Thursday, April 30, 2009

Reversal Day

Thursday the markets gapped up and roared early on to hit a high of around 890 on the SPX. We finally saw a break of that pesky 875 resistance I have been talking bout nearly everyday it seems. However, the market was not able to hold it and sellers pushed it down sharply as the dollar had a nice up day and bonds caught a bid revealing a more risk averse appetite from traders. Overall the SPX made new relative highs not seen since early January then proceeded to reverse and close BELOW yesterday's close. This is quite bearish for the short term at least imo.

For Friday the pivot is at 871.75 and that should pose some decent resistance on the ES intraday so I would be a seller into any move to low to mid 870s. It will be tough to get back over the 875 mark for now and until we pullback a bit more then I wouldn't be adding any net long exposure. I think if we fail to get over the pivot in the morning then we could see a nasty selling day back to 850 as a first target where there is an unfilled gap. Trade safe.

Wednesday, April 29, 2009

Living On A Prayer?

The market ripped out of the gate on Wednesday as GDP was decent and challenged the 870 resistance level on the ES before the FOMC announcement. After the FOMC the market spiked higher and looked like it was headed higher into the close as bonds and gold sold off. However, the ES topped at about 879 and reversed lower to close still positive but off the highs. You got to be impressed with the way the market just grinds higher lately. The pullbacks are shallow and when the buyers come in the rallies are sharp. I have been saying expect a pullback into the low 800s possible soon and I still think its possible. But above this 875 area and you have no choice but to be bullish, sorry bears.

For Thursday I want to be watching the 875 area and especially Wed. highs to see if they can be broken out of. The pivot is at 868.75 so I will very bullish above that and possibly expecting the 890s to come into play by Friday if we have a positive Thursday that holds strong over the pivot. We are trading the low 870s tonight and things look good but if we somehow lose the pivot in the morning then I would look for lower price action into the weekend with even a possible break of 850. For now you gotta have a bullish bias. Trade safe

FSLR Iron Condor Spread

First Solar (FSLR) is reporting earnings after the bell on Wednesday and I wanted to put together an options trade. The stock has been stuck between about 130-160 for most of the last month and it is kissing its 200 day ema today. FSLR usually has mixed results on earnings reactions as you can see here. I don't really have a directional bias on it so I want to look to short an iron condor. The implied volatility is around 80ish which is really low historically on this stock. The stock vol is lower in the mid 60 area. This says that the market simply isn't as volatile as it was 6 months ago so the options market is anticipating smaller moves in FSLR going forward.

Sell the 125/130 put spread and sell the 180/185 call spread in May.

This trade results in a net credit of about $1.60 right now.

Max risk is $3.40 since the width of the strikes in the spreads is 5. Max risk occurs if the stock settles expiration day above 185 or below 125.

Max gain of $1.60 is achieved if FSLR stays within 130-180 in the next two weeks.

So there is roughly a 18% buffer on each side of the market in which you can win. You will want to enter this in the last hour and center your strikes if the stock moves by then.

Tuesday, April 28, 2009

Sideways Swine

Well nothing really changed on Tuesday as the market did its sideways thing. We have been going mostly sideways between 840-870 for much of the last two weeks. Ranges are tightening on all timeframes and this will result in a break in one direction eventually. There is a trendline that is rising from the last few weeks and it stands near the 840 area now. So if that breaks then you should see some more pressure on the SPX.

For Wednesday, the pivot point is at 852 and price is rallying above that tonight so I would assume to be more bullishly tilted on Wednesday as long as that pivot is held as support. I definitely want to wait till I see a break of 875 before I get really bullish. But I think that is what the market is setting up for. Might take some time but I think it is having an awfully hard time going down when so many people (mostly bears) think it should. When a market doesn't want to go down then it's telling you something.

Monday, April 27, 2009

Inside Day

While everyone and their brother was busy overblowing this swine flu junk, the market was busy forming an inside day pattern on the SPX. The range of Monday's candle was inside the the range of Friday's candle and this usually precedes a big move the next day and quite often a reversal of the previous few days. So going with that we should assume that the market begins to pullback further on Tuesday. A lot of pros are selling into the 865-875 area the last few weeks and that is a good reason to be doing it yourself.

