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