Watching the Dollar Again..

7:30 am EST The dollar is weakening again this morning. Therefore the futures are strengthening. This has been the theme for the last several weeks as I have mentioned several times. There has been increasing talk questioning the global recovery recently. The people behind this are starting to move away from risky assets (stocks, commodities) and into "riskless" (dollar, treasuries) assets. As this happens, the dollar strengthens and the equity markets weaken.

While the short term trend in the market is lower for now, I am still heavily in cash going into earnings season. Alcoa (AA) reports tomorrow afternoon. Of course, it will be a loss. They may be the worst managed company in the Dow. They couldn't make a profit when the price of aluminum was at a record. They are not going to make a profit now. The key is going to be the reaction to the loss they are going to report. Either way, the company isn't (and never is) a buy. I have other places to put my money.

What you want to look for in this coming earnings season is where the analysts rate the stocks (buy, hold, sell). We are getting back to the times when, for whatever reason, the analysts will be moving stocks for a while. Upgrades move stocks up and vice versa. So for good long earnings trades, you want a company that will beat the numbers and has an overall negative rating from analysts. An earnings beat and a couple of upgrades from analysts will make for a winner on the long side. The same is true for shorts, if everyone is at a buy and you see a miss coming, it will be an easy short trade. As always, you want to use options for trades like this. There is no reason to risk a huge amount of capital on an earnings play. Small amounts of capital and 100%+ returns will add a little juice to your portfolio. I will give some trades as they come up. Until next time, stay low risk..

Market Rolling Over..

9:15am EST I believe I was a little early on my "market is rolling over" call a couple of weeks ago. However, I think we are beginning to see evidence of that this morning. The futures are weak, the dollar is strengthening, and the oil market is as bearish as I have seen it in a while.

The potential saving grace for the bulls is earnings. If companies come out with stronger than expected earnings AND a solid outlook AND solid revenues, the market can rally from here. the problem with that scenario is that there are three hurdles to get over and it has to happen for most of the major companies in the markets.

On the positive side for the bulls is that the weekly charts are starting to take on a reverse head and shoulders pattern. This is especially true for the S&P 500. While we still need to work on the right side of the shoulder. It means that the correction will be more shallow than the lows we saw in March, and the trade can be dramatically higher from there.

I am carefully adding to some longer term trades today, but I will spend a good amount of my time on the sidelines. Downward trending markets tend to be a little harder for me to trade, so I tend to stay away. A lot of trading is understanding your personal style. It is all a part of managing risk. Until next time, stay low risk..

Last Trading Day of the Week..

8:20 am EST The all-important jobs number is yet to be released in a couple minutes, but I am going to get started writing right now. There are a couple of factors to look at in this market. First there are a lot of stocks out there that are getting close to their recent highs. This makes for an inflection point in stocks. If we break above those highs, we could be off to the races. If those highs hold, we could be looking at a short term double top and bearish action coming.

467k. That was the jobs number. The market will NOT like this. I have a hard time believing that there is a lot of big money out there today to support this market today. I think we should float lower for a good part of the day. We may see a little bit of strength later in the day, but there should be a good amount of selling today. It looks like we will not challenge the highs in the next couple of days.

All of that action is going to keep me on the sidelines at least today. I am hesitant to get long if the market is going to weigh on my long positions. I need some confirmation of a continued rally to jump in with longs.

A quick word on the Merck (MRK) trade. I didn't end up putting the trade on yesterday and I am glad I did. While it did get to the $28.20 buy target I originally had, there was little volume to make me feel good about the trade. I have given it a couple days and it refuses to go higher. I am certainly not getting long with this market. I think the stock has told us that it doesn't want to go higher right now and it wants to correct.

Have a great fourth, buy some puts, and until next time, stay low risk..

A Lesson in Trading Discipline..

8:00 EST The Merck (MRK) trade yesterday was the exact reason you need a very specific price point to look for a purchase. I was looking for a breakout above $28.20. The high for the day was $28.05. If you had an itchy trigger finger and bought a little above $28 or $27.95, you would have suffered with the position all day. The action overall was generally bullish near the end of the day, but it would have had you wondering about your trade all day if you bought too early. I am still keeping an eye on (MRK) today. I think it may stage the breakout I was looking for today.

Remember the General Mills (GIS) trade from June 8th? The stock never broke below the low of the day on June 8th. As I said, the time to make the decision is now that the earnings have been announced. I would look for resistance at the 200 day moving average to be the time to take some profits. While the stock can certainly break above the 200 day, it will probably have a difficult time. Take some risk off the table there and let the rest run. Until next time, stay low risk..

Watching Futures...

8:15am EST While the futures are showing a weak start for the day, I think we will see some strength. Even though most of the end of quarter window dressing for portfolio managers is finished, we are seeing strength in the commodity space and a weakening dollar. That has recently been very supportive for the equity market.

The other part of the market I am watching is the overall technical levels. Of course, the strength is in the Nasdaq. The technicals on the Nasdaq chart are starting to look more and more bullish. The 200 day moving average is beginning to flatten out and the month of July will be very supportive for the 200 day. We will see some of the nasty days in October and November fall off the back of the 200 day and the flat-to-up days coming in July added in. If we don't see a dramatic sell off in July, the 200 day MA may begin to turn up for the Nasdaq. Of course, the charts for the other indexes look similar, but the Nasdaq will be the index that leads us out of the recession.

The stock I am looking at today, believe it or not, is Merck (MRK). Going back to the capitulation day on March 9th, the stock hit a high on March 24th and then another high on June 2nd. Both highs were within about $.30 of each other. The move yesterday brought the stock close to the recent highs and above the 200 day moving average. If the stock can get strongly above the $28.20 level on good volume, it is time to put a position on. My stop would be around $26.50 with an initial take-profit in the $30 range. Be sure to buy at a proper buy point and manage risk properly. Until next time, stay low risk..

Important Market Week

8am EST This week will have two major events to watch. The first is the new month and the new quarter. Portfolio managers will have all the portfolio window dressing finished and they will be into the new quarter. This will show how they really feel about the market. Look for some larger volumes over the next couple of days as money flows out of the "sexy" stocks into the stocks which will lead the next quarter.

The other event to watch is the jobs report coming Thursday. While jobs are truly a lagging indicator, the report is always a market moving event. It will be interesting to see if the unemployment rate gets officially into double digits. Either way, the bottom line is that the news is something to watch.

While I will probably be mostly in cash today, I will be looking to put on some more positions later in the week. We will see the general direction either stay on the bullish path it has been on or we will see it turn by the end of the week. Stay tuned and until next time, stay low risk..

Curious Market Reversal..

8:30am EST The strength in the equity markets was curious yesterday. The only thing I can attribute it to is the window dressing effect at the end of the quarter. The thing to remember is that action is action no matter the reason. The S&P strongly took back the 200 day moving average. The Nasdaq was exceptionally strong as well.

While you will see a high level of volume today with the Russell rebalancing, you might not see a lot of directional trading. It will be very choppy today and into the end of the month on Tuesday. I am sitting tight for now. Any trades made over the next couple of days will be VERY opportunistic, VERY small, and VERY short time frames. Until next time, stay low risk..

Stronger Dollar, Weaker Market..

8:30am EST The trade was once again very easy yesterday. The Fed came out with a dollar-positive statement. The dollar rose and equities sold off. It was pretty simple. I am still short the market in general and I will be short until the dollar begins to weaken again.

The Oracle (ORCL) trade worked very well yesterday. As I mentioned, it was a day trade for a couple of extra bucks. I think the stock ultimately goes higher with even a modest recovery. However, I think the overall market will wiegh on Oracle in the short term, and there will be better times to buy the stock as a long term investment.

I am going to sit this session out for the most part today. I am happy with the overall short-market positions I have on and the longer term investments I currently own. Until next time, stay low risk..

Stronger Futures...

8:30 am EST The durable goods number released this morning was much stronger than expected. That sent the market futures higher. Look for the Nasdaq to benefit most on a percentage basis today. Research in Motion released some solid information this morning. Oracle released strong earnings yesterday after the bell. I think we will see some buying in the morning. I am hesitant to say that we have seen the end of the correction and we will resume the uptrend. If we go back into rally mode here, I feel a little more comfortable than I did with the rally a couple of months ago, but I'd like to see more selling for the health of the markets before we go higher.

It looks like we are seeing a breakdown in the dollar/equities correlation. I am keeping my eye on this. As I said in previous posts, a trend is a trend until it isn't. We might be seeing that breakdown here. I think we are seeing some jockeying going into the window dressing stage of the month.

If you are a believer in the rally this morning, an easy momentum trade is to place a quick trade in Oracle (ORCL). The big money takes time to move stocks like this higher. As an individual, you can take advantage of this by buying early. If the market moves higher over the next couple of days, Oracle will go with it. You can make a quick couple of percent in a short period of time with this trade. This trade should be made with a small profit target and a tight stop. The stock is not that volatile, but I think there are still some big money sellers in the market who could use a big, liquid stock like this to raise some cash. Until next time, stay low risk..

