Position: none
Thursday, July 30, 2009
GT (Long)...
In my seemingly endless series of stocks that move huge on earnings and break out of multi-month bases, today we have GT. It's extended following today's move, of course, but today's move was a powerful one. I'd look for a pullback towards prior resistance at $14 (dashed purple line) to start accumulating some long exposure here. As always, if that prior resistance fails to act as support for the price, then the stock falls back into the congestion pattern and is not ready to power higher.
Position: none
Position: none
Overview Thursday 30 July...
The bulls came out hot at the open in a stark contrast to the previous few days. They even created a big gap-up open. They tried to run the $SPX over 1,000, but came just short. The $COMPX actually got over 2,000 briefly today. However, the bulls were not able to keep it up into the close. Though we still finished broadly higher on the day, the weakness into the close is a very big yellow flag. Today's action felt like end-of-the-month markups prior to tomorrow's GDP release, and the early buying felt like some more panic buying. We'll have to see how it plays out tomorrow, but today could've been a buying climax for the multi-week advance.
Short-term bias: bearish (I'm still maintaining this as bearish, if only because I'm not chasing, but I do believe we had a buying climax)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
CY is one to watch. It appears to have put in a climax today, but on a pullback into the $9.50-$10 range, I'll start a long position.
Some of the early cyclicals (F, MAS, and PPG) really ran today, but I'm not chasing these up here because I believe I'll be able to get into all three cheaper than they presently are. I still like all three as longs, but not up here.
SBUX and CELG are also trying to break free. These are two to keep an eye on, too.
I'll do some housecleaning in the list this weekend. It needs to happen.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Short-term bias: bearish (I'm still maintaining this as bearish, if only because I'm not chasing, but I do believe we had a buying climax)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
CY is one to watch. It appears to have put in a climax today, but on a pullback into the $9.50-$10 range, I'll start a long position.
Some of the early cyclicals (F, MAS, and PPG) really ran today, but I'm not chasing these up here because I believe I'll be able to get into all three cheaper than they presently are. I still like all three as longs, but not up here.
SBUX and CELG are also trying to break free. These are two to keep an eye on, too.
I'll do some housecleaning in the list this weekend. It needs to happen.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Wednesday, July 29, 2009
MCK (Long)...
Another day, another stock that gaps up huge because of earnings. Today, it's MCK. The setup should look very familiar by now. The high volume move above multi-month resistance at $46 (dashed purple line) bodes well for further upside in MCK, but as usual, it's too extended to chase right now. I'd love to see today's gap get filled, but I think the way to play this one is to start nibbling around today's lows (call it $50), but if that fails to hold, I think the stock will fill that gap. We'll stalk this one and see what happens from here. A yellow flag against this stock is the fact that it did not close near its highs. It's a yellow flag for now.
Position: none
Position: none
Overview Wednesday 29 July...
The pattern continues. We saw some weakness in the morning, but closed well off the lows of the day, albeit still in the red. We still haven't seen any significant weakness, certainly not enough to make me think we've got an impending reversal coming. However, the weakness in the energy/commodity space and the other cyclicals was particularly notable. It's nothing that makes me want to aggressively get short at this time because the bulls are holding the market up very well this week, with minimal downside, as I expected this weekend.
Short-term bias: bearish (I'm still maintaining this as bearish, if only because I'm not chasing)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
ALVR took an epic beatdown today, as it lost about 17%. It wasn't so much the report of a bigger than expected quarterly loss, though. It was also announced today that the CEO is stepping down. Despite the 4x average daily volume of today's selloff, I'll keep ALVR on the list for the moment because it was able to close right around the intersection between its 50-day and 200-day EMAs.
As I mentioned above, the cyclicals took a beating today, including FCX, SGR, MDR, and RIG. Several others, like EBAY, F, SBUX, CELG, MAS, and MJN simply continued consolidating.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Short-term bias: bearish (I'm still maintaining this as bearish, if only because I'm not chasing)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
ALVR took an epic beatdown today, as it lost about 17%. It wasn't so much the report of a bigger than expected quarterly loss, though. It was also announced today that the CEO is stepping down. Despite the 4x average daily volume of today's selloff, I'll keep ALVR on the list for the moment because it was able to close right around the intersection between its 50-day and 200-day EMAs.
As I mentioned above, the cyclicals took a beating today, including FCX, SGR, MDR, and RIG. Several others, like EBAY, F, SBUX, CELG, MAS, and MJN simply continued consolidating.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Tuesday, July 28, 2009
MAS (Long)...
