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..

Great Rally Today

5:30 PM EST The rally today was pretty breathtaking. While I don't believe it was a short covering rally, I am still cautious. I have made this point several times but it bears repeating. Healthy markets do not rally 6% at a time. Healthy markets do not rally 6%, especially when the catalyst is a government bailout. Remember profits? Remember when they were important? Remember those "silly" days when we bought stocks because they had things like strong cash flow and earnings growth?

All kidding aside, I am reminded of the statistics about the market coming out of recessions. Depending on who you talk to, the specific statistics are different but the point is the same. When the market finally turns around anticipating the end of a recession, the bulk of the move is in the first month or so. So if this is the beginning of the new bull market, have you missed it? If you are a long-only, 401(k)er who tries to use the market as a glorified savings account without regard to risk, you might have missed some of it. If you are an informed market participant who invests and trades in the market, there is still a TON of opportunity out there. While there weren't many opportunities to get long today, let's have a look at some of my recent calls.

First up is (DXO). I have been long this Oil ETF since Jan 20th. My cost was $2.48 per share. It closed today at $3.23. That is a 30.25%. I think it still goes higher.

I explained the trade I made in (DIA) in several previous posts. My cost was $70.58. I took some off at $74.03. I took a little more off today. No reason to be greedy. I have a little less than half of my position left.

I was buying calls in (PNRA) at $51. It is now above $54. I still have the trade on. I think this one still has room to run.

I missed the run in (FCX). I have always loved the saying "I'd rather be out of a trade wishing I was in, instead of in a trade wishing I was out." That is the case here. I felt the trade was very low risk when I mentioned it here, but I never got a nice entry point. A trader misses money-making opportunities every single day in the market, some just hurt more than others.

I took the trade in (NUE). I set up a diagonal calendar spread by buying Oct $37.50 Calls for $5.40 and selling the Apr $40 Calls for $.90 for a total cost of $4.50. The stock moved much more than I thought it would and now those $40 calls are in the money. The stock was up more than 7% today and I am confident it will pull back so I can buy the front month calls back. My total spread on this trade is $6.20 right now, for a 37% gain. A small pullback will really hurt the front month contract, while the October contract will retain more of it's value. I think this trade will still work well.

Those are some of the recent trades. Be sure to head back often. I update at least once per day and I am regularly on Twitter under the name @chrisyeager. Keep checking back and until next time, stay low risk

Looking For Earnings...

Weekends allow a trader some time to think about the big picture. I like to look a couple weeks ahead, especially when it comes to earnings announcements. Anyone who regularly follows this blog knows I use a hedged option strategy for specific companies around earnings. I used it for Oracle (ORCL) earnings last week and made a quick 124% gain (after trading costs) in two days. It was pretty easy money. Even if you just use the technique as part of a larger diversified portfolio, it can keep you interested in the market and it can juice your returns with some low risk/huge return profits. I am in the process of getting an eBook to explain everything. I anticipate getting it out soon.

In the case of upcoming earnings, there isn't much going on for a couple weeks. The official "earnings season" is coming up and most of the companies get quiet in front of announcements. "Earnings season" really is a joke because there are plenty of tradable earnings announcements most of the quarter. Yes, there are times where there are more announcements than others, but there are usually plenty times to get in front of an announcement throughout the quarter.

The unofficial start of earnings season is April 7th with Alcoa. There will still be trades available. Just earnings-related trades will be quiet.

Keep track of the companies announcing strong earnings and doing other bullish actions like buying shares back or increasing dividends. Those are the companies that will ultimately lead us out of the bear market. It doesn't mean that the bear market will be over with earnings in April. But when it does end, those companies reporting strong earnings and cash flow now will be the ones to hang on to. They are going to be a buy-and-hold investor's best friend. Have a good weekend. And until next time, stay low risk.

Interesting Day..

10am EST I had some things going on this morning so I couldn't get this done pre-market. The choppiness we will see is going to come from options expiration. There will be little to jump in on from a day-trading standpoint. My recommendation would be to look to take advantage of the volatility and buy or sell things you have been looking at for a while. Sometimes, there are people just trying to close out positions and you can get a deal. I have put in some crazy limit orders and gotten them filled on options expiration.

In the theme of real choppiness, I am going to avoind any specific recommendations today. Until next time, stay low risk..

He used it..

8am EST Well.. He used it. Bernanke used the bazooka. The fed announced they will be buying a significant amount of treasuries. Quantitative easing is something that can truly move the economy forward. The Japanese spent billions upon billions of dollars in government spending but it had little effect on their overall economy. The US is learning from the Japanese in that we are spending but more importantly, we are using personal motivations driven by the government to create positive economic activity.

