Archived Blog

Posted October 11, 2009 at 11:32 PM

 Last week I said that the hammer candlestick pattern at the trendline on 10/2 would likely hold, which is precisely what it did.  The index moved up nicely to challenge the Bull Flag from 9/17-21.  My concern for the continuing strength of the bullish move is that we are in a “Broadening Trendline Channel” on decreasing volume which is somewhat indicative of a tiring move.  We also have a bearish MACD divergence which further confirms a lack of conviction to drive the market higher.  I am still bullish but hedged.

The SPX held at the 10/2 Hammer at the lower trendline as I had predicted that it would.  The index then moved up to settle at 1071, one point higher than my projected target at 1070.  I continue to be bullish but hedged due to the “Broadening Trendline Channel” and the “Bearish MACD Divergence”.

The COMPQ is solidly in a classic “Bullish Channel”.  Last week I projected that the inverted candle from 10/2 would result in a bullish move off of the trendline and that is exactly what happened.  There is a slight reduction in the volume the last few days and we have a “Bearish MACD Divergence” so I remain bullish but hedged. 

My feeling is that we will continue higher into the end of the year and possibly through January with the seasonality of retail season as well as the “January Effect” with small cap and value stocks typically bullish.  After that, it is anyone’s guess. 

Posted October 11, 2009 at 11:29 PM

-

-

Posted October 11, 2009 at 11:27 PM

-

The Put Ratio Backspread is configured with the Short Put either ITM, ATM or slightly OTM.  It is suggested that the Short Put be placed ATM in order to capture the most extrinsic value.  Ratio Long Puts are purchased ususally one strike below the short puts at a ratio of two or three to one.

The strategy is implemented with the expectation of an explosive move to the downside.  The Short Put helps finance the Long Puts.  The trade can be put on for a debit or a credit.  The trade in our example is placed at a credit.  The Short Put totally finances the Long Puts with an additional amount to create a credit.  The maximum risk is the difference between the Long and Short strikes less the credit or plus the debit as the case may be.  The reward is the credit (if placed for a credit) if above the Short Put strike or unlimited reward as the stock moves below the Long Put.  The maximum loss is incurred if the stock finishes at the Long Put strike.  In the example, that would be 30.

This strategy could be considered when one expects a big move around a catalyst like earning.  Obviously, the strategy is bearish to extremely bearish, so even though the trade can be profitable if it goes bullish in the amount of the credit received, it is best if the stock is massively bearish.  This trade can be used instead of a straddle of strangle if one has a bearish bias knowing that if the direction is not right, money can still be made to the upside.

Review the risk graph to gain better understanding of the risk and reward of the position.  Best, Robin

Posted October 11, 2009 at 11:26 PM

ECONOMIC REPORTS

MONDAY 10/12

None

TUESDAY 10/13

None

WEDNESDAY 10/14

Export Prices ex-ag,  Import Prices ex–oil, Retail Sales, Retail Sales ex-auto, Business Inventories, FOMC Minutes

THURSDAY 10/15

Initial Claims, Continuing Claims, Core CPI, CPI, Philadelphia Fed, Crude Inventories

FRIDAY 10/16

Capacity Utilization, Industrial Production, Michigan Sentiment-Prel

EARNINGS OF NOTE

MONDAY 10/12

SCHW, FAST

TUESDAY 10/13

DPZ, INTC, JNJ

WEDNESDAY 10/14

 ABT, JPM

THURSDAY 10/15

AMD, C, CY, GS, GOOG, HOG, IBM, NOK, OMTR, SWY, LUV, WGO

FRIDAY 10/16

BAC, GE, HAL, MAT

Posted October 11, 2009 at 11:24 PM

Fear is defined as a feeling agitation and anxiety caused by the presence or imminence of danger.  Fear can be exacerbated by being confronted with an unknown outcome.  When we are unsure of the outcome of a particular situation, fear can take control emotions and lead to hasty decisions.  When the unknown is replaced with the known, fear is eliminated and clear, precise thinking prevails.

Several years ago, I accompanied a friend of mine who operated a White Water rafting company out of Flagstaff, Arizona on a trip on the Colorado River through the Grand Canyon.  I was very excited about the adventure and after a brief orientation, we put into the Colorado for a three day trip through the canyon. 

I was raised on the ocean in Southern California and grew up body surfing and was used to the water and respected its awesome power so I was both excited but somewhat fearful.  In the beginning, our trip was mostly a float but soon we approached our first set of rapids and the roar of the thunderous water was deafening and I could only imagine the picture of being crushed against the rocks and drowning.  My heart was pounding and adrenaline surged through my body as my friend turned to me and said “We’re going to scout the rapid” as we moved the raft over to the riverbank. 

