Monday, December 28, 2009

Weekly Watchlist 12/28

Another short low volume week is ahead and it should be interesting to see if the SPX keeps grinding up on this low volume trade. I think it will. A positive close to last week should give us continued momo into the 1135-1140 area short term.

Last week the Nasdaq and tech related names rallied and led the way. If tech continues to move higher that is a positive sign into the new year as the market has been searching for a leader to ignite the next leg up if it is to come. Energy and banks have lagged this month but last week energy started to show some life and perhaps maybe financials are next?

Buy the dips>> PDE, VFC, TSL, ABV, TRLG

Sunday, December 20, 2009

Weekly Watchlist 12/21

Going into a holiday shortened week we have a trading range still in place in the SPX. I think we stay in this range thru the rest of the year and find some direction once 2010 arrives. For now support remains at 1085 and resistance up at 1115.While banks and commodities have sold off, the tech sector has held up nicely along with transports. Until we get some kind of broad based move in all sectors then they will keep taking turns each week and the indices overall will consolidate further. Overall this has been a stock picking market with premium selling strategies doing best.

The dollar/stock inverse relationship has almost completely broken down and I think it is a positive long term sign to see stocks holding up and perhaps even starting to rally with the USD. Perhaps growth isn't that bad after all huh?

Buy the dips>> MSFT, VMC, SPG, NTRI

Sell the rips>> FCX

Thursday, December 17, 2009

RIMM Call Spread

RIMM reports earnings after the close today and tomorrow is options expiration so that sets up a potentially explosive long gamma trade. Delta's of options will be either 1 or 0 at expy on friday's close and that means that stocks which have big moves this week can see the delta's of their options explode.

Usually I'm not a fan of buying spreads or options into earnings but for a gamble lottery ticket type of play with a great risk/reward this trade could pay off huge.

Buy the Dec 70/75 call spread for 50 cents.

By buying the 70 call and selling the 75 call you mitigate some of the risk of paying a premium into the number and you are only paying 10% of the potential $5 the spread can be worth on friday if RIMM goes to 75. That kind of move is entirely possible from a volatile stock like RIMM.

Of course if it does not clear about 70.50 then you lose money under that and you should be prepared to lose the entire 50 cents if RIMM does not get over that 70 mark tomorrow. But for the potential 10 bagger kind of trade I think this is worth taking with small size.

Sunday, December 13, 2009

Weekly Watchlist 12/14

Stocks have held their own as the dollar rallied the past two weeks and commodities sold off fairly hard. The market seems to have leadership from transports and semi's along with some other tech. It has to be encouraging to see the market hang in this neutral range as the euro sells off the past few weeks. Maybe this is just the start of the dollar rallying with equities?

With the year end so close I find it hard to believe we sell off into a seasonal bullish time for stocks. FOMC meeting is this week along with quad witching expiration on Friday. There is plenty of open interest at the round number 1100 strike in the SPX options so it would not surprise me to see another rather flat week overall. At this point I would be more willing to be bullishly neutral. Which I guess means expecting a break of the highs but respecting the range.

The euro does look likely to test the 1.45 mark this week and gold has room down to 1080 which is the next major support level. The last month has seen different sectors lead at different times. One week tech leads and commodities lag, then the next week banks lag and transports lead. Until we can get a broad based rally then this rangebound trading may hold into year end. One thing for certain is that we have longer term resistance doing what it should do at these levels on the weekly charts. 1125 SPX is going to give us a hard time until it doesn't.

Buy the dips>> GD, M, TIE, ICE, HD, GVA, IYR, SLM

Sell the rips>> RIG, FXE

Monday, December 7, 2009

Weekly Watchlist 12/7

The reaction to bad jobs data 9 months ago rallied stocks but now are we seeing the stock market starting to sell off on good data? If so, this could be the first signs of the market leading the fundamentals. Regardless, Friday the dollar ended strong and stocks sold off before regaining some steam late in the day to still close over 1100. While I think this could be the start of another 5-8% correction the markets, you also gotta remember it is unlikely to see a sustained pullback before year end because of the "Santa Claus" effect in the markets and traders wanting to secure their bonuses that they receive. The "bonus" put in December they call it.

So we need to watch the potential for support to be broken on the SPX under 1085 to see a fast retrace back to 1070 where there is still an unfilled gap. But if we friday's lows near 1095 then I think we have yet another shot at retesting the highs of the brutal trading range we have seen for the last 4 weeks. We need to see the SPX close above 1120 for any kind of continuation higher.

I like the way small caps are setting up to run into year end and REIT's and Semis look strong as well. Some of the dollar sensitive names like oils and materials are vulnerable to further pullbacks at this point and I also would lean towards shorting pops in banks until they confirmed leadership. It looks like there is a nice rotation taking place into more defensive sectors into year end.

The dollar bounce does have the chance at being the start a viscious unwind but it's still a bit early to tell. Losing 1.48 level on the Euro would be a nice confirmation of a further move up in the dollar this week. There is not much econ data on the schedule so perhaps the currencies settle into a range for a few days to absorb the large movements seen friday after the jobs report.


Shorts>> WFT, ACI

Monday, November 30, 2009

Weekly Watchlist 11/30

Going into December the markets seem to be trying to put in some kind of topping pattern but they got way too negative too fast off the news from Dubai last week. Friday the market recovered some important overnight losses but more importantly the Euro regained the 1.49 area after a steep sell off. The currencies are still running the show and until the Euro has a close under 1.48 then I think it will continue up and you should expect shakeouts like last Friday. Same with gold and other commodities. Gold needed a sharp correction and it got that. The trend is up. The moves in gold will continue to increase in volatility as the price rises. Gold rallied up and thru my 1150 target I stated here in January and I still think gold is headed up and thru that 1200 mark I called for back in late Summer and even higher next year.