Easy Trade

7:30 am EST. Yesterday's trade was pretty easy. I told you to buy the Ultrashort S&P 500 ETF (SDS). The ETF was up 5.63% yesterday. I don't think that run is over but we might go a little higher today because of dollar weakness this morning. You will probably see choppy trade and light volume today as the market waits for more information, specifically from the Fed.

While no one expects the Fed to do anything with rates, the market is waiting for the Fed statement. They want to see if there is anything that indicates a rate hike down the road. Personally, I can't imagine a scenario where the Fed aggressively raises rates before the end of the year. However, they have a lot more economic information than I do.

I continue to remain with a lot of cash right now. I am avoiding any aggressive long positions. I will hang on to the SDS trade until the market gets more information on issues like the economy and earnings. Until next time, stay low risk..

Lower Start to the Market Week

8:30 AM EST The market is set to open lower today as the dollar strengthens. As I have stated in several post recently, if you can trade the dollar, the overall equity market is pretty easy to trade. As the dollar strengthens, the market heads lower. It is really an easy trade. Do not listen to the financial media. They want to give you all kinds of ideas as to why the market is doing what it is doing. The only thing that matters right now is the dollar. And of course, traders know that the dollar correlation will work until it doesn't work anymore.

I am still bearish on the market short term. The dollar has been strengthening. That part will continue to weigh on equities. The other part to watch in the market is the fact that all of the S&P sectors were down last week except for the health care sector. That is indicative of money managers moving to defensive positions. The other bearish sign is that the materials and energy sectors were exceptionally weak as compared to other sectors in the market. Those are the sectors that recover when economies around the world are getting healthy again. When the evidence states to the contrary, those sectors sell off. That certainly happened in a big way last week.

My only recommendation for today is the Ultrashort S&P 500 Powershares (SDS). This will allow you to hedge any long positions you currently have and want to keep. I do not think we are going back to the lows of the market, but I think we are in for a little pain short term. Cash is a good position right now. Until next time, stay low risk..

Market Rally Teetering..

7:30AM EST The action inside the market was a little more disturbing than the big picture numbers would have you believe. Yes, the markets were flat on the averages. That is essentially bullish to neutral given the run we have had over the last couple of months. However, the issue yesterday was the sector strength. Consumer staples and healthcare were among the leaders. These are defensive sectors that big money hides in when things get bad. Financials were weak with the (XLF) dropping 3% in spite of the news of huge TARP paybacks from some of the stronger banks. Commodities were weak. They have been the "reflation trade" of recent weeks betting on a solid economic recovery.

Staples, healthcare, financials, commodities - each of those sectors showed some troubling signs for the bulls. Even with the market showing signs of breaking down, there are ways to make some money. I am buying some puts on the (SPY) and the (DIA). The Nasdaq should show some relative strength in a weakening market. The Nasdaq companies have stronger balance sheets and less debt. They will fare better when the market turns down.

Keep some cash on the sidelines because opportunities to get long will materialize. Until next time, stay low risk..

Stock Futures..

8:10 AM EST Have a look at the equity futures this morning. They were relatively strong early this morning. They have weakened significantly over the last hour or so. Why? FedEx earnings? Anticipation of the CPI number? Probably a little. If you want to see a 1-1 correlation, look at the dollar. I have said it several times, you need to look at the dollar to understand how equities are going to do.

The equities market is dominated by massive international companies, many of which are oil or commodity related. The smaller, more domestically oriented companies do not move the market as much because they have smaller market caps. As the dollar strengthens, these large companies have a harder time making money because their goods and services are more expensive in other countries, where a large chunk of their revenues are made. This hurts them. Want to know how the market is going to do? Watch the dollar. Pretty simple.

I am going to avoid any long recommendations for now. I think the overall market is going to be a little heavy on any long positions now and might make for stops to be prematurely triggered. Yesterday's pick Partner Communications (PTNR) is close to where I would have put a stop if I had the trade on.

This is a time right now to reassess where your portfolio is. Look at your positions. Are there stocks you can trim some profits? Are there long term investments you can buy a little more at a lower price? Keep an eye on the dollar and wait for some opportunity. Until next time, stay low risk..

Dollar Correlation..

7:20 am EST The market has been relatively simple to day trade in recent weeks. If the dollar is strong, sell the equity market. If the dollar is weak, buy the equity market. That has been about it. The dollar is weaker by about 125 pips against the Euro and the futures are higher. Go figure. The financial media digs for stories and excitement. They have advertising to sell and they want to keep you interested. A continual pounding of dollar-correlation stories would bore people into a coma. It would make you a ton of money, but sometimes making money can be boring.

The PPI data will certainly move markets today in addition to the slight weakness in the dollar. You could also see a move in the commodity markets depending on the data. I am reserving judgment until I see the number.

Only one stock stood out to me yesterday from a technical standpoint. I am not fully convinced that the market is going to cooperate and take this stock higher, but I think a small position could be profitable. If you are really itching to put on a trade today, this is where I would look. The company is Partner Communications (PTNR). The stock had a higher-than-average volume trading day and found some significant support. It kissed the 50 day moving average and bounced, finishing the day above the 200 day moving average. That is usually a bullish sign of some support considering the volume.

I would be careful with this trade because of the potential for the overall market to turn on you. If the overall market falls apart, this stock will be very vulnerable. It has very low average daily volume and the lack of liquidity can catch you even with proper stops and limit orders. The risk reward is about 3:1 here and there is potential for the stock to go even higher. I would not put on a large position, but this is a place where you can make some money. Until next time, stay low risk..

Watching the Dollar..

7:20AM EST While you will see very little about this on the financial news networks, the key driver today will be the dollar, as it has been for the past several weeks. This weekend, a Russian official stated that there was little in the way of options for a world currency standard in the near future. This was extremely bullish for the dollar, which is ultimately bearish for most other markets in the US and around the world. A weakening dollar has been supportive for the commodity markets, which have risen in the face of weak-at-best fundamentals. This has therefore been supportive for equity markets which want to rise at any indication of potential economic recovery.

Maybe we get the strong, healthy pullback I have been looking for in the equity markets this week. As I mentioned in previous posts, we need to get a nice little pullback to keep this rally going.

I have one trade I am going to look at today. The stock is Rigel Pharmaceuticals (RIGL). This trade is highly speculative and should only be done with options using small amounts of capital. They have clinical trials coming out about their Rheumatoid Arthritis drug. The market is anticipating positive results for this trial based on the action of the stock. I am looking at the September $17.50 Calls. They can be bought for about $1.75 right now. They can easily double or more with a positive result from trials. They can also be cut in half with a negative result. It is still a 2:1 risk/reward ratio. I definitely like those odds. Until next time, stay low risk..

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The week ahead for stocks

5:15pm EST I have been pretty accurate over the past 4-6 weeks. I am worried that this week would be a break in the streak if I threw a prediction out there this week. Therefore, I am staying away from a specific prediction for the week. I will tell you that Monday should be pretty strong. After that we wait on econ data. The big economic reports are going to be the PPI on Tuesday and CPI on Wednesday. The market has been debating the effects of inflation or upcoming inflation in the system. A dramatic shift in one direction or the other will tell you the market direction going forward.

While I personally have absolutely no faith in the numbers that come out of the government, the bottom line is that these numbers move the market. PPI and CPI do their best to be a good inflation gauge, they simply aren't. They do very little to take into account things like higher education, medical care, food and energy and the way they suck money out of the economy.


Economists like to strip out energy and food prices to compare month over month. While it makes sense because the numbers are volatile - volatile numbers are hard to compare- it makes for a lack of intellectual honesty. The bottom line is that too much inflation hurts the economy. Deflation hurts the economy. When you are not looking at the true numbers -just stripped out numbers- you are not able to tell the true effect on the economy. Either way, the inflation numbers are going to be market moving events. Look out for them. Until next time, stay low risk.

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Concerning..

9am EST The futures have been a little concerning this morning. The dollar has been relatively strong this morning and it looks like we are in for a pullback. We are at a point in the market cycle that the "forced selling" we saw a couple of months ago is essentially over. There will be opportunistic buyers out there keeping a floor under the market. We are not going back to the recent lows in March, but we will be heading lower.

Investors Business Daily (a must read) will probably call today a "distribution day". I see continued strength in the dollar throughout the day. Remember, we are at the end of the week in the Foreign Exchange market. The Europeans go home in a couple of hours and New York will be left to carry the market through the close. Anyone familiar with Foreign Exchange will tell you that Friday afternoons are not a time for any significant positions in the market. So short of a rather large weakening in the dollar this morning, the equity markets should end lower.

I am continuing to raise cash at this point. I am waiting for about a 50% retracement of the recent move in the dollar. Once the dollar has strengthened a little and the equity market has pulled back a little, I will be more aggressive with my long positions. Until next time, stay low risk..

The Importance of a Plan..

