls are trading around 3.00 (Dec 145) and the Dec 140 puts are around 3.95 at this time.  It is quite possible for the stock to pull back to 134 or so in the near term.

Strangle Candidates

First congratulation on playing the Google Strangle to Iman.  Its up another $13 this morning.  I would consider taking profits soon as you are up 3-4 fold.

A similar opportunity could be present today in AAPL (Apple) - earnings after close today, and on Thursday with AMZN (Amazon).  I just think these options are very expensive, but they are expensive because they can move explosively.

A really big mover is ISRG that reports tomorrow.  That stock can easily move 50 dollars in a day.  But the options are very expensive as well.

Caution: A lot of stocks are showing peaking indicators, so its important that you hedge your bets with puts (especially in a strangle situation since its easy to become euphoric and stop buying the puts).

RIG is up nicely again today and continues its uptrend.  If you remember, we purchased RIG calls at 1.4x then sold them at 2.50 then bought them back at 1.8x something.  They are already back up around 2.30 for a nice gain but I am going to let them run a bit longer.

New position in RIG

Opening a new position in RIG (Transocean) Nov 70 call options  (currently bid at 1.71 and 1.74 ask).  Yes, there are the same options I bought earlier in the week for 1.48 and sold for 2.50.  Even though the stock is at a potential resistance point, I think its worth making a play here, so I am going to take the plunge. 

Close YUM if you have not yet done so

Close out your YUM calls today.  Options expire today.  The trade ended up in a profit if you happened to stick it out.  I did not want to chance it and closed it earlier for a small loss.  But I made it up in the RIG trade.

Updates

Market pulling back as expected.

FSLR up sharply on higher volume.  We have already done twice the normal daily volume.  It is currently off its high of 145.  If the market recovers a bit, the stock should continue to perform.

RIG is also up at the moment (and so is YUM).  Maybe I pulled out of YUM a bit early.

Update:  Just checked on my positions and looks like my sell order on RIG calls executed and sold at 2.50 per contract.  That is a $1.02 profit on a 1.48 contract over 2 days.  59% return over 2 days.  Not too bad.  RIG has now reached a 50% retraction point from the pullback.  Can it keep going or will it falter here?  Watch closely.  I am still long the stock in RIG.

Market outlook

I sure don't like the chart patterns of a lot of stocks today.  We have a lot of hammer candle patterns on higher volume.  That means that the market may be in for a pullback.  My caution flags are starting to flash again.  It could just be that with option expiration approaching, there will be more volatility.  I wanted to reenter the VIX calls again today but got side tracked. 

New Position in First Solar (FSLR)

FSLR looks like it has pulled back to a support point.  I am opening a new long position in First Solar.  The stock is trading around 137 at the moment.  Price target is 175 over the next 8 to 16 weeks.

My only concern is the broad market itself.  But for the time being, the market continues to go up so I will continue to go along for the ride while watching it very closely for signs of weakness.  What is making me nervous is that we are approaching a previous high for the DOW that can offer resistance.

YUM

Consider closing out the YUM calls - They are slightly above a dollar at this point with 2 days to expiration.  It is possible that the stock could go up more but it could as easily pull back until expiration.  You can minimize the loss at this point by exiting the call position in the strangle.  There will be no more updates on YUM. 

Update:  I closed out my calls at 1.05.

Reentering RIG

Buying some stock in RIG (TransOcean) at 64.84- Govt lifts ban on deep water drilling - gives momentum to stock price (Almost entered it yesterday but didn't like the market action).  Also looking at entering Nov 70 calls at 1.48 or so.

I am still cautiously optimistic.  Enter positions only if you can watch them.  Positive momentum to market but top may be near. 

Closing out F calls

Selling F Dec 12 calls.  Bought for around 1.35, selling for around 2.06.  65% return.

Closing out LogiTech calls

Selling LogiTech Dec 17.50 calls for 1.20 (bought at 0.85).  About a 45% gain.

Portfolio updates

Yum looks like on a steady small uptrend.  We might get all our money for the strangle out of it yet.  Still holding on.  If it makes it to about 48.30 or so, the breakeven point on the strangle will be reached.

I think I am closing out my VIX options.  The market seems too bullish at this time.

Update:  Closed the VIX option at 3 for a fairly big loss, but the market is showing a lot of strength.  Maybe it will even try to hit its previous peak.  If yes, that would be the time to try again.

I intend to get out of YUM next week.  Options will expire on Friday.  So keep an eye on it and exit at your best chance.  Even if you take a small hit, capital preservation is the name of the game.  Remember, you can make the money work somewhere else and you will not bat a 100%.  This is my first strangle that has behaved this way with little to no movement.

Yum Earnings

Sales up in China, dropping in US.  Not much movement after hours.  Remember to watch at the open to decide what to do.   Detailed earnings info is here http://finance.yahoo.com/news/Yum-Brands-post-7-percent-apf-243514892.html
This is playing out as the worst strangle scenario so far (looking at premarket movement).  Stock up a little. I think I am going to hold onto these options for a while and not sell them at the open.  But this may not be a bad time to close and take your lumps.  We still have 10 days to expiration so we do have some time to see how this plays out and in which direction the stock moves.  But the big move I was expecting did not happen.  YUM did not miss estimates or beat them.  They were right in line and that has resulted in no move at all so far.

YUM Update

The stock is up strong ahead of the earnings (after close today).  The call options are at the money as the stock hovers around 47 and worth slightly over a dollar.  I couldn't resist and added additional puts for Oct 45 since they were down to 0.31  - So now I have 3 Oct 47 calls and 6 Oct 45 puts.  Let's see what the earnings report brings...

On a side note, CMG is up strongly today.  (I knew I didn't want to close out my CMG position, but I did).  Also, NewMont Mining (NEM - Gold mining stock) has broken out of a long base.  I am contemplating entering a long position there.

New position in F

Ford got an upgrade today.  It is my favorite auto stock at the moment anyway.  So I decided to get back into it with a purchase of Dec 12 calls at 1.35.  That is a premium of about 0.55 per share (since the stock is trading around 12.80). 

New position

I have never before experimented with VIX calls / puts.  Today I am dipping a toe in the waters to get a little feeling for how to play these.  I opened a new call option in the VIX for Nov 25 calls at 4.80 per share (so it cost 480 for one contract).  Not sure how long I will stick with the position because the weekly chart of the DOW is still bullish (in my opinion).  However, market and stock drops generally continue for about 3 days when they occur (3 black candles - in a candle chart).   If the market drops for a couple more days (and that is a big IF), I could cash out on any profits I might have since the fear (and VIX) will spike.