Check it out. It's a non-tech long pick, but it's still an early cycle play. MAS is today's pick. They reported earnings this week and had a monster move today. MAS is way too extended to be chasing it right now, but on a little consolidation, this is one to watch. Ideally, it pulls back and fills the gap created today, which would put it in the $11 range. This would be the best buying setup, but we may not get that.
But, wait, there's more. We're going to look at the five-year weekly chart of MAS, too. And you'll see why I'm liking this one.
Do you see what I see? It's a textbook head and shoulders bottom. MAS bottomed out at around $3.50 in March and the neckline is around $11.50 or so. With this, the measured move is $11.50 + ($11.50-$3.50) = $19.50. The neckline is green and the target is purple. Also, notice how the target corresponds quite nicely with the last set of highs. Given that the pattern took about a year to form, we'll need to give it about that time to reach that target. I'm looking to take some calls and then turn those into call spreads as I wait for this move to play out.
Position: none
But, wait, there's more. We're going to look at the five-year weekly chart of MAS, too. And you'll see why I'm liking this one.
Do you see what I see? It's a textbook head and shoulders bottom. MAS bottomed out at around $3.50 in March and the neckline is around $11.50 or so. With this, the measured move is $11.50 + ($11.50-$3.50) = $19.50. The neckline is green and the target is purple. Also, notice how the target corresponds quite nicely with the last set of highs. Given that the pattern took about a year to form, we'll need to give it about that time to reach that target. I'm looking to take some calls and then turn those into call spreads as I wait for this move to play out.
Position: none
Overview Tuesday 28 July...
Like yesterday, not a whole heck of a lot to say. However, a clear pattern has been emerging lately. We're seeing a lot of weak opens in the mornings and weakness that persists through say lunchtime, but we're seeing strong closes, as the market consistently is going out at/near its highs for the day. This tells me we have an underlying bid in the market, as the bulls are seizing on any dip to buy. This is not the kind of thing you look to short unless you're looking for quickie trades. I was tempted today in a couple cases, but didn't pull the trigger. I still expect us to hold up through the end of the month.
Short-term bias: bearish (I'm still maintaining this as bearish, if only because I'm not chasing)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
This weekend I'll do some housecleaning on the list here. Expected deletions include BNI, DELL, SGR, and MDR. I may also shed ALVR, but we'll see. DFS will be shed once I get a better escape. I'd like to keep this list at 25-30 stocks. Part of the reason I started this blog was to focus my efforts, and if the watchlist gets too big, then that kind of defeats that whole purpose.
Still not a whole heck of a lot of movement, just some consolidation. However, CELG did poke its head above the previous high like F did yesterday, so these two are still ones to watch.
Nearly nibbled on some VMW calls today. I was looking at the October $30's. I'm liking those, as they're far enough away to allow me to sell some calls against them in call spreads.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Short-term bias: bearish (I'm still maintaining this as bearish, if only because I'm not chasing)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
This weekend I'll do some housecleaning on the list here. Expected deletions include BNI, DELL, SGR, and MDR. I may also shed ALVR, but we'll see. DFS will be shed once I get a better escape. I'd like to keep this list at 25-30 stocks. Part of the reason I started this blog was to focus my efforts, and if the watchlist gets too big, then that kind of defeats that whole purpose.
Still not a whole heck of a lot of movement, just some consolidation. However, CELG did poke its head above the previous high like F did yesterday, so these two are still ones to watch.
Nearly nibbled on some VMW calls today. I was looking at the October $30's. I'm liking those, as they're far enough away to allow me to sell some calls against them in call spreads.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Monday, July 27, 2009
VMW (Long)...
I know, I know, another tech pick. I can't help myself. This time, it's VMW. I like the big breakout above the multi-month base following last week's earnings. I nearly pulled the trigger on this one earlier today, but decided not to quite yet. I believe this one is buyable around current levels with a tight stop. The lower volume over the past couple days is ok because that just means there's some profit-taking going on, which is healthy. If it fails to hold this gap-up, it's going to fall back into the big base, which would tell us it's not quite ready to power higher. Keep an eye on this one. I think it has some big promise.
Position: none
Position: none
Overview Monday 27 July...
Not a whole lot of interest today. Though the bulls were pushing a bit today, most of the day seemed to be more of a rest from the frantic pace of last week. The bulls are still in charge, but they're just taking a rest. This is similar to the action I was expecting over the weekend, a bullish bias with a less frenzied feeling. A little rest is in order because a correction doesn't have to be a drop. A correction can also be consolidation.
Short-term bias: bearish (I'm still maintaining this as bearish, if only because I'm not chasing)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
So much for taking a rest. F pulled back near support and proceeded to rally about 7%. I figured it would need more time to rest, but I was wrong and I missed the boat this morning. F, being an automaker, is a classic early cyclical play, so those believing we're in the beginnings of an economic recovery would gravitate towards early cyclicals (other examples include financials, homebuilders, and certain tech stocks).