7:30 AM EST As a trader, it is very important to have a plan and stick to it. That was very evident yesterday. I mentioned that the strongly higher futures were going to be an opportunity for the big money to sell the market off. That was exactly what happened. My plan was to take some off in some of my positions. That's exactly what I did. My position in Brown Forman (BF-B) was completely closed out yesterday. The extremely positive reaction to earnings was enough for me to take profits. It touched briefly above the 200 day and retreated. That was not what I wanted to see. I put in a limit order significantly above what I thought it would trade for the day. It got filled and I was happy.

On the other side of the tradeplan is the Altira (MO) trade I mentioned the other day. My plan was to buy some and wait for a pullback to buy more. I bought some in the middle of yesterday's range. The position ended the day a little under water, but my plan is to buy more soon. The technicals are less attractive today than they were yesterday, but this is not a stock that will be going to zero any time soon. I think another pullback will provide an opportunity to get some more a little cheaper.

The market should be essentially directionless today. Those trading futures are going to call it a "grind" . You are probably going to see a grind. The catalysts will be jobless claims and retail sales. I can't imagine either of those numbers doing much to move the market. I really do not have much of a plan to buy anything or sell anything today. I sold when the market was strong yesterday and I will be looking at some purchases today. Until next time, stay low risk..

Still cautious..

7:30am EST While the futures are higher this morning, I am a little skeptical of the early morning rally. I think the institutional money will take this opportunity to take a little off the table. I will probably be doing the same. I am keeping the positions I have right now and tightening up the stops I have in place. We have had a tremendous run in the last 6 weeks or so. I believe 100% that we will not retest the lows. However, for the health of the market, we need to have a good pullback. I believe the market ends the year significantly higher, but we need to have a little pain in between. In this case, the summer is the best time for a little pain.

Today's trade is one I have been watching for a little while. I am going to pull the trigger on (MO) today. I wanted to see the stock get back to the recent highs and it has. It is now above the 200 day moving average and the 200 day MA is flattening. Yesterday's rise was on above average volume and it actually found support at the 200 day in the morning. I believe this stock goes higher from here. I will buy about half of my position here and let it run a little. THen I will look for a pullback to purchase some more. With a strong dividend and strong cash flow, the downside is relatively limited. Until next time, stay low risk..

Little Higher..

7:15am EST Like I mentioned yesterday, even though the futures were strongly lower to start the day, the Dow closed higher and the other indexes ended the day close to break-even. You could have easily day-traded one of the index ETF's and made some good money. Today will be choppy and we probably won't have much action in either direction. While it is healthy for the market to trade sideways or lower for the next couple of weeks, it makes difficult to make lots of cash. Good choices of individual stocks will be the difference between strong returns and mediocre-to-losing returns.

Yesterday's (GIS) trade was very strong. The stock broke out of its recent range and closed above its most recent high. That is very bullish for the stock. I only put on a part of the position yesterday and will be looking to add on a pullback. I will be looking to take profits in the 57.50 range. This will be where the stock eventually hits the 200 day moving average and the stock will probably sell off from there. This is a 1:1 risk reward trade.

I am still in the Morgan Stanley (MS) trade. I am at about a 10% profit right here and looking to start taking a little off. I am trading around a base position. When it starts to move higher, I take a part of my position off. When it goes down a little, I add a little more to my position. This is a longer term holding.

The trade for today is Brown Forman (BF-B) The liquor-maker reports earnings tomorrow before the opening bell. Watch the price action going into the close. It should give you an indication of what will be happening with earnings. Earnings estimates have been lowered recently and there are no analysts with a buy rating on the stock. A decent upside surprise will send the stock higher on good volume. If the stock goes much higher from here, it will land above the 200 day moving average. The stock has bumped up against the 200 day 4 times since May 7th. This should be the catalyst that sends the stock strongly higher. The strategy here is to buy a portion of your position today assuming you have good price action in the stock this afternoon. When the announcement comes out tomorrow morning, you buy the other portion. This way, you avoid the risk of a full position but have the benefit of owning the stock at a lower price prior to a pop higher. If the company disappoints, you would want to take the small loss and be out of the stock. It's a pretty simple trade. Until next time, stay low risk..

The Week Ahead..

8am The coming week will be a good tell as to what the market is truly thinking. There is very little in the way of vital economic data. The most important piece of information about the economy announced this week will be the retail sales data on Thursday. As we all know, the economy in the US is mostly based on the consumer. If we begin to see strength from the consumer, we will know for sure that the consumer is crawling out of their hole. That is yet another positive indicator for the overall economy.

We will get a true indicator of what the market is thinking because there will be little in the way of fundamental "noise" moving the market in one direction or the other. We will see how, on the whole, the big institutions feel about the market. While the futures are lower this morning, I would not be surprised at all to see the market end the day higher. There is a lot of money on the sidelines waiting to go to work and it tends to move in on Mondays. While anything can happen, I would say the tendency is for the market to end the day higher.

That said, lets look at some trading ideas. My (WWE) trade from last week is currently up about 4% from where I bought it. I wanted to buy in stages and it is running a little right now. I want to see the action when it goes ex dividend next week. I probably will not add any more to that position until then. My Gold (GLD) November call options are down quite a bit right now. I bought the calls (as anyone should) with the knowledge and expectation that they could go to zero if the trade doesn't work. I think it will work longer term because of the inflationary pressures on the economy, but I might have to suffer a little short term. The (PALM) puts I bought last week are going to be up pretty nicely today. The stock is down about 5% in the pre-market this morning. I think it has farther to fall. This trade could be a double pretty shortly. I am fairly confident this will be a very profitable trade.

As for a new idea today, I am looking at General Mills (GIS). They raised their outlook for the year today. Whenever a company announces higher earnings guidance between earnings announcements, it is almost always a bullish sign. About 85% of the time, this is a good indicator that you will see a strong run going into earnings. Here is how the trade works. Buy today, even if the stock trades up a little. The purchase should be about 1/3 of a position. The next 1/3 should be if the stock trades lower than today (about 5% lower). If it goes lower than that (5% lower than the second buy), buy another 1/3. Each purchase should be used to lower your cost basis going into earnings on July 1st before the market opens. At that point, we should see some analyst upgrades, an earnings beat, and the stock should head higher. That will be the decision point. If you have a healthy profit at that point, I would sell into the strength. If you don't have a nice profit at that point, I would be looking to sell some out of the money calls to lower your cost basis further. This is not a stock that moves dramatically from one day to the next. If you trade this correctly, you can create a profit through strategic purchases, collecting dividends, and selling calls even if the stock trades lower than it will today. This is a pretty low risk idea, I like those a lot. Until next time, stay low risk..

Pullback

9am EST We are still getting mixed numbers from the economy as expected. We got a mixed batch of retail sales numbers this morning. We got employment numbers that showed us a firming labor market. While none of these scream that the economy is appreciably better, it is a little fundamentally supportive for stocks.

The economy has to get better for the market to continue higher. While there is a supply/demand imbalance for money managers, a strengthening economy ultimately has to come with it. If money managers just jump in and buy at every opportunity, we will accidentally end up with stocks that sport huge P/E ratios and growth hindered by the anemic economy. That would be a recipe for ultimate disaster in the market. The best scenario is one where the market trades in a range while the economy catches up fundamentally.

As a trade today, I am looking at none other than World Wrestling Entertainment (WWE). It hit a high of $12.99 on April 3rd and strongly pulled back to the 50 day moving average. After 2 months of consolidation, the stock traded above the previous high of $12.99 to close at $13.07. This stock should be used as a longer term trade and purchased in stages. The stochastics are in the overbought range and the stock goes ex-dividend in 2 weeks. There are a couple factors that may hold the stock back in the short term. It is a buy for me because of the recent strength and the factors that support the stock long term. One other positive factor for this trade is that you receive a very nice dividend while the stock consolidates. Until next time, stay low risk..

Strong day..

7am EST The market continues to rise in the face of mediocre-at-best news. If someone would have told you 12 months ago that GM would officially file for bankruptcy and the Dow would be up 200+ points, I'm sure you'd ask them to get their head examined. Yet the market continues to shrug off bad news and the buying continues.

The S&P 500 broke strongly over the 200 day moving average yesterday. This is usually a very bullish sign. While I am still in the camp of the bulls, I am very cautious. Most times, when an index breaks above the 200 day moving average, that is usually the "official beginning" of a bull market. This time I am a little skeptical. We have had a huge run in the market so far. The fundamentals of the economy are not supportive yet. There are some potentially huge problems out there like the commercial real estate market and the consumer credit market.

The bottom line here is that I am a trader. Traders allow the market to tell them how to invest. The best traders "turn their brain off" when it comes to making money. There are so many factors that go into any market that logic needs to be suspended many times. Markets are controlled by human beings making emotional decisions. Logic has to go out the window sometimes.