The reason I say I am experimenting is that the options on the VIX are really expensive, and I believe that you will need a big move in order to significantly profit for a move (like the flash crash).  And then you might have to have a pre existing order or be in front of your computer to take advantage.  Let's see how this plays out.

Volatility of a stock

Iman asked a question that I thought merits its own post.

Q.  Is there anything that would essentially calculate the VIX for an individual stock that is easily obtainable?

A.  The VIX is really the volatility for the "S&P 500" index.  The volatility of a stock is measured by the Beta of a stock.  If you go to finance.yahoo.com, put in the ticker symbol (E.g. CMG) and then look at the key statistics, you will see the stock beta on the right side (1.06 for CMG).  If you look at ISRG, its beta is 1.84.  So ISRG is more volatile than CMG in relation to market moves.  The beta gives you an indication of the volatility of the stock in relation to the market and generally the options for high beta stocks will be more expensive than low beta stocks.  A beta of a 1.8 signifies that ISRG is 1.8 times more volatile than the general market.  A beta of 1 means that the stock is no more volatile than the general market.

Closing all long positions

I am closing out a lot of my long positions and going to cash to lock in my profits.  I really don't like the VIX - we could be in for a drop (or maybe not) - I really had a hard time to push the sell button on Chipotle (CMG).  Yet, I had to lock in the 10% gain.  I can always get back in.  The market itself doesn't look that weak.  Just that a lot of leading stocks are over bought.  The VIX is spiking today.  I didn't get up in time this morning to buy the call options as I had indicated on Friday.  So now I have to decide whether to jump in on that position or not.

 I think I will hold onto the following positions for now.
BCSI,  NFLX

VIX - what is ahead?

Gentlemen, I don't like the chart of VIX at this point.  Looks like we may be ready for a spike in the VIX soon.  The VIX will spike as the market drops, so be very careful on your long positions since a market drop will take down a lot of stocks.  After a great September, maybe we will see the October result in a market drop...  I have seen a weeks worth of profits in NFLX erode in just two days.  Maybe its time to take profits and watch from the sidelines again.   One way to protect your portfolio (or to try a make a gain) would be to buy call options on the VIX.  You can find some info on VIX options here http://www.cboe.com/micro/vix/vixoptions.aspx

YUM Strangle

YUM will be reporting earnings on Oct 6.  The Oct 47 calls are around 0.81 and the Oct 45 puts are around 51 cents for a total entry price of around 1.32 + commissions.  I would expect the stock to move around 4 to 5 dollars after earnings based on past movements.

Update:  The way I would play this is that you would need to be up and monitoring your position on the morning of Oct 6 to the reaction to the earning news.  At that point, you would have to decide when to close your position.  I will post my update when I close out my position.  If the stock makes a strong move in one direction, you can close out that position and decide to either close out the opposing position or wait another 3 days until expiration to see if the stock then moves the other way.  Blowout earnings will probably result in a gap up, whereas, missing earnings will end up in a gap down.  The worst scenario is that the company meets earnings and the stock does not move much, but I would expect the chances for that to be low.

New transaction update

Of course, I sold the RIG options too early (but hey, I made a nice profit).

Entering new position on Dec 17.5 calls on Logitech.  Stock is breaking out of a base.  Looking for a target of 20 within 30-60 days.  Options are trading at 0.80 bid - 0.85 ask.

Can't decide whether I want to enter a long position on NANO.  Stock is behaving well, coming out of a nice base, yet its normally so thinly traded that I am reluctant to enter the position.  Could make a nice run if you can stomach the lack of liquidity in this stock.

Position update

I closed out my RIG Oct 60 calls at 4.20 this morning.  Even though I think the stock may have entered a new uptrend, I figured I would lock in my profits and revisit the stock at a later date.

I also closed out my NVDA position at 11.83 per share to lock in approx 30% profits on that position.

Opening new position in DRYS - Dry Ships Inc. Stock is currently trading at 4.87 bid / 4.88 ask.

Eastman Kodak (EK) chart is looking good.  Stock is responding positively to the release of Kodak Gallery for Facebook. 

New Position - JBLU

Opening an equity position in JetBlue (JBLU) around 6.42 per share.  Pure speculative and momentum play.

NVDA position Update

I closed out my NVDA Dec 10 calls at 2.41 per share (entry price was around 0.96 per share), banking a profit of about 150%.  Approx. holding period was about 2 weeks.  I am still holding onto the shares for now.

New Options Play - HIG

Hartford Financial Services Group (HIG)

I like the chart for HIG.  The stock fell below a support level but has now clawed back to the support tier.  The current chart pattern (weekly) is of a flag.  The daily pattern is of an upside down head and shoulder pattern (however, the price has not yet penetrated the neckline to the upside).  Combine those two patterns together and we could have a pretty nice rally if the stock manages to break to the upside and move towards a price of $28.00   I have decided to play this with Jan'11 at the money calls (22.50 - trading at 2.18 bid and 2.22 ask) and entered the position a few minutes ago at 2.22.

Of course, all options have an inherent risk of losing all your investment in it so you should only speculate if you can afford to lose the money.

Market update

RIG has finally made a move to the upside.  Options (Oct 60) are finally in the money.  Now the greed/fear tug of war starts.  At what point do you sell and get out?  Position is now profitable but there is so much more money to be made IF the stock continues to move.  I think I'll give it a bit more time yet watch it closely.

NVDA Dec 10 calls are nicely in the money and up around a 100% from purchase.  NVDA is pulling back this morning.

NFLX and CMG are both up.  So are HPQ (Hewlett Packard) and GS.  Let's see how the day plays out since the market is currently down a little.

Reflections:
One of my misses recently was TNH (Terra Nitrogen).  I spotted the pattern yet hesistated in pulling the trigger about a week ago.  In hindsight, I should have bought it, but if the economy does recover, there is huge potential in this stock.  So keep it on your radar.  If the stock does keep moving (and the market doesn't tank), previous high is around 138 (but first it has to overcome resistance in the 107-109 range).  I still like FSLR as well.