As for the SPX, we have 1105-1110 as a must close above area to continue a rally to 1120. If we clear this I think we have a good shot of seeing 1150-1160 for a year end rally. I really do not see a sustained move down coming before year end. Who wants to forgo those annual bonuses that are paid out soon? They will hold this market up thru Christmas imo. After that who knows but I think the media was just drooling for a story last week and Dubai gave them just that. Contrarian indicators are pointing towards at least a continued snapback higher.

Even if we are in the 8th inning of this bull run we gotta play until the last out and evaluate it as it changes. The 50 day ema on the SPX is still trending up and I think this is a very simple but important signal to focus on. One or two days does not make a trend. The trend is in fact up and even though breadth and certain sectors are fading with each new move up in the markets you cannot ignore the phrase.. "Market's will remain irrational longer than you can remain solvent."

The watchlist:


Shorts>> BBT

Monday, November 16, 2009

Currency Corner

I wanted to take a big macro look at the longer term weekly currency charts as I was starting to become a bit nervous of a dollar bounce since everyone is so certain the dollar is going lower and also we have Obama in Asia the last few days and why in the world would the govt want the dollar to be making fresh lows just as the President meets with the largest holders of our debt? Also, Bernanke is speaking on Monday morning so the slightest slip of words could be a catalyst to see action in the dollar. Of course Bernanke knows this and will be safe with his words since he has learned the effects of his speech intraday.

I have started to see some weakness in the oil sector and crude itself. I think oil should have rallied last week after testing the previous 77-78 breakout area. It did not end the week too bullishly and alot of the oil service names that we were very bullish on into the end of year ( ie. OIH, COP, RIG) maybe showing us some sloppy head and shoulders patterns. Now this could just be consolidation but if crude fails to breakout above 80 in the next week or so I think it has a good shot of actually correcting back to 65, which is basically where it should be (or even 50) if you do not factor in the dollar weakness since March. Supply is mounting and demand really isn't coming back full force into the holiday travel season. I think there is a good 15-20 bucks of premium in oil based solely on the weak dollar effect. Nevertheless, I think it will be important to watch crude coupled with the dollar into the next month to see the next directional move. IF THE DOLLAR BOUNCES then oil will probably tumble fastest.

As for the currency pairs, out of the following I think the British Pound (gpb/usd) is the most interesting. It has been stuck in a tight range on the weekly chart for several months and is poised to make a move once it breaks the range. It looks like momentum is to the upside right now so assuming the Pound can breakout above 1.68-1.69 on a weekly basis it could lead the Euro and other similar currencies higher, which of course means the dollar index will go lower.

The EUR/USD is for sure at interesting levels going back to 07 but for it go challenge higher areas I think we would all agree we need a weekly close above that 1.505 mark.

AUD/USD is not far off its 08 high of roughly 0.98 and that sets up a potential retest double top area since the current rate is not far off at 0.9338. The Aussie is of course a commodity currency like USD/CAD and even NZD/USD.

These currencies all look similar since the commodity rally has powered them higher.

The USD/CAD is at important support levels near 1.03. Even though support is here near parity if the commodity trade keeps up this CAD can continue to strengthen against the USD and go right thru parity. But I would expect some kind of consolidation here at least in the short term for USD/CAD.

USD/JPY is also near support between 87.5-89 and could at least get a bounce going into the last few months of the year back into the massive descending triangle that has formed during the last two years.

EUR/JPY is also very interesting to me here as it has formed a nice tight range over the last 6 months or so. This cross rate was an excellent measure of risk appetite back in 08 but has decoupled a bit imo. Even so, it has formed a big ascending triangle pennant with resistance up at 138-139. Currently at 134 this could blast off to 153 into early 2010 if it wants to breakout. Even though the risk measure isn't as tight as it used to be; we can still use this to see how likely the stock market is to rally.

And just for fun the last one is the USD/INR which is the Indian Rupee. If emerging markets are strong then this chart should be going lower (or the Rupee appreciates against the USD). And it looks like it has formed a big nasty head and shoulders on the weekly with a breakdown in the cards. This should mean that the BRIC nations will be strong into 2010.

Overall, looking at all these weekly's and your USD thoughts I think it is prudent to be expecting some kind of dollar bounce in the coming weeks especially since the sentiment is so extended to one side, however I think we are still early to predict a intermediate or major USD bottom followed by a rally.

Sunday, November 8, 2009

Weekly Watchlist 11/9

Neutral. That is my current read on the markets going into the week. We got a nice rally off 1030 last week and now we have the 1075-1080 resistance standing in our way on the SPX. Indicators seem to be showing us bullish signs and sentiment got much too negative on that last little correction off of 1100. The percentage of bears as calculated by several important weekly surveys was as pessimistic as they were at the March bottom! That says alot on the current opinions of all market participants and says that we do have fuel to the upside if the market wants to go with it.

After the jobs report its hard to see what the bears have for their case to push this market lower going into a seasonal strong period for stocks. At the same time what could be the catalyst to send us thru 1100 on a new rally? Other than the overall momentum of the uptrend that began in March it is hard to see many events that give us a meaningful move in either direction going forward. Earnings are winding down and the fed meeting has passed. Which is why I think we have a very good shot at seeing a nice trading range develop between roughly 1020-1100 SPX into the next month or so.

Selling iron condors and other theta positive option strategies could be the ticket to profits as well as taking quick profits on directional moves that get overextended short term. If a new trend develops we will go with it but for now I think it is right to take quick profits and expect some churn and burn.

Econ data and earnings for the week 


Buy the Dips>> TGT, WLT, MA, CL, ICE,  NFLX, PRGO

Sell the Rips>> STI, MET, FAST, VMC

Sunday, November 1, 2009

Weekly Watchlist 11/2

Going into November the markets are coming off a very tough week. 1100 SPX seems to be a top for now and last week proved that the selling was different than prior selloffs. Volatility is back with the VIX popping to 30 on friday. For the time being it seems like we should test further downside support in the SPX. The 50 day ema was broken and the SPX lows from last month at 1020 are next support. Below that and I think you can expect to see 987-1000 eventually which is just about where the 200 day ema sits.