For Tuesday I want to be looking for a down day and selling into weak bounces or flags. The pivot point on the ES futures is at 857.75. That level should determine the bias of the early morning imo and below that I could see us breaking Monday's lows and filling the gap from Friday. Below that and we could see the 830s quickly so be flexible. Again, I would not be too bullish on this market until it shows us it can breakout of AND close over 875. Trade safe.

Sunday, April 26, 2009

The Weekly Trade 4/27

Going into the last few days of April the market finds itself at a possible turning point. The SPX closed Friday at 866 which was roughly the same area it closed the prior week. The down day we saw last Monday was almost completely erased by the end of the week. The weekly candle on the SPX last week formed a hammer and could be warning us of a selloff in the week ahead. Whatever happens, it is certain that 875 is formidable resistance on the upside.

Technically, the daily chart still shows support beneath the SPX in the form of the 850 area and the 20 and 50 day ema's which stand at 836 and 821 respectively. If we lose that 821 area then I would expect a retest of 800 as that is a key support going back to the fall. Below that and it could get shaky.

Tuesday- Consumer Confidence, Case Shiller Home Price Index

Wednesday- GDP, FOMC rate decision

Thursday- Jobless Claims, Personal Income and Spending, Employment Cost Index, Chicago PMI

Friday- Michigan Sentiment, Factory Orders, ISM Index, Auto and Truck Sales

Going into Monday I want to be neutral and flexible to go with where the market wants to travel. The futures are selling off 15 ES pts tonight and point to a lower open in the morning. The pivot for Monday is up at 862.50 and with price a good deal below there right now I think it will be decent resistance Monday if it is even reached. Like I said above, if we lose 850 then we should see 836 and below that 821.

We are at a crucial area with a potential short term pullback still awaiting so dont be surprised. However, if the market can remain resilient and breakout above 875 and close then I think the resumption of the rally will take us higher into May. Plan the trade, and trade the plan.

Thursday, April 23, 2009

Bull Trap?

Thursday the market started out selling down into the 830 area before rebounding midday and reversing clear back into the green to finish near the highs of the day around 850. Another impressive day in my opinion when everyone--myself included--was expecting a further pullback. Well, we got a pullback but it didn't last long. My view going into Friday is that you have to still expect that the market pulls back but its ok to be cautiously bullish if we can stay over that 850 mark and make a charge at 875 overhead once again.

For Friday the pivot is 843.25 and will be the line in the sand for me. If we lose that level early on then they might really finally sell it down hard into the 810ish mark. However, above the pivot, and even more so above 850 on the SPX and I would be quite a bit more bullish into the weekend. So far this "pullback" people are expecting after the huge runup in the last 6 weeks has been more like a consolidation. And that's positive imo. We could just mark time between the 825-875 area for a bit and allow some indicators to get oversold before the next leg higher. Whichever it is, remember to trade with a plan, and trade safe.

Wednesday, April 22, 2009

Whipsaw Wednesday

Wednesday was a wide ride in the markets with the SPX gaining strong through most of the morning and midday but then crashing down in the last hour to close around 840. Definitely a bearish finish to the day and I would fully expect the market to pull back further into the weekend. We had a shot of rallying higher today but gave it up in the last hour. Technically, we probably have room down to 810 and probably more like 800 as a target to the downside the next few days. The candlestick today formed an ugly reversal and I see a bearish head and shoulders pattern now taking effect on the 60min SPX chart.

For Thursday, I want to be short biased intraday with the expectation of seeing a further pullback. The pivot is at 843.25 and price is trading below that tonight so I would think it could be a tough resistance area to overcome in the morning. If we do however get over that pivot and grind higher then I wouldn't be completely convinced on this market going higher until it broke Wednesday's highs, which are quite a bit higher from here. Trade safe.