Market cycle is approaching a peak.  Lot of stocks have stochastics that are peaking indicating an over bought condition.  So be careful in your trading and keep an eye on the market.

PS:  The very long shot pattern I was playing on GS with way out of the money calls appears to have failed.  

Portfolio performance update

Here is a current update on portfolio equity positions I opened up in the last 30 days and returns to date
(Does not include positions we have closed out or speculative option positions).

Chipotle - CMG -  10.04% gain
Goldman Sachs (GS) - 5.03% gain
Netflix (NFLX)  -  4.03% gain
Nvidia (NVDA) - 31.41% gain

NetFlix

NetFlix is very strong today.  Entering position even though stock is up over 8 dollars already.  Blockbuster (the main competitor) filed bankruptcy.  Also, NetFlix announced that they are now offering streaming service in Canada.  These announcements, coupled with the short interest, could result in a fast move (wave 5?).  I will watch this closely and find a good exit point.  But NFLX is now on my list for a long term core holding.  The question really is about the best entry point.

New position Update - Goldman Sachs (GS)

Bought some Oct 165 calls (expire on 10/16) at 0.39 cents.
These are front month, 15 dollars out of the money and extremely high risk with very high probability of 100% loss.  But there is a very small chance that the stock could be at 170 by expiration.  If it does we are looking at about a 10 bagger. 

Market

Market opened strong today.  There are a lot of stocks breaking into new highs or out of solid bases.  Nike (NKE) just broke out of a 5 month base (daily charts) but that is also out of a base on base formation.  The previous base was about 2 years long (Weekly chart).  Keep an eye on this one as it appears to be a leader. 

We are currently testing the 10,700 resistance point on the DOW.  If we make it thru then a test of 11,000 is next.

We have seen a lot of flag patterns lately.  Those are fun to play and can result in huge gains in a very short amount of time.  And they should be played while they last.  Based on experience from the last big crash (late 1999 - early 2000), a lot of stocks showing the flag pattern can forecast the nearing of a market top as seen in the Nasdaq in those days. 

So just be careful while trading, but get out there and make some money.  Practice sound money management techniques and let's make some money with Stocks.

Pre-Open Update

FedEx apparently disappointed.  Shares are down before the open in pre-market trading.  The news is being treated as not so good for the economic recovery and market futures are down as well.  But the stock is not down enough to reach break even at this point.  Let's see what transpires in a few minutes.

Update:  8:33 AM - Sold FedEx puts at 2.15  now waiting to see if the stock pops back a little to find the right opportunity to close out the calls.

RIG

Getting a little nervous on RIG - If you look at the chart, we could be in an upside down cup and handle formation - which could turn out badly.  On the other hand, if the move is for real then there is a lot of upside.  Plan to get out soon to minimize risk (hopefully, with some profit).  Gotta watch this one closely.

FedEx update

I have decided to enter the FedEx straddle by purchasing Sep 85 calls and Sep 85 puts.  The 85 Calls are trading at around 1.84 (they are about 50 cents+ in the money) and the 85 puts are trading around 1.30 (slightly out of the money).  Even though I expect FedEx to go up, I just had to hedge my downside.  I thought about buying the 80 puts but I don't think the stock would move that much unless the news was catastrophic for FedEx.  So the straddle requires an investment of about 3.15 or so.  So if the stock moves to 83.50 or 76.5, the trade will break even.  Anything above that is gravy.  You will need to be up at market open and monitor the situation to sell at the right point.

Update for RIG:  I added to my October RIG calls at a lower price since the chart looks like it may move to the upside a bit more.   But the stock is not cooperating at this time.  I don't expect much movement until after options expiration on Friday.

To FedEx or Not to FedEx

I think FedEx may present a good opportunity.   I think 93 to 95 to the upside and 75 to the downside are potential targets.  The question is whether that can happen in one day or should this be played with Oct options (which almost doubles the break even point to around 7 and change rather than 3 and change - but it does give us almost 30 more days for the scenario to play out).  Still pondering what to do... Got all of tomorrow to decide since earnings will be announced on Thursday morning before the open (I generally take that as a bullish sign.  It would be interesting to see if there is a correlation between reporting earnings before open and having a good report vs reporting after market close and maybe not as good a report).

LLTC position update

Even though I expect LLTC to go up tomorrow, with expiration only 3 days away, I closed out my long LLTC September 30 calls for 1.20.  My cost basis was 0.65 cents each so that trade resulted in a 90%+ profit. 

New oppotunity

FedEx reports earnings on Thursday.  If this event is to be played (I haven't quite decided yet), the 85 calls/puts will be the play.  The question is whether the move will be big enough to offset the losses on the other side.   At least a 4 dollar move will be needed in either direction to break even or make a small profit.  I will post later, if I do decide that the trade is worth entering (It might be since traders might be looking to FedEx to be the economic barometer, and the FedEx results are expected to support or contradict the hopes of an economic recovery).  The expected earnings are almost 100%+ higher than same period last year. 

Back to the analysis I go...

BBY Strangle update

BBY beat earnings handily and updated their full year outlook.  Shares are up pre Market to around 37.25 (up 7.5%).  I will close out the calls for a 100% plus profit on the entire strangle at market open.

Update - 8:31 AM.   Sold the calls for 2.43  for over a 100% profit on the entire position.  The puts are worthless at this time.  Not bad for a 2-3 day play.

Stock updates

LLTC took a big drop today wiping out all my gains.  That's a direct result of greed when I refused to take a 100% gain and was looking towards a 300% profit potential  (I need to remind myself of the old saying "a bird in hand is better than 2 in the bush" more often).

So I decided to play a long strangle just now.  Best Buy chart is looking decent with a potential flag pattern.  If the earnings on Tuesday (9/14) surprise, we could see a nice move.  However, to hedge my bets, I purchased  Sep 35 calls for 0.55 and Sep 33 puts for 0.71.   A big move in either direction could net me some cash (hopefully more than the 1.26 I laid out.  Options expire on 9/18 so this is a very short term play on expected volatility. 

A Long Strangle is when you open a long position in both a Call option and a Put option with different strike prices but the same expiration dates.  This is similar to a Straddle but the Call option typically has a higher strike than the Put Option.
The maximum risk is limited to the total premium paid for both the Call and Put option premiums.
Maximum profit is unlimited on the call side.  The maximum profit on the put side is from breakeven to $0.
The break even point is the total debit of both the long Put and long Call premiums, or the Call strike plus the total debit and the Put strike minus the total debit.