The RUT and SOX have led the way lower as they failed to make new highs with the SPX and Dow and formed double tops. That is a pretty bearish sign when key sectors like the Semis and Small Caps show negative divergence like that. And of course the dollar stayed strong into friday and put pressure on commodities and stocks. If the dollar sustains this level or higher for a few more days it will make dollar bears cover their shorts and you can see some additional pressure on stocks.

FOMC rate decision this week and jobs report on friday will be what everyone is watching. Just watch the charts and price action to see what to expect. All in all, I think for the coming weeks you need to be selling longs into rallies and trying to approach the short side of the market to play the downside expecting at least a bit more volatility.

It's really tough to see any good swing trades setting up here at these levels and earnings season still here.


Buy the Dips>> RDY

Sell the Rips>> FDX, PRU, HON, KRE, RIMM

Monday, October 26, 2009

Weekly Watchlist 10/26

As the week gets under way the market has already dumped after a nice little bull trap this morning. I think last week's negative action after positive earnings reports was the red flag to lighten up on your longs and even nibble on some shorts. 1100 SPX proved to be a wall each time we tested it and other indices like the RUT and IYT signaled bearish divergences as the SPX tagged new highs.

I think this sets us up for a retest of the 50ema on the SPX which stands at 1046. There is also a downside gap on the ES at roughly 1054 and another one at 1037. Short term the dollar is rallying and that is guiding the market down and commodities are getting the hammer for now. If the SPX loses the 50ema we could see further pressure down to 1020. This looks like it could be the 5-10% pullback that most have been awaiting for awhile.


Longs>> CHS, RL, UUP
Shorts>> X, CHA, LMT,  NAV, MET, TM, ZION

Tuesday, October 20, 2009

EUR/USD Testing Uptrend

Note: I could not get a post out Sunday night so I am doing a bit of an update here.

The market saw a nice rally Monday and opened up nicely today after very positive earnings for AAPL, CAT and others. We are seeing some weakness mainly due to the pullback in energy names as a result of the bounce in the dollar today. The EUR/USD has some good support here between 1.485 and 1.49 as the chart shows a nice uptrend line on the 60min chart going back to early September.

I would expect the SPX to hold the 1080 support zone which was previous resistance until it broke out last week. If it breaks then we will re-evaluate. But for now this is a pullback in a bull market. Say it slowly to yourself :)

Overall, I like the patterns still on the daily charts of oil and commodity stocks. We still have a lot of data and earnings here in the next few days so it will be volatile. Just know that the market will try to shake out the most people before it makes a move. New highs vs new lows are still increasing each week which is not a sign of a topping market. Before this market topped out in 07-08 we saw consecutive weeks of decreasing internals. Just be nimble and trade around core positions that you believe in until earnings wind down because it will be choppy and wild for now.

Wednesday, October 14, 2009

Back To The...Dow 10k

The market is making new highs as the Dow tagged 10k and the SPX closed at 1092. The critical area to watch into the weekend will be 1076-1080 on the cash as that is now support. If we can hold above that level and close on a weekly basis I think the market is then poised to blast off into the 1120-1150 zone we have been targeting for a little while now. There is a chance to see a blowoff top type of event where those who have not gotten in to this market finally "panic" and buy it for fear of missing out on the upside. Funny how just a year ago everyone was fearful of the endless selling. Fear is the one emotion that drives all. Greed is simply fear of missing out on further gains.

The euro broke out of 1.485 level that I had been talking of and the dollar index is making new lows under 76 as commodities in turn, get bid up aggressively. Oil now looks like it is breaking out and should see 80 dollars shortly. Eventually I would not be surprised to see crude up between 85-90 by the end of year. So I guess fill up your tanks now. And buy oil service stocks of course. Copper also is making a push towards $3/lb which is the top part of a sideways channel that has been in place since early summer. If copper breaks out the market could be telling us the fear of inflation is back or the economic growth is returning. Or both.

Still plenty of earnings to come this week and next that should guide the market in the short term. Overall, I remain a bull until I am not one. Which just means the market will tell you when it exhausts itself of buying. A high volume capitulation of euphoria has not occurred yet and I think you should remain bullish until that momo dies off.

Monday, October 12, 2009

Weekly Watchlist 10/12

As this week gets rolling we have Columbus Day on monday which will give us a thin low volume trade as bond markets are closed. Never short a dull market is my rule for these days. Plus we are in a confirmed bull trend. As the markets ended last week near highs of Sept. they will likely take out the highs this week; but will they hold these new lofty levels? You can easily see a bearish reversal or a bull trap occur but I tend to think we eventually still go to 1120 in the SPX. This is the 50% retracement of the entire move down from Oct 07.

The earnings reports this week start off with INTC and JPM and then conclude with GS, GOOG, GE, C, BAC and others. It looks like the market is just waiting for these catalysts to perhaps make the next leg higher. On the other side we have the Euro testing recent highs above 1.48 and the direction of the dollar is still guiding this market in the short term. If the Euro breaks 1.485 and closes we have a move up to 1.51 possibly coming.

Upside potential is all about a close above 1080 in the SPX. Downside support remains and even if we see pullbacks you can see they are controlled selling and dip buyers step in.

The Watchlist:


Shorts>> TOL, PENN, LMT

Wednesday, October 7, 2009

Panic Buying?

This market caught a bid early this week as I anticipated and the commodity rally is the focal point of this recent move up. You cannot deny the dip buying we see each time we pullback in this market. the SPX closed above last thursday's down candle today and I believe we are setup to rally further into the weekend. The futures are already up big overnight off some dollar tankage and commodity strength. The banks are recovering nicely from last week as well and GS is leading the way as it should making new highs before it reports earnings next week. On top of this we have tech ripping and AAPL, GOOG, and AMZN are my favs.

The selloff last week from 1080 to 1020 has a fib extension of 127% up at 1097 and the 161% is 1118. I think these are very logical targets to expect in the coming weeks. The euro looks ready to take out the recent highs and this dollar weakness will fuel this move up in the commodities markets. Gold over 1050 and copper challenging 3 is a bullish sign.