Yesterday, I put on my position in gold using the gold ETF (GLD). I bought the Nov 09 $190 calls for $1.00 each. Here is why. First of all, gold should only be a small part of any portfolio. There is little true value for the metal beyond the fact that people say there is value. Other metals like copper, platinum, and palladuim have industrial uses and the supply/demand dynamic is therefore dramatically different.

Second, the percentage gain available for calls that are this out of the money is huge. The risk is limited to the amount of the purchase plus trading costs. So, for a trade that is going to be a small amount of the overall portfolio, it makes sense to swing for the fences. There is little potential downside risk and huge up side potential with this strategy.

All traders should make trades within the context of their portfolio in order to maximize benefits and minimize risk. This is what I am doing with the GLD trade. I will be keeping the position size small but looking for a 200% - 300% goal for taking my first profits in this trade. Until next time, stay low risk..

Scary day...

7:45am EST Yesterday was pretty scary for those watching the structural integrity of the American economy. We saw a spike in the ten year treasury note rate yesterday and it spooked the equity markets in the afternoon. The market was working it's way higher and then fell off a cliff mid afternoon, right in step with the spike in the treasury yield.

The spike in the treasury rate was scary because of it's impact on the overall economy. Higher treasury rates lead to higher mortgage rates. That makes it more expensive for borrowers. In a weak housing market, we need more buyers to put a floor under prices. With more expensive money out there, we are taking away the incentive for borrowers.

Higher treasury rates also mean that the government pays out more in interest on the trillions it is borrowing, further burdening a budget that is bulging like an overstuffed sausage. None of this recent development is good for the overall state of the market and the economy as a whole.

That said, we still need to make money. Here is what I am looking at. The (PALM) trade from yesterday is now up 20%. I am fine with a nice little profit like that. I am still hanging on to it for now, but I will be looking to sell in a week or so. I am specifically looking at the week of 6/6 when the Pre is officially launched.

The longer term trade I am looking at is the Double Short Treasury Long Term ETF (TBT). This takes advantage of the fall in the price and rise in yield of long term treasury. That is a longer term trade I have had on for a while. Longer term readers know this already. I think it continues to head higher from here. Until next time, stay low risk..

A Good Start..

8:15am EST We had a good start to the week yesterday. The consumer confidence number was dramatically better than expected. As I mentioned yesterday, there is still a chance at up side surprises in the economic numbers. We got one. However, we need to be cautious about the reaction. A 200 point rally in the Dow does not mean that things are great. The volume was light on a typical vacation day for many Wall St. traders. Around holidays like Memorial Day, and especially holidays in the summer, the market tends to levitate higher. We had that yesterday. Pardon the pun, but I wouldn't put much stock in that.

I think a good pullback is in order for today. It might present a good buying opportunity for some of the longer term stocks I have mentioned in previous posts. While anything can happen, and it is never smart to fight the tape, I would be looking to add to longer term positions.

A trade for today is pretty simple. I will be buying puts on Palm (PALM). The company releases the Pre on June 6th. The stock has already had a dramatic run and the stock is bound for a pullback. I am looking at the $7.50 November Puts. You can currently buy them for a little more than $1 right now. I would be looking for a quick double. I anticipate that, when the Pre is officially released, the stock will sell off. The only risk I see is that there is a large short position out there. There is a significant risk of a short squeeze that brings the stock dramatically higher. However, if you are putting on a small position with low-priced puts, you have a limited risk. This is not a bet-the-portfolio trade. This is one that you put on to potentially juice your returns for the year. Little, speculative trades like this are fun and can add some nice juice to your portfolio. Until next time, stay low risk..

A New Week...

7am EST A new, shortened trading week begins today and we have some key pieces of information coming out. There will be some housing numbers, CPI, preliminary GDP, durable goods, etc. It is going to be a lot for the market to digest. And with a potentially light volume week, we could see some serious volatility in the market this week. I can't imagine a solid directional trade for the whole week, but my bias would be to the up side overall. I think there is potential for good or "not-so-bad" numbers this week, and that can buoy the market overall. I would never expect a 10%+ move for the overall market but I believe the net gain/loss can be higher.

I am staying away from any swing trades today. I am going to get a feel for the market's overall direction before jumping in. Keep an eye on volume and watch the market's reaction to the housing numbers this morning. Until next time, stay low risk..

Here's what to look for..

7:30 AM EST The trading today will be somewhat treacherous heading into the Memorial day weekend. The volume will be lighter than usual and is some big money people want to take stocks up of down, they will be able to. The action going into the close yesterday was certainly bullish and the futures are higher. That would normally make me confident that the market will head higher for the day, however the pre-holiday vacations will make for some unpredictable action.

I am keeping an eye on Gold (GLD). While the risk-reward is not where I want it to be yet, it can certainly become a profitable looking trade soon. I need to see Gold break strongly above $1010 before the risk-reward becomes favorable, but it is almost there. People have been looking for Gold to become a bubble for a long time, and I think we are close to starting to inflate here. Look for it to break above $1010 before getting long, but keep an eye on it. Until next time, stay low risk..

Maybe..

8am EST Maybe this is the time to get the correction we need. The market had a decent selloff yesterday. I would have liked to see some more volume with the selling to tell me that the sell off was for real. The volume was good but not great. Maybe we can get it today. Even though the futures are lower this morning, there seems to be some underlying strength. I am still heavily in cash, but I did add a little Bank of America (BAC) on the afternoon weakness.

If we start to correct properly over the next couple of days, keep an eye on Altria (MO). As with any tobacco company, there are litigation issues out there including the recent news about potential FDA regulation.

The technicals on this stock are truly compelling. The $17.20-17.65 range has been a level of resistance going back to November 2008. The last positive day was back on May 13th leaving the stochastics at a neutral level. Each down day has closed significantly higher than the intraday bottom, signalling some support. It is currently sitting just above the 50 day moving average. The stock has been in a strong up trend since March 3rd along with the greater market and the upward trend line is currently showing some support. With the stock closing at $16.77, it looks like you could see some more support in the $16.40 if necessary. The stock kissed the 200 day moving average at $17.62 on May 13th and retreated. Another move above that area, and the stock will have broken the 200 day moving average.

This stock has been a range for quite a while and it is now at a decision point. It could be either starting a strong uptrend soon or falling back significantly. I want a little more information before I buy, but (MO) can be a great long term stock that's ready to move much higher. Until next time, stay low risk..

Late day day reversal..

7am EST The late day action was heartening for the bears and hard for the bulls. The mild rally fell off a cliff in the last hour or so. The bulls will tell you that the fact that we haven't had a massive selloff after the big rally from the last 6 weeks is a positive sign. While I definitely agree with that idea, I am not necessarily convinced that we go dramatically higher in the near future. We are probably not going back to the lows, but the rally needs to correct itself before going much higher.

I would like to see the market lower today. It will make for some healthy profit taking as well as the opportunity for solid, longer term money to work it's way into the system. This longer term money will be the base for the next leg of the rally.

The (MS) trade from yesterday went well. While it did get slightly above the key $29 level, it didn't have a rush of volume I would be looking for to call it a breakout. I still think it can pull back and give you an opportunity to buy some more shares.

I am going to give you a trade for today that is a little different than what I normally do. I am normally a technical trader. This one is basically all fundamental. I think you can buy Bank of America (BAC) today. At this point, the stock is simply a supply and demand story. I think the demand is there for the stock, but the supply had been unknown for the last couple of weeks with their announced capital raise. This made some of the big money shy away.

Bank of America sold in excess of $8 billion in stock last night. The capital raising is just about over. With the supply well known, and institutional investors feeling more comfortable that the additional dilution is just about over, they will probably feel comofrtable buying shares. I don't think you are going to get a much better price to buy.

While there is some resistance from the traders who were buying in the $14-15 range, going from $11-12 to $15 is a nice percentage gain. If the stock can get above the high of $15.07 from May 7th, your next real resistance would be near the 200 day moving average, currently 16.32. Either way, I like the risk reward. Until next time, stay low risk..

Still being skeptical..

7am EST The rally yesterday felt really good on the surface. We broke through some resistance in the S&P. Financials rallied. Tech was strong. Overall, it felt like a good day. I am still skeptical about yesterday's rally. The volume was light. The reasons for the strong rally were not structural. We rallied on good earnings news from Lowes and a successful election in India. While good earnings from a home retailer means good things for the housing market, it doesn't mean things are wonderful yet. I think the Lowes earnings numbers are certainly constructive. I just remain skeptical of such a strong bounce back as well as strong futures this morning.

While we are certainly in a longer term bull market, there are corrections in all bull markets. There are still times you can lose money. You still need to be nimble. The government has been moving the economy to a government-controlled socialist system as quickly as they can. With that happening, the Obama administration can change the rules in a heartbeat. When the rules change, a trader almost always loses money.

Here is a trade to watch today. I am looking at going long Morgan Stanley (MS). Right here, the stock is in a technical no-man's-land. It needs to be watched, however. The stock is well above the 200 day moving average as well as the 50 day. It had a strong day yesterday. The risk is significant with support in the $24-23.50 range. However this is one of the strongest financials out there.