How to make money off of this? Here are a couple of thoughts. I liked Gold back in November. In late Feb or early March, I was a seller. Now it is up $60 this morning. That is a little much to make it a profitable trade. I would keep an eye on Gold as it nears $1000. If we can see Gold above the $1010 range, the momentum trade will be on. Keep an eye on it. There is a lot of money coming into the system. People are going to want to hedge. You can be there to make money off of it.

Oil is going to take off as well. I still have the (DXO) trade on and it is going to be a HUGE winner today. That trade was so easy. We all knew commodities were going to come back. It is in the process of happening now. There is still time to get into the (DXO) because it is based on momentum. You need to be careful buying now because it can get crushed quickly if oil fades. I don't anticipate that happening but it is still important to be careful.

My trade from yesterday will work perfectly as a diagonal calendar spread. The trade is very simple. You buy the OCT $37.50 Call for $6.50 and sell the APR $40 Calls for $1.15. This gives you a cost of $5.35. If the stock is dramatically strong over the next month, you may have to buy back the front month call. However, you will have strong appreciation in the price of the OCT call which will be in the money with at least 180 days until expiration when you buy back the front month call. You also have the option of selling another front month call to lower your cost basis. This is a trade that is hard to lose on. I like those. Until next time, stay low risk..

Let's Save Some Time..

8am EST I am going to save you a ton of time. I will make this real easy. Ed Liddy is going to come to Washington today and "answer questions" about AIG's situation. Of course most of the questions will be about the "retention" bonuses paid recently. Here is a list of the talking points he will assuredly use:

-I didn't approve the bonuses, they were in employment contracts before I became CEO.
-There was nothing I could do to stop paying them out.
-We desperately need these people so AIG will not blow up the global economy.
-I have no solutions as to how we get the money back.
-I can't tell you who got the bonuses.

That's about it. They will go in circles all day. Every government official will grandstand and point fingers and "express outrage". At the end of the day, nothing will happen and everyone will go home. Nothing will get done. Gotta love government.

Let's make some money. One stock I am looking at closely is Nucor (NUE). They were down dramatically on a strong up day. They made a statement that basically said they will lose money for the forseeable future, gave no guidance, and said they will do what it takes to conserve cash.

(NUE) traded almost 20 million shares yesterday. It's recent average volume was a little over 8 million shares per day. It hadn't traded 20 million shares since Oct 16th. It was down dramatically on an up market day.

So there you have it. Expectations are about as low as they are going to get. Just about any announcement from the company or the economy will be better than the expectations now out there. Things can only get better. You had a wash out of the weak longs. You have an easy trade with an easy stop. Buy some (NUE) in small chunks to allow for some downside. Keep a stop a little below the $28.28 Nov 20th low. Your target resistance level is at the 50 day moving average, currently around $40. If you can buy the shares at an average of $31-33, your downside risk is 3-5 dollars and the upside is 7-9 dollars. On average you are looking at about a 2:1 risk/reward ratio. If you get a strong move to the upside and the stock breaks the 50 day, you can take a part of the position off and let the rest run. That puts the trade dramatically in your favor. Pretty easy money.

Stay alert for opportunities in this market and watch out for the next leg down. Until next time, stay low risk..

Strong day...

4:30pm EST I thought for sure that the market was going to head lower today. I did take some long trades today as the information changed, but my bias led me to take profits more quickly than I might have otherwise. The action was encouraging for the bulls with a strong rally into the close. as IBD would put it, we are in a "confirmed rally". This does not mean that buying anything and hoping for the best is ever a good strategy, but I think a net long portfolio makes some sense here.

I think the AIG bonus controversy is amazing. I have a couple of questions about it. Add a comment if you can help me understand them.

-Who earns a bonus for a company that lost 20 BILLION PER MONTH last quarter? "Retention bonuses" or not?

-How is "contract law" so screwed up that a pro athlete can sign a 5 year contract and leave after 2 years and union workers can have a labor contract yet they have to give up health care and pensions, yet we can't do anything to take back the cash paid out to AIG?

-If you are one of the people who got the bonuses, how do you sleep at night? How do you look your neighbors who are funding your bonus in the eye?

-Why is AIG being so secretive and not cooperating with Andrew Cuomo the New York Atty General? What is there to hide if everything you are doing is above board?

-How can AIG tell people that "these people need to be retained" when (A) they ran the company into the ground, and (B) most have non-compete clauses in their "ironclad" contracts, and (C) the labor market is weak at best for qualified individuals matter the less people who brought down the largest insurer in the world?

The insanity of this situation stuns me. Until we can get government out of our companies, I can tell you for sure there will be more of this. Until next time, stay low risk..

