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..