CME Bull Put Spread

Chicago Mercantile Exchange (CME) reports earnings Thursday morning and has been in a nice uptrend before its recent pullback to the 50 day ema around 225. The stock is trading 228 and change right now and I think has pulled back enough into oversold condition to warrant a nice moderately bullish option trade going into earnings. I want to use a May bull put spread to capture some upside here.

The implied volatility on CME sits around 65% which is a bit lower than the historical vol of the stock which is in the 80s. This usually says the options are underpricing a potential move in the stock. CME usually has pretty good sized moves on earnings as the last 4 quarters have seen moves between 8-12%. I usually prefer to sell options into earnings so lets sell a put spread.

Sell the 230/220 May put spread.

In this trade you sell the 230 puts and buy the 220 puts creating a spread.

Net credit is about $4.50 right now and that is your max gain if CME is above 230 at May exp.

Max loss is $5.50 if the stock finishes May exp. below 220.

Breakeven on this trade sits at 225.50.
You can always cover this short put spread after earnings if you choose to.

Tuesday, April 21, 2009

Rising Wedge Break?

After the rising wedge pictured was broken on Monday the market retraced about half of the losses bringing us back to the tough 850 resistance level. The action was impressive on a intraday timeframe as the banks and tech led the rally. The textbook play on a retrace of the down day like we saw today says to sell the retracement back into resistance because its a dead cat bounce. I tend to think we could see a further pullback into the 800 area as well. We have plenty of moving average support just underneath here too so you can't forget that the market might just consolidate and buy time before the next push up. Tough to say what will be the outcome.

If the market does decide to pullback further then keep in mind that 800 is solid support and buyers could emerge there. Also, I have drawn in a fib retracement from the lows to the highs of the recent rally and the 50% retrace comes in around 768. This level should be the line in the sand to determine if the rally we have seen is for real. If price pulls back all the way down there then thats where the bulls will make a stand if they still believe.

For Wednesday, I want to be neutral and see where the market trades to determine my intraday bias. The pivot is at 839.75 so that will likely be a good area to see if the buyers support it or not. Below that area and I would be expecting the market to retrace back a bit more into the lower 800s on the SPX. Trade safe.

Monday, April 20, 2009

Back To The...820s?

Monday opened with a sizable gap down from Sunday evening when the futures were selling off. The pullback (yes that's all it is for now) was a bit more sharp than I anticipated but even so it felt more orderly than past selloffs. Nonetheless it was what it was and it brought us back to the 830 level on the SPX. We have a gap below here at about 823 on the ES futures and I look for that gap to be filled on Tuesday before we get any kind of potential for a bounce. There is strong support all around that 820-825 area with the 20 day ema sitting there and the downtrend line going back months which we broke out of recently and are now coming back down to retest as support. When it comes to breaking out of a trendline th erule is to always wait for the retest and look for a bounce. Let's see if we get it.

For Tuesday, like I said I want to be expecting a continued pullback and look for the low 820s at least. The pivot sits at 838 so any kind of failure to break above the pivot indicates weakness that should be shorted. We are sort of in no man's land right now. I think we could see a multi-day pullback but I also want to be aware that the trend is up and if you wait for too much of a pullback then the train might leave the station.

Sunday, April 19, 2009

The Weekly Trade 4/20

As post options ex week begins the SPX finds itself sitting right at very critical resistance, the 875 area. We nudged up against it in Friday's trading then pulled back a smidge in the last hour. The high on the ES futures was 872. This rally we have had since early March was way overdue as I stated on March 5. I have been expecting this market to rally up to test the 875 mark for weeks and have said that this rally is different than the others. And so far it has been. The SPX is up 31% in 6 weeks. With many banks even tripling or quadrupling in that time.

I think the major test of this market will be if it can cross the 875-880 level. This was the high from late January and early Feb. It will be interesting to see if the market can overcome this hurdle. If so, I believe the SPX can be at 930 by May. The downtrending 200 day ema on the SPX is up around 962 right now and the 20 day ema just recently crossed above the slower 50 day ema. Something that hasn't occurred since about one year ago to the day.