Where to go...

8am EST One of the questions a trader has to answer every day is "What's next?". The effective trader is constantly moving. They are picking and choosing securities to buy and sell on a regular basis. No matter what the market is doing, there is money to be made. So here we are, looking for the new direction and here are my thoughts.

I think the market ultimately heads lower today. I had a nice little bump in my (DIA) trade and took 1/3 off at a 5% profit. That is what needs to happen in a market like this. When porfits are there, they need to be taken. If I hadn't taken some profits on my (DIA) trade I would be looking at my trade being near break even by the end of the day today. That is 5% evaporating pretty quickly. It happens in this market.

If I can see (PNRA) below $49 today, I will probably pull the trigger on the calls from my last post. The option prices have come in because the stock headed lower yesterday. Option prices, especially calls, had run up dramatically because the stock was up every day for two weeks. Now that it has pulled back a little, the prices are starting to stabilize. It might be time to pull the trigger soon.

Here is another trade. I have looked at 2011 calls on Boeing (BA). In a market that ended lower yesterday, Boeing was still higher. Boeing is a play on a global recovery. If you think the world is going to come back and you think that China is going to lead it, Boeing (BA) makes a lot of sense. The majority of Boeing's business comes from outside of the US. They still have a huge backlog of orders, and there is plenty of cash coming in to fund their business. Fundamentally, the business is sound enough to make it through this downturn.

The technicals are starting to look interesting in this stock. It is currently up about 10% since the beginning of March. The MACD and Stochastic indicators are flashing positive signs. It is getting close to it's 50 day moving average. If the stock can break through the 50 day with solid volume, I think it can go higher and test the 200 day. The 200 day would probably be a level of serious resistance, but there is still a solid 20% stock gain to be had there. Options would only magnify that gain.

I am not doing anything right now but keeping my eye on this. I haven't even decided on a strike price to trade yet. I did want to put it out there, though. I am always looking for new ideas. Stay nimble in a crazy market like this, and until next time, stay low risk..

Can we make it 5?

8am Can the market continue it's march higher? For those 401(k)ers out there, I certainly hope so. If you are not actively trading this market, you have probably lost a ton of money. If you are, and you use the proper tools to take advantage of the volatility, you could be way ahead in your portfolio right now. For every one's sake, I want us all to be making money. That's is when we are all happy. More people are making money. More people have jobs. Prosperity flourishes.

Now, how are we going to make money? In my research over the weekend, I found an interesting stock I am going to keep my eye on. The company I found is Panera Bread (PNRA). This is a bet on a shorter term recovery in the economy. If you think we don't see any signs of economic life until 2011 or later, you might be wasting your time reading further. They are in that "sweet spot" of a recovering economy. They appeal to the consumer who was eating at the swanky restaurant 6 months ago and now has to trade down. They also appeal to the person who is newly employed again and wants to eat out, but still doesn't want to spend huge amounts for quality food. They have strong long term growth prospects and minimal amounts of debt to service or roll over. This can be a great trade for 2009, just not yet.

The stock has done nothing but go straight up since Mar4. On March 10th (PNRA) broke out of a strong downtrend that started on Dec 18th. It closed Fri well above the $51 mark. It needs to pull back before purchasing anything here. My target is going to be some LEAPS going out to 2010.

A quick note on LEAPS. Most times, you want to buy them in the most round increments you can. LEAPS options tend to be less liquid than options that trade in closer months. You want to be in a more liquid option contract when it comes time to take profits or cut losses. Anyone who has traded options long enough can tell you that profits can be fleeting. You need to be able to take them when they are there. In this case, the (PNRA) LEAPS I am looking at are the Jan 2010 $60 calls. They are trading in the $6.00 range right now, and I'd like to see that come in a little before I buy some.

The market looks like it will continue higher today so the (PNRA) trade will probably be later in the week or month. I will be watching my (DIA) trade closely because, as I have stated before, I will be looking to take some off at a 5% gain. That translates to pulling the trigger in the $74 range. It might happen today if we get a strong open. This market is too volatile to just sit back and hope for the best. I will be taking some off and watching from there.

The recent economic news is not "as bad" as it was before. Economically, it used to feel like we were falling into a never-ending abyss. Now we are starting to feel like a bottom is coming soon. It doesn't mean that the market can't go down (it will, I promise). It does mean that we have started to adjust to the new economic paradigms we will be using from now on.

When we fully adjust, I think we will be going higher for the long term. Until then, you need to stay nimble. Until next time, stay low risk..