Earnings are just around the corner and it could be the catalyst to propel this market into the 1100 area imo. You gotta believe that there could be a panic buying event to the upside since most guys wanted more of a 10% pullback to get into this market and they have not gotten it. The chase for performance is frustrating and they have little choice not to get in soon. Be warned. Trade safe.

Monday, October 5, 2009

Weekly Watchlist 10/5

Going into this week the market should try to find support in this 1015-1025 area on the SPX. I think a small early week bounce could be seen or we could just consolidate around here. I do still think there is a shot they push this market down to 980-1000 in the coming weeks. If that happens I think the buyers will step in. For this week the currencies will tell the story as they often do. Not much data out this week but the first batch of earnings are out.

There are plenty of charts out there that offer some bullish setups this week and then some that look more bearish. The pullback that we had last week was just that. A pullback. The weekly charts were so overextended that they deserved a breather. For now we are seeing some controlled selling in select sectors. I do not see any reason to become a top calling bear and overly concerned about the downside. Until we have a key level like 980 broken to the downside or the 20ema crosses under the 50ema on the daily then you should not fall in love with the downside.

The watchlist:

Longs>> COP, CHKP, DF, CL, NTY

Shorts>> ANF, MCO, MHP, DSX, HES

Wednesday, September 30, 2009

Got Volatility?

Well today the market basically covered all the bases and then some. Just a wild one. End of quarter. Whatever is going seems like a giant tug of war out there right now and I have no real conviction to either side here.I still lean towards the downside short term especially if the jobs report upsets. However, I do think any dip we get will be bought and we will likely see a final leg into the end of the year going forward. For now lets try to tackle Thursday October 1.

Crude oil supported the market after it rallied into midday and tagged 70 by the end of the day while the dollar caved back in a bit. I think commodities looks interesting here if they can have another continuation up day. The euro is at a huge area here and I think 1.461 low from last week should be watched into the weekend to see if we close below or not. If so, its dollar bullish into October.

The one thing I will say about the price action with an ounce of confidence is that volume is def greater to the downside this week and the rallies have been on weak volume that I do not trust. For now.

1065 on the SPX is key this week so if we get a close above that I think you gotta be bullish. But overall this is a good time to be trading light or even not so much at all. And whatever you do; be hedged or keep those stops in place.

Tuesday, September 29, 2009

MA Bear Put Spread

Mastercard (MA) is having some relative weakness today and the last week in the markets. The daily chart looks to be putting in a bear flag and having trouble near 210. I think MA is looking toppy here and could retrace all the way back down to the gap zone down at 190ish in the next few weeks. Also, if this market rolls over and retraces into October like I tend to think it may; then MA will be a fast mover imo.

Buy the 200 puts in October and sell the 180 puts for a bear put spread that costs roughly $3. 

MA options looks relatively cheap on an implied volatility basis as IV in Oct is around the mid 30s. Max the spread can be worth at Oct expy is $20.

Monday, September 28, 2009

Weekly Watchlist 9/28

The 3rd quarter ends in just a few days and then October comes as the markets are showing signs of toppiness. The bears are roaring the past few days as they believe they called the top. Lots of traders piled in short the last few days thinking the same. They have stops that could be tested early this week just above current levels. Monday is a Jewish holiday so volume won't be quite average. That, in addition to end of quarter window-dressing the next few days could result in a weak bounce back off some short term support between 1035-1030. Then by Wednesday the market may rollover and continue lower if the jobs data at the end of the week does not impress.

From looking at some scans and other sector charts this weekend I think this correction could be more along the lines of 8-10% for starters. I would not be surprised to see 987 in the SPX soon as that is rock solid support. The transports are looking very weak and led the way down last week with the commodities as well. On top of this, the US dollar index daily chart is looking bullish and I think we could be at the start of an interesting short squeeze of a rally in the US dollar. The euro and aussie dollar look just the opposite and should selloff further imo. Oil broke some important trendlines last week as it came back to 66. I would expect crude to sell off further as long as the dollar rallies. You could easily see crude retest the 60 area.

The watchlist:



Thursday, September 24, 2009

Collar Up RIMM Profits

Research in Motion (RIMM) is reporting earnings after the bell and if you are holding stock that you want to hold on to I think a great way to protect yourself is to "collar it up" by selling a call and buying a put.

RIMM has had a nice run and with the market pulling back it could see profit-taking after earnings. The implied volatility is around 64% in Oct and 53% for Nov. If the skew was much greater than this between each month I would consider buying a calendar spread in RIMM or even a double diagonal. If I were long stock I would advise selling a 95 call and buying a 75 put for nearly even-money. You sell the 95 call for 1.70 and buy the put for 1.70. Net-net its a zero cost collar and protects you to the downside if RIMM tanks. If it rallies thru 95 you simply get called away at 95 at Oct expy.

If I were not holding a position in the stock I would consider selling an iron condor with wide enough strikes to be cushioned against a big move in RIMM after earnings, which often happens as you can see the last several quarters. If I had a gun to my head I would consider the 70/75/100/105 Oct iron condor short. But I am not officially putting this on as the RIMM earnings move are too volatile for my blood.

Adam Warner of Daily Options Report has some interesting thoughts on RIMM earnings as well.

Wednesday, September 23, 2009

Buy the Dip?

Well it was a crazy day on Wall Street as the Fed Statement gave us an initial pop but subsequent drop into the close. The move down in the last hour was ugly and surprised me. The candle we formed today was a textbook outside reversal which usually gives you a few days of follow-thru the downside in this situation.

You have to remember the SPX is up about 90 points in 3 weeks from top to bottom and the rubber band is a bit stretched at this point. Markets usually mean revert to a sense of normalcy. Today's reversal merely brought us back to within a few points of the 8ema on the daily. I would expect the markets to test the 20ema as we get a potential multi-day dip here.