Economic data this week is light and includes:

Monday- Leading Indicators

Thursday- Jobless Claims, Existing Home Sales

Friday- Durable Orders, New Home Sales

The story of the week should be focused on earnings as many important tech companies are reporting including: AAPL, IBM, MSFT. Also several Dow components will be reporting.

For Monday I will start out neutral and let the market tell me where it wants to go. The pivot point is at 865.25 and price is selling off a bit below that this evening. I would like to see the 60min SPX chart to remain uptrending to maintain my bullishness but if the pivot is lost then the next logical place they sell it down to is the low 850s. Of course if we stay over the pivot then I think we can test that 875 mark once again. If that is broken to the upside, watch out above.

Thursday, April 16, 2009

All Aboard The Rally Train

Thursday the market churned a bit near the opening before tagging the 20 ema on the 60min chart and never looking back. Hitting a high of 867 on the ES before the last hour. At the same time that move broke out of the highs from last week. This market is still technically looking healthy and with options expiration on Friday I think we should get a continuation day into the weekend. Levels to watch overhead are the 875 area where there is considerable resistance. Above that and I think we have a clear shot to 900 on the SPX. Not saying it happens Friday however.

As for Friday, it should be a bit more volatile since its options ex so always trade accordingly. My bias is obviously bullish and the pivot is at 857.25 so I would like to see price above that area for the bulls to stay in charge. Below that mark and we could see most of Thursday's gains retraced. I just think on the outset that 875 area that everyone is watching is too close not to test so we probably will. After that, its anyones guess so be flexible. Trade safe.

Wednesday, April 15, 2009

GOOG Iron Condor Spread

Google (GOOG) is reporting earnings after the bell Thursday and is always a fun one to play in the options market. I don't really have a directional bias on it either way but it is right at its 200 day ema so odds are it makes a move from here. Usually GOOG has a decent move on earnings with 4 of the last 5 quarters seeing at least a 9-10% move or more. At the same time the options tend to underprice the potential move so it is not a name I prefer to sell volatility on. Usually the play in this case might be a long straddle or something but I want to reduce the cost and increase my odds of success so I want to go long an iron condor.

This is a 4 legged trade using the April options in which you buy a call spread and buy a put spread.
Specifically I want to buy the 380/420 call spread and buy the 380/340 put spread.

You are paying a net debit as of right now of around $24 and since the strikes are 40 dollars apart thats the most the position can be worth at expiration on Friday. So a potential 66% return in one day is what you are looking for as a best case.

The max loss occurs at 380 at expiration where you can lose your initial $24. But the probability that GOOG stays at 380 or anywhere near there is slim to nil.

Breakevens on each side occur at 356 and 404.

If you think GOOG will not break thru that range then you can narrow the strikes you use and increase your profitability range.
One thing to note is that you want to initiate this trade when the stock is close to 380, or else adjust the middle strikes to the current stock price.

Believe It Or Not

The market just continues to grind higher day after day. Today we saw the market do just about nothing until the last hour of the day where the market rallied straight up to 850. You continue to see bullish price action and it seems like the shorts remaining in the market are looking for a few days of pullback to cover their shorts and that sends the market higher. This is the opposite of how it worked in the last year, where everyone was net long and panickly sold into each rally that eventually faded. I keep hearing bearish sentiment on the street and on tv and that's exactly why I think we arent done with this rally that started almost 6 weeks ago now. As long as people do NOT believe in the move, then IT WILL continue until all are aboard the "long" train.

For Thursday I want to have a bullish bias and I think if the econ data and JPM numbers in the morning come in half way decent then we could rally past the recent highs and attack that 875 area. The pivot for Thursday is 843.75 and as long as we stay above it then I expect upside. Below that and we could see some more churning until a break of 835 releasing further selling.

Bear Trap?

Tuesday the market pulled back into the 830s like I expected but am still impressed that it didn't go lower given GS and the way it traded lower. It seems like the velocity of down moves is much less than the up swings lately and that's bullish. It is options expiration week so moves can be overdone. Going forward I think we can see a gap fill down to 823 on the ES from last week's gap. Below that I really dont see much downside if we can hold the 815-820 area especially.