So this would pay off if a fairly large move happens as a result of the earnings announcement for Best Buy.  If the stock moves up or down rapidly, profits can be made.  The worst scenario is that the price does not move in response to the earnings announcement making both the call and the put almost worthless.

I also opened a new position in RIG by purchasing Oct 60 calls for 3.30.  The stock has moved strongly last couple of days and shows good momentum.  Would love to get a double in a week or so and get out.

Happy trading and good luck.

Market outlook

Sorry I haven't posted in a few days, but I didn't have a chance to look at the market late last week.  Market is looking fairly good at the moment.  My buys of Goldman Sachs (GS) and Chipotle Mexican Grill (CMG) are nicely profitable.  However, since I wasn't watching the market, I failed to sell the LLTC options for a 100% gain and now the calls are back around where I bought them (slightly higher).

I really like CMG's chart.  It has broken out of a cup and handle formation in the weekly chart.  If the market cooperates, we could see 200 before long (next 3-4 months).  The stock is trading around 165. 

In general, I would not be surprised to see the DOW visit 10,600 in the next few days (maybe even this week).  Let's see how the day plays out.

PS:  I shouldn't have to state that September (historically) is the worst month for stock returns, with October having some of the largest drops on record.  So be careful when playing the market and keep a close eye on your holdings.

Market rally 09-01-2010

Market is off to a nice start this morning - all indicators are pointing to a way oversold condition.  Expect big gains over the next few days regardless of the overall trend.  The 10,000 psychologically important level held again.  With so much money on the sideline (and everyone very bearish), a rally could turn explosive and we can see large gains if the hedge funds start moving money back into equities.

Update: Opened a new position in Chipotle this morning (CMG). Trying to decide whether to do the same with ISRG.  Also opened a new call position in LLTC - Sep 30 calls.

Market update - 08-30-2010

The market continues to be weak.  However, the fact that on Friday, the DOW climbed back above 10,000 can be seen as an encouraging sign for the bulls.  It appears that the bearish sentiment is climbing steadily.  Most of the hedge funds are pulling money out of equities and investing in bond funds.   I am not quite sure whether we are seeing a bearish extreme quite yet, but we might be close.  Maybe the bearish extreme will be seen in Sep or October, followed by a strong rally (since there is so much money that is not in the equity market).

One other pattern I have noticed is that I have been using a 40 day period for my bollinger bands with a 150 deviation and a 20 day period for my moving average.  If you notice in the daily and weekly charts, whenever the 20 day moving average crosses below the average of the median line of the bollinger bands, generally there is a long decline.   However, the market stochastics (overbought / oversold) for the daily charts are showing an oversold condition peak might be near, but the weekly stochastics have some more room to run (lending support to a sharp sell off possibility in the next few weeks).  (Please note that the charts are using Log scale rather than a linear scale). Currently, in both daily and weekly charts, the 20 day/week moving average is below the 40 day/week bollinger band median average indicating a downward bias to the market direction.

The stocks with good patterns of consolidation are Apple (AAPL) and Chipotle Mexican Grill (CMG).  Intuitive Surgical broke to the downside recently.  I will continue to monitor it and hopefully find the right spot to enter the position.  Overall, I would continue to monitor the market and see if we get a big sell off day soon.  If we do, I may reenter the market with up to 25-50% of my cash.

Market update - 08-24-2010

The market continues to drop as bad news continues to overcome any Merger and Acquisition euphoria that may attempt to rally the bulls and lift the market.  Money continues to leave stocks and might be moving into bonds (causing some to forecast a bubble in the bond market).  If a bubble in the bond markets is forming, there might be opportunity to make money on the downside once the bubble bursts.  (By being short on Treasuries, for example).  I am researching some ETFs that may have such a focus.  Of course, such ETFs have been losing money for their investors over the last few months. 

I continue to stay mostly in cash.  The only new position I have opened lately is Nvidia.  The action is encouraging at this time.  The downtrend line has been broken to the upside.  Also, the key fundamental news driving this change in trend could be that Nvidia is entering the smart phone market with a dual core processor.  Which means they will be going up against QualComm's Snap Dragon processor which is a popular processor in the latest generation of Android phones.  LG has committed to using the NVIDIA Tegra 2 processor in a line of upcoming smart phones.  At the same time, QualComm announced that a new dual core version of the Snap Dragon processor running at 1.5 GHz will be available in the 4th quarter.    So it remains to be seen whether NVIDIA can successfully execute the mobile processor strategy and take some of the market share in the smart phone market.

For now, I am looking for a target of 13 to 13.50 for NVDA to take profits. 

As I have mentioned before, the general trend of the market is not to be ignored.  It doesn't generally matter how good the prospects for a stock are.  If  the market is headed down, it is likely that gains cannot be made to the upside since 3 out of 4 stocks will follow the market direction (up or down). 

Another stock that I am looking at is First Solar (FSLR).  It may be turning the corner and entering an uptrend.   I will monitor and see if an opportunity to profit presents itself.  But with September fast approaching, maybe sitting on the sidelines with cash is not a bad place to be...

Market watch continues

As I write this, the DOW is down over 162 points and testing crucial support level.  Since we had been in an uptrend and this is option expiration week, volatility is to be expected.  I don't like the action in many stocks but I do like the price action of Nvidia and the indicators are showing a positive bias.  I had opened a position in NVDA stock a few days ago, and today I added a new position of Dec 10 call options for 0.96  despite my apprehension about the approaching September.  I was encouraged by the fact that NVDA indicators had bottomed out, the stock followed thru today to the upside on an earlier move and that the stock was up significantly despite a down market. 


On a side note, I expect my out of the money call options on S, ATVI and F to expire worthless tomorrow.

Points to watch

The DOW has dropped over 3% in the last week.  With September fast approaching, the question is what will the market do.  September is historically the worst month of the year for the stock market.  The market needs to be watched closely.  If the rally is to continue, the DOW must breakthru 10,500 soon, and 10,750 or so to confirm the continuation.

Read an interesting article about an indicator (Hindenberg Omen) that claims to predict market crashes (although it has successfully predicted market crashes 1 out of 4 times).  Apparently, the indicator is now signaling a market crash.  Even if a crash doesn't occur, the indicator could mean a decline in the months ahead.
Check out the article here. 

There is also a good explanation of the indicator at Wikipedia.