The Stewart v Cramer Interview

8:30 am If you didn't watch the interview on the Daily Show last night, here it is. The main thing that impressed me was the fact that Jon Stewart was very informed and articulate. I am not saying that I thought Stewart was a knuckle-dragging imbecile. I have always thought he was a smart guy. What I am saying that I assumed Stewart was just like everyone else who was just pissed about losing half their 401(k) money and wanted someone to take it out on. Stewart was very well informed and well intentioned. He understood at a fairly deep level some of the manipulation that goes on in the market every single day. And he took Cramer and CNBC to task for it. Very impressive.

Cramer didn't say much. He did take some personal and group responsibility for his reporting as well as that of CBNC. I expected Cramer to be a little more aggressive in his defense of Wall Street and the reporting process. There was one interaction where Stewart questioned why CNBC does not call out a CEO when anyone with any knowledge knows that he is lying through his teeth.

I have always wondered why CNBC brings any CEO on the network. What else is a CEO going to say? Earnings are good. We are well capitalized. The future looks very bright. Growth prospects are fantastic. It is not often that we ever get any level of candor from the CEO of a big publicly traded company.

The many, many, manipulative activities behind the scenes that truly make the markets are not and never will be exposed by the news networks. The manipulative money has so much cash and so many lawyers on hand that a news network could never expose them. A news network couldn't say, "We are seeing this in the futures market, XYZ hedge fund is rumored to be trying to create a bear raid."

If anyone participating in the market doesn't think this game is rigged, they simply are not paying attention. Knowing that, there is still a TON of money to be made by the little guy. You just need to know your risk and manage it well. Remember, all it takes is one really good trade per year and preventing big losses in the rest of your portfolio to make money long term. Think about it like this:

$10k portfolio
One trade @ $1k (10% of portfolio risked) that doubles.
That $1k turns into $2k.
Do nothing else with your portfolio all year
You now have a 10% overall return in your portfolio for the year.
You beat most mutual funds, hedge funds, and the market as a whole most years.

Don't complicate things, and until nest time, stay low risk..

I Was Wrong..

4:30 PM EST For those of you following me on Twitter, you know I changed my mind on the direction of the market at about mid day. I covered some losing shorts and hung on to the long winners. That is what a trader does. When the information in the market changes, they react to cover losses and allow winners to run.

That said, I am now as cautious about the downside as I was about the upside a couple days ago. On Sunday I said, "...you need to be careful initiating new short positions here..." this is what I meant. Every savvy trader knew this type of rally was coming. That is why getting short was a really bad idea this week.

The (DIA) trade from the past week or so is now positive. The average cost basis was a little over $70 per share. I am now making money on that trade.

The (FAS) trade from Monday is now working REALLY well. I am not advocating selling more right now. You should have already sold a portion and moved your stop up to break even. You should only move your stop a little higher (5%). This is a very volatile ETF. You need to allow it to breathe while keeping the position on for more up side.

Tomorrow will be a key indicator for the market onger term. We have had 3 days of a dramatic rally and we are going into a Friday. Will traders be ok with being long for the weekend? We'll see. Until next time, stay low risk..

Interesting Day..

8:30AM EST The retail sales and jobless claims numbers this morning had a firming effect on the futures this morning. I have a hard time believing that is going to truly affect the market for any length of time today. I think we will close lower barring any big market-changing news. However, the bulls like to see that something is having a positive effect on the market. In the past month or so, the market has taken just about everything as bad news, so a positive effect from economic numbers is encouraging for the bulls.

People are looking for things to stop getting worse. The economy doesn't have to look rosy for the market to get better. It just has to stop getting worse. I think we are a still a little way off before we can look for a sustained rally with any substance. The economy will definitely still be in a recession when the market turns higher for good. The big question is when will that happen. I am not sure of that yet, but it feels like things are not getting dramatically worse - just steadily worse.

My (DIA) trade is getting closer to being profitable. I was buying on the way down and my average cost is a little over $70. A couple more points higher and we are in business. As with any trade in this market, I will be looking to take some profits quickly. I will start to take some off at a 5% gain. There is no need to be a hero here. Profits are profits. Anyone who follows this blog on a regular basis knows I am not a huge fan of taking a bunch of risk. When I can get a position profitably into cash, I will take it. I know I will not pick an absolute top or an absolute bottom. I am ok with leaving some profit out there if I can be sure to get my money back.

If you are still fully in the (FAS) trade I gave you on Monday. Please... Take some off. Please. You don't need to be completely out of this trade but you have to take some risk off. My suggestion would be to take about half of your position off and then put a stop in at your original purchase price. This allows the trade to breathe a little, but you have some profit already banked and there is no chance you can lose any of the original risked capital. That is the kind of trade I like.

