Archived Blog
Posted November 9, 2009 at 5:06 AM
The DOW is continuing to rise as I had indicated it would from last week’s blog. We are in an ascending broadening channel and the Index is currently printing a Hanging Man on decreasing volume that bodes for a possible short term slowing in the bounce. We may go sideways for a session or two before resuming the move higher in the channel. We need to break the swing high from 10/21 at 10119 to post a new high the recent trend. The SPX is also moving higher an ascending broadening channel and also with a Spinning Top/ Hanging Man type pattern on decreasing volume that may indicate a temporary slowing of the recent bounce. I feel that we will continue higher. The index needs to break through the swing high from 10/21 at 1101 in order to post a higher high in the current trend.The COMPQ is moving higher in the ascending channel and looks very bullish. The index needs to break the recent swing high on 10/21 of 2190 in order to post a new high in the recent trend.Posted November 9, 2009 at 5:04 AM
Charts Week Ending 11/6/2009
November 8th, 2009 | 
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Posted November 9, 2009 at 5:01 AM
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-The Long Combo, sometimes known as a Risk Reversal, is comprised of a lower strike Short Put and a higher strike Long Call. The credit from the Short Put helps to pay for the debit of the Long Call. As a result, the position can have very little if any debit. The strategy simulates very closely the risk profile of Long Stock by for much less money. It is a bullish position. Study the risk graph and you should gain understanding of the risk and reward of the position. Robin
Posted November 9, 2009 at 4:59 AM
ECONOMIC REPORTSMONDAY 11/9None
TUESDAY 11/10None
WEDNESDAY 11/11Crude Inventories
THURSDAY 11/12 Initial Claims & Continuing Claims, Treasury Budget
Import/Export Prices, Trade Balance, Michigan Sentiment
DISH, ETP, FLR, FUQI, MBI, PCLN, SLW, TSO
TUESDAY 11/3BZH, GOLD, TYC, WTW
WEDNESDAY 11/4AAP, AMAT, CSC, GMCR, ING, M, PGR
THURSDAY 11/5
KSS, JWN, WMT, DIS
FRIDAY 11/6ANF, A, JCP, TK
Posted November 9, 2009 at 4:57 AM
I have noticed a tendency of traders to seek out trades using scans. That can be an effective way to find trading ideas, however, I prefer to build a watch list of stocks and become intimately familiar with each stock in that watch list.I know that each stock on my list is solid fundamentally and I am certain how the stock competes against others in its “space”. The stock is usually “best of breed” and I know how it reacts at earnings and to other fixed news events. I know if the stock has a habit of pre- announcing its earnings. I am familiar with whether they typically make other important announcements at earning such as stock splits, buy backs or product releases. I know whether forward guidance is usually understated or aggressive.Stocks are like people in that when presented with outside events or circumstances, they will react in different ways. Some will take challenging news in stride while others tend to overreact. This gives me an edge over other traders who do not ‘know” the stock as I do. Consider building a watch list and get to know your stocks. I think you will find it to be well worth the time and effort. Best, RobinPosted November 1, 2009 at 12:15 AM
The DOW broke down out of the recent Bull Flag this week. The index closed at 9972 on Friday 10/23 and settled at 9713 this week for a 259 point drop. The lower trend line held and the 50 day SMA seems to also be acting as support. This may be nothing more than a simple pullback. It is interesting to note that all of the doomsday people come out of the woodwork on any kind of a correction. The fact is, we have had three pullbacks since August and this one is not any more excessive than those. Not to say that we will not continue the bearish move, however, I need additional confirmation. A break of the lower trend line and a solid break of the 50 SMA on increased volume would convince me that this recent move is more than profit taking. I think we will have a bounce this coming week, but we shall see.
The SPX has broken the lower trend line from last week. I have redrawn another lower line this week that has three solid touches. We must respect the trend line break as well as the break of the 50 day SMA. The volume on the move this past week was not remarkable, so I will also need confirmation of the likelihood of a continuing move to the downside. I feel that we will get a bounce this week in the index.
The COMPQ is currently testing the swing low from 10/2 at 2041. There is some confluence from the swing high from 8/28. The index clearly broke the lower trend line of the channel as well as the 50 SMA. However, the volume was not convincing. I feel that the double bottom may slow the move.
Earnings season has been good for the most part. We have a lot of economic news coming this week which could move the markets. Stay on your toes and don't fight the tape. Robin
Posted November 1, 2009 at 12:14 AM
Charts Week Ending 10/30/2009
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Posted November 1, 2009 at 12:08 AM
-The Put Ratio is nothing more than a Bear Put with an extra Short Put usually at the strike price of the Short Put in the Bear Put. Example: BTO one Long Put at 25 and STO two Puts at strike 20. The maximum reward is achieved if the stock settles at the Short Put strike. The trade can be placed for a debit or a credit. If the stock settles between the long and short strikes, we will achieve profit but it is reduced and the downside break even is the Long Put strike less the debit (if placed for a debit). If placed for a credit, the trade will make a small profit wherever it settles above the Long Put Strike.