A 50% retracement of the move up since early Sept is 1034 and that area is also the site of some good support so I would not be surprised to see this area tested before the bulls come back into charge. I think this will be a great area to scoop up some more longs and buy the dip. Ultimately, I do think this market continues higher. But we will watch and determine that accordingly. For now the dollar could likely bounce a bit and commodities pullback, which further pressures stocks.

Monday, September 21, 2009

Weekly Watchlist 9/21

This week the markets will see plenty of data from home sales and durable orders to jobless claims and the latest FOMC meeting on Wednesday. The G-20 meets in Pittsburgh on Thursday. And throughout the week the treasury will be auctioning off several billion in short term bonds. It should be a macro-focused week in the markets and the SPX will start it off at 1068. Another interesting index to watch will be the Dow, as it sits at 9820 and close to that psychological 10k figure that the media is just drooling over. I anticipate this area to get hit this week and then you will really see the Johnny Come-lately retail investors pour into this market going into the end of month.

The dollar is still looking weak but the possibility of a bounce should be watched as its oversold and the Fed speak and G-20 meeting could ignite some defensive rhetoric from officials. Gold looks ready for a profit taking perhaps if it can't hold the 1005 area.

The SPX is pretty much in a vacuum zone overhead with the low supply area's from last Fall's crash giving us a good chance at seeing a rapid rally to the upside. Last Fall we saw a panic selling for fear of the unknown. This Fall we could see the markets race right back to 1150 or so as a panic buying comes into the markets, for fear of missing out on the upside starts to set in. Human emotion is a funny thing isn't it?

This is a momentum driven market right now and it has been for several months. These types of markets usually don't top out with a surprise crash or something. They top out with either a blowoff top on huge volume or a long gradual rolling top that plays out over several weeks or even months. We have seen neither yet. Trade safe.

The watchlist:


Shorts>> MCO

Wednesday, September 16, 2009

Bulls On Parade

At midweek the major market indexes are at fresh highs on the year above 1065 which I originally called for here back on May 31. The market is poised to push further into friday as we have quadruple witching options expiration coming. We have seen a steady grind up in the markets and low volatility overall. Traders see this and will take off protective hedges into friday which could further fuel a burst into 1100 SPX. This market momentum is not something to stand in front of and I continue to see traders do just that.

We are setup to see the gap from last October get filled on the SPY and perhaps even then some. If you look at the SPY the gap comes in a bit above 108 and then there is "pure air" between here and about 1110 on the SPX cash index. Which just happens to line up with my SPX 1111 target I've been calling for since August and my "Dow 10k by early Fall" target as seen here in July.

There is broad strength in the markets from sectors such as banks, energy, tech, and transports. These are the sectors you want to be leading. At the same time internals remain strong and stocks making new highs are expanding with each move higher. No divergence yet in stocks making new highs versus the new highs in the SPX tells me we are still running on a full tank of gas, no matter how steep the hill ahead may look.

The dollar is also continuing to make new lows which doesn't hurt either. Commodity currencies such as the Aussie and Canadian dollar are making new highs on the year as well which is why oil, copper, and gold continue to rally. It will be interesting to see if oil and copper can break above their recent resistance of 75 and 3 respectively. But overall I think if we can see 3 out of 4 of the above sectors carry us then this market will go higher. Period. Trade safe.

Monday, September 14, 2009

Weekly Watchlist 9/14

Going into options expiration week the SPX finished last week at 1042 after hitting new highs on the year. The levels on the downside that have and should continue to provide support on the SPX are 1027, 1014, 994. On the upside I am looking at 1052, 1080, and 1100 to come into play if this market breaks out. It does seem like we are in the latter stages of the rally since March because the market feels fragile but that does not mean we cannot see one more burst to the high side into the end of 3rd quarter for the next few weeks.

The commodities like copper and oil had sort of an ugly reversal on friday and the dollar strengthened a bit late. Whether this leads to more continuation this week we shall see but the trend is certainly pointing the other way for now. Another sector to watch of course is the banks (XLF) as they did not make new highs last week as the broad market did. This could be a warning sign going forward as banks need to participate if the market is going to rally to new highs. Retail will be in focus this week as investors try to gauge the strength of the consumer when BBY reports Tuesday.

The Watchlist:


Shorts>>> ICE, ERTS

Wednesday, September 9, 2009

Market Testing Resistance

At midweek stocks are showing strong momentum and challenging last month's highs near 1039 on the SPX. I think we will break these highs soon and continue to squeeze shorts in this market. Traders (myself included) got a bit too bearish the last few times we sold off. We have seen dips being bought every time the funds get a chance. Remember that funds are going into end of 3rd quarter soon and they are under-allocated which is one reason why I believe we have the potential to see one big thrust up into the end of the month that could get us to 1100 on the SPX quickly.

After the breakout in the Euro this week and continued strength in the commodities I adjusted my bias up and think the shallow correction we saw last week will result in continued buying into end of Sept. Too many are expecting "the selloff" to 950 and I just do not want to be on the same side of the crowd. Ever.

I think we run into trouble into October perhaps as the last few bears get on board the rally if we break to new highs here. Then and only then, will we see a risk of a more steep correction going into the 4th quarter. We will cross that bridge when we get there however.

It is clear that the Fed is committed to "easy money" and will keep supporting US asset prices (stocks) as best they can. After all, the goal is to show Americans that the recovery is underway and "good times" are ahead and the best way to do that is to have equities rise and the Average Joe to see gains in his portfolio. Even if that means the intrinsic value of those assets hasnt quite changed in real terms.

Bond auctions have seen good demand and its a light data week in the US overall so we should continue to see a grind up in buying momo. GS closing above 170 was very positive and the transports look to be breaking out as well. The Nasdaq and energy also look strong and if the market does breakout these sectors should lead. Trade nimble out there.

Wednesday, September 2, 2009

Gold Looks Shiny

On Wed. Gold saw its biggest daily gain since March and has officially broken out of the tight range consolidation triangle pattern that I have been watching for months. I believe today's breakout on high volume was just the start of a multi month breakout. I can see gold getting to 1150-1200 by year end as I think this is the move that will finally give gold a push thru that 1000 dollar level and this should give it added momentum.