For Wednesday, I am looking for that continued pullback but I wouldn't be surprised to see a reversal higher once that gap below is filled. The pivot on the ES will be 843.25 and that should be a key line in the sand to determine the trend of the day. Above that area and we should race to 875 like I have been saying. But for now I think the market wants to fill that gap and just looking at my daily chart of the SPX it looks like the 20 ema is right at 816 so I would think price wants to gravitate towards there. Trade safe.

Monday, April 13, 2009

Banks Making Money?

After Wells Fargo reported a multi-billion dollar profit for the first quarter last Thursday, Goldman joined the club of profitable banks today that may pay back their loans sooner than thought. Of course to pay back the loans they are issuing more stock ($5 billion worth) and that will pressure the stock on Tuesday perhaps. Overall, the banks, specifically Goldman, still look fantastic on the charts.

The market had a great day on Monday but is pulling back quite a bit after hours. The ES futures are trading 847 after getting as low as 844 and looks like we may gap down a bit in the morning. I still have an overall long bias but we may see the market pullback a bit into midweek. The pivot on Tuesday is at 852.25 and if price stays under that pivot through the morning then I would have an intraday downside bias and expect price to perhaps hit the mid 830s and try to fill last week's big gap down there maybe. Of course if they push this above that pivot then I think we see 876 by expiration Friday.

Sunday, April 12, 2009

The Weekly Trade 4/13

After a huge up day to close out the holiday shortened week the market looks to continue its historic rally. It should be a interesting week as we see many top companies report earnings. We start the week near important resistance on the SPX chart around 850 and I think we should see 876 this week as a possible target if we hold Thursday's rally. We really could be heading straight towards Dow 9000 by Memorial Day in my opinion.

Tuesday- PPI, Retail Sales, Business Inventories

Wednesday- CPI, Empire Manufacturing, Capacity Utilization, Industrial Production, Beige Book

Thursday- Building Permits, Housing Starts, Jobless Claims, Philly Fed

Friday- Michigan Sentiment

After a 3 day weekend I like to start the week off neutral and let the market show me where it wants to go. The futures are pulling back 7 ES points right now and could give us a negative start. The daily trading hours pivot on the ES is at 848.75 so above that and you gotta be bullish but if we can't get over that mark then they might try to at least half gap fill the Thursday gap up.

I see alot of people saying that this is the top and the VIX is now at 36 so that means the market is done ralying. Um no. the market will be done going higher when it stops going higher. Until then just trade what you see and not what you hope for.

Wednesday, April 8, 2009

Never Short A Dull Market

Well after the ES futures hit 802 overnight they rallied up and challenged the pivot by the open. The pivot of 815.75 held for most of the day and the market hit some double bottom suport just underneath it late in the day and rallied nicely into the close. This continues to be bull market action that you simply cannot fade without getting tagged. The earnings reactions so far this week are seeing positive price action afterwards and that is yet another good sign for a market turning the corner.

For Thursday, it should be a low volume day as Friday is closed. If you don't see a perfect setup then its best to not trade these sort of days. The pivot is 819.75 and I see price rallying nicely into the high 820s as I type so I would expect this to be a nice grind up for Thursday and we could even see the 840 mark from last week perhaps. Trade safe.

Bear Necessities

Every big rally needs a pullback and the bears got what they wanted on Tuesday. For now I still believe this pullback is just that, a retracement. I would like to this SPX hold 800 this week but we will see what happens. It is a holiday week and no trading on Friday. Alot of times in the days before a market holiday, the market volume will dry up and you will see a move against the primary trend. Right now the primary trend of the last month is up, so I would think the light volume could push this market lower and create a bear trap to those shorts that think they have gotten in at the top.

For Wednesday, the pivot is 815.75 and price is falling tonight to the low 800s so that area will be a critical spot to see if this market bounces or fails to the next area of support. I think if we lose 800 and close below then we could see the market retrace back to 771. Above 816 or so and I more bullish biased. It really just seems like the market is slowing and going to churn for a few days in this range perhaps so don't get chopped up.