No one ever went broke taking profits. In a market that can turn on a dime, taking profits is more important than ever. Until next time, stay low risk..

Pivotal Day

9am EST Today is one of those pivotal days in the market. I believe we will go higher today barring any extraordinary events. This does not make me fundamentally bullish long-term yet. I like the fact that financials are starting to firm up a little. The market is starting feel a little more bullish overall. That does not mean we are completely out of the woods, but there are more and more people looking on the bright side.

I missed the Freeport McMoran (FCX) trade from a couple of days ago. I wanted it to pull back before I pulled the trigger and I think I missed it. I will keep my eye on it. There will probably be an opportunity to get in later. I always like to be out of a trade wishing I was in rather than being in a trade wishing I was out.

We'll make some more money this afternoon. Until next time, stay low risk..

Don't Get Crazy Here..

4pm EST That was fun, huh? Nice rally today. Remember the ridiculous rally I was looking for over the last couple days? We got it. While the rally was nice, do not think the market is healthy all of the sudden. This is still a sick market. We all like to think things have gotten better overnight. Things are still bad. There were a lot of shorts covering today. While the action going into the close was a lot more positive today than the only up day last week, I am not convinced it is time to buy a bunch.

To paraphrase former Continental Airlines CEO Gordon Bethune, we don't need the financials to head directly North, but we do need them to go somewhere between Northwest and Northeast. That is what we will look for in a healthy market. When the financials stop taking the market down, we can rally. While they will not lead the market rally back, they need to stop bringing stocks down.

The (FAS) trade I gave you on Monday worked out well. Of course you took a little off right? No trader in their right mind ever gets a 40% move in one day and doesn't take a little off. No one says to take all of your profits off the table, but you need to take some off to lower your overall risk. I think you can still make some cash on this trade, but you need to take some profits home with you.

The prospect of bringing back the uptick rule is probably the one thing that sent stocks higher today. Citi has been telling people how great things are for a long time. Don't let the news outlets tell you otherwise. I think that slowing big money's ability to manipulate a market was much more important than anything. More tomorrow. Until next time, stay low risk.

What Are We Going to do Today?

8:30 am EST I would like to think that we are going higher today. Most of the recent rallies have been faded by the big money who have short market positions. We have seen a couple of days where the market tries to rally higher but the big money leans on stocks and sends them lower. There simply isn't big money out there getting dramatically long the market. While that is understandable, it is frustrating for the bulls. Even the one-day rally last weak was faded at the end of the day. The big cash just stepped in near the end of the day and sent the market off it's highs. That pattern will probably continue today.

I would throw a thought out there that the market may not be thinking about. Everyone is looking for a capitulation bottom. I think we will look back and say we should have been looking at the reverse. Traditionally, we look for a dramatic sell off to make everyone give up and say "I am never investing in stocks again". That is the capitulation bottom we seem to be looking for. Instead, I think we should be looking for a dramatic short covering rally for one or two days to shake the bears out. We have so much money out there that is short this market. They have every interest to see this market go lower. If they are forced out in a fit of short covering, they will try to get long to make up the losses, thus sending the market higher.

I would certainly like to see my (DIA) trade losing less money right now. I did buy it as an investment and I am willing to hold on to it for a while. That said, I am a trader. The faster I can make the money the better. Longer term trades aren't always my favorite.

A quick word about Oil. It has quietly gone from the $35 range to near $50. If we see a strong break above $50, we can move quickly higher as the big money moves in. I am taying long my (DXO) position here.

The option trading strategy I used on my Urban Outfitters (URBN) position has yielded me a net $0. In my opinion, that is the beauty of the strategy. Of course, when it works, it is amazing. When it doesn't - and I can get myself back to even - it is even better.

Be careful trading today. It can be easy to make some huge mistakes. I would always prefer to be out of a trade wishing I was in rather than in a trade wishing I was out. Until next time, stay low risk..

Big Event this Week

8am In doing a little research this weekend (I'm a nerd, I do that) I found an interesting event that could be the trigger for the neck-breaking bear market (notice I said bear market) rally I have been talking about. There is going to be a House financial services subcommittee meeting this week. In that meeting, they are going to discuss changing or suspending the mark-to-market accounting rules that have caused a huge problem for the financials.

If mark-to-market is either suspended or changed in some way that benefits those "toxic" assets on the banks books, the whole market will change. If mark-to-market changes or goes away, the asset to leverage ratios change dramatically. The banks look much more healthy. More banks become solvent. More investors feel good about buying banks as long term investments. When more people start buying, the big money would have to cover shorts and the short covering rally would be dramatic. Of course, because of the weighting of financials in the indexes, other shorts will need to be covered. This could fuel the fire of a strong rally.