If you take a fibonacci extension from the down move in 2008 as a target you get about 109.5 in the GLD as the 127.2% extension. The second target is up at the 161.8% extension and is 121.5. This would be more of a longer term target looking a year down the road but the point is that gold is going higher and you need to buy some.

I would be a buyer of the GLD on a pullback over the next few days or a bull flag consolidation setup on the 60min chart could offer up a nice entry point. If the GLD can pullback to the the low 95's then I want to be buying some Oct at-the-money calls and selling put spreads in gold miners such as ABX, NEM, GOLD.

The implied volatility of gold miners is more than twice that of the GLD which is why I would rather sell some of that premium in the miners in the form of bullish credit spreads and buy up calls in the etf.

Free Fallin'

So at midweek the market looks to be starting a correction that could continue thru Sept imo. After yesterday being one of the strongest sells I have seen all summer with volume the highest since early May and internals weak as can be; the path of least resistance appears to be lower for now. Remember how far we have came in the last 6 months. The SPX ran from 666 to 1039. Support levels below here sit at 980, 968, 950. The 200 day ema on the SPX stands at 954 and has been relatively flat all summer as it based out and tried to curl higher. If this market does eventually lose 950 then I must caution a gap fill zone down at 905 that will be waiting. I think we at least see a bounce off that 950 area and we will see how the market reacts to it.

As for the rest of this week, we have the ECB interest rate decision tonight in Europe and that should get the currency markets moving before the stock market opens. If the Euro fails at 1.42 area then it could fall very fast. That would put pressure on stocks. Also friday's jobs report is what everyone is waiting for so it should be interesting but like I said, the markets feel heavy and due to correct further this month imo.

Gold is the big chart breakout of the week so far and I will try to do a post on that trade as well. I think we saw a multi month breakout in gold today and at the same time long term bonds rallied to new relative highs. This is troubling for now as it could point to new worries over the flow of credit going into the fall. For now I am keeping a negative tilt to my bias and watching the above support levels to see how the markets acts if it gets to them.

Sunday, August 30, 2009

Weekly Watchlist 8/31

Going into September and the last "unofficial" week of summer before Labor day the SPX is pretty much right where it started a week ago. The markets have been hanging in here near the 1027 area with support down at 1014. Below that we have solid support at 987 and until these areas are broken then I see no reason to be a bear on this market.

We should see some light volume quiet trading this week ahead of the 3 day weekend. In this case the market can really do anything it wants until the volume comes back next week. I still think any dip is a buy as long as there are bears out there with pessimism. And there are plenty. The popular view out there lately is that a correction is due. Until this becomes the "unpopular" view; then it will not happen. Period.

The Watchlist:


Shorts>>> AMGN, MTZ

Wednesday, August 26, 2009

Summertime Blues

At midweek the SPX is pretty much flatlined and it has been pretty choppy so far this week. The market has actually held in there rather well imo considering oil has sold off 4 dollars and the dollar is stronger the last few days. Whether or not this dollar rally is something to be continued remains to be seen but for now it looks like it may continue grinding up. It is late August and volume is drying up so the path of least resistance is still higher. Although alot of people keep talking about how toppy this market "feels" and that a correction is coming; it hasn't. Yet.

I do believe we are within weeks of a major market move that will guide us in a trend into the fall. I tend to stick with the upside bias as I said Sunday that I see us getting to 1111 SPX in one final blowoff top type of movement, and it could very well happen quicker than you think. Funds continue to chase strength and buy weakness. You can see it in the trashy financial's lately. AIG, C, FNM, FRE are seeing the kind of action that you tend to see towards the end of large moves. But I'm not about to try and predict where the moves end.

Let's try and see if we can get 3 solid down days in a row or a down week that closes below the lows of the prior two weeks before we start to look at shorting too much. You will get burned otherwise. I would continue to sell put spreads in strong stocks and collect some premiums. Trade safe.

Sunday, August 23, 2009

Weekly Watchlist 8/24

After doing my weekend research and charting I noticed a theme in the markets and that it that there are a lot of very bullish setups in various stocks and sectors. Cup and handles galore. Breakouts. Flags. You name it. And as a result I think this market is headed much higher. The strong close on the weekly timeframe last week made me more bullish of this market than I had been. How much higher will we go?

Well, looking at the chart of the SPX you can see that we are nudging up against the 61.8% retracement of the selloff since last September. This level is at 1036 and if we broke out above that I think lots of traders would start to realize that you cannot be expecting the market to fall because if something retraces more than 61.8% of a prior move, then odds say that the current move is for real and generally has more legs. With that said I believe we can see 1111 in the SPX in the next few months. In the Dow this would be about 10,300. Get ready, its coming.

As for the present, we are entering the typical doldrums of late August when anyone who is anyone is usually at the beach or something to that effect. The volume is low and the volatility is even lower. So I can't see too much happening here between now and Labor Day but the market is making new highs so that should be taken into account. We could easily just chop around for a few weeks here and then see the real breakout in early Sept.

The watchlist:


Shorts>>> CMED, MTZ, FDO

Wednesday, August 19, 2009

Rally Time?

After the ripping rally midday Wednesday the ES made it back to the high 990s and looks like it wants to go a bit higher. The dollar got hammered pretty good on the back of the oil rally and rumors of a second stimulus in the works. We are still down on the week however and I would take the bounce back with a grain of salt. Everyone got too bearish too fast at the open on Wed after the media blew up the fact that China imploded AGAIN overnight. It is this sort of mass sentiment that is very dangerous in the markets and you should always take the opposite side of. So we gapped down 9 ES points and rallied to fill the gap.

Today's rally was led by commodities and lacked leadership from the three groups that matter; banks, brokers, and semis. When a market rallies without these industries I am cautious.