 I have to admit, I was relieved to know that I was going to be given a chance to see what the challenge was ahead of us instead of blindly going over the falls.  As we walked along the edge of the river, my friend was able to determine the danger points and our plan to safely negotiate the Big Water.

We re-entered the river and took the raft skillfully through the treacherous rapid just as we had planned.  It was exhilerating and I was able to execute my job to make it through and emerge on the other side in the calm eddies that followed the rush of water over boulders a large as houses.

So it is with trading.  Fear can prevent you from entering trades as well as shaking you out of trades for fear of losing your portfolio.  The anecdote for fear in trading is “scouting the trade” ahead of time and knowing how you will successfully and safely negotiate the market.  You must know your destination and if you are detoured by the trade, you must know your contingency exit.  With knowledge and a plan, fear fades away because you have removed the unknown and replaced it with known outcomes.  The trade now becomes merely a function of executing the plan which has been outlined well in advance.  Our methodology at www.markettamer.com gives you this skill.  The knowledge of how to trade without fear can last a lifetime and allow you to achieve consistent success in the markets. 

Fear can destroy your career as a trader if you approach the trade without “scouting the trade”.   Just as my friend “scouted the rapid” and planned our path through the roaring rapids, so can you do the same with your trading.  Best, Robin

Posted October 4, 2009 at 2:05 AM

Seasonally, we are also coming into retail time.  Not many are expecting retailers to do well with unemployment at record levels and continuing issues in Residential Real Estate.  However, we are a consumer driven society and there may be pent up demand to “buy something”.  It will be interesting to see if we see a “less bad” November and December.  We could have just an average retail season and still have the market finish higher into the end of the year. 

Posted October 4, 2009 at 2:03 AM

-

-

-

Posted October 4, 2009 at 2:01 AM

-The Call Ratio Backspread is configured with the Short Call either ITM, ATM or slightly OTM.  It is suggested that the Short Call be placed ATM in order to capture the most extinsic value.  Ratio Long Calls are purchased usually one strike above the Short Calls at a ratio of two or three to one. 

The stategy is implemented with the expectation of an explosive move to the upside.  The Short Call helps finance the Long Calls.  The trade can be put on for a debit or a credit.  The trade in our example is placed at a credit.  The Short Call totally finances the Long Calls with an additional amount to create a credit.  The maximum risk is the difference between the Long and Short strikes less the credit or plus the debit as the case may be.  The reward is the credit (if place for a credit) if below the Short Call strike or unlimited reward as the stock moves above the Long Call.  The maximum loss is incurred if the stock finishes at the Long Call strike.  In this example, that would be 40. 

This strategy could be considered when one expects a big move around a catalyst like earnings.  Obviously, the strategy is bullish to extremely bullish, so even though the trade can be profitable is it goes bearish to the tune of the credit received, it is best if the stock is massively bullish.  This trade can be used instead of a straddle or strangle if one has a bullish bias knowing that if the direction is not right, money can still be made to the downside. 

 Review the risk graph to gain better understanding of the risk and reward of the position.  Best, Robin

Posted October 4, 2009 at 1:59 AM

ISM Services

None

Crude Inventories, Consumer Credit, Treasury Budget

Initial Claims, Continuing Claims, Wholesale Inventories

Trade Balance

MOS

PBG, YUM

 AA, COST, FDO, HELE, NOM, RT

THURSDAY 10/8

MAR, PEP

INFY

Posted October 4, 2009 at 1:57 AM

1. Great Traders do their own homework.  They get to know a basket of stocks and how those stocks trade.  I have always believed that stocks have personalities just like people and they react differently when presented with challenges.  Some overreact others react very little.  Some hide their intentions while others are like an open book.  The great traders learn the strengths and weaknesses of their stocks.  A trader does not need to trade that many stocks in order to be successful in the market.
2. Great Traders are excellent Chartists.  Chart reading skills can keep you out of trouble and help you make money.  I believe that fundamentals will primarily tell you what to buy (sometimes when to buy) and technical analysis will tell you when to get involved and with the proper strategy to optimize the market conditions.
3. Great Traders have a definitive Trading Plan and they follow their plan with absolute discipline. 
4. Great Traders are decisive and confident in their trading.  In my opinion, confidence comes from understanding your contingency exit if the trade does not go as planned.
5. Great Traders are students of the Market and are in a constant quest for more knowledge.  My experience is that those traders that lead you to believe that there is nothing more to learn are those that will usually end up being losers.
6. Great Traders are patient.  This may seem to be in conflict with #4.  The truth is that successful traders know when to sit on their hands and do nothing, yet be decisive without hesitation when action is needed.  Overtrading can occur for those traders that struggle with lack of patience which only ends up putting more money in the brokers’ pocket.
7. Great Traders have laser focus on the task at hand.  Concentration to the exclusion of outside influences is critical for success.
8. Great Traders possess the knowledge of the most appropriate strategies to implement in order to optimize Market conditions.
9. Great Traders understand the importance of Portfolio Management which includes not only diversification but position sizing, money management and adherence to risk tolerance.
10. Great traders are neither greedy nor fearful.  They are usually emotionally stable people and place their trading activities in context and balance with life’s other priorities.

