Invest in Trends

Watching the Dollar Again..

2009-07-07T07:28:00.002-04:00

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

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

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

Market Rolling Over..

2009-07-06T09:18:00.002-04:00

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

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

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

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

Last Trading Day of the Week..

2009-07-02T08:19:00.002-04:00

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

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

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

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

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

A Lesson in Trading Discipline..

2009-07-01T07:53:00.001-04:00

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

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

Watching Futures...

2009-06-30T08:17:00.002-04:00

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

2009-06-29T07:57:00.002-04:00

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..

2009-06-26T08:30:00.002-04:00

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..

2009-06-25T08:28:00.004-04:00

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...

2009-06-24T08:32:00.002-04:00

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

2009-06-23T07:31:00.002-04:00

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

2009-06-22T08:26:00.002-04:00

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..

2009-06-18T07:32:00.002-04:00

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..

2009-06-17T08:10:00.002-04:00

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..

2009-06-16T07:21:00.002-04:00

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..

2009-06-15T07:19:00.002-04:00

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

2009-06-14T17:15:00.003-04:00

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..

2009-06-12T09:08:00.002-04:00

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..

2009-06-11T07:29:00.003-04:00

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..

2009-06-10T07:33:00.002-04:00

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..

2009-06-09T07:13:00.002-04:00

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..

2009-06-08T07:57:00.002-04:00

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

2009-06-04T09:08:00.002-04:00

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..

2009-06-02T07:20:00.002-04:00

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

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

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

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

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

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

Scary day...

2009-05-28T07:39:00.003-04:00

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..

2009-05-27T08:17:00.002-04:00

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...

2009-05-26T07:04:00.002-04:00

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..

2009-05-22T07:37:00.002-04:00

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..

2009-05-21T08:13:00.002-04:00

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..

2009-05-20T07:11:00.002-04:00

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..

2009-05-19T07:24:00.002-04:00

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...

2009-05-18T07:13:00.002-04:00

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...

2009-05-15T07:43:00.003-04:00

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...

2009-05-14T07:09:00.002-04:00

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..

2009-05-13T07:08:00.002-04:00

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?

2009-05-12T07:16:00.003-04:00

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..

2009-05-08T09:20:00.003-04:00

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...

2009-05-05T09:09:00.003-04:00

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..

2009-05-04T07:10:00.003-04:00

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

2009-05-01T08:13:00.003-04:00

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

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

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

Time to be a little cautious..

2009-04-30T08:02:00.002-04:00

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..

2009-04-29T09:06:00.004-04:00

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..

2009-04-28T07:28:00.003-04:00

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..

2009-04-27T09:00:00.003-04:00

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..

2009-04-14T09:06:00.003-04:00

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..

2009-04-09T08:27:00.004-04:00

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

2009-04-08T07:57:00.002-04:00

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..

2009-04-07T08:17:00.002-04:00

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..

2009-04-03T08:03:00.004-04:00

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..

2009-04-02T09:04:00.004-04:00

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..

2009-04-01T09:21:00.003-04:00

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

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

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

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

The market is feeling a lot healthier..

2009-03-31T09:17:00.002-04:00

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...

2009-03-30T09:28:00.003-04:00

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..

2009-03-27T07:24:00.003-04:00

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

2009-03-26T09:01:00.002-04:00

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

2009-03-25T09:06:00.005-04:00

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

2009-03-23T18:32:00.003-04:00

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...

2009-03-21T20:21:00.003-04:00

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..

2009-03-20T10:05:00.003-04:00

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..

2009-03-19T08:21:00.003-04:00

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..

2009-03-18T07:56:00.003-04:00

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...

2009-03-17T16:36:00.002-04:00

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...

2009-03-17T07:59:00.003-04:00

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?

2009-03-16T07:41:00.003-04:00

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

2009-03-13T08:19:00.002-04:00

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..

2009-03-12T16:08:00.002-04:00

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..

2009-03-12T08:47:00.003-04:00

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

2009-03-11T09:28:00.002-04:00

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..

2009-03-10T15:52:00.002-04:00

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?

2009-03-10T08:54:00.003-04:00

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

2009-03-09T08:02:00.003-04:00

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..

2009-03-08T19:42:00.003-04:00

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..

2009-03-06T07:37:00.002-05:00

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

2009-03-05T07:50:00.003-05:00

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

2009-03-04T16:02:00.002-05:00

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..

2009-03-04T09:16:00.003-05:00

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!!!