Wow - two positions in a row where I got out a couple of days too early.  The first one was Goldman Sachs (GS) calls.  Got out in the morning and by that evening, the options were worth 3 times as much.  Also, a couple of days ago, I sold my NetFlix calls for 1.10 - today the same calls were fetching over $5.  So correct picks, wrong exit times.  I am going to have to go back and reevaluate my holding strategy.  Don't get me wrong, I made money on the NetFlix options, but I could have made a LOT more.

Market dropped like a rock today.   The DOW was unable to break to the upside thru the resistance point I talked about earlier around 10,600-10,700 range.  It peaked its head above then fell.  This could be the top of the right shoulder in a head and shoulder pattern (Weekly chart) and should be watched closely.   I am not trying to predict anything here, just let the market action do the talking and see how the market does by the end of the week.  If we get most of the loss back by this Friday, then maybe this market has more strength than I give it credit for.

Postion update

The ATVI "gamble" did not pay off, and I lost most of the pennies I put in there.
The NetFlix calls jumped up again and I closed those out at 1.10 per share adding to the gains made from the put side of the straddle.
NVDA continues to inch upwards.  But its not moving fast enough.  I'll watch it for a bit longer but may cash out if the stock doesn't move soon. 
F is still hovering in the same range.  Breakout should occur soon (to the top or bottom). 

Stock to watch - Genzyme (GENZ).  Genzyme has had a big run up on positive news.  Daily pattern looks like it is breaking down, but the weekly chart may just signal a pull back.  Watching this one closely.   It would be a big money maker if we can predict the correct direction.  If I had to guess, I would be bullishly biased and the stock appears to be starting the formation of a handle on a cup with handle formation.

Market Update - $INDU continues to act strong on lower volume.  Continue to watch to see how things develop.   

New positions

Ford (F) looks promising in the short run (and perhaps for long term as well looking at their product pipeline and increasing market share).  Buying Aug 13 calls (08-21-2010 expiry) for around 0.45 per share.

Update:  02:42 pm CDT :  Buying Aug 12 calls on ATVI (Activision) for 0.26 cents per share.  Earnings coming out tomorrow.  After a strong Electronic Arts announcement, Activision may also have good news.  Expected new announcements about call of duty and other add ons (read money makers).

Update:  02:59 pm CDT:  Buying some Nvidia (NVDA) stock at around 9.30

Close Goldman Sach's position

If you entered the GS position with options, close it out for a 100% + gain.

Position Update

Didn't realize Goldman Sachs now had weekly options as well.  I guess I wasn't paying attention when I purchased the GS 155 calls - Got the 08/06 expiration instead of the 08/21 expiration that I was going for.  Looks like we have to pay close attention to options symbols because of the Weekly's now.  I'll chalk that one up to a lack of attention and hope that GS gets a nice jump tomorrow :-)

Rally for real?

Markets did run into resistance this morning, and are slowly starting to come back.  But I just wanted to share that something is still making me uneasy in this rally.  I went back and took a closer look at the charts.  This rally is occurring on low volume.  It even seems lower than the average volume.  Down days are on higher than average volume and up days are on lower than average volume.  Top that with Secretary Geithner's comments about unemployment will continue to grow and the slowdown in GDP and the possibility of a double dip recession, and I start getting real nervous. 

In argument for a rally, there is the easing of the Fed.  If easy money continues to flood the market, it will more than likely end up in the stock market since there is not much of a return to be had elsewhere.  But not quite sure how high this rally can take us without more volume coming in.  Mutual Funds have now had a net outflow for 12 weeks straight.  That does make an argument for quite a bit of money on the sidelines, but it still makes me nervous. 

Market Update

The markets are acting very strong and the summer rally continues.  The DOW overcame the first resistance point and closed above the last high of 10595 set on 6/21/2010.  It is now likely that the market will try to test the previous high at 10,900.   With the Fed pumping money into the economy, and interest rates floundering, we are likely to see the market go up.  However, we are right around the point where we could see resistance.

I might slowly increase my exposure in the market if the bullish trend continues.  As I mentioned in an earlier post, watch IBM closely.  Its itching to break into new highs.  I would wait to buy until it does set a new high on high volume before buying. 

General Observations

I have been reading a lot of comments by Fed officials that are leading me to believe that an increase in the money supply in the economy is on the way.   Fed officials are more afraid of deflation than inflation at this time.  An easy way to ward off deflation is to print more money.  The Fed can potentially add a lot more money to this economy by firing up the printing presses.  There is an old conventional wisdom in the stock market - don't fight the Fed.  If the Fed starts to increase the money supply a lot, more money may flood into the stock market leading to another run up in the stock prices.

Just looking at charts, I am inclined to believe that we are likely to spend some time oscillating between 9500 and 11,800 (DOW) with a possible revisit to the 7000 range in the long run.  In short, don't expect the markets to bust out into new highs anytime soon. 

Another example of Flag Pattern

Here is a chart of Ford (F) that has made a successful follow up to the flag pattern and is now, in what appears to be, yet another flag. Just remember, they cannot keep on going forever. 

The market has retracted back to its trend line now.  So the moment to truth approaches.  Will the market be able to find support and rally to test the overhead resistance or will it breach its uptrend line? So far the trend line is holding.  

Market / Position Update

Even though short term indicators are signaling an over bought condition, this market is acting very strong.  After a strong week, we are still barely retracting from the highs.  I would expect with this kind of market action that we could finally see a break to the upside where it will test the resistance around 10700 for the DOW (and may actually try to test 11,000 or so).   