There are other characteristics that Great Traders possess, but these are the ones that come to the top of my list.  I would mention one final activity that I feel is crucial to success and that is to keep a Trading Journal.  A journal will allow you to record your trades for future review so that you can begin to analyze those trades to see the commonality present in successful as well as unsuccessful trades.  The value of that is that you can begin to replace bad trading activity with good trading activity.  Your feelings should also be noted in the journal because the more that emotions are removed from trading the better off you will be.  Best, Robin

Posted September 27, 2009 at 1:20 AM

The markets have finally pulled back as many had anticipated.  The question one must ask is whether this is the beginning of a larger market correction.  My feeling is that this is nothing more than a healthy and normal pullback on profit taking.  As levels become even more attractive to institutional investors, they will enter and push the market higher into the end of the year.

It is prudent to hedge the downside on the continuing move to the upside because one never knows if and when a larger correction may occur.  However, with that said, I feel that more market participation will occur as measured by increased volume into the end of the year.

 Defined risk strategies such as Long Calls, Married Puts and even Bull Puts can optimize the continued move to the upside.  Broad based ETFs like the QQQQ, SPY and DIA can offer diversification, massive liquidity and reduced company risk if you choose to participate.  Make sure that you do your own due diligence and proper portfolio and risk management is in place.  Consider consulting your financial advisor before putting money at risk.  Best, Robin

Posted September 27, 2009 at 1:17 AM

-

-

Posted September 27, 2009 at 1:15 AM

-The Double Diagonal is a non-directional four option trade that can be set up as either a credit or debit spread.  It is preferred to set it up for either a SMALL debit or a SMALL credit.  It may be tempting to seek out a trade with high front month volatility, but it is suggested to avoid such situations because high IV may be indicative of a large impending move which can be adverse to the Double Diagonal.  The risk in the trade is the difference in the spread between the short and long option less the credit or plus the debit as the case may be.  The reward can be hard to determine because volatility will impact the resulting profit.  Ideally, you want to enter the trade at a point of low volatility with an expectation of increasing volatility.

 The trade is similar to an Iron Condor in that we sell out both Puts and Calls usually in the front month and we have protective outside strike long Put and Call options. The difference is that the long options are in the back month.  So instead of two verical credit spreads as is incorporated in the Iron Condor, we have two diagonal spreads thus, Double Diagonal.

The roll to the back month is when the most money is made in the position.  If the stock remains fairly stagnant we can then buy back the decayed front month short put and call and roll to the same strike in the same month as the original long options.  The resulting position is now an Iron Condor.  If the stock does remain stagnant into the roll, we should end up with a very attractive risk reward on the Iron Condor.

Study the risk graph and you should gain understanding of the risk and reward of the position.

Posted September 27, 2009 at 1:13 AM

None

Case- Shiller Housing Price Index, Consumer Confidence

ADP Employment, GDP – Final, Chicago PMI, Crude Inventories

Personal Income, Personal Spending, Initial Claims, Continuing Claims, Construction Spending, ISM Index, Pending Home Sales, Auto Sales, Truck Sales

Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Factory Orders

CALM

DRI, MU, NKE, ZZ, FUEL, WAG

 None

THURSDAY 10/1

CAN, STZ, BLUD

None

Posted September 27, 2009 at 1:12 AM

1.  The top performing months from 1926 – 2004 in the S&P 500 are January, April, June, July, August, November and December.*
2. One of the most recognized performance trends is the retail months of November and December with the holiday season.
3. Dove tailing on the retail season is the January Effect with institutional investors moving into primarily small cap and value stock to begin the New Year. **
4. Monthly timing can be rewarding.  Again, institutional money flows into stocks in the final few days of the month and continues into the first few days to a week of the new month.
5. You may have already discovered that Mondays almost always have the blues and underperforms while Fridays post the best returns.
6. Finally, trading sessions just prior to extended holiday weekends tend to be bullish.