2009-03-03T17:16:00.003-05:00

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

2009-03-03T08:11:00.003-05:00

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 !!!

2009-03-02T17:04:00.002-05:00

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..

2009-03-02T06:32:00.004-05:00

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..

GDP

2009-02-27T09:16:00.003-05:00

As we all expected, GDP was terrible. There is no one out there expecting a magical turn around in the economy soon. There isn't a whole lot to be cheery about in the economy right now. That said, we are still the largest most innovative economy in the world. There are still companies out there making money and we will rebound from all of this.

That said, I am still not putting all of my capital to work going long anything. I am still net short equities in my portfolio and I plan to be for the foreseeable future. I have given some picks in previous posts and I am sticking to them. However, I still have a lot of my portfolio in cash. I might add a little to the (DIA) position I started a while back. I will be interested in seeing how the Dow reacts to the psychological 7000 level. If we blow through that today, there is probably a lot of downside.

A quick word about the Bank of America (BAC) bonus fiasco. Why the secrecy? Why are Thain and Lewis withholding information from the AG if they did nothing wrong? If Ken Lewis is throwing up his hands saying he didn't know anything, why is he being subpoenaed? Thain had to tell the NY Atty General something to compel Cuomo to subpoena Ken Lewis. I think there are some rats out there. There is no other way to look at this. This is theft. It is the outright theft of taxpayer dollars. NO ONE deserved a bonus at Merril. You get bonuses when the company makes money. The company couldn't get itself sold to Bank of America fast enough. The losses were criminal. To pay out bonuses to executives (or anyone for that matter) when the company loses ANY money, matter the less billions. That is theft. There is nothing else about it.

How about an option trading strategy for today? I think I am going to spend the majority of the day on the sidelines. There is too much uncertainty out there. When I say uncertainty, I mean we are so oversold, yet the market continues to sell. If everyone was just negative or just positive, I can trade that, I just fear jumping into anything short at this time and having my head chopped off by some crazy short covering rally. Just like any trader, the most important thing I do is manage risk. When the market sends me risky signs, I stay on the sidelines. I might be back before the weekend. Until next time, stay low risk..

Weak End of the Day..

2009-02-26T16:13:00.002-05:00

5pm We started higher today for quite a while and the market simply ran out of steam. The financials looked strong on a weak tape and Oil looked good. There are still WAY too many issues out there to be really bullish but there are some encouraging signs here. IBM (IBM) had some great news about earnings, raises, and a share buyback. Chubb (CB) raised their dividend.

We are still uncertain about what the rules are going to be from Washington. There needs to be more certainty about companies making money (remember that?). We need to see some stabilization in the financial system and the housing market. There are still a lot of things to work out before we can call this market healthy.

That said, there are still ways to make money. Stay tuned, and until next time, stay low risk..

Possibly an Up Day Today

2009-02-26T08:39:00.003-05:00

8:45am Tuesday's dramatic rally was clearly a short-covering rally that caught some people by surprise. The futures are pointing to a higher open this morning and it feels a little different than Tuesday. We just had a nasty jobs number and a weak durable goods number this morning. The futures took it in stride. I think we are at a point in the market cycle that is giving the benefit of the doubt to the downside. Anything that says we are not getting dramatically worse will be taken well. On the other side, something that shows a little sign of life in the economy will be taken with some skepticism but probably take us higher.

That said, as odd as this sounds, it might be time to buy a little First Solar (FSLR). Yesterday felt like a capitulation day. Volume was in excess of 14 million shares. The last time we saw that kind of volume was April 30th. I think we shook out some of the weak longs. I would be buying the stock incrementally. There is no need to get crazy with a full position here. You have some potential down to the Nov 20th low of $87.23 but there seems to be a lot of support down there. You can pick up a little today and average down all the way to about $90. Keep a stop under the Nov 20th low. Just like anything else in this market, caution and small position sizes will keep you in the game. I think the upside potential significantly outweighs downside risks. Now that the stock took a massive haircut yesterday, the valuations are starting to look nice.

Oil continues to firm up nicely. I still like the (DXO) here. I think it will still head higher and I am keeping that trade on.

Gold (GLD) is looking weak here, but at this point we are playing with the house's money. We have doubled our investment by taking profits at good times and we still have a little of the position on. If it goes to zero there is no risk in the trade. I haven't sold the rest of it yet.

The Silver (SLV) trade probably needs to come off for now. You can still get out with your original investment. The charts have broken down here and we need to wait for better times for the metal.