I think a break above the $29-29.20 on strong volume is your buy point. There is very little resistance until the $34 range. While the risk reward is technically about 1:1, I think the realistic downside is minimal and this will be a strong stock for the future. Stay skeptical in this market and until next time, stay low risk..

More Confusion...

7am EST I am on the mailing lists of several "pundits" who give their daily opinions of the markets' direction and other issues they see. It gives me a good cross section of the overall opinions in the market. At the end of the day, opinions are the only thing that matter to a trader. Markets are simply a study in group psychology and behavioral finance. When you get a cross section of what the "big" names are thinking, you can get a little feel of what the market is going to do. For a trader looking for an edge, this can help.

The feeling I got on Thursday and Friday was "I have no clue", from these emails. They intelligently hedged all their statements, and tried to sound like they had some insight. They didn't.

For a trader, there is a lesson to be learned from this. There are times where the market isn't trending in one particular direction. It gets very choppy and looks around for direction. Like people, markets look for leadership. Right now, there is very little true leadership in the market. When there is uncertainty like this, the markets tend to sell off. Traders do not like uncertainty. When there is the perception of uncertainty, the conviction buying required to send the market sustainably higher isn't there.

On that note, it looks like we will see a market that heads higher initially this morning. There have been several financial stock upgrades this morning and they tend to lead the market. Of course anything can happen (I'm hedging here) but we should see some initial strength. I am still very light in positions right now and I don't plan to add anything new today. Hang tight for now and until nest time, stay low risk..

Confusing Action...

8am EST The action was somewhat confusing yesterday. We had every reason to go lower and we didn't. The retail sales number was weak. Wal Mart didn't blow numbers out of the water. The overall sentiment was weak, yet the market still headed higher.

What does this mean? I think we need to allow this market to work itself out a little. It makes me think that long term, the market is beginning to show some signs of health. It does not make me short term bullish, but the fact that we did not drop significantly lower makes me feel long term bullish.

I am going to stay heavily in cash today because the market is not in a good trend one way or the other. I will look for signs of direction and individual sectors that show strength. I am personally focused on the agriculture sector for now. Until next time, stay low risk..

Until Further Notice...

7am EST "Until further notice." That is the mantra I have been thinking about in this market for a while. For the last month and a half, we were in a bull market "until further notice". We are now going to head lower "until further notice". We got confirmation of that yesterday. I thought there was going to be enough demand to soak up some of the supply coming on to the market. I thought there were enough buyers out there who concerned that they missed the big move. Clearly the billions of dollars in secondary offerings is too much for the market to take and it needs to be digested until further notice.

So what to do now? I spent most of the day getting rid of most of my long positions. I will be looking to get short for the time being. I am currently short the Nasdaq ETF (QQQQ). I think the critical level is in 31.50 range. That is the 38.2% Fibonnacci level and the 50 day moving average. I think that should be good support. If we get support there, I think we can head higher. If there is no support at that level, there is more pain ahead. The next level would be in the 30.50 range. That would be a 50% retracement of the recent move. Either retracement would be healthy enough to take us out of the dramatically overbought condition the market has been in since the about the middle of March. I have been looking for a healthy pullback for a while and it looks like we are getting it. Until next time, stay low risk..

A Curious Turn..

7am EST The market had every opportunity to go lower yesterday and it didn't. We broke through the 900 level on the S&P but regained it by the end of the day. We should have been lower on the Dow but ended the day higher. The NASDAQ was weak but it stayed at the 200 day moving average. The longer the NASDAQ stays above the 2oo day, the better it is for the bulls.

There were two phenomenons I was looking yesterday. They send two different signals to me, and I am a little confused. The first phenomenon I was looking at was bullish. With the market bringing on massive amounts of supply in the form of secondary offerings from huge financial firms, it showed amazing resilience. With billions and billions of dollars of supply coming on the market, the market still went modestly higher. That signifies a strong demand for risk based assets like stocks.

The other phenomenon shows me the exact opposite effect. Gold and silver (commodities and stocks) have been strong recently. This normally signifies a certain amount of risk aversion. It tells me that people are shying away from risk based assets like stocks.

What this combination tells me is that institutional investors are probably looking forward to the inflation we will inevitably see. I am not jumping into the gold trade yet, but it is certainly on my radar now. I want to see gold trade above $1010 before feeling comfortable buying. The $1000 level has been resistance a couple of times, and I want gold to go through that level strongly to get in before the institutional buyers pile in.

It also tells me to be cautious on being outrageously long stocks. I am going to trim a couple positions today and be sure I have good cash levels. If the coming correction is stronger than I anticipate, I would rather be out and miss some of the move higher than be in the market pulling my hair out.

I am staying cautious today and I probably won't initiate any new longs. I am staying cautious. Until next time, stay low risk..

Where do we go from here?

7:15am EST When you are trading the market, you always want to be aware of the macro situation as it relates to your positions. When we get vacuums of news like we have now, the market tends to drift toward equilibrium. That means if the market has run up significantly, the market will tend to head lower. If it has been dropping, the market will tend to head a little higher. In this case, I think we should drift lower for a little while. This drift lower should be pretty healthy as winners take profits and people who missed the move over the last couple of months have a chance to get in. Long-only mutual funds would love the opportunity to buy stocks at lower prices because a lot of them are underperforming the market right now. This will keep a floor under the market and prevent us from going back to previous lows.

I would like to see some support over the next couple of days because the NASDAQ is sitting right near it's 200 day moving average. I firmly believe the NASDAQ will be the index to watch going forward because it contains the market performers which will lead the overall market higher. If it can correct slightly then break strongly through the 200 day, that will be extremely bullish long term. If we see a correction and we can't strongly retake the 200 day MA, we will probably be in for more pain. I feel like the latter scenario is unlikely as it feels like there is a lot of long money waiting to go to work.

As for making money, I continue to hold onto my position in Mylan (MYL). It is $1.10 off of it's 52 week high. It had a heavy selloff on 4/30 which was the perfect buying opportunity. The support is around 12.80. While the risk/reward is not as favorable now as when I recommended it on May 1st, but a strong break above the $15.00 range would send this stock off to the races. I am very confident in the prospects for this stock.

I also added a position in Symantec (SYMC) yesterday. On Thursday, the stock traded 68 million shares. That is more shares traded than any single day going back to Jan 2008. It found support in the 14.50 range on Thursday. Then, the trading on Friday was above average and the stock found support again at the 14.50 range. I bought on the open yesterday and enjoyed some gains. I still think the risk reward is favorable and I would be looking for the stock to fill the gap to the 17.50 - 18.00 range. If you purchase at yesterday's close price, the stock has $2.00 to 2.50 of immediate upside and about $.75 of immediate downside potential. That works out to about 3:1 risk reward, which is very attractive. Until next time, stay low risk..

Look out and a trade..

9am EST Today will start as a rally that should sucker people in and I wouldn't be surprised to see us end the day lower. "Not as bad news" is not the same as "good news" and the market is simply pricing this in. Again, there is nothing wrong with a pullback after the run we have had, but it is important to be aware that we should head lower. The higher we go without a pullback, the more cautious I become. Of course, profits on the long side are nice but I would like to see the equilibrium come back to the markets.

The trade to look at today is Lamar Advertising (LAMR). We saw it go higher in the face of a weak market yesterday and it broke strongly above it's 200 day moving average. The chart is very bullish in my opinion. I would look to buy and place a stop just below the 200 day MA. This one should be easy money in my opinion. I think it can rise in the face of a market in correction, but be aware. If we have a large correction, the rally attempt on this stock can get hammered down. Stay aware, and until next time, stay low risk..

Market looking a little...

9AM EST The market is looking a little heavy this morning. That doesn't mean we won't close higher today, but there may be a little draw down at the open. If it is strong enough of a downdraft, it might be an opportunity to add to positions. The trend is still up and that should be respected.

(KOL) was up about 12% on about 7 times the normal volume yesterday. If you took that trade on the morning, you made some great money. Of course, when you see institutional volume supporting the security, you need to stay involved because it will go higher. At this point, there is too much money getting long that they will not let it go down. That is an easy trade.

A look back at a trade I didn't take. SunPower (SPWRA) took off to the upside. I refuse to chase trades. I would rather be out of a trade wishing I was in than be in a trade wishing I was out. It may go higher (probably will) but I am not going to be on that train.

I had some trouble finding solid trades yesterday, but I did find one that looked interesting. I am not sure I will actually put the trade on because I have put a lot of capital to work recently but it will probably be profitable. I would be looking to buy puts on Apollo Group (APOL) they have signaled that the earnings growth is definitely going to slow and the institutional support is waning. I never short a stock outright because of the unlimited risk. I always buy puts to bet on a stock going down. I would be looking to go a couple months out (at least August) and be slightly out of the money (45-50). When I get short, I always use a smaller size position. I, usually use a risk of about 1-2% of my portfolio. I would be more in the 1% rangehere. Until nexgt time, stay low risk..

