Watching Futures...

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

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

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

Important Market Week

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

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

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

Curious Market Reversal..

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

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

Stronger Dollar, Weaker Market..

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

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

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

Stronger Futures...

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

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

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

Easy Trade

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

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

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

Lower Start to the Market Week

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

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

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

Market Rally Teetering..

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

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

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

Stock Futures..

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

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

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

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

Dollar Correlation..

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

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

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

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

Watching the Dollar..

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

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

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

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The week ahead for stocks

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

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


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

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Concerning..

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

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

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

The Importance of a Plan..

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

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

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

Still cautious..

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

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

Little Higher..

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

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

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

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

The Week Ahead..

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

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

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

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

Pullback

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

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

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

Strong day..

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

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

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

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

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

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