Hang on for an interesting day today. Remember to be careful and stay small. And until next time, stay low risk..

A little late..

2009-02-25T12:14:00.003-05:00

12pm One of the nice things about being a trader is the flexibility of the schedule. In this case, I had some stuff to do this morning. I apologize for not getting this post done earlier. That said, here are my thoughts now.

First and foremost is the First Solar (FSLR) trade. Man did that work out well. I took it off a little bit ago. I took a 50% profit. I will take 50% profits all the time when they come in the space of 24-48 hours. Remember, the trade I set up was betting that the stock would move violently. It was set up to take advantage of the movement, not the direction. For example, when they reported after the bell last night I was excited that the stock was up by $16 after hours. Then the conference call proceeded and the company gave lame guidance. I was excited to see the stock fall off a cliff and I was glad to see it continue falling all day do far. Those are the easy trades. They are speculative and not appropriate for a large chunk of a portfolio. But they are fun and easy ways to juice returns.

After the action yesterday, I feel comfortable about telling you yesterday to take off another portion of the Gold (GLD) trade. I think there may be some upside to come, but the downside risk is high at this point because the technicals are breaking down. As a trader, you are never going to pick an absolute top or bottom. The bottom line with this trade is you have taken profits and doubled your money since Nov 20th. You still have the opportunity to take advantage of the upside that is still available and you have locked in some profits in the meantime.

One last comment. The Oil (DXO) trade from January is still under water. I admit when I make mistakes. But with this one, we were buying the ETF as an investment, not the options as a trade. Very bullish things have been happening in the Oil market right now. Supply numbers were bullish this morning. Demand is starting to (slowly) come back. The excess supply in the market appears to be coming off as well. Again, I don't think Oil goes to $150 any time soon, but you are in the double-long ETF. This means it doesn't have to go very high for you to make a TON of money. As a trader, being early is the same as being wrong, so I was wrong in that sense. However, I never took that trade off and a gain or loss is only a gain or loss when it is booked. I haven't booked anything yet. There is a long way to go with this trade. Until next time, stay low risk..

Why?

2009-02-24T07:02:00.005-05:00

7am Why? That is the question most investors are asking right now. They are asking, "Why should I put any new money to work at this point?" If the market goes down every single day, what incentive do they have to invest in the market. The vast majority of the participants in the market use their 401(k) and maybe some mutual funds. Wall Street sold these highly profitable (for Wall Street) investment vehicles as essentially savings accounts with high yields and some risk. If people were told that they had a distinct chance of losing half of everything in their portfolio no matter how long they have been saving, the money flowing into the market probably would have been much smaller.

That is the situation right now. People have seen it happen. They have seen a huge chunk of their 401(k) evaporate and they hear all the doom and gloom on the news every night. Why put new money to work? My savings account that Wall Street sold me isn't going up anymore. It just goes down every day. That is the big predicament we are in. If there is very little new capital coming into this market, there is little impetus for the market to go dramatically higher.

What makes things worse is that the market is controlled by Washington right now. Even though there are companies with strong balance sheets making a ton of money, no one is looking at them. Everyone is only paying attention to what policy actions are coming out of the government. In the certainty vs. uncertainty battle, Washington's lack of clarity on every policy they have hinted at is keeping the market down. It will continue to go down for the forseeable future while the government gets around to making policy.

So for those of us who understand that the market goes up AND down - and can make money either way - there are always opportunities. Look at the First Solar (FSLR) trade I made yesterday. I set up a non-directional option trade to take advantage of the upcoming earnings release this afternoon. We will see how that goes tomorrow.

The option trade I told you about in the Gold ETF (GLD) is starting to get to a turning point and it is time to watch carefully. If we can hit the $1020 mark or higher, we are probably off to the races. It hit near the recent high a little over $1000 the other day and it hasn't gone higher since. If it continues to fail, you need to get out. The chart wil lbe a definite double top.

I would take a little profit either way. I would probably sell half of what is left of your position. It doubled in November and you took half profits. That means there was no way to lose money on the trade. It has almost doubled again and I would be comfortable taking half of what is left. You let the rest run and pay close attention to the technicals. If you begin to see dramatic moves higher on low volume, it is time to get out. The market severely punishes lemmings. The pros make something move dramatically higher, then the lemmings jump in but they don't have the resources to add any volume to the move. The pros dump their shares on the lemmings, the lemmings get stuck holding the bag. Pros make money and lemmings lose their shirt. It happens all the time. Don't be a lemming. Until next time, stay low risk..