This Crazy Market..

7:30 am EST I have seen the following quote attributed to several people. The person who said it doesn't matter nearly as much as what you can learn from it. The quote is as follows:

"The market can stay irrational longer than you can stay solvent."

It is certainly true in this market. Oil continues to go higher for no reason other than it is going higher. We are awash in oil, yet the price continues higher. Stocks ended the week higher in spite of a potential pandemic, a GDP number that was significantly worse than expected, and the bankruptcy of one of the largest automakers in the US. Any one of these events 18 months ago would have crippled the market. Yet we just barreled higher.

So what does this have to do with trading this week? You have to turn your brain off a little and recognize what the market is doing. The NASDAQ is currently above it's 200 day moving average and solidly so. The S&P 500 is solidly above it's 50 day moving average and heading toward its 200. More importantly, the slope of each of these moving averages is flattening out. This leads me to believe that the downside of each of these markets is pretty limited. I think we can certainly move lower, and a pullback would be healthy. However, going to or staying in "risk averse" investments like treasuries or gold does not make a lot of sense from a risk/reward standpoint.

The trade from Friday has been mediocre so far. Mylan (MYL) found support twice in the $12.80 area. If it continues to test that area, it may go significantly lower from there. That would be the time to exit. So far, I am still fully in the position and watching closely.

Rent A Center (RCII) had a nice move from the lows last week and that trade is moving strongly higher. I would like to see it move above the $19.50 area for confirmation that the trade will be solidly profitable. While I currently have a nice profit, it hasn't moved to where I am comfortable yet. I am still watching closely.

I really had a hard time finding something to trade Friday because the volumes were light and the market "floated" for most of the day. I did however get long some of the Coal ETF (KOL). Some of the coal-related stocks have seriously broken out recently. Look at the charts of companies like Patriot Coal (PCX) and James River (JRCC). In situations like this, I like to get long the commodity as opposed to the individual companies. This gives me exposure to the trend without the individual company risk. I tend to miss some of the move in the best performing companies within the sector, but the sector ETF is usually an easier trade with less risk. I will be watching this trade closely, but I feel comfortable with the potential of this move. Until next time, stay low risk..

A Turning Point and a Trade

8AM EST The rally is starting to feel a little tired at this point. Most of the days this week, the market has tailed off near the end of the day. Some leaders have been showing signs of fatigue. The concern is that we are near the 200 day moving average for most of the major averages and we are getting near overbought areas on most indicators. I would like to see something take us significantly higher but I think we need to pull back before we can really say the major rally is on. I do not think we head to the previous lows, but a 10% correction would be a healthy breather for this furious rally. I would not be surprised to see the market end lower today on some profit taking before the weekend. I would look at it as an opportunity to add to some longs.

The (SPWRA) trade from yesterday is clearly a no go. The action was exactly what I didn't want. We had a strong beginning of the day and a very weak close for the stock. That's why I said in my post from yesterday that I wanted to watch the action before buying. I am definitely staying away. The (RCII) trade from Wednesday is still on and making money. I am currently sitting on about 5% gain and I think we get more.

The trade to look at today is Mylan (MYL). It traded down on huge volume yesterday but with a distinct qualification. The stock didn't end the day on the low which is usually bullish. The other, more important issue about the action yesterday is that (MYL) found significant support at the $12.80 level. It hit $12.80 three separate times in the last 6 weeks and each time it couldn't go lower. With the stock closing at $13.25, you have an easy, low risk trade. Keep a stop slightly below the $12.80 area and keep an eye on the trade. You have about $.45 of downside potential and your first price target would be in the $14.50-$14.75 range. That gives you at 3:1 risk reward ratio. I like the odds. Until next time, stay low risk..

Time to be a little cautious..

8am EST The market may be heading higher at the open today and it may be breaking through some levels of resistance. However, I am starting to get nervous about some of the internal action. On a relatively strong day, large companies with outstanding earnings have been mediocre or weak in terms of price action. Have a look at some of the charts of (AMZN) (AAPL) (ORCL). While I think we can still go significantly higher with the market, I think it would be wise to prepare for a healthy pullback. It is beginning to feel like the buyers are running out of juice.

Here is a stock to keep an eye on. SunPower (SWPRA). The stock rose strongly in high volume yesterday and it will be helped by its friend First Solar (FSLR) today. I will be looking for the action today. I want to see it close above it's 50 day Moving Average and have solid action going into the close. The last couple of attempts to get this stock above it's 50 day MA have been beaten down by sellers. This is probably going to be the time for it to break through but I will not be convinced until I see how the stock closes. Keep an eye on this one and until next time, stay low risk..

A Couple Trades..

9am EST Trading, at it's core is relatively simple. You buy stocks that are oversold and sell stocks that are overbought. Here are a couple stocks to review.

Have a look at my post from April 8th. I recommended buying Dreamworks (DWA) in the post. The trade was simple. Keep a stop below the recent low. Look for $3-5 of upside. DWA reported earnings yesterday and the stock is now off to the races. I am going to take off half of my position here and raise my stop to my original purchase price. This way I am guaranteed to make some money on the trade without limiting all of my upside. I will be watching the trade carefully so I can maximize my profits, but half is coming off today. That was just easy money.

Here is another easy trade for today. Rent a Center (RCII). They beat analyst estimates and raised earnings guidance yet the stock got clobbered on massive volume. The last time this stock had a selloff like it had yesterday, the stock did nothing but go up 23% in the next 5 trading days. It proceeded to give an investor an 87% in less than 6 months. If you missed the first five day run up, you still had a 46% return, but that is a lot less than 87%.

The trade for today is simple. The stock closed at $18.38. Buy with a stop at around $16.75. This gives you a little less than $2 of downside and my initial profit target is going to be around $23, or $4-5 if upside. The risk reward here is excellent, and I think it can run up very quickly.

As with any trade, know your plan to get out before you get in. And until next time, stay low risk..

Pigs and Capital..

7:30 am Once again, the swine flu "pandemic" is a big part of Wall St. news today. Not to be insensitive, but you need to put this in perspective. 36,000 people die in the US every year from the "regular flu". More than 500,000 people worldwide die from the "regular flu" every year. So far, the number of deaths worldwide is in the hundreds. That is not to say things can't get significantly worse, but we need to keep things in perspective. If you are getting outside regularly and not spending significant time in close contact with others, you should be ok.

From a large perspective, there is plenty of precaution out there and there are many measures in place to prevent or contain a massive pandemic. This will continue to be a big news story but the economic implications are probably minimal at this point. That is not to say that it can't get significantly worse, but the implications are small right now.

The other big story is the capital situations of Bank of America and Citigroup. The US regulators are saying both need additional capital. Of course, both banks do not want to show any signs of potential weakness. Both "respectfully disagree" with the government's assessment. The truth probably lies in the middle somewhere, as it usually does. The banks probably need more capital but probably not as much as the government wants.

How to make money? I currently own some BAC Jan 2010 $10 Calls and am short some May $12.50 Calls against it. I will be adding to the $10 Leaps today and waiting to sell some front month calls when the stock recovers. This trade has a long time to work and plenty of volatility to sell while I wait. I really like this trade.

Until next time, stay low risk..

Back..

9am EST Glad to be back. I was on vacation last week and I am ready to go. I apologize to those who missed the posts. Thanks to all those who sent feedback to me. Here is my take on the markets.

Of course, the big story is the swine flu. This issue will immediately benefit the shorts. If you weren't short going into the weekend, it will be kkind of difficult to make money on this move. You can make money on the move back up. Make no mistake about this market, we are currently in a bull market. I think it will be very difficult for the market to go back and retest the lows. I think we will have a healthy pullback soon and I think that will be a buying opportunity. Unless the economy shows some material change for the worse, the market has bottomed.

How do we make money off the swine flu? You need to understand a couple of things. First, the swine flu is not a one-day story. This will take a while to play out. Therefore your investments in the face of this should be over time. Second, the chances of this being a pandemic are relatively small, therefore the potential damage to the global economy should be minimal. The reality of this becoming a 1918-like pandemic is highly unlikely because of the dramatic increase in the quality of world health care and sanitation. That said, there is still a possibility of a pandemic issue. Keep that in mind.

What stocks? I will be looking at meat producers, travel companies, airlines, etc. Pharma companies should get a quick pop but I think jumping in behind them is potentially risky. If I am right, the swine flu issue goes away pretty quickly and the premium for the flu related pharma companies disappears pretty quickly. If you buy them today, you can get crushed if this flu issue goes away.

Look for companies like Priceline.com (PCLN) Snithfield Foods (SFD) and Tyson Foods (TSN). You can get creative with this but don't take it too far. I hesitate to recommend an airline, but if I had to buy one, the one with the most potential is JetBlue (JBLU).

These are longer term trades. Keep this in mind and as always stay low risk..

Missed yesterday..