When a bubble pops, what previously worked never works as well when we recover. When the tech bubble popped, tech didn't lead us back to record levels. In the same way, financials will not lead us higher after this crisis is over. However, when we feel like the financials will at least be ok, we will feel safe about buying stocks in general again, and that is what we need more than anything. We need to feel better.

So, how do we make money on this? The trade I am going to give you is in the same spirit of the (DXO) trade I have had on for the last couple of weeks. I like the (FAS) ETF. It is a triple-long financial ETF. Friday's close was $2.64. If you put on a small speculative position in front of the House subcommittee meeting and the trade works, you can come out with a nice profit. If the trade doesn't work the downside is very limited. I like the risk-reward a lot here.

Don't waste your time buying options with this. The downside is limited enough and the ETF is triple long. You get a leveraged return. Besides, with options you limit your time horizon for the trade. With the ETF, you can hold on for as long as you need if the trade doesn't work.

To be fair, this was a trade mentioned by Jon Najarian on Fast Money on Friday. It wasn't an original thought of mine, but I do feel good endorsing it. I don't agree with everthing they say on the show, but that's what makes a market. Sometimes, people agree and other times people don't.

You now have a specualtive trade to start the week. Remember the trade is just that - speculative. Keep the position small. Be ready to move on news. And until next time, stay low risk.

What to Look for This Week..

Sun 7pm The action Friday looked mildly bullish. Even though the market was essentially flat, the selling seemed to wane a little going into the close. It looked like there was a small group in the market who were starting to say "this selling is ridiculous". There were several valuation measures that were just getting to the point of complete exhaustion.

Just to be clear, I am not saying everything is ok. I am not saying it is time to buy hand-over fist. What I am saying is you need to be careful initiating new short positions here. We are due for a rally, and it could be dramatic. Short positions could get mauled by a crazy short covering rally.

Remember, many times a bear market behaves like a bull market. When we get into strong bull markets, stocks go up for no good reason. In a similar fashion, bear markets can go down because they just go down. I think that's where we are right now.

There isn't a whole lot of news out there that the market isn't expecting. We all know the housing market is weak. We know the economy is weak and consumers are scared. We know the labor market is as weak as it has been in most of our lifetimes. Once the market has fully adjusted to the bleak realities of the economy, it starts to head higher. That is why the market turns before the economy. The market is a leading indicator.

Be careful this coming week. The longer we go lower day after day, the more violent the bear rally could be. Keep all positions small. Be ready to take profits when they come. Be ready to cut losses short. Until next time, stay low risk..

Don't be surprised..

7:30am Don't be surprised to see a rally in the morning no matter what the jobs number is. I think the rally will fade in the afternoon because no one wants to be long going into the weekend.

The hedged option trade I made in Urban Outfitters (URBN) hasn't panned out the way I expected it to. I will continue to hang on for a little while because I think there is a chance for the puts to bring enough value to make it at least a profitable trade. It certainly won't be nearly as profitable as I expected. I usually look to make at least 30% in a trade like this. I will be happy with 10% at this point. I think it can get there.

I also added to my Diamonds (DIA) position yesterday. My average price is now a little over $70. I am not calling a bottom here but I think the Dow can rally very hard in a short time. If we can start feeling a bottom in the economy, the short covering can be dramatic. For the Dow to go dramatically lower, we would need to see the likes of Wal Mart (WMT) IBM (IBM) and McDonalds (MCD) go lower. I simply can't see how that would happen.

One REALLY troubling trend is companies cutting their dividends. Wells Fargo (WFC) did it today. What is more troubling is the market reaction to companies cutting their dividends. The market sends these stocks higher short term when they are slashing the overall, long-term return for investors. Remember, 40% of the overall return of the S&P 500 over the last 100 years has been dividends. When you are taking that away, you are hurting the long term returns for investors. If this market is ever going to recover, dividends have to be there to attract investors.

Not everyone has the time, inclination, or ability to be a trader. They look to stocks for investments. If you take away 40% of their attractiveness, you hurt the long term value they present. Be careful of the dividend cutters and until next time, stay low risk..

Thoughts on GE

8am Anyone who follows the market has seen the stone-like drop in General Electric (GE) shares recently. The CFO came on Squawk Box this morning trying to talk the company up. He made a good case for why you should be buying GE hand over fist. He tried to ease fears about GE Capital and credit downgrades. And while the argument was compelling, I'm not buying shares.

The reason is we have seen this story before. Remember the CEO of Bear Stearns issuing a press release saying their capital position is fine? Remember AIG trying to calm fears in the market by going on the record with a statement? My point is when things got really bad for a company, the stock reflected it long before executives had the chance to lie to the public.