I noticed a nice pattern on Goldman Sachs (flag pattern) earlier in the week.  Planned to buy some options but got too busy and forgot to buy.  GS broke out of the flag formation today to the upside.  I just saw it and jumped in with Aug 155 Calls at around 1.31 each.  The Flag pattern is one of the most powerful move patterns.  Its called the Flag pattern because the stock price moves up very rapidly (like a flag pole), followed by a short consolidation that may look like a flag.  A variation on the pattern is called a Pennant - where you have a formation that looks like a Pennant (triangle).  The Pennant can be even a more powerful pattern.  Now the stock has broken out of the pennant formation to the upside and will bear close watching.  If the pattern fails, one is advised to get out immediately.  But a successful breakout can net the investor with some nice profits.  One of the things I like about the Flag/Pennant formation is the the move is approximately known.  The stock will tend to move the same percentage amount as of the previous move.  So if in the first move, if the stock rapidly moved from 20 dollars to 30 dollars then formed a flag / pennant pattern, that is a 50% move.  The next move is also likely to be about a 50% move (from the bottom of the flag).  So if the flag takes the stock to about 26 dollars, the potential move target is around 39 dollars.  This helps me set an exit point that I can put a sell order for ahead of time.  I have made more money using this pattern than any other pattern in the books.  In times of bubbles (and yes, I love bubbles since the most money can be made in the shortest amount of time in those days) flag/pennant patterns are very common.  If you go back and look around the end of 1999 and early 2000, you will see these patterns everywhere.  Using this pattern, I think we are looking for about a 9% move in GS stock.  (Assuming a low of 130 and the top around 147 (average for the flag formation)).  So around a $14 move in the stock starting around 147.  We have already made about a $5 move from there.  I would start thinking about taking profits around 160.  (Although the stock has the potential to move to 172 or so as well).

Also, I am using front month options to play this position.  If I am wrong and the pattern fails, I am risking about 1.31 per stock that I would lose. But I am looking at a potential gain of around 350-400%  if the pattern is successful.  A pretty good risk in my mind.  The options are now at 1.30 bid and 1.46 ask.  So I am getting close to break even.  You must, however, realize the inherent risk in playing front month options.  Time decay really starts affecting the value of the option with a couple of weeks to go.  80% or more of all front month options expire worthless according to industry data. 

Good luck and happy trading.

Market update

It was a busy day for me and I got back home this evening to find that the market closed up yet again.  The DOW ($INDU) is now approaching the resistance point I mentioned earlier (in the 10,600-10700 range).  On a positive note, we now have a higher high and a higher low.  As a bull, I would take this to show promise that the downtrend may be over for now.  On the other hand, looking at long term charts, there is still the possibility that we are approaching the top right point of the right shoulder in a head and shoulder pattern (see older post for charts).  This may be especially true in a monthly chart.  What this means is that there is still money to be made in good stocks but don't commit a lot of your capital if you do play the market a bit.  I am experimenting a little using options to limit my exposure but I am still mostly in cash.  Once the DOW breaks above 10,700 with conviction, I will start taking a closer look at the market.  If the market gets rejected at that point, we may see a significant pull back. 

Some of my favorite stocks are showing leadership at this time.  ISRG (Intuitive Surgical) and CMG (Chipotle) are my top two favorite stocks at this time.  CMG has been showing excellent profit and since they announced the plans for opening of new stores in Europe, I would expect them to do well in the growth arena as well.  Intuitive Surgical continues to be the 800 lb gorilla in their segment.  I liked the earnings call and the fact that their revenue share for hysterectomies is increasing fast.  They are in the razor blade business.  Yes they make money from selling the machines, but the real money is in the procedures and the disposable supplies for the robots.

Stock Update:  Closed out the Sprint Nov 4 calls at 1.10 - pocketing about a 10-15% profit.  However, unless stock moves up a lot soon, I'll give that up in my losses in the Aug 5 calls.  This phenomenon has plagued me for a long time and I am trying to figure out how to improve on this.  I will get into a position and make a decent profit.  Then instead of taking the profits, I will add additional option positions but for a shorter duration.  I tend to do this more for cheap options (and cheap underlying stocks).  Most of the time this ends up biting me, but there are times when I have made a killing.  When I figure this out, I'll post my deductions here - until then if you have figured it out, feel free to leave a comment :-)

Becoming Cautiously Optimistic

We are starting to see some good earning reports out of the usual candidates.  ISRG and CMG have both blown away estimates yet again and rallied strongly in the aftermath.  ETFC has finally become profitable. We may see a very strong rally in ETFC in the next few days.  I may jump into that position again.  I say I am cautiously optimistic because the DOW has not yet crossed the 10700 mark.  We should flirt with that level next week and see if the bulls have the stamina to hang on and push thru that level. 

Short term options (really short term)

This is a very interesting development for option traders.  The CBOE has added weekly option contracts on individual stocks (known as Weekly's). Because of their short term, Weekly's may be cheaper to use and may provide investors with increased short-horizon opportunities for trading.  This could help investors take advantage of market events, such as earnings, government reports and Fed announcements.  For example,  Weekly straddles may be cheaper to play than monthly's.  New weekly contracts are released at the market open every Thursday and expire the following Friday at the close of the market.  Currently only a limited number of stocks have weekly options, but that list should continue to grow each week.  For a current list of stocks with weekly contracts available for trading visit http://www.cboe.com/publish/weelkysmf/weeklysmf.xls.

Not quite sure where to get latest pricing info on these since yahoo finance is not showing these options on their options page.  Check with your broker about the availability of Weekly's.

Of course, do not assume that the Weekly's will be cheaper than the Monthly's (they should be), or significantly cheaper enough to warrant using over Monthly's.  Until they start getting more wide spread usage, tread with care, please.

NetFlix Adventures - 07-23-2010

With NetFlix earnings about to be announced on 07/21/2010 after hours, an analysis of the chart showed that the stock was way extended.  However, there was quite a bit of bearish sentiment on the stock showing a high short interest.  I wanted to buy puts on the stock, but didn't like the prospect of a short covering rally that could take place if NetFlix beat their earnings.  So I decided to try out a Long Strangle.  A Long Strangle is a strategy where a long position in both a call and a put are opened but at different strike prices.  The maximum risk is the cost of the call and the put.  The maximum profit is unlimited on the call side and from breakeven ot $0 on the put side.  The stock was trading around 120.  I bought an August 115 put for around 5.70 and an Aug 125 call for 6.30 resulting in a net cost of $12.00 for the trade.  With the stock up almost 200% in the last year, I was expecting either a strong short covering rally or a fairly big drop if the company missed its earnings.  Please note that the premiums on the options are quite large so the market was expecting a similar move and taking the uncertainty into account. 

After NetFlix announced their earnings, they narrowly missed the wall street estimates (despite posting a 27% increase) and the stock moved down.  By the middle of Thursday, it appeared as if I would end up losing money on the trade since the call value had plummeted but the put had not yet generated enough revenue to offset the loss from the call side.  But the stock continued down and I was around break even by the time the market closed.  I was able to close out my put position for around 13.45 this morning resulting in a profit of 1.45 for the trade (not much really).  But I still have my call that has until Aug 20th to expiration and is worth about 0.75 right now.  I may, however, hold onto it, to see if we get a rally in NetFlix and I might be able to get a little bit more money out of it.  All in all, about a 12% return over two days (not counting my trade cost of $4 roundtrip) but it did cause some anxiety :-)   But I wanted to get comfortable with this strategy so I chose to dip my toes in the water at this time.