Overall there is still something wacky about this bounce back this week to me that I cannot trust fully but then again if it we see the Euro rally back over 1.43 then stocks will catch a bid into the weekend. For some reason however, I still think the market wants to test the 970 area soon. If I'm wrong, then I'm wrong but I think it pays to be prudent here as we are in mid August and strange things can and will happen during options expiration weeks.

Tuesday, August 18, 2009

HPQ Put Calendar

HPQ is reporting earnings after the bell and is sitting right at 44 as I type. I have no idea what they will do after earnings but the implied volatility of the Augs are 60% while the Sept options IV is a more reasonable 36%. So we definitely want to take advantage of selling some August premium if we can. If I had to pick a direction I would fade the rally today and look to the downside.

Buy the Aug/Sept 44 put calendar spread for 90 cents.

Buy selling the Aug 44 puts and buying the Sept 44 puts we can expect to profit from the collapse in IV after earnings tonight and as long as the stock stays within about 42-46.5 in the next three days we make money. Max profit occurs at 44 this friday as the Aug put would expire at 0 and the Sept would be worth at least its extrinsic value. Although this is designed to be a earnings play held just overnight, manage it accordingly.

ICE ICE baby

ICE has spent the last month retracing a sharp selloff from June and recently reversed and now looks ready to crack lower and head towards 80. Today's weak volume bounce back is a good chance to position yourself on the short side. I think it retests the low 80s soon and it could head even lower perhaps. If ICE closes back above the 200 ema near 91.50 I would ditch this thesis.

You can buy the Sept 90 puts here for about 6.30 if your aggressive or you can sell a Aug 90/95 call spread for 75 cents and as long as ICE stays below 90 in the next three days you keep that initial credit. Either way I think a downside play in ICE here is the way to go.

Sunday, August 16, 2009

Weekly Watchlist 8/17

Going into options expy week the markets are still holding tough near that 1000 SPX level however, as you can see from the chart the SPY formed a bearish inside candle doji pattern on the weekly chart which could point to some selling pressure this week. If the market decides to sell off into the last few weeks of August you can look to the 960 level to provide support as this was previous resistance last month.

The next few weeks are seasonally pretty quiet and low volume trade as the summer vacation season is winding down and people take off so we can easily just stay in this trading range as well.

As usual the dollar will dictate a lot of the price action in equities and if the dollar rallies as it looks like it wants to; then stocks could be due to pullback. If the dollar rallies, then a lot of fluff will be taken out of the commodities further hurting stocks. Again, the likelihood of a sustained pullback coming in mid August is low, but it should be watched.

It def feels like there are fewer and fewer opportunities on the long side of the market as I look thru my charts, which is why I guess you can say I'm cautiously bullish but if the market fails to rally early in the week it would be prudent to start looking at the short side.

The watchlist:



Wednesday, August 12, 2009

AMZN Bull Collar

Amazon (AMZN) is setting up nicely for a pop and continued rally. It sold off after earnings last month and has slowly consolidated lower back to 85ish while indicators are now oversold. I am bullish on AMZN into year end and think the long term weekly chart is one of few great ones out there. There is great supprot in the low 80s for AMZN. In this case I want to buy a bullish collar.

Buy the Oct 100 call and sell the Oct 75 put.

This can be done for a net credit of .72 cents and that's the amount you pocket as long as AMZN is above 75 at Oct expy. However, this is not a trade I would hold that long. Even though the options are Octs we can see quite a nice profit if AMZN rallies into the 90s into Sept. The risk graph above shows the white line being your PnL at end of August. So the dynamic is similar to just owning stock. Which is why this "collar" is referred to as a synthetic long position.

Anyway, the cost is greatly reduced if this strategy is employed instead of buying common stock. And plus you can even make money if the stock doesn't move or even goes down a bit into Oct.

I like this option play for a rally into the 90s on AMZN.

Where Do We Get Off?

Well at midweek and after the Fed meeting the markets are def on the roller coaster to crazy town! The pattern does tell me we could rally into the weekend as it seems too many trader got short too fast after Tuesday's selloff. At the same time the market looks vulnerable to a pullback if it can't breakout of last week's highs. If any big move is made I bet it goes higher simply because its August and the volume is light plus the stops just overhead could provide the fuel.

The dollar surged shortly after the Fed today but then pulled back to closed flat. It will be interesting to watch the Euro and see if it holds 1.42 here. If so, then it's free to test the 1.43 level and stocks will move higher accordingly. Copper has been strong and if oil gets going above 71 this market could add another leg up into the back half of August. We shall see.

Tuesday, August 11, 2009

FXI Long Puts

Chinese etf (FXI) is looking to breakdown from a head and shoulders on the 60min chart and I think this is a good play on the downside as the commodities are selling off and dollar is rallying. Target on this trade will be 39.50 as that is roughly a measured move from neckline of H&S pattern.

I like the Sept 43 puts as a nice in the money play at 3.25. Alternatively for a more aggressive trade you can buy the Sept 41s around 2.10. Either way I think the next few days to a week can see selling pressure on FXI. Cut losses if FXI trades above 42.50.

Sunday, August 9, 2009

Weekly Watchlist 8/10

Bull markets typically end with great news as the final few "bulls" buy in and catch the top because they have finally seen "the evidence" that tells them the sky's the limit.

Whether we have reached that point last Friday as the jobs report sent everyone home for the weekend cheerful and giddy is yet to be seen. However, with plenty of sentiment polls showing the most optimism since May 08, it gets me cautious. On the other hand, not many bull runs have ended in the middle of August so we could grind out in this area or a bit higher thru Labor Day and then see a possible correction.

With that said, I think you have to be cautiously bullish this week with the expectations of higher prices but not be surprised if the rally stalls and rolls over.

The currency markets were jumping on Friday after the jobs data as the dollar soared against the Euro and the Yen got absolutely crushed. This was a very strange thing to see as stocks rallied as well. Perhaps it was just a one day event but if the dollar continues to rally this week it could be a red flag for the stock market as currencies usually know best.

The watchlist:


Shorts>>> SFD, SWY, MCO

Thursday, August 6, 2009

Do You Use Protection?