How Sick...

2009-02-23T06:52:00.004-05:00

7am How sick is this market when we are looking at an early rally because of the Citi news. For those who don't know, the word is that government will convert their preferred shares to common shares (C) and not fully nationalize the company, effectively wiping out common shareholders. Who is looking at this news and saying "Whew... time to buy some Citi."? We own stocks because the companies behind the stocks earn money and create shareholder value. Citi won't make money for the foreseeable future. If they return to profitability in the future, it will be nowhere near anything we have seen. Why is anyone buying this stock?

We are probably looking at something like the European model of nationalizing banks. RBS and Northern Rock were taken over in chunks. Citi and Bank of America (possibly others) will probably either be taken over in a similar way or the government will do something that is an effective nationalization without using the actual word. There are enough people in the country that are loathe to see true nationalization that the government will avoid the word. But at the end of the day, nationalization will and should effectively happen.

On an optimistic note, there are some things that are looking positive for the economy. Oil is in the process of bottoming. Demand is starting to stabilize and supply is coming out of the market. It isn't poised for another bubble-like takeoff, but it is starting to bottom. I mentioned buying the Double Long Oil ETF (DXO) in December to take advantage of this. It is down big on a percentage basis from where I initially recommended it, however I am sticking behind that pick. I bought the ETF as an investment, not a trade. It is not time-sensitive.

Why is oil demand positive for the economy? Oil is an important gauge of overall economic activity. As more things get produced and more people consume, more oil is needed. If oil is starting to bottom and we are seeing more supply and demand equilibrium, that is a positive sign for the world economy. It is economics 101 (the government needs a serious lesson in this) when supply and demand (without government involvement) meet, price is discovered. Oil is not the only indicator to watch for good economic health, but it is a good sign so far.

A Word About the Banks

2009-02-21T19:25:00.005-05:00

If we hadn't allowed the big banks to get as big as they are, we would have probably seen an FDIC raid on the biggest of the banks already. But as we have so painfully watched over the last couple months, the government doesn't have that option. The big banks are so interconnected that we simply can't allow them to fail. Most of us know that part already.

The question is, where do we go from here? I have heard two excellent-sounding ideas from people much smarter than I am.

First, let me be clear. I am a trader. I get paid for managing risk and taking profits. I don't get paid for dreaming up ideas of how to save the world. There are other people that take care of that.

One of those smart people is Meredith Whitney. If you are not familiar with her work, she has done probably the most accurate analysis on the banks complete inability to reign in the children running them. Her suggestion is to do a non-punative capital injection into some of the smaller banks who stayed away from the mortgage garbage. These smaller banks would be able to leverage their stronger balance sheets and use the capital in an appropriate way (lending) like a real bank should. This would be different than giving it to a big bank like Bank of America so they can pretend to be solvent. Simple solutions are brilliant.

The other excellent idea is to take care of the Level 3 assets on the books of the big banks. The current problem is that the banks refuse to sell them. It is not because there isn't a buyer. If the banks sold the Level 3 assets on their books, there would be a real price for them and the ig banks would get exposed for how truly insolvent they are. In this case, the government would buy the assets at par. They would hold them until maturity and when the true value is known years from now, the banks reimburse the government for the difference between par and the ultimate cash flow value of the asset at maturity.

Neither of these are my ideas, however I think they are pretty intelligent. Of course, nothing like this will truly happen in any TARP, or stimulus or any of the other government measures coming down the road. Don't think there's more coming? You're crazy. No government will waste a good crisis like this. This is a great time to take more power and money from the constituents right from under our nose. Keep this in mind in the market this coming week. Until next time, stay low risk..

Another Quick Post Before the Weekend

2009-02-20T15:23:00.004-05:00

This market is a puppet. Every time we see a sell off, it happens because we don't know what else to do. We have to look to the government to tell us what the next move is going to be. The overall market was a complete mess today until 2:14pm when the White House press secretary said that they don't have plans to nationalize any banks, even though I think they should.

Here are two things (of many) to look for next week. Look for actual details coming from Geithner on housing and banks. If we don't have some serious clarity, look for the market to sell off. It will sell off just like it does when it doesn't know what else to do. Remember, we don't have earnings to take us higher. The market is a puppet of the government. People do not want to risk capital when the government is not giving clarity on what the rules are going to be.