The downside profit begins to diminish the further the stock falls below the Short Put strike. The Short Puts will cost more to close as the stock falls which is detrimental to the seller of the Puts, so even though the 25 Long Put is increasing in value, the Short Puts are losing faster that the Long Put is gaining. At expiration, when the Stock falls below the amount of the Short Put premium collected, the position begins to lose. Because there is one Put uncovered, the trader must post margin on the trade.
Posted November 1, 2009 at 12:06 AM
ECONOMIC REPORTS
MONDAY 11/2
Construction Spending, ISM Index, Pending Home Sales
TUESDAY 11/3
Factory Orders, Auto Sales, Truck Sales
WEDNESDAY 11/4
Challenger Job Cuts, ADP Employment Report, ISM Services, Crude Inventories, FOMC Rate Decision
THURSDAY 11/5
Employment Cost Index, Productivity – Prel, Initial Claims, Continuing Claims
FRIDAY 11/6
Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Wholesale Inventories, Consumer Credit
EARNINGS OF NOTE
MONDAY 11/2
APC, CHK, F, HUM, PFG
TUESDAY 11/3
ALY, ADM, BGFV, CHD, CTSH, DUF, HIG, IUSA, ICE, JRCC, KCP, KFT, LPX, MTEX, MRO, MLM, MA, ONXX, OSK, PZZA, MALL, PBI, RL, RCL, STEC, SHOO, UBS, VIA, VNO, AUY
WEDNESDAY 11/4
AGU, CECO, CBOU, CBEY, CKP, CLH, FWLT, GRMN, GG, IOC, LIZ, MMC, MSO, TAP, MUR, PRU, PHM, RLH, ALL, TWX, RIG, WFMI
THURSDAY 11/5
BEBE, NILE, CFL, CPKI, CI, CROX, DPS, DYN, FTO, HANS, ISIS, NVDA, PDC, PLA, RRGB, RJET, RST, SLE, SKYW, BID, SBUX, TRI, TWC, TM, WEN
FRIDAY 11/6
SU, BX
Posted November 1, 2009 at 12:04 AM
I’m watching the market get hammered today and the bears are having their way. The bulls are panicky and selling. I’m calmly sipping my coffee and writing this blog while others are vomiting as they watch their accounts disappear.
I decided many years ago to get off the roller coaster and hedge my trading. There were days when I traded the “old way”, that were pure joy as I could seemingly do no wrong as the money rolled in. However, those times were more than offset by the stomach churning losses that I endured on days like today.
There are those I suppose who crave the adrenaline rush of the highs and lows, but quite frankly, I prefer to get my excitement in other ways. The Stock Market is littered with the decimated accounts of many of the roller coaster crowd. Just remember that when you blow up your account, you are out of the game.
I hope that you enjoy your weekend and Halloween. It should be a fun break from the Stock Market as we watch the trick or treating and the World Series…..but my sense is that many will be anguishing over their Stock Market losses. Is the pain really worth it!? Take your life back and hedge your trading!
Posted October 25, 2009 at 6:33 AM
The DOW is currently In a box between 9917 and 10118. The RSI, Stochastics and the MACD are pointing down. Volume has been unremarkable. We are at the top end of the Bollinger Bands as well as the broadening trend line channel. The market appears to be very indecisive. I will just wait and follow where it wants to go. We are at significant resistance from 1999- 2001 and 2004 and 2005.
The SPX is a carbon copy of the DOW. Long term resistance resides at current levels from 2001 and 2004 and 2005.
The COMPQ is at the top end of the Bollinger Bands about mid channel and very indecisive on average volume.