Tuesday, April 7, 2009

AA Short Straddle

Alcoa (AA) is reporting earnings after the bell and the stock is around 7.50 or so. I don't really have a directional bias on AA but would think it has seen its bottom. The stock has rallied lately with the market and volatility is high on this name but I think the options are a bit too juiced for the potential move in store for the stock. The options are implying about a 17% move after earnings.

The trade is to sell the at the money April 7.5 straddle.

In this trade you are selling both the at the money call and put.

You can sell this right now for about 1.30 and that is the max gain if AA closes April exp. at 7.50.

This is an unlimited risk trade but I do not plan on holding past the earnings announcement.

The goal is to take out some of the premium from the trade when implied volatility collapses.

Monday, April 6, 2009

Mundane Monday

Monday was the start to a slow week in the market as it is a holiday shortened week with Friday being closed for Good Friday. The market saw selling early on but on low volume and half the losses were wiped out by the close as buyers came in. It's hard to short a dull market and its even harder to short a dull market that goes up after bad news. Thats bullish, so my bias continues to be bullish into Tuesday.

As for Tuesday, the pivot is at 828 and the market seems to be trading around there tonight so I will look to go long in ES futures above that mark. If the market fails to get over that pivot however they might push it back into the low 800s and fill the gap that remains from last week. We have support at 816 and 800 so I would guess those areas see bounces. If we don't break the pivot then I think 850 is a logical target to see the market at.

Sunday, April 5, 2009

The Weekly Trade 4/6

As we go into a new week of trading we had last week close above some really important technical levels. 800 on the SPX was breached and held for a weekly close. This level is now a pivotal support for this market and should dictate the trend for the next several months. Moving into week I want to keep an eye on the daily moving averages which are also right at that 800 mark and also looking at the weekly chart pictured you can see we are nudging up close to the 20 week moving average. That sits at 850 presently and is beginning to flatten out. It could provide some resistance for the market this week but if the market jumps over it then I think its a major hurdle surpassed.

If we rally thru that resistance then the next few months should be a fairly bullish time for the markets. I drew a fibonacci retracement form the move down from early Feb. to early March and the 127.2% extension of that move shows us at 930 and the 161.8% extension shows us at 1002 on the SPX. These are just potential areas where the market could rally to into the summer months in my opinion if the current rally continues. Using fibonacci extensions is a useful way to look for price targets based on the prior move.

Economic data this week is light and includes:

Tuesday- Consumer Credit

Wednesday- Wholesale Inventories

Thursday- Jobless Claims, Trade Balance

For Monday I want to have a bullish bias and look for the 830s to hold as support as the market perhaps makes a trip into the 850s. The pivot is at 835.25 on the ES futures and price is at 841 right now as I type. If this market can grind higher above this area then I would fully expect to see 876 this week. Below the 830 area and I would be looking for a bit more of a pullback into the low 800s. But my bias is higher. Trade safe.

Friday, April 3, 2009

Dendreon Dice Roll

Dendreon (DNDN) is a small cap Seattle biotech company that has been working on a highly controversial prostate cancer drug the last several years. The drug Provenge has been in phase 3 testing the last two years since the last time DNDN had a date with the FDA. Back then the stock shot up from $5 to $25 in a matter of days as the FDA panel recommended approval of this drug. Weeks later the FDA rejected the decision and DNDN got crushed as it came back down to the mid single digits. Now after a few years more of safety tests DNDN is back in the spotlight and looking for FDA approval after the latest results of Provenge are released at the end of April.

Back in October it was confirmed that Provenge reduces the risk of death in prostate cancer patients by 20%. The FDA said they wanted to see 22% to approve. So there is a fairly good chance that the extra 6 months of safety testing may result in that additional few percentage points that are so important to the FDA.