The other thing I am looking at is First Solar (FSLR) earnings. They are set to report after the bell Tuesday. I will apply my option strategy to this stock and the perfect time to do so will be Monday morning. Keep an eye out for it as I will be reporting on (FSLR) later in the week. I promised that my (PCLN) trade would not be just a fluke and (FSLR) should prove it. Until next time, stay low risk..

The Death March

2009-02-20T07:57:00.004-05:00

We timidly held the lows yesterday in the Dow. The way the futures look this morning, we will probably see some downside from here. It may be time for me to add to the (DIA) position I bought last week. The decision for me here is to ask myself if there is a LOT more downside or if there is just a little. The problem is, I think we go much lower here. I think we can see a 6 handle on the Dow in short order.

I titled this post The Death March because that is exactly what it feels like. There is no panic in the market. The volume and the trade is very orderly. That means we will continue to head lower for the forseeable future. To call a bottom, we want people jumping out of windows. We want bulls to throw up their hands and give up. We want a bloodbath. We haven't gotten that yet. You need to see a huge volume day that heads dramatically to the downside before you can get in with both feet. It might be a while before we get that.

Knowing the direction of the market helps with any trade or investment. That's why it is important. You also need to know the direction of equities to understand where the capital is going to flow. With the choices investors have now, you don't need to buy individual stocks, hold them forever, and hope for the best. The investors who are going to survive are the ones who find trends of capital flows and get in on them early. Capital is clearly flowing to hard assets and that is where you need to be. Use ETF's to take advantage of this trend. Look at (GLD), (DGP), (SLV), (DBS), (AGQ), (PTM), and (PGM). These will get you exposure to Gold, Silver and Platinum.

Do not waste your time buying the stocks of the miners. There is plenty of money to be made in these ETF's. The miners have too many variables involved with their businesses and therefore too much risk. I will be back this weekend with a little more. Have a good weekend and until next time, stay low risk..

Looks like..

2009-02-19T08:09:00.003-05:00

Looks like things are going to continue to be ugly. Of course, there are places to be in the market to make some cash. There is no reason to be fully invested at this point but you can't let cash sit on the sidelines forever. This is especially true of the inflationary policies that the Bush and Obama administrations have been implementing in recent months. You may feel safe in cash right now but inflation is going to punish your buying power

One of the ways you can take advantage of this is using options around earnings releases. You need to have the correct strategy and use the correct underlying equities. To be fair, I can't officially take credit for this trade because I didn't put it on the blog in advance. That said, I put together an option trade that allowed me to make 50% in 2 days on (PCLN) surrounding their earnings release. This strategy is too much to put on a blog but I will be creating an ebook with the exact guidelines for how I do it. It is fairly simple but the rules must be followed exactly. The strategy allows for very little risk (my favorite kind of trade) and the possibility for huge rewards. I will be getting more names out there as I trade them so we can see this in action.

Take cover in this market over the next couple weeks. Make sure you are light and nimble, but be sure you can't stay in cash forever. The inflation monster will eat your portfolio if you allow it to. Until next time, stay low risk..

Wanna Make 20% in a Day? I did...

2009-02-18T07:24:00.002-05:00

That sounds like one of those get-rich-quick crazy claims you see on late night TV. Not true. Look at my previous post. I told you to buy (SLV) calls. Specifically, I told you to buy the Jan 2010 $20 calls. I bought them Friday. I am now up 20% and Silver is heading higher as I write this. I have not sold anything yet. I think this trade has a LONG way to go.

A quick update on a couple trades I told you about earlier. First is the long (DIA) trade. I added to the position yesterday. Here is my thinking with this one. As of the open this morning, 8 of the 30 stocks are currently trading below $15. There isn't much further for these stocks to go. Stocks can only go to $0. And seeing that the Dow is a price weighted average and not a market cap weighted average like the S&P, there has to be more upside than downside to the Dow. Just do the math. That said, I bought a small postion last time and a small position this time. Normally, I break down a purchase into 3 purchases when I buy an investment. This time I am breaking it down into 5 purchases. I am leaving some powder dry here.

The other trade I mentioned earlier is the long (TIP) trade. This trade is looking VERY nice technically. It is very close to breaking above it's 200 day moving average. If it breaks above the 200 day, it is going to have a lot of support to the upside. It would take a lot for TIP to go lower technically. The fundamentals simply don't support a dramatic downside from here.