Posted October 25, 2009 at 6:31 AM
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Posted October 25, 2009 at 6:30 AM
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Sell an ITM Call and an ITM Put usually equidistant from price. The trade is done for a credit. In order to be profitable the trader needs the stock to remain stagnant and between the short options. The maximum reward is the credit and the maximum risk is unlimited to the upside and to zero on the downside. The breakevens are the Short Call strike less the credit to the downside and the Short Put strike price plus the credit to the upside. Review the risk graph and you should gain understanding of the risk and reward of the trade. Best, Robin
Posted October 25, 2009 at 6:28 AM
ECONOMIC REPORTS
MONDAY 10/26
None
TUESDAY 10/27
Durable Orders, Durable Orders ex Transportation, Case-Shiller 20-City Home Index, Consumer Confidence
WEDNESDAY 10/28
New Home Sales, Crude Inventories
THURSDAY 10/29
Chain Deflator – Adv., GDP – Adv., Initial Claims, Continuing Claims
FRIDAY 10/30
Personal Income, Personal Spending, PCE Prices, Core PCE Prices, Chicago PMI, Michigan Sentiment-Rev, Employment Cost Index
EARNINGS OF NOTE
MONDAY 10/26
ALY, GLW, NOV, PPD, RSH, SOHU, MHP, VZ, WINN
TUESDAY 10/27
AKS, APOL, BIDU, BYD, BWLD, CAB, CP, CRDN, DAI, DV, ETFC, ELNK, HMC, JCI, LCAV, MEE, NTRI, PNRA, PEET, RFMD, TUES, UA, X, VLO, VCLK, V, WDR, WYNN
WEDNESDAY 10/28
AFL, AKAM, BWA, CERN, COP, ESRX, FSLR, FLS, GD, GSK, GT, IP, JNY, LVLT, OC, Q, SYMC, TZOO, UIS, WLP, WYN
THURSDAY 10/29
AET, APA, BLL, BC, BBW, BKC, ELY, CME, CL, DENN, DB, EK, EXPE, XOM, GNW, HIT, K, MTW, MFE, MET, MHK, MWW, MORN, NBL, ODP, OMX, PG, SHAW, SNA, S, STRA, BCO, WM, WMB, XEL
FRIDAY 10/30
ACI, CVX, CMI, PC, SNY, SPG, SNE, EL, WPO, WY
Posted October 25, 2009 at 6:26 AM
Most traders don’t understand spread trading. They think that placing a bullish instrument simultaneous to placing a bearish instrument is at cross purposes to each other. Why not go long if bullish and short if bearish and forget paying the extra commissions.
There is a method to our madness when spread trading. It has to do with 1) Limiting Risk and 2) Reducing Volatility. Let’s say that we agree that the market is heading higher and my friend “Directional Dave” buys a Long Call to optimize the trend. However, there are a million other traders that are thinking and doing the same thing. As a result, supply and demand does its thing and as demand increases for that Long Call, the price is pumped up (volatility). Our friend “Directional Dave” is now paying a premium for that call. As a holder of an option, one must be concerned about time decay and implied volatility. Dave’s Long Call is a wasting asset and as each day passes the option is losing value and is also susceptible to changes in implied volatility.
The bottom line is that our friend Dave is the owner of an asset that can easily devalue even if he gets the direction right. Enter “Sammy Spreadtrader”. Sammy also feels that the market is rising, but he also realizes the pot holes in the road to riches and decides to “spread off” some of the risk of the Long Call. Sammy sells a call one strike price higher than the Long Call and takes advantage of the increased demand and volatility of the pumped up options and collects premium to offset the cost of the Long Call. The result is a position that reduces the risk of the trade and still allows for a very attractive potential return.
“Directional Dave” now sees an opportunity to sell premium. He is beginning the see the light. Dave assesses the market and determines that the underlying stock is neutral to bullish. Not the absolute best scenario for a Long Call because he needs movement to consider a long option. Dave realizes that money can be made by selling a Naked Put. Good job Dave, you’re getting the hang of it.
Sammy steps in and also recognizes the opportunity but takes a much more prudent approach and buys a Put beneath the Short Put in order to limit the downside risk.
So you see, it doesn’t take that much more to become a spread trader. That additional option instrument can make the difference between blowing up your account and being consistently profitable. To the outside observer, spread trading does seem a bit incongruous. However, those of us who know the craft are putting money in our pockets and doing it without stress. Best, Robin
Posted October 18, 2009 at 2:38 AM
The DOW moved through the recent swing high at 9918 from 9/23 to challenge significant resistance from the relatively flat market action from 2004 (see 20 year monthly chart). There is also very stout resistance from 5/1999 through 6/2001. The next 1000 points on the upside in the Dow will be difficult to achieve due to the large amount of trading activity at these levels. The Short term chart reveals that the index moved up to the top end of the Broadening Bullish Trendline Channel that was pointed out last week. Friday’s action printed an almost perfect bearish engulfing pattern on increased volume which bodes for a move back down to recent support levels. Support resides at 9918, 9834, 9496 and 9430. The 50 SMA may also act as support at around 9550 if and when the index gets there.
The SPX is testing the “shelf” from 2004 as well as the swing low from March 2001 (see 20 year monthly chart). The index moved up close to testing the upper trend Line from last week’s chart and very close to my projected move to 1080. The index formed in a bearish candle on increased volume. We are likely going down to test support at the swing high from 9/23 at 1080 and the gap from 10/13-14. The next downside target is at 1040 and then 1020.
The COMPQ is displaying some weakness at this level putting in two narrow range trading days followed by a “Hanging Man” candlestick. Look for a small pullback or at best some sideways trading this week. Some major tech companies are reporting this week beginning with AAPL on Monday. If the reports are favorable it may negate what the charts are showing us now and push higher. Follow the market but stay hedged. Support resides at 2143, 2128, 2085, 2059 and 2040. The 50 SMA may also provide support at 2050 if and when the index gets there.