$INDU update - 07-18-2010

The DOW has managed to climb back above 10,000, but the last two days have seen the bears take hold of the market.  The charts are looking quite bearish as the moment.  The market must break the pattern of lower highs and lower lows if the trend is to reverse.  The bulls are looking for any positive news that can help reverse the trend, yet it seems as if every rally is another opportunity to sell.  I continue to stay in cash for the time being and watch the market for signs of reversal or an opportunity to go short if critical support levels are breached.

$INDU update - 07-12-2010

Let's take a look at what has happened in the last few days.
The DOW has rallied off the bottom strongly after reaching a severely oversold condition.
The daily chart of the DOW is fast approaching an over bought condition.  We may still have a few rally days left in the market, but its time to be careful. 
The weekly chart of the DOW shows that the DOW has still not broken thru the downtrend line. We are currently sitting at this line.  We should know soon whether the market can break thru this downtrend line or be rejected from it.  Also, last weeks volume was lower than previous week (granted it was a short week due to the holiday).  A rally on lower volume generally does not signal a trend reversal.  However, the fact that the market did not sell off after a good week is an encouraging sign for market bulls.  Maybe the market is taking a breather for now before testing resistence at 10600 level.

The monthly chart is still indecisive.  We will have to wait and see how things play out.

I will continue to hold me cash positions for now and see which way the market will head.

$INDU update - 07-07-2010

Strong rally today.  We have crossed back over the neckline.   If this holds in the weekly pattern, we could have a failure of the head and shoulder pattern.  A failed head and shoulder pattern is very bullish, meaning most of the sellers have already exited the market.  So we could now have a strong rally.  I would closely watch the 10,000 level for the DOW to see if we can continue to hold above it (the DOW broke to the upside in the last half hour). If we can hold this level you can easily see a rally to the 10,600 vicinity.   At least a good short term money making opportunity.

$INDU update - 07-05-2010

On Friday, market looked like it was going to hold and make some kind of rally (which I found quite surprising since I thought people would not want to hold long positions over a long weekend).  But in the end the sellers took over and the market closed down.  We now have a definitive break of the neckline of the head and shoulders pattern.  This is very bearish for the market.  I would expect the market to not drop a lot immediately.  It should drop a little (maybe hit the target I mentioned in an earlier post around 9500).  I would then expect a rally back to the neckline around 9850 give or take a 150 points.  But 10,000 is the real test.  If the market cannot break back above 10,000 in the next 3-4 weeks, I would expect a large drop in the market to follow.

Even if the DOW makes it to around 10,650, its still now out of the woods, since that would show the formation of a monthly Head and Shoulders formation.

Again, all we can do is watch and continue to stay out of the market for now.  The big decision will come if the rally takes us back to the neckline.  I may be tempted to play the market short at that time.  But there is old wisdom "never fight the Fed" and we know that the Fed is doing everything it can to help the economy along.   We will pay for the rescue in the long term but betting short term against the Fed can be scary.  Unless I am convinced that a big drop is coming, I am likely to just stay out of the market and maintain my cash posture for now.

With the European and Asian markets posting losses on Monday,  and the precious metals index ($XAU) showing weakness and a potential top, there is much to be worried about.  A weakness in precious metals could signal investor expectations of deflation which could push the economy back into a double dip recession. 

$INDU update

The market generally moved sideways all day, but in the end sellers took control and the DOW lost 96 points to close at 9744.  This is the lowest close for the index in 2010.  We will see what tomorrow brings.  The DOW is getting extremely oversold and a bounce is imminent.  But will it come after a bit more carnage remains to be seen.  I will continue to watch from the sidelines even though I am extremely tempted to go short on the market.  But the oversold indicators are keeping me from taking such a position.  I will continue to stay on the sidelines and keep an eye on the leading stocks to see if a buying opportunity presents itself. 

Crucial point for $INDU

I apologize for not posting anything for about a week, but have been busy with travel.  Fraz (my youngest brother) got married in Birmingham, AL so I have been busy with travel and celebrations.  And the head and shoulder pattern was continuing to form so there were no new stock moves to make.

The head and shoulder pattern I mentioned earlier has now been completed.   Today the Dow Jones Industrial Avg closed at 9870.  Some significant points to note are: 

1) The DOW has now closed below 10,000 again.
2) We are now resting at the neckline of the head and shoulder pattern (weekly charts).  A break below here could signal a significant move to the downside.  If the market finds support at this level, we could see a nice upside move.
3)  An upside down cup and handle formation is now complete (Daily charts).  A break downward through this level can be extremely bearish.  On the other hand, if the market finds support here, we could then work on an upside move and form a double bottomed cup pattern. 

I cannot stress enough that we are at a crucial juncture in the market.  I have noticed in the past that generally the market will drop thru a support level to trigger stop loss orders (since they are generally set slightly below the support levels).  Whether or not buyers step in later will determine if we get a turning point and whether the support holds.  The safe thing to do now is to remain on the sidelines for now and let the market sort things out.

If you remember, in my May 25th post I presented two scenarios for the pull back.  A $INDU of around 9427 or 8308 (rough estimates).  Looks like we might be getting close to testing the first of those levels soon. If the market does drop to that level then bounces back, the next level to watch will be the 9870 level to see if the market can break to the upside thru the neckline or get rejected at that level (which then makes a test of 8308 very likely).

Good luck in your trading and keep your capital safe.

Market Pullback

Well, the head and shoulder pattern did not fail us this time.  We did start a retraction and are heading towards a test of the neckline around 9950 - 9850 or so (ballpark).  The big question is whether we will get support at the neckline (I don't think it will be an easy break to the downside).  If the market does get support at the neckline, we could see another rally.  We are also testing the lower boundary of the bollinger bands.  If the market does not find support at the neckline and breaks to the downside, we could easily head back to the 7800 level for the next major support level.   But that is to be analyzed later.  At this point, I am still out of the market and watching and trying to determine where we are headed (obviously I am bearish at the moment).