Keep in mind, options are used for trades and stocks/ETF's are used for investments. I use investments for trends I see that I can't pick a defined end to. Trades are for trends that will grow quickly and fizzle eventually. Options allow you to take on very limited risk and reap huge rewards. Stocks/ETF's allow for a trend to play out without a time-defined endgame. Keep that in mind. Until next time, stay low risk..

Here is Your New Bubble..

2009-02-17T08:16:00.002-05:00

You are going to get sick of hearing it, but Gold continues to go higher. As an investor, you only need a couple of good ideas per year, to be outrageously profitable. I have been on the Gold story for the last $200. It is currently heading higher this morning. Here is the kicker. The dollar is as strong as it has been in months. With a weaker dollar, Gold would be at least in the $1200 range right now. There is still time. This one will go higher.

Another trade I have just put on is Silver (SLV). Silver is a little different than Gold in that it is more of a bet on a long term recovery in the economy. Silver is used in more industrial applications as opposed to Gold. Gold is much more of a financial trade whereas Silver is more of a big-picture economic trade. I bought the $20 Jan 2010 calls. They are currently trading for about $1.00 per contract.

Do not go overboard with this trade. It is easy to think that you can load up on a ton of calls because they are cheap. Think about this trade in terms of portfolio percentage. While I am very confident you will make a TON of money on this, make sure you aren't putting a large percentage of your portfolio in this or any particular trade.

I will be back tomorrow with more trades. Until next time, stay low risk..

So it Happened..

2009-02-13T10:27:00.000-05:00

Just like I said it would except not for the reason I said it would. I told you the market would probably end up higher on the day. The markets were either slightly lower or actually up for the day. I told you that the relatively positive economic data would send the markets higher. That wasn't exactly the truth. The truth is that we rallied on the hope that the government would step in and help homeowners with some sort of subsidy. If we had rallied on the economic news I would have felt good. The fact that we went higher at the end of the day because of the thought of more government intervention, is the sign that the market is still sick.

A sick market does not mean that profits can't be made. It means that profits go to good traders. Not good investors. A good investor looks into the fundamentals of the company and determines a value. They then purchase when the stock is cheap in relation to that value. A trader looks at market sentiment based on charts and volume indicators. They buy at a point when the market is jumping in all at once and profit from the herd mentality. There is nothing inherently wrong with one approach or the other, but in times like these traders tend to be more successful.

That said, I will not be blogging Monday for the holiday. What I will do when I return Tuesday is focus more on the specific trades I am making to help add a little life to your portfolio. Specifically I use an options strategy centered around earnings releases. Options have three types of value. They have time value, which is the amount of time until they expire. Less time until expiration = less value. Intrinsic value is based on how close or in the money an option is. Closer to being in the money = more value. The last type of value is volatility. This is based on how much the stock moves day-to-day. More movement = more value. If you can own options that take advantage of the inherent options value creators, you can put trading odds in your favor. That is what investing and trading are all about. Until next time, stay low risk..

Not so Bad.

2009-02-12T09:07:00.000-05:00

After the Geithner all-i-can-tell-you-is-I'm-gonna-spend-a-lot-of-money selloff, the market just hovered most of the day yesterday. And with nice earnings coming out of Coke (KO), a decent jobless claims number and a relatively good retail sales number, we could see some upside today. The futures are still below fair value right now. I think we still can go higher by the end of the day. I think the mentality is so negative right now that ok news can send us higher.

That said, my position in (DIA) is still small and I am looking to add on weakness. We are dangerously close to that November low in the 7600 range. If we break below there, the Dow can have a 6 handle in short order. At that point, we could see some exhausting capitulation volume and head higher. I will still be looking to add to my position on the way down.

We still have a LOT of issues to work out. There are still places to make money. Keep your positons small. Stay quick. And as always, stay low risk..

Keep that Money Comin!!!

2009-02-11T11:02:00.000-05:00

How bout that Gold trade so far? Not too bad. Remember, Goldman the other day upgraded Gold and gave it a price target of $1000. That is ALWAYS something to consider. In the beginning of a bull market, Goldman Sachs takes huge positions and manipulates the price higher by 'upgrading' the commodity. The lemmings in the market jump in. Goldman makes money. Funny how that works.

Guess what, I put you in the Gold trade about 6 weeks before Goldman Sachs began to manipulate the market. It was the beginning of the trend. There wasn't much to see in advance of that. The options I told you about are up now about 300% in a couple months. Not too shabby. The trend is just getting started. There are a LOT of profits to still be had in this trade.