Posted October 18, 2009 at 2:36 AM
Charts Week Ending 10/16/2009
Posted October 18, 2009 at 2:19 AM
-The Call Ratio is nothing more than a Bull Call with an extra Short Call usually at the strike price of the Short Call in the Bull Call. Example: BTO one Long Call at 25 and STO two Calls at 30. The maximum reward is achieved if the stock settles at the short call strike. The trade can be place at a debit or a credit. If the stock settles between the long and short strikes, the profit is reduced and the break even is the Long Call strike plus the debit (if placed for a debit). If place for a credit, the trade will make a small profit wherever it settles below the upside breakeven.
The upside profit begins to diminish the further the stock rises above the Short Call strike. The Short Calls will cost more to close as the stock rises which is detrimental to the seller of the calls, so even though the 25 Long Call is increasing in value, the Short Calls are losing faster that the Long Call is gaining. At expiration, when the Stock rises beyond the amount of the Short Call premium collected, the position begins to lose. Because there is one call uncovered, the trader must post margin on the trade.
Posted October 18, 2009 at 2:17 AM
ECONOMIC REPORTS
MONDAY 10/19
None
TUESDAY 10/20
Building Permits, Core PPI, Housing Starts, PPI
WEDNESDAY 10/21
Crude Inventories, Fed’s Beige Book
THURSDAY 10/22
Initial Claims, Continuing Claims, Leading Indicators, FHFA Housing Price Index
FRIDAY 10/23
Existing Home Sales
EARNINGS OF NOTE
MONDAY 10/19
AAPL, BSX, BRO, GCI, HAS, JEF, STLD, TXN
TUESDAY 10/20
BLK, EAT, CNI, CAT, COH, CREE, DD, GILD, ISRG, OXPS, PH, BTU, PFE, SNDK, STX, SHW, STT, SYK, SVU, KO, TUP, UAUA, UTX, UNH, WLT, WU, YHOO
WEDNESDAY 10/21
ATI, MO, AMP, AMGN, AMR, CTXS, EBAY, LLY, EFX, FLIR, FCX, GENZ, HCBK, KEY, KMP, NITE, LRCX, NVLS, OSIP, QLGC, BA, USB, WFC
THURSDAY 10/22
MMM, ALK, AMZN, AXP, T, BDK, BGG, BMY, BRCM, BUCY, BG, BNI, COF, CMG, CB, CNX, CS, DAL, DO, FITB, ESI, JNS, JBLU, JNPR, KMB, LM, MCD, MRK, NCR, NFLX, NVS, OXY, PM, PNC, POT, RTN, RS, R, SGP, HOT, SPWRA, TRA, CAKE, DOW, HSY, NYT, TRV, UNP, UPS, LCC, WYE, XRX, ZMH
FRIDAY 10/23
FO, HON, MSFT, SLB, WHR
Posted October 18, 2009 at 2:16 AM
We spoke last week of the emotion of fear. This week I want to touch on the other emotion that can decimate your trading account, GREED. We can look at greed as being at the extreme opposite of fear. Lack of fear can be described as an absence of anxiety and no sense of impending danger. Moving even further away from fear we come to the emotion of greed. Greed resides in a place that not only has no concern for danger, but possesses recklessness and an attitude that disregards potential pitfalls in the pursuit of financial gluttony.
Fear can destroy your ability to make money in the Market, but greed is the emotion that will empty your trading account. Fear can keep you out of the Market preventing you from prospering; however, greed will drive you to the poor house.
If you ever want to see greed on display, watch the game show “Deal or No Deal”. Even when the probabilities are clearly in favor of “The House”, contestants will turn down thousands of dollars for the diminished chances of winning more. If these folks stopped to really realize that they are saying “No Deal” on more money than most of them make in several years of work, they would maybe rethink the decision to greedily grasp for more.
Greed is why gambling casinos will always be big business. Casino proprietors know this and cater to the human emotion of greed which is embedded in all of us in various degrees. Those of us that are afflicted with gambling, which for some is a sickness, almost expect to lose confirming their innermost feelings that they don’t deserve to prosper.
Some outside observers view trading as gambling, but in actuality, in order to be consistently successful in the Markets, it is just the opposite. You must be disciplined and have rules and methodologies that are strictly adhered to. Greed plays no part in the trading plan of a successful trader.
The anecdote for disallowing greed to enter into your trading is to 1) Have a plan 2) Follow that plan 3) Learn to take profits when they are presented to you by scaling out 3) Diversify your positions 4) Strict money management and 5) Don’t force trades.
There is an old saying in the trading business, “You can never go broke taking a profit” Best, Robin.