Head and Shoulder point

DOW is approaching the right shoulder point in a head and shoulder formation.  Keep an eye on the market.  We may start seeing a pull back soon.

Rally ahead ?

Despite the bad news, the market managed to eke out a victory and finally had a week where it closed with a gain.  In addition, we had a positive Friday.  Looking at the daily chart, you can see that we have finally breached the downtrend line.  Now to see if the market can hold above this point.  Sometime the market will breakthru the downtrend line but then continue to move down but getting support from the continuation of the previous downtrend line extension.

We did, however, heard some more bad news over the weekend, so it would be interesting to see how the markets fare on Monday.  

Looking at the weekly chart of the DOW and assuming I am correct about the potential formation of a head and shoulders pattern, we should see an uptrend in the short run until we peak back and then pull pack to check the support at the neckline.

Again, this is mere speculation until the market actually does form the pattern.  We could just turn around and go up as easily. 

Side Note:  Real Estate thoughts
I have been wondering about a potential side effect on the resort real estate market.  There are a lot of people who are upside down in their mortgages on Florida property.  With the oil beginning to show up on the Florida beaches, does it mean that property values will drop farther in the short term?  With people canceling their vacation reservations, the owners who are relying on the rental income to pay for the condo fees, etc. will be farther in the hole.  This could bring more foreclosed properties to market.  The only bright side I see is that majority of the rental income is made around spring break and that time has already come and gone for this year.   Also, hopefully the owners are on the ball and start filing paperwork for lost revenue against BP but there is no telling when (and if ever) they will get paid.  If you are in the market for some vacation property, this could be the opportunity you have been waiting for (buy when no one else wants to).  That even brings up an even more interesting question.  Should you be looking for cheap lots in Detroit that you can turn into a green plot and sit on for a few years to see if Detroit can recover?  With the auto makers making profits now, maybe the Detroit economy will recover.

Market update

I continue to watch the market for signs of a reversal.  Then you get a one day, two day rally, and then WHAM, down again.  Last couple of days, the market was up on high volume and down on low volume.  If the market indeed is forming a head and shoulder pattern, we should see a rally soon for a few days.  However, it seems as if we may visit the 9500 mark soon (near the first fibonacci level target - see post from earlier about fibonacci targets).  Seems like there is no good news to be had.   Dark clouds continue to gather over the Euro with various governments in trouble.  The oil continues to spill and BP continues to go down.  Why did I never consider buying puts on BP on the news of the spill, I don't know.  I have noticed that when you are in a bullish mode, its hard to switch and go into a bear mode on a dime.  Even if you sell all your long positions, its hard to start going short.  I continue to watch Chipotle.  It is showing great strength but my indicators are starting to predict a drop.  Yet I cannot bring myself to go short on this stock.  With Chipotle announcing the opening of their first European store, they will be entering a new growth phase in Europe (remember Starbucks in its heydays).  I will continue to look for the right entry point in this stock and get back in when the market changes direction. 

Has a new market rally started?

Markets have rallied well off the lows in the last few days.  Even though we didn't quite stop at the 9500 mark for the DOW, if you look at the chart with the triangle formation I posted earlier, you will see that we approximately got a bounce from the bottom.  So now what?  The markets have been strong last day or two.  And are showing a bullish bias today (so far) as well.    I was looking at the weekly chart of the DOW and what struck me is that we could be in the beginning stage of the right shoulder formation of a head and shoulders pattern.  If that pattern does form, we could go as high as 10,900 and then back down to the test the neckline.  It might take the market a little while to do so.  I am going to have to stay out (except for dabbling here and there :-)  and see what transpires. 

On the other hand, looking at the daily chart, we are approaching a test of the downtrend line around 10400.  We'll have to wait and see how the chips fall. 

Update:  To highlight the importance of limiting your losses, I will share my latest losses with you.  As you are aware, I sold all my positions except one (BCSI).  While I was on vacation, some news hit and the stock plummeted.  I am now staring at a 35% loss instead of the 8% loss I should have taken (Actually, if I had sold it when I sold the rest of my portfolio, I would have netted a profit, or at worst, broke even if I had delayed the sale).  BCSI is a company with the history of strong earnings and growth.  However, this shows that no stock is immune for a pullback during a market pullback.  We used to have a saying in the good old days of the late 90s.  In the event of a market decline, even Dell will fall eventually.

Fibonacci retracement levels

Using a low of 6495 for the DOW and a high of 11,240 we can calculate the Fibonacci retracement levels. The two likely scenarios are:

11240 - 6495 = 4745
4745 * 0.618 = 2932

First scenario:  6495 + 2932 = 9427 <= potential retracement level = we almost got there today.
2nd scenario:   11240 - 2932 = 8308 <= potential retracement level in 2nd scenario.

Note: My market low and high values are approximate. I was too lazy to try and look the exact numbers up.  But I am still not convinced that the bull market has yet returned despite any rally we might see.  I might consider buying some puts on the market indexes in the neighborhood of 10600 - 10,800 if we get there.

Market manages to move back above 10,000

The bulls actually took control today and the market regained most of its losses and the DOW managed to close above 10,000.  I took a second look at the chart, and 9800 (approx) was a major support point that is crucial.  Its a good thing that the market found support.  Of note is that the volume increased considerably over yesterday.  This is a good sign and we are looking for a follow thru day (another big day with high volume) to confirm a potential trend reversal.   Sprint showed a lot of strength through out the day and closed up a lot after the market reversed direction.  At this rate we will hit the $6 target relatively soon.  Wow, only a couple of days have gone by and greed and fear have already started battling it out.  Should I sell when the stock hits 6 or should I wait to see if it will make it to the 9-10 range?  Should I sell at 6 in anticipation of a pull back?  Decisions, decisions, decisions...  I am going to have to take another look at the rest of the market to see if any other stocks are worth risking some money for.  I am still skittish but do expect a mini rally to take place.  Will continue to wait and see for now.  I may not have many updates for the rest of the week.

Additional Thoughts:  Pull backs generally exhibit a 5 wave structure.  Although 3 wave pullbacks are possible, generally after a 5 wave run up, you will see a 5 wave pullback (A, B, C, D, E) before the uptrend resumes.  At best, we are entering wave D, at worst we are just entering wave B.  I do expect to see a bullish move in the market over the next few days.  But I wouldn't bet that the trend has reversed yet until we see some more evidence.