On Friday the stock spiked higher 38% on huge volume when the American Urological Association announced it had reserved a time slot at one of its upcoming scientific meetings for Provenge researchers to present findings from a late-stage trial of the product. With the stock near 6 and still 4 weeks before the release of data for Provenge I would be looking at the stock and potentially willing to gamble on this dice roll as I am calling it. Its likely that the stock retreats a lot of the spike it saw Friday because news should be scarce until month end and DNDN has a history of seeing that kind of pop and drop action. If we see any sort of retrace back towards 5ish then I would look at going long some May call options as this puts much less capital at risk than buying the stock, while at the same time boosting your potential reward thru the magic of leverage.

The options are expensive, but expensive for a reason. May open interest is huge with strikes 5 and 10 seeing most but even the May 30 calls have over 1000 open interest meaning that people definitely think this pup could soar between now and May. Taking a look at the implied volatility (the measure of how expensive an option is) in the May calls you can see just how in demand these options are.

DNDN options

May 5 call IV 325% Bid=2.75
May 7.5 call IV 312% Bid=2.00

May 10 call IV 331% Bid=1.65

At the same time you can compare a similarly priced stock like DRYS and see just how unreal the implied volatility in DNDN actually is.

DRYS options
May 5 call IV 146% Bid=1.10

May 7.5 call IV 136% Bid=.35

May 10 call IV 135% Bid=.10

Looking at what option to choose it depends on where you think the stock will be by May expiration. Back in 07 when DNDN had a favorable outcome to the FDA panel the stock soared to 25 within days. So assuming (and yes thats all we can do) it can do the same then you are better off going with something like the May 10 call options.

If you bought 10 of the May 10's at 1.65 (total cost of $1650) and the stock went to 20 then the options are worth at least 10 a piece, turning your $1650 into $10k. If the stock goes to 15 then they are still worth at least 5 turning your investment into $5k.

The May 5 calls are going for about 2.75 right now and would go to at least 15 if the stock was at 20. So you can see that the May 10 calls are gonna give you more bang for your buck IF the stock spikes. As you can see this has the potential to be one of those once a year type grand slam trades that we love to watch in the options market.

Again, I gotta emphasize this is a binary event that will certainly result in DNDN tripling or quadrupling or getting halved overnight. You should be prepared to lose every penny you put into this trade if you use options because it is nothing more than a dice roll. But if you can't make it down to Vegas this year then you might wanna try your luck with some May call options on DNDN.

Thursday, April 2, 2009

Runaway Gap

Thursday the market gapped up strongly and held strength thru most of the day until a last hour selloff brought it back to support in the 826 mark, where it bounced. Momentum is fading I think and you saw some traders taking profits during the second part of the day for good reason. We have been up very nicely since the Monday gap down. So now what?

I think you could see a pullback Friday after the jobs number comes out but it could really go either way. You gotta think some of the bad news not being so bad is sort of priced in for tomorrow so a pullback would make sense. But, also it could be one of the instances where the shorts just want no part of being short over the weekend especially IF the single piece of data that the bears have been hoarding for their short thesis--unemployment--comes in better than expected. Who really knows but I will be watching the 15min chart trend all day to form my bias. The pivot for Friday is 831.75 so make that your line in the sand to be much more willing to go into the weekend net long if price remains above that pivot.

Wednesday, April 1, 2009

April Fooled

Wednesday the market gapped down to the 780 mark and then quickly rallied all day--led by banks--to reach highs of the day up around 810 to close the day out. This market continues to impress traders like myself although it is on low volume. You still can't ignore price action like this. When a market gets bad news and reverses to close at the highs, it's telling you something. Of course we have the anticipated news of mark to market accounting reform coming Thursday and thus the banks are being bid up ahead of this on the rumor, so they could sell the news.

Specifically the pivot on Thursday is 798.50 and price is in the low 820s this evening. The futures are rallying nicely right now and looks to be pointing towards a gap up. Of course Thursday's trading is sure to be data and news driven so be careful but I have an upside bias above that pivot and you can even call it 800 since the pivot is so close to that critical mark we have been wrestling with. If we get over 830 then I think this market will take off and we could be looking at 850 very fast. I will be watching the 15min chart intraday as always to determine the trend.