I am inclined to think there HAS TO be some serious mispricing going on with this company. They are not like the criminally mismanaged financials like AIG and Bear. They have a huge industrial business. They have the whole Universal franchise. They touch so many parts of the business world that they have to be sufficiently diversified. It seems like they should have the cash flows from the other businesses to support any problems with the GE Capital business.

The reason I am not buying is that the market tends to tell the truth and executives tend to lie. While common sense compels me to believe the company vs. the market, at the end of the day the market is all that matters. The market values your stocks. No one else does. It is very easy for an executive to say something to try and prop up their stock. Then later, when the excrement hits the fanblades, they can say, "I had no idea." And guess who is left holding the bag?

You'll get an update on the URBN trade after the market closes. Until next time, stay low risk..

Be Careful

4pm I told you there would be a rally today and we had it. I told you to watch Freeport Mc Moran FCX and we got a huge rally today. I told you oil looked to be firming. Oil rallied. All of those were mildly positive for the market.

While we had a strong rally, there are a couple things to think about:

First, technically the rally was mediocre. We rallied strongly into the early afternoon and then faded. That is not good for the bulls. We wanted to see a strong rally into the close.

Second, we had been in a dramatically oversold condition. A rally like this was bound to come. This is not some sort of capitulation bottom.

Third, the reason for this rally was kind of unclear. We had a poor jobs number from ADP and a beige book that said the economy is going to be bad for longer than we thought. Those are not reasons for a bull market.

Fourth, there are many more questions than answers out there. Strong markets rally from an area of perceived certainty. We simply are not there yet.

If anything, this was a good day to get short or day trade a long position. Remember, I started getting long the DIA a little while ago and I am bullish over the very long term. I just wanted to be the voice of caution here. Be careful and until next time, stay low risk..

Possibly Higher Today..

9am The futures are pointing to a higher open this morning. We are very oversold right now and it looked like the market just got tired of selling. You have to remember, the potential rally today IS NOT the bottom. There is still some painful selling that has to happen. The ADP numbers, while spotty at best, were very bad but not as bad as some of the whisper numbers.

The oil market is continuing to firm up here. While it is still in a range and yet to break out, I think we are closer to a breakout now than we were a month ago. I will see a nice move higher in my (DXO) position today.

The bias is going to be to the upside today so it might be not be the best time, but I am looking at some Freeport Mc Moran (FCX) calls for my portfolio. While there is no ETF for copper, the metal is beginning to firm. The chart looks very similar to oil. FCX effectively gets you long copper. Today may not be the day to purchase but I will be keeping an eye on it and keep you posted when a trade materializes.

I think I made a little mistake when I set up the option spread on URBN. I think I was a little early, but I will hold the trade until the earnings announcement tomorrow. There may still be some profit in there.

Until next time, stay low risk..

Look Out Below!!!

5pm Today looked like more of a breather today than some sort of bottom. It looked like the markets took a nap while Bernanke and Geithner danced around questions about the economy and the federal budget. The key 700 level on the S&P was breached again and we closed below it today. The massive selling below there will be triggered at about 685-680. The next stop is going be in the 600 range. You need to stay net short the market. Be aware that there will be a massive short covering rally soon. It has to happen. Look for it.

That said, I sold my long (FSLR) position today. Just like I said in my last post, I was looking to sell at a 10 % gain. I set a sell order at $114.15 and it was triggered. I will take 10% in a couple days, thank you very much. This is the hallmark of my strategy in this market. Stay small. Stay nimble. Take profits when they come to you. I planned to buy more as the stock went lower. It never did. I took profits and I am happy.

(DXO) looked better today after the selloff in oil yesterday. I am still long and longer term bullish.

I think we head lower but there are still ways to make money. Until next time, stay low risk..

Today

The Wall St. Journal had a piece asking the question of when does this recession become Obama's recession? I ask the question, how is it not?

To be fair, I was never a Bush fan. But the Democrats scared me so much I couldn't bring myself to vote for them. I was ok with Obama getting elected at first and I am starting to become very nervous about the path he is putting this country on.

The spending bill that was lightly disguised as a stimulus bill was sold on fear. Obama continued to use the words "catastrophe" and "failure" to scare the American people into the political will to pass the bill. Obama's man in the Treasury has only been seen in public a precious few times. At least when Paulson was wasting our money with the TARP, he would hold a press conference. At least we knew how we were getting screwed. Geithner has only held one meaningful press confrence (which was hyped by Obama the night before) and Timmy said absolutely nothing. Obama spends all this time in front of the cameras yet tells the market nothing. They "save" more of AIG (mistake) and tell us nothing about why they are doing it other than "potential systemic failure".