As the market stair steps away and people getting a smidge on the complacent side, we have the VIX (the price of put protection or the fear barometer) at the lowest levels in 12 months. August is also traditionally the time of year when volatility starts to show signs of perking up into the fall. So without even taking into account where the market is or where it has come from, you should know that if you plan to insure your portfolio into the end of year, now is the time to do it. Institutions have been buying up volatility on the cheap recently in the form of VIX calls. So does that mean you should too?

Well, I really am no VIX expert by any means. That title would go to Adam Warner over at Daily Options Report.

However, I do know that the market has ripped higher in the last month and we are bumping up against severe resistance in the Nasdaq from last fall and some significant long term fibonacci retracement levels and confluences are nearing here in the 1000-1050 region. Nasdaq has retraced roughly 50% of the bear market decline and the SPX is at about a 38.2% retrace.

Tomorrow's jobs report has been on everyone's eyes all week and that has bid up the implied volatility into it. Notice the VIX actually up most of the time this week even when the market was up. After the jobs report comes out in the morning you will be able to purchase put protection at a slightly lower cost.

And if you can't sleep at night lately because you are over-exposed on the long side, then you will benefit from buying some cheap insurance for your stocks you plan to hold. You insure your home and car, why not your stocks?

If you are feeling nervous and can't sleep at night lately, then you are probably over-exposed to the long side. If you are long stock you can also form a collar in which you sell an OTM call and put and OTM put for ideally even money. This caps your upside but protects you from any surprise selloff.

Wednesday, August 5, 2009

Market Feels Vulnerable

Well it's midweek and the market is still holding the 1000 mark. However, I am a bit more cautious than I was a few days ago simply because the euphoria is mounting. In fact, the past few days I have seen Larry Kudlow and the Dennis Kneale's of the world just about as bullish as is humanly possible. I believe Kudlow was yelling for SPX 1200 the other day, lol. Too funny.

Anywho, on top of this, the CBOE equity put/call ratio slipped under 0.50 today for only second time since October 07 I believe. The total put/call ratio which I also watch hit 0.67 at the open as well. When this gets below .60 and even more so below .50 it tells me the market is much too bullish and an imminent correction will happen. Bill Luby has some great insights on this as well.

We have Euro Bank and Britain interest rate decision in a few hours so that will get the currencies moving. If the dollar cannot sustain this breakdown and push lower then it may end up being a nasty little bear trap in the dollar index, followed by a rally, which means a selloff in stocks. Jobs report on friday morning is gonna be huge imo to determine where this market goes. I think we have the possibility of seeing a blowoff top type of move into SPX 1050 if and ONLY IF all variables setup properly.

If dollar sells off and that is followed by a big positive surprise in jobs then we could rally big time into the weekend. In which case I'd be selling all longs and perhaps even going a bit short. Should be fun to see what happens!

CSCO Calendar Spread

Cisco (CSCO) is reporting earnings after the bell and trading a bit lower on the day with the market so far. The stock has had quite a run over the last few weeks and now sits above 22. I think even if CSCO pulls back that 20-21 is a great buying level as tech is still the leader. Just as MSFT sold off on earnings two weeks ago, it has bounced back more than a dollar higher so any dip in tech is a buy. As for CSCO, I think the play is to buy a call calendar spread at the 23 strike.

The Aug options are priced a bit higher than the Sept because of earnings bid up so we have the Aug IV near 45% and Sept IV near 36%.

I want to buy the Sept 23 call and sell the Aug 23 call. This can be done for a debit of $0.24 right now per spread.

Breakeven at Aug expy is anywhere between 21.3-25. Max profit is if the stock is at 23 at expy. You can always take the short call off after earnings and hold the Sept into a larger rally. But by selling the August you will be collecting some nice premium.

Tuesday, August 4, 2009

PNC Long Calls

PNC Financial (PNC) has been consolidating lower the last few months and largely not participating in the recent rally to the moon. This week it seems to be breaking out above this consolidation. I think you gotta be a buyer of PNC on any retrace back to 37-38, if you can even get that.

I see a move into the low 40s coming with the potential for 44 eventually. Stop out on a close under 36.

Buy the Sept 36 calls for $4.00 or better. If we get a quick move higher you can sell some August otm calls to collect some premium against your long itm calls.

Sunday, August 2, 2009

Weekly Watchlist 8/3

Going into August the SPX is sitting just a bit below that 1000 mark and we have a gap still waiting below on the ES around 975. The jobs reports is out friday and whatever the move is into the report, look to fade the other way. I am still bullish and think this market is going higher until it shows otherwise. Although we could pullback a bit here to fill that gap, especially since the closes on Thursday and Friday were not too inspiring.

In the chart above I slapped on some fibs from the previous move down from mid-June to mid-July and as you can see we have retraced more than 127.2% of that move. The next target above is the 161.8% retracement which would bring us to about 1010 in the SPX. I like to use fib extensions to project price targets based on the previous move. This is a great way to stay objective and have a realistic target set.

Watch the euro to see how it acts around 1.43 and if the dollar index can't hold 78 this week, it could be off to the races in the major stock indexes. I still see no reason to be calling the top in this market.

The watchlist:

Shorts>>> BA, NOC, MCO

Wednesday, July 29, 2009

Markets Flagging Out

The SPX has retraced a bit of the previous two weeks of gains so far this week and I think you can probably see a bit more profit taking into the weekend. We are forming a nice little bullish flag on the 60min chart that should consolidate down into the 96 area on the SPY. This is a significant level of support because it was prior resistance before we broke out above it last week. Prior resistance will always become support and when you see resistance broken out of...then you get a retracement back to that pivot area which is followed by a continuation rally higher.

Crude got pummelled off a very strong dollar and bearish inventory report. Gold and copper are selling off as well. The currencies are what you should watch for your first sign of the stock market going higher. The dollar has had a couple of very strong up days here and is due for a slight pullback so if it does then you can possibly see the SPX get a bump in the morning Thursday.