PALM also staged a nice bounce today. I will be watching this bounce for a chance to sell some calls against my existing position.
ALVR, like so many other stocks, is looking mighty extended here, and I wouldn't be buying here. I think it pulls back to the bottom of the range over a couple weeks.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Short-term bias: bearish (I'm still maintaining this as bearish, if only because I'm not chasing)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
So much for taking a rest. F pulled back near support and proceeded to rally about 7%. I figured it would need more time to rest, but I was wrong and I missed the boat this morning. F, being an automaker, is a classic early cyclical play, so those believing we're in the beginnings of an economic recovery would gravitate towards early cyclicals (other examples include financials, homebuilders, and certain tech stocks).
PALM also staged a nice bounce today. I will be watching this bounce for a chance to sell some calls against my existing position.
ALVR, like so many other stocks, is looking mighty extended here, and I wouldn't be buying here. I think it pulls back to the bottom of the range over a couple weeks.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Saturday, July 25, 2009
Weekly Preview 27-31 July...
The bulls kept the momentum going last week in a big way, but earnings season has probably seen its peak as far as big names reporting, so it will be interesting to see if they can keep it going once the tailwind of earnings is gone. I'd love to see some pullbacks and consolidation, but whether we get that or not is another matter entirely. Powerful momentum in both directions has a tendency to not go away without a fight, so let's see what happens. I think the bulls will be able to hold the market up through the week as end-of-the-month support will set in. At the end of the month, and especially at the end of the quarter, the markets tend to have a bullish bias as the institutions do their best to mark up their positions to make their performance look better.
Earnings will continue to pour in this week, too. I use www.earnings.com as my source for earnings reports. These are very important to follow because they have a way of scrambling up the charts. I don't like being in stocks before they report earnings unless I am somehow hedged, be it through reducing my position size or some options action or whatever. I've come to view earnings as a very binary event, a coin flip, if you will. Loading up heavily one way betting on the outcome of a report AND the market's reaction is a very risky endeavour.
The same listing convention still applied. If it reports after the close Tuesday or before the open Wednesday or is shown as Wednesday with no given time, it is listed here as Tuesday. I've also listed the previous Friday's here, too.
I have bold-faced reports that could potentially affect present picks.
Friday: ACV, ANR, BOH, BWP, CYOU, CALM, GLW, EPD, HON, ICO, LO, RSH, SOHU, TZOO, TLAB, VZ
Monday: ACE, AMGN, BWLD, CF, GLW, CR, HMA, HXL, MTW, MAS, MTH, OLN, OMI, PCL, RCII, TRID, BEAV, BP, CE, CRDN, CBI, CHKP, COH, CVH, CPO, CYNO, DB, DIN, ELNK, FPL, GPI, IMA, JEC, FSTR, MEAN, NOV, ODP, PCAR, ORB, ROK, SII, SVU, TEVA, TXT, MHP, UA, X, VLO, VIA, WAT,
Tuesday: COLM, CMP, DWA, FTI, HTZ, LUX, MEE, MCK, MEOH, MRH, NSC, PNRA, GOLD, WDC, XL, AET, AKAM, ALVR, AMT, MT, ACAT, BWA, BPO, CETV, COP, DAI, DFG, GD, HL, HES, HMC, HSP, JNY, ID, LAZ, MSO, MW, MHS, MCO, NYB, OII, PENN, PAG, PX, Q, SNY, SAP, SO, S, SYMC, TASR, TKR, TWC, TWX, VPHM, WPI, WLP, WYN,
Wednesday: AFL, AMAG, AMKR, AIZ, AVB, CBT, CBG, CMO, CX, CERN, CLF, CYTK, XRAY, ESRX, FLS, GNK, GG, GVA, GMCR, HBI, HIG, ITRI, KALU, LNC, MANT, MTZ, NETL, NTRI, OIS, ORLY, PRAA, RYL, SEE, RGR, TTEC, TER, TSO, TTEK, TSCM, TRN, VAR, V, ADPT, AKNS, ALU, APA, AMSC, ARJ, ABG, ADP, AVP, RATE, ABX, BDX, BC, BBW, CAB, CRS, GTLS, CI, CINF, CL, CNX, CMI, EK, EXPE, XOM, BEN, GNW, GT, GOLF, HP, HOKU, IP, IRM, KBG, K, KM, KMT, KYO, LVLT, LVS, LZ, MA, MFE, MOT, NWL, NBL, OMX, NYX, ZEUS, OPWV, OSK, PH, PTEN, PCZ, RYN, COL, STRA, TSM, DOW, TRV, TYC, WMI, WEC, WYNN, XEL,
Thursday: AB, ARBA, BEZ, BMRN, CEC, CPHD, DLB, FSLR, MET, MWW, PBI, RST, SLW, SWN, DIS, YRCW, AGN, AU, AIV, AN, BW, CVX, CEG, EGO, D, GHM, ITT, KDN, MTU, GAS, WPO, WY,
Friday: CLX, DGW, HBC, HUM, JRCC, MRO, MDU, MGM, TAP, MWA, OREX, POR, TM, TSL,
Position: none
Earnings will continue to pour in this week, too. I use www.earnings.com as my source for earnings reports. These are very important to follow because they have a way of scrambling up the charts. I don't like being in stocks before they report earnings unless I am somehow hedged, be it through reducing my position size or some options action or whatever. I've come to view earnings as a very binary event, a coin flip, if you will. Loading up heavily one way betting on the outcome of a report AND the market's reaction is a very risky endeavour.
