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.