Posted September 19, 2009 at 11:02 PM

I had anticipated the DOW staying within the recent trading range this past week and it didn’t cooperate.  It just goes to show you that the market is going to do what the market wants to do.  Friday 9/11 printed a Spinning Top and a Bearish Harami which was followed by a Hanging Man at a Double Top.  Under most circumstances, the aforementioned confluence of indicators would have resulted in a bearish to flat market.

 The fortitude of this market is remarkable.  One of the thesis that I have ascribed to for the run into the end of the year is that there are some institutional investors that have missed a good portion of the move from March and they must show positive results or they will be sweeping floors and not managing a fund any longer.  There are still trillions of dollars sitting on the sidelines.  Much of this money is wrestling with coming to the party late.  If that money decides to get back in the game, we will have an explosive move into the end of the year.

 In the meantime, I will pay very close attention to the volume and the reaction of the market at key levels of resistance and support as my indication as to where we are going from here.  Following is my chart analysis on the markets.  Best Robin

Posted September 19, 2009 at 11:00 PM

-

-

Bookmark It

Hide Sites

Posted September 19, 2009 at 10:57 PM

This trade is set up as a credit spread just as last week’s example of the OTM Call Diagonal.  The Short Put is placed in the front month near the money and the Long Put in the next month one to two strikes below the Short Put.  It is a diagonal because it is a two legged position in different months and different strikes.  The trade will profit anywhere above the breakeven of the near month Short Put plus the credit from the spread and possible Long Put appreciation. 

 The trade begins to lose rapidly as the underlying moves below the Short Put strike price.  Volatility crush on the back month Put can also reduce the breakeven point below the Short Put strike price, so it is best to pay attention to the implied volatility of the Long Put when implementing the trade.  The fact that the Long Put is further OTM should mitigate some of that risk because Vega is less.  Review the risk graph and you should gain understanding of the risk and reward associated with this trade.  Best,  Robin

Posted September 19, 2009 at 10:55 PM

ECONOMIC REPORTS

MONDAY 9/21

Leading Indicators

TUESDAY 9/22

FHFA US Housing Price Index

WEDNESDAY 9/23

Crude Inventories, FOMC Rate Decision

THURSDAY 9/24

Initial Claims, Continuing Claims, Existing Home Sales

FRIDAY 9/25

Durable Orders, Durables, ex Transportation, Michigan Sentiment – Rev, New Home Sales

EARNINGS OF NOTE

MONDAY 9/21

LEN

TUESDAY 9/22

KMX, CCL, CAG, RAIL

WEDNESDAY 9/23

 AZO, BBBY, CTAS, GIS, RHT

THURSDAY 9/24

AM, RIMM, RAD, SCS, MTN

FRIDAY 9/25

AZZ, KBH

Posted September 19, 2009 at 10:51 PM

Our methodology at www.markettamer.com allows the trader to reposition trades gone badly so that you can optimize the new trend.  The question asked many times is “When and what is a new trend?”  The evaluation of what constitutes a trend change is somewhat discretionary.  So, I have put together a few tips to help you to determine when an adjustment may be considered.

1. When a break and close above/below major areas of support/resistance on strong volume.
2. Support and resistance are most significant when there is a confluence of indicators such as trend lines, major moving averages, Fibonacci levels, chart patterns and candlestick patterns.
3. Be patient.  If you are in too big of a hurry to adjust it can end up being detrimental to your position.  If you are patient and wait for confirmation on the move prior to taking action, you will generally be better off.  For instance, you may have a stock that is going down hard but has not yet closed below support and you begin to panic and add debit to the trade by buying Puts only to see the stock retrace yielding a loss on the adjustment.
4. Don’t adjust until the last 15-20 minutes of the trading session.  By doing so, you will be relatively sure that the trading day will close above/below your predetermined area of resistance/support and you are much less likely to be whipsawed.
5. Assess the risk and reward of the contemplated adjustment.  For example, if you buy Puts to protect a bearish move and other support resides just below the initial level of broken support, the room for the stock to continue its downward move has diminished and the cost of purchasing the Puts may not be justified by the potential risk/reward.
6. The presence of strong volume on a move through support/resistance is crucial.  Volume is analogous to the fuel that drives your car.  You may cross the finish line and get to your destination but your may not have enough fuel to get to the next town.  If volume is high, that is the same as having a full tank of gas and the ability to continue the directional move with momentum.

The market will try to “Shake You Out” of your position and force you to make unwarranted, premature adjustments.  If you practice patience, you will profit. Best, Robin