This leaves the market with uncertainties all over the place. We are kind of sure the banks won't be nationalized. We think. We have a spending bill that is loaded with pork and we are not really sure that any of it is going to work and actually stimulate the economy. We have a budget that raises taxes and reduces motivation for home ownership. I thought we wanted to have a bottom in housing. Maybe not.

None of this has happened under Bush's watch. Not to say that the Bush administration is not to blame. Believe me. But to just point the finger at Bush is absolutely unfair. Maybe Obama should fairly remove the "inherited recession" talk and take a little responsibility.

OK on to making money. See my previous post on (FSLR). I have a small position and I am not adding at this point. If I can get the profit in the range of 10% soon I will take profits. 10% in such a short period of time needs to be taken off. Especially on the long side. This market is too sick to just let profits run. The quicker you can take profits and be in cash the better. 10% per trade would make most investors drool. I will take it.

I did add to my (DIA) position yesterday. That was the 3rd of 5 potential buys I am placing on this one. My average price is a little under $73. I am still under water at this point but I believe that there will be a sharp bear market rally coming soon. A bear market rally is just that, a rally in a bear market. The market is still fundamentally broken. That doesn't mean there are not trades out there. The (DIA) trade is just a trade to make money. Not an investment.

I am waiting for earnings before I do anything with my (URBN) hedged options trade. That one will sit there for a couple days before I unwind it.

The Gold (GLD) trade is starting to wane. I will watch it closely to see if it can go farther. If the volume continues to slow and we see Gold getting close to $900, I am just going to take the rest of the profits. I can get back in if it gets hot.

Capitalism Will Prevail !!!

5pm At the end of the day, there are companies out there that make money. There is value out there somewhere. There are honest, functioning businesses out there that actually will do good things long term. The investor who has the intelligence and the balls to jump in as we go lower will be a wealthy person at the end of the day.

The bottom line here is that we have a government who is shifting the country dramatically toward a socialistic system. The market clearly does not approve. If you look at the companies who are in bed with the government, they are the ones that are completely uninvestable. Auto makers, banks, insurance companies, etc. will all be completely off limits for any serious investor as long as a socialistic government is busy "saving" them pretending that they are too big to fail. Capitalism (the market) will not stand for this and will not reward companies with their mouth on the government teat. They will not have a value higher than a buck or two until they are true capitalistic businesses that make money and reward shareholders.

Alright, enough soapbox. Let's make some cash. Remember First Solar (FSLR)? They held up in a miserable tape today and after hours announced they had acquired some OptiSolar projects. This stock has some room to run. I might not be able to get it any cheaper. Although, if the market continues to behave the way it is now, who knows how low it can go. I think it can stay strong.

I set up another hedged option trade today. This time it was with Urban Outfitters (URBN). The stock was a great growth story about 6 months ago before the wheels fell off the economy. It will be interesting to see how things shake out for this company. With last quarter's earnings announcement, the stock got clobbered. I think the expectations are low enough that they can beat numbers and send the stock much higher. Otherwise, this stock could go into the single digits in short order. Either way, I am prepared.

Oil was a mess today, down about 10%. My (DXO) position took a dramatic hit. I am still sticking with this one. I bought the ETF and not the options which allows me to be early. This one hurts right now but it is all on paper. Until next time, stay low risk..

Here We Go..

6:30 am I would like to think that today will be the bloodbath we have been looking for. The problem is that everything is still looking smooth and orderly. AIG lost more money than any company in corporate history and the government is putting in another $30 billion. The whisper numbers on Non Farm Payrolls are as high as 725,000. Many of the banks will need more capital from the government because they will not pass the stress test. The housing market has yet to see the bottom. Government is taking radical steps toward the socialization of our economic system which does nothing but set us back in terms of a recovery.

Other than that, things are great. The one issue that bothers me about the coming "recovery" is the fact that there is no exit strategy. The same people that run the post office, Amtrak, and the DMV are taking more and more control of the economy with little in terms of an end date. That should be frightening to anyone no matter how politically liberal your views are.

That said, there are still ways to make money in this market. In Warren Buffett's letter to shareholders, he talked about a bubble in treasuries. I have been talking about buying the (TBT) which gets you short treasuries since Feb 21st. I am still a buyer here. This is a longer term investment. I am not using options with this trade because I can't tell when the bubble is going to pop. With the way the futures are looking right now, the (TBT) might go lower today. This will look like a buying opportunity to me.

Just like everything else in this market, positions need to be small and bought in small chunks over time. Stay nimble and don't be afraid to take profits. And as always, stay low risk..