The other two major trades I want you to be in are the (TIP) and (TBT). These two are presenting good buying opportunities right now if you're not already in. We are looking at a lot of fear and uncertainty still in the market. People are still buying treasuries very heavily right now. They will stop sometime soon. (TBT) will go higher. Just not right now. You want to get in front of this trend. It is pretty safe to say that we will see higher inflation in the future. With the money the government is printing right now to bailout our zombie banks, inflation is bound to show up. In fact, the government wants inflation. It is easier to deal with than deflation. (TIP) is the way to take advantage of it. Until next time, stay low risk..

Here is the problem..

2009-02-10T12:27:00.000-05:00

12:30 PM I waited to post until I heard Geithner speak. I wanted to hear if something groundbreaking would come out before I gave an opinion. I am not sure what I was waiting for. We all got pretty much what we expected. We got a very vague "we will make things right" and not much else.

There was not much in terms of details in Geithner's speech. The most specific detail was how the government-purchased assets are going to be valued. We got nothing, except to say "it's complicated". That isn't exactly what anyone wanted to hear.

The market is off about 300 points right now. It is dancing near the psychologically significant Dow 8000 level. It is going to be interesting to see if it holds. I am putting on a SMALL long position in the DIA. I am avoiding options with this trade because I want unlimited amounts of time to be right. I also want to be able to average down in the trade. I think there could be a dramatic leg down still in the cards. That will mean an opportunity to buy more. If we don't get that leg down, I will still have the small position on. We could very well stay in the trading range and I will look to trim in the 9k range on the Dow.

The Gold trade is still on. It is currently up $20+ on the day so far. I think it continues to head higher. Until next time, stay low risk..

Don't Buy It..

2009-02-09T10:07:00.000-05:00

We had a nice looking rally on Friday. The major averages either jumped above or are near close to their 50 day moving averages. While the technicals are beginning to look better, the fundamentals underpinning this recent rally leave a LOT to be desired. The rally on Friday came from the thought that the government stimulus package will be passed. It didn't come from those things that we used to value like earnings, profit growth, prosperity, etc. Remember those?

When we rally because the government is going to redistribute funds in a way that is supposedly going to stimulate the economy, I don't get all that excited. It usually becomes a time to trim some profits.

It looks like we have seen a short term turn in the dollar. We are seeing some weakness against most currencies right now and it is supportive of the market. Remember, the market was at an all time high in Oct 2007, at that time we saw EUR/USD in the 1.40 - 1.45 range. We are now a little over 1.30. It doesn't seem like much right now but 15 points can mean a huge difference.

I could argue that we will come out of this (except for the financials, of course) stronger than we had been before. The last rally to above 14k in the Dow was fueled by almost solely by commodities and commodity stocks. The next time we head higher with commodity stocks because of the weak dollar, we will have strong-balance sheet companies like tech going with it. That will lead to a more broad based rally and more strength overall.

Until then, continue to invest in the overall trend of the market. The trend continues to be a weak dollar and more inflation. Another good way to play this is the (TIP) which is a Barclays ETF that tracks Inflation Protected Securities in the Treasury market. This is a nice way to take advantage of the fact that we will see some pretty hefty inflation down the road. Running out and buying it today will be a little early. We still have some deflationary pressures in the economy. But 2-3 years from now, you'll be kicking yourself if you are not selectively buying this soon. Until next time, stay low risk..

So...

2009-02-06T09:33:00.000-05:00

A year is a long time, huh? This time last year, Bear Stearns, Lehman, AIG, WaMu, etc. had not "happened" yet. The market was kind of chugging along. There were some rumblings of an inverted yield curve, a rapidly weakening dollar and some other things. No one had a clue what was coming. The market was off its highs but still hanging in there. There was a thought that some stocks showed significant "value" at at their prices.

Fast forward a year. The bottom has fallen out. Bear and Lehman and WaMu don't exist anymore. Niether do Freddie and Fannie in their quasi public forms. The big banks we have left are nothing but giant black holes for capital. And we got a jobs number this morning that came in near 600k. The funny part about the jobs number is that everyone in the market said, "OK, bad... but not so bad" and the market headed higher. Long time.

So the question for an investor is where do we go from here? The constant answer is do a little of what everyone else is doing. You need to be trading this market. Buying and holding stocks as an asset is not a good option anymore.