9am EST For those who are regular readers, I apologize for not getting in a post yesterday. I had some preparations to make in front of a vacation I am going on this coming week and next week. As you can imagine, posts here will be a little spotty for the next week or two.

The market has gotten significantly weaker throughout the morning since the PPI and retail sales numbers this morning. They were both worse than expected. Those who were waiting to get long might find an opportunity today at the market open.

Goldman Sachs reported numbers last night that were simply outstanding. The stock will open lower today as they will be pricing $5 Billion in new shares in a secondary offering. They are raising capital to pay back TARP funds. The question for me is simply, "Why?" They have $164 Billion in cash on their balance sheet and they made almost $10 Billion last quarter innet earnings. With a fortress-like balance sheet and huge earnings and cash flow, why dilute shareholders? $10 Billion is such a small percentage of the cash horde with huge amounts of cash coming in quarterly. The move concerns me if I were a long term investor. They have the political connections and the size to never have a long term problem with solvency, but I would be nervous with moves like this equity raise if I was a buy-and-hold-forever investor. Fortunately I am a trader, and I can make a ton of money with this stock trading in and out. The day-to-day swings make this a very profitable stock to trade.

I bought some calls and puts in front of the GS earnings announcement yesterday. I will probably be selling the puts today and holding on to the calls for the rebound. At the end of the day, they reported a fantastic number and the shares will ultimately go higher. They will just be hit short term. That will be a great time to take advantage of the puts I own.

I will be doing some research on an old IBD favorite today. That company is Intuitive Surgical (ISRG). The DaVinci maker has been rallying recently and it may be time to take a look at the shres prior to earnings. This is not a recommendation of a buy but I am certainly going to take a look today.

Keep your head up in this market. There are opportunities out there. Until next time, stay low risk..

Looking higher so far..

8:30am So far this morning, the futures are pointing to a higher open. Wells Fargo said things are going well with Wachovia and Wal Mart guided to the high end of the earnings range. It should head the market higher initially. The curious thing so far is that retail sales numbers have been almost all below estimates yet the market is still looking to be strong this morning. There has been a tendency for the market to ignore bad news with the hope that things are going to get better. We could close out the short week with an up day. That would be nice.

On to making some money. There was some curious option action in a couple stocks I am keeping an eye on. The first is NetApp (NTAP). The speculation is that, since IBM won't be closing the deal with Sun Microsystems (JAVA), they will be looking at a company like NetApp (NTAP). I hate to jump on these speculative plays with a lot of capital because they don't work a lot of times. And when they don't work, the stock gets crushed. Just look at Sun (JAVA) over the last week. If you are going to participate in this one, it probably should be with Call options and committing small amounts of capital.

The other stock I am looking at is VMWare (VMW). There was strong option activity in this stock yesterday. The curious part about it is that there was no specific news around the trade. That tells me that there is some big money who either knows something r is willing to manipulate the market enough to make the trade work. I saw action in the May puts. It looked like a Bull Put Spread which tells me someone is probably pretty bullish on the name. The way I am going to trade this is very simple. I am going to wait until earnings and set up a directionally hedged trade using options. They report April 22nd after the close. I will be putting the trade on during the day on April 22nd. When the big money is in a stock like this, big moves are usually in order. There is money to be made in this stock, you just need to be in the right place at the right time. Until next time, stay low risk..

Uncertain Direction and an Easy Trade

8am EST The overall direction of the market is definitely becoming more uncertain. We are nearing some important support levels and there is some uncertainty with earnings season coming up. The Alcoa(AA) earnings announcement, as I predicted yesterday, was once again a miserable disappointment. They never fail.

There was a pretty positive earnings announcement from Bed Bath and Beyond (BBBY) last night that has been flying under the radar a little. Of course, (BBBY) benefited from the bankruptcy of Linens and Things but they have plenty of competitors out there. You can go to a lot of retailers and get a garbage can for your bathroom.

Earnings season begins with some real force next week with some larger companies who will be the true test for the market. You can certainly expect some highly volatile reactions to these announcements for 2 reasons.
1) There is a growing acceptability with not giving earnings guidance.
2) Most Wall St. analysts are completely clueless.
The companies who report strong numbers will be handsomely rewarded with a massive jump in stock price. I will be on vacation next week but I will certainly be putting on some options trades to take advantage of these moves.

One trade I am looking at for the next couple of days is Dreamworks Animation (DWA). Monday, they were downgraded by some schmuck analyst because their current movie didn't do as well at the box office as was expected. The technicals are mediocre for this one so I wouldn't put on a huge position but it did have a very high volume down day and the sellers may be exhausted for the short term. The trade is relatively simple. The stock closed at $19.45 yesterday. If you can buy the stock a little below there, your stop would be just below the recent low of $17.32. Your potential downside is about $2 and your potential upside is $3-$5. I always like a trade that has a greater than 1:1 risk/reward ratio. Again, this isn't a home run trade, but certainly something you can add to your portfolio with minimal risk.

At the end of the year, little trades like this can defintiely help your P&L. They can smooth out some of the bigger swings that can happen druing the year. Keep an eye on this and until next time, stay low risk..

An interesting start..

8:30am EST The start of the week was interesting. There was little real news to speak of and the market just floated along. Yes there was the piece by Mike Mayo saying the banks were going to crash and burn, but that wasn't news. The news stations didn't have much to cover yesterday. It looks like a lower open today and I would like to see it lower all day today. No healthy market ever goes straight up every day. Today will also be a little heavier with news being that Alcoa (AA) will be coming out with earnings after the bell today.

Anyone who has traded for any length of time knows that earnings announcements are all about expectations. In this case, the expectations for Alcoa are about as low as they are going to get. First, industrial metal demand has evaporated over the last 6-12 months. Second, Alcoa is a horrible business operator. They couldn't make money when aluminum prices were at record levels! How could they possibly say anything positive?

So what does that mean about the price reaction to the earnings announcement from (AA)? Probably not a whole lot. This is never a stock I want to buy because they run such a bad business. It won't be a good option trade because it won't move enough to make the trade profitable. Frankly, this is one I am going to stay away from.

I am salivating about the trading possibilities for next week. There are some big cap tech names reporting. Some of these companies will truly assert themselves as the ones to ultimately lead the market higher. Research in Motion (RIMM) and Oracle (ORCL) have already shown us that they have the earnings power and products for longer term growth. I think there are several more out there that will show us their strength.

Financials simply won't take us higher any more. They will be regulated to death and the growth possibilities will be limited. They aren't even dividend plays anymore, now that Wall St. in a sick and twisted way rewards a companies for cutting dividends. I am staying away from financials for investments. When the technicals are good, almost anything can be a good trade. You just need to be careful. We will see how things look after earnings today. Watch the price action in (AA) from 3:45pm till the close. That will tell you how their earnings will look. The people who trade on inside information (if you don't think it's happening, you're crazy) will give you the tell. Until next time, stay low risk..

Shocking..

8:30 am EST Yesterday's action in the market was shocking to me. That is the only way I can explain it. In yesterday's post, I was concerned about the crosswinds going on in the market and I thought there might be some problems with the rally going forward. The market rallied hard. I thought Research in Motion (RIMM) had run up dramatically and was going to fall with earnings. They had a massive quarter AND raised guidance. About the only thing I was specifically correct about was that Apollo (APOL) had enough selling on Wednesday to make it a buy. It was up as high as $70 from its $63 Wednesday low. I think you can still hold on to this one.

Fortunately, as a trader, you trade the market that is in front of you. A good trader does not try to force their ideas on the market. That is a recipe for losing money most times. You need to trade what the market gives you. I expected a choppy market but it was a huge rally. I used that to my advantage. I got long in the morning and took some profits in the afternoon. It was that easy. I set up my hedged trade in (RIMM) at 3:30 pm. There was a lot of action in this name all day and I wanted to wait to see how it played out. I bought the May $65 calls and the $35 puts. The total average cost was $.70 per call and put. I anticipate the puts going to $.00 and that will be fine. So anything in the (RIMM) calls above $1.40 will be profit. Since the call options were $16 out of the money yesterday and they will open either in the money or slightly out of the money, I can be pretty sure of a healthy profit today. I plan on taking a portion off today and letting the rest run. (RIMM) reported such a strong number that you have to be bullish about the stock.

The employment number this morning was a non-event. If we had something higher than about 800k, it might have made a difference. In this case, there is such negativity baked in to the market, it is very difficult to disappoint. While I think the market can go higher today, of course I will keep my eye open for trends. We will make some more money here on Monday. Until next time, stay low risk..

Interesting Today..

8:30 am EST There are many crosswinds in the market right now making for a difficult trading day.

-The ECB cut by only a quarter point this morning, therefore strengthening the Euro. The EUR/USD pair is currently up 200 pips since the decision. Ultimately this is bullish for stocks in the US.