The area I have been looking at recently is in commodity stocks. They have had a nice little rally so far and I think they can move higher. The dollar is weakening right now. This is helping the market overall and commodities in general. There will still be some weakness in oil, but keep an eye on commodities for a mid term trade. I think there is a lot to go there. Until next time, stay low risk..

All About Children...

2009-02-05T11:46:00.000-05:00

I was explaining to someone the other day that most of the Wall St. CEO's are simply acting like children. I have two toddlers so I know the typical actions of a child first hand. The one that comes to mind is when my kids are fighting over a toy and they are saying "MINE!". That is exactly what we are seeing with CEO's across the financial world. They are all saying "MINE!" when it comes to salaries and perks and stock, etc. Now is the time for leadership. Not child play.

Among the most evil of all these people is John Thain from Merril Lynch. I am not going to go into all the things he used Merril money for his office, but suffice it to say they would make you want to throw up. I understand having a fund manager there and your job is to make them buy some stock. But if I am a truly savvy fund manager, what am I supposed to think if the CEO is wasting shareholder money this way? The most aggregious part of this particular theft is that is was all done while Merril was losing BILLIONS. This was not just an error in judgement. This was theft.

The other part of Thain that will make you want to throw up is that he wanted a $10 million bonus this year!? Is he serious? The official press release said that he told the board that he didn't actually want the bonus. Of course that was a lie.

What makes the bonus discussion more disgusting is that there is new information coming out today. The information from the Wall St Journal is that Bank of America was essentially forced to buy Merril. The sale of the company was what Thain was basing his "I deserve a bonus" discussion on. He did nothing! The government twisted their arm! Disgusting.

One other quick piece of info. Goldman Sachs just raised their price target on Gold today. What does this mean? It means that Goldman is not in the Gold market big time. Do not pretend Goldman is an objective player. They do this all the time. They were doing with oil prior to the bubble bursting. They were in the market buying oil hand over fist then they were raising the price target. Goldman was essentially silent as they sold huge portions of their oil holdings in July. The market collapsed. Then they downgraded their price target. Guess what is happening now with Gold. I recommended it about $150 ago and there is still time. You missed a small move so far. I think it goes much higher. Get in and buckle up. Until next time, stay low risk..

Dollar up, Gold up?

2009-01-30T13:59:00.000-05:00

Yes, it is true. I have been trading the currency markets recently so the equity and commodity markets are going a little bit in slow motion for me now. Either way, the bottom line is that I have been pounding the table about buying gold for the last $150. THERE IS STILL TIME! You need to get in soon or the trade becomes very risky. I told you about the call option trade on the GLD. You got your original investment out so the capital is safe. You are now at a 265% gain. The best part about it is that there is still a TON of room to go with this trade. Easy money.

Here is another one. The trade is a little mature but I think there is still another 30-50% in the ETF. This means about another 500-1000% in this trade depending on the speed of the move. Buying the $60 Sep Calls on the (TBT) ETF. This gets you a double short on long term Treasuries. We currently have a bubble in cash and cash equivalent securities. People are so afraid of "risk" based assets like stocks and bonds now that they are putting cash in Treasuries until the proverbial coast is clear. Of course, they will flow out when it is too late and the stock market has run up considerably. That is the time to sell your shares of TBT or the options. Take your money and run with this one.

Until next time, stay low risk..

Another Tough Day...

2009-01-29T15:32:00.000-05:00

We had a weak jobs number (although not as bad as it could have been) and continued uncertainty about the "bad bank" (otherwise known as the original plan of the TARP). That led to a sell off on the street. I am writing this right before the close and the S&P is having a hard time staying above the technically critical 850 level. Of course, a lot of that has to do with the heavy weighting of financials in the S&P.

As I have said before, the financials are not investable companies. They can be traded but NOT invested in with any heavy commitments of capital. If the government has to take these comapnies over - which is not out of the question - you will be wiped out. Trades are fine, but all long term investments should not be made until there is some clarity as to how the financial crisis plays out.

I am watching president Obama right now and I am thoroughly impressed. I am impressed that he takes the Wall St. executives to task. That is what leadership is all about. He is asking for accountability from the people who need to be the most accountable. While the Wall St. executives are asking for government money, they are still bonusing themselves outrageous sums of money. I am excited that Obama is not just going to be "one of them". So far, he has shown more leadership than any president I can recall, Democrat or Republican. Very impressive.

Tomorrow will probably set up to go lower and we should be prepared for that. Possibly getting short the SPY or QQQQ or DIA will make for a good day trade. Until next time, stay low risk..