-The jobless claims number was higher than expected. This would normally be bearish but the market seems to have shrugged this off. I think the Non Farm Payrolls number coming up will ultimately be bullish as well. Anything less than 800k or so in the NFP report will probably be taken as a sign that things are getting better (or less worse) in the economy. I think we come in less than 800k, and the market rallies on the news. If it is worse than that, it will give the market plenty of reason to sell off and consolidate gains from March.

-FASB has changed the rules in Mark-to-Market accounting. This can potentially be bearish. I think the financials rallied in anticipation of the rule change. They may sell off today. If they don't sell off, it will be an indication of how high the market can take these beaten down financials.

How the market takes these big-picture issues over the next couple of days will tell us where the market heads over the next 2 months.

On to making some money. Apollo (APOL) got hammered yesterday as I expected. The sell off made me some nice cash. I will take it. I think you saw enough capitulation selling in this name to be able to step in and be a buyer here. Keep a tight stop on this trade but I think it sets up nicely. The stock sold off dramatically and then market started buying shares near the end of the day. The overall volume was huge, indicating big money moving in and out. It looks like the big money selling is exhausted. I think a buy with a stop below the low yesterday in the $62-$63 can be a low risk, high reward trade.

The big earnings report is coming tonight from Research in Motion (RIMM). This stock has moved more than 30% in less than a month and it is initially looking to go higher this morning. I think the market is going to have a hard time finding reasons to send this one higher. You will probably get a good buying opportunity for the stock after a washout, but be sure to look at the earnings report. Most importantly look for the guidance they give. I am using a hedged option strategy to prevent any fluke losses. Until next time, stay low risk..

Trading lower today to start..

8:30 am EST It looks as though we will start out the quarter on a sour note. If you read my blog on a regular basis, you already knew that. The key question is, what is the big money going to do from here? Will we go back and retest the lows? Will this just be a continuation of a healthy pullback from the break-neck run higher we have had over the last couple weeks? Only time will tell. Of course, you can check back regularly and get my thoughts.

So how do we make money here? Let's look back at a couple of stocks from yesterday. I set up the hedged trade in Apollo (APOL). They reported a solid quarter last night but they have a couple of factors preventing the stock from going higher today. First is that the stock had a very solid run going into earnings. While the analysts had a specific number in mind for earnings, it looked like the stock had a completely different number and there was little chance of them hitting it. It also looks like the market is going to be down solidly today at least to start. Since 75% of stocks move with market direction on a given day, it should be solidly down. I set up a hedged trade specifically for this. I will still probably be profitable with the earnings announcement no matter the direction of the stock.

I was looking at Lennar (LEN). I didn't pull the trigger on a purchase yesterday. I am not sure that I will. There was solid volume yesterday, but I am not sure that it was the type of volume I was looking for. If I am not fully convinced, I am not putting the trade on. I am not convinced right now. If we get the selling volume I need, the stop will be at $5.25. Whenever you make a trade, decide how much your portfolio you want to risk. Combine that with what your stop is going to be and adjust your position size accordingly. In this case, there is still a little more downside than I would like to put on a sizeable trade.

I am looking at Research in Motion (RIMM) going into earnings after the close Thursday. I will be in the same type of hedged trade I used on (APOL). I think they will report pretty strong earnings but the price action over the next couple of days will determine the direction of the stock when they announce.

The market is feeling a lot healthier..

8:30 am EST After the good-sized drop in the markets yesterday, the futures are headed higher today. That is what we need to see in terms of the big picture. Markets do not go straight up. We needed a nice little pullback. In fact, we probably need some more. However, the market is not in a panic buying or panic selling mode. We had the sell off and the market went higher in the last hour. I would have been seriously concerned if the sell off would have accelerated in the afternoon. What we are beginning to see is the mutual fund money beginning to return to the market. The longer-term equity holders who put a floor under stocks, have begun to creep back into the market. It isn't pronounced yet, but it is starting to "feel" better. So far...

There are still a lot of issues out there that need to be resolved. I am not telling anyone anything new here. But I do think that the action in the next couple weeks will tell us if the final bottom is in. There are a couple things I am looking for. The first is the response to the end of the quarter. Will the hedge fund and mutual fund managers, who were doing some window dressing over the last couple of days, hang on or dump positions after the quarter? The other large issue out there is earnings. I am not concerned so much about the actual earnings of the companies. I will be concerned about the overall outlook for future earnings coming from companies. That will be the tell about where this market is going.

On to making some money. I have a hedged trade on for Apollo (APOL) earnings this afternoon. I think the stock will move pretty well when they announce, I just don't know what direction. That is the reason for the hedge.

I am looking at Research in Motion (RIMM) with earnings coming up this Thursday. I will be putting on the same type of trade. There is a lot of hot money in the stock which will enter or exit quickly depending on earnings. Look for that.

One other trade I am keeping my eye on is Lennar (LEN) they reported an awful quarter this morning. I am going to wait to see if we get capitulation-type volume over the next couple of days. It might be a good long trade once all the sellers are exhausted. We will wait and see. Until next time, stay low risk..

It's gonna pull back...

8:30 am EST We have all heard about the issues of the auto makers. It has now come to fruition. It looks like we will have a down day today and people will use the "uncertainty" over the auto makers to sell off. That is a little of what we need. The question is how will the market react by the end of the week. Of course we will be lower today. How does it go after the end of the quarter?

I am looking at Research in Motion (RIMM) and Apollo Group (APOL) with earnings this week. I will be putting on a hedged trade on (APOL) today or tomorrow. I am going to hold off on other trades until I see more action for this week. Until next time, stay low risk..

Ready for a Pullback..

8 am EST The action yesterday was very strong but the market is still very risky. I heard one pundit put it this way this morning, "It took the Dow 75 years to go from 4 to 14,000 and it took a little over one year to lose half of it." Now that we are up 21% in the last 13 days, it is time to proceed with caution. We are seeing some serious window dressing from the fund managers out there going into the end of the quarter. There are a lot of people out there with a lot of money to manage who got caught with too little exposure to equities. The true test of the rally is going to be after the quarter ends. If we don't see a large sell off after March 31st, you can probably have some faith in the rally as a longer-term bottom.

The trade in Newell Rubbermaid (NWL) was a huge winner yesterday. We had the capitulation sell off on Wednesday and then the recovery started Thursday. It was good for a quick 10% gain. I think it can go higher. The stock is sitting close to some near term resistance. If it can break strongly above the $7.00 - $7.10 area with good volume, there is slight resistance at about $8.50 and then nothing until about $10.00. If you bought in the morning yesterday and sell at around $10. You are looking at a 50+% gain. That is pretty good money in a volatile market. I will be putting my stop at break even this morning. I love risk free trades. Stay cautious in this market, and until next time, stay low risk..

Good Set Up

8:30 am EST The action yesterday was very encouraging. While the early afternoon session started looking weak, there was a strong reversal into the close. Financials ended the day very strong and supported the market into the close of the day. I am encouraged by the action yesterday and the reaction to the GDP and jobless claims numbers.

It looks like we got the necessary capitulation in Newell Rubbermaid (NWL) yesterday. We had huge volume and a lower close. With this trade, I will buy the stock in stages and allow it to head lower if it wants to. As with everything else in this market, I will keep my overall position size small and I will be ready to take the loss if the stock breaks below the Mar 9 low of $4.54. There is a lot of room to the downside with this one right now. It also recently slammed up against the 50 day MA and got turned away. This trade might take a little while. That is why using options for this trade is probably not a good idea. If you can get a break above $7-$7.10 this stock will be off to the races.

Keep an eye on this. This stock can head higher. As always be careful in this market and until next time, stay low risk..

Looking at the Data

8:30 am EST Durable goods came out this morning and was better than expected. While we all know that the durable goods number is extremely volatile and is a mediocre economic gauge, the number was positive. When you combine this with some of the other economic numbers like retail sales and home sales, there are some better-looking numbers out there. Remember, the market looks forward. There is a sense out there that some of the numbers are either improving or at least not falling off a cliff. That is promising for the bulls.

The true sign of a market recovery will be earnings season coming up. I won't be putting much weight on how the quarter went, but what the executives of the companies are saying. I will be looking for them to say things got better near the end of the quarter and things are "not as bad" for the coming quarter. There are certain sectors that will be faring better than others, but on the whole, I want to hear a general feeling that things are not as bad. CEO's have a much better read on the economy than the government does. The government just reports the numbers (and the numbers can be iffy anyway) whereas it's the CEO's job to truly feel out the economy and make decisions based on their outlook.

Of course there are still places to make money in this market. One stock I am now looking at is Newell Rubbermaid (NWL). They announced a dividend cut and a note offering yesterday. The stock sold off hard on heavy volume. While I am not a buyer today, I am keeping an eye on it.

This stock is in line with the themes I have been using in this market recently. Once a stock comes out with horrible news, the stock sells off and the expectations are lowered as much as possible. With extremely low expectations and huge capitulation selling, a stock can be set up for a nice move to the upside. I have been on the lookout for these recently and they have been very profitable. I will keep you updated. Until next time, stay low risk..