The same listing convention still applied. If it reports after the close Tuesday or before the open Wednesday or is shown as Wednesday with no given time, it is listed here as Tuesday. I've also listed the previous Friday's here, too.
I have bold-faced reports that could potentially affect present picks.
Friday: ACV, ANR, BOH, BWP, CYOU, CALM, GLW, EPD, HON, ICO, LO, RSH, SOHU, TZOO, TLAB, VZ
Monday: ACE, AMGN, BWLD, CF, GLW, CR, HMA, HXL, MTW, MAS, MTH, OLN, OMI, PCL, RCII, TRID, BEAV, BP, CE, CRDN, CBI, CHKP, COH, CVH, CPO, CYNO, DB, DIN, ELNK, FPL, GPI, IMA, JEC, FSTR, MEAN, NOV, ODP, PCAR, ORB, ROK, SII, SVU, TEVA, TXT, MHP, UA, X, VLO, VIA, WAT,
Tuesday: COLM, CMP, DWA, FTI, HTZ, LUX, MEE, MCK, MEOH, MRH, NSC, PNRA, GOLD, WDC, XL, AET, AKAM, ALVR, AMT, MT, ACAT, BWA, BPO, CETV, COP, DAI, DFG, GD, HL, HES, HMC, HSP, JNY, ID, LAZ, MSO, MW, MHS, MCO, NYB, OII, PENN, PAG, PX, Q, SNY, SAP, SO, S, SYMC, TASR, TKR, TWC, TWX, VPHM, WPI, WLP, WYN,
Wednesday: AFL, AMAG, AMKR, AIZ, AVB, CBT, CBG, CMO, CX, CERN, CLF, CYTK, XRAY, ESRX, FLS, GNK, GG, GVA, GMCR, HBI, HIG, ITRI, KALU, LNC, MANT, MTZ, NETL, NTRI, OIS, ORLY, PRAA, RYL, SEE, RGR, TTEC, TER, TSO, TTEK, TSCM, TRN, VAR, V, ADPT, AKNS, ALU, APA, AMSC, ARJ, ABG, ADP, AVP, RATE, ABX, BDX, BC, BBW, CAB, CRS, GTLS, CI, CINF, CL, CNX, CMI, EK, EXPE, XOM, BEN, GNW, GT, GOLF, HP, HOKU, IP, IRM, KBG, K, KM, KMT, KYO, LVLT, LVS, LZ, MA, MFE, MOT, NWL, NBL, OMX, NYX, ZEUS, OPWV, OSK, PH, PTEN, PCZ, RYN, COL, STRA, TSM, DOW, TRV, TYC, WMI, WEC, WYNN, XEL,
Thursday: AB, ARBA, BEZ, BMRN, CEC, CPHD, DLB, FSLR, MET, MWW, PBI, RST, SLW, SWN, DIS, YRCW, AGN, AU, AIV, AN, BW, CVX, CEG, EGO, D, GHM, ITT, KDN, MTU, GAS, WPO, WY,
Friday: CLX, DGW, HBC, HUM, JRCC, MRO, MDU, MGM, TAP, MWA, OREX, POR, TM, TSL,
Position: none
CELG (Long)...
It's another tech long, but this time it's a biotech long. I'm usually very gunshy in the biotech sector because headlines come out of nowhere in this sector, so you have to tread very carefully. I'm throwing CELG out there as a long. It's another in that long list of stocks that have reported earnings and is consolidating following breakouts from multi-month bases with powerful, high-volume gap-ups. CELG left behind a big gap and I would not be chasing this one up here. The break above the 200-day EMA is very significant here, as it's been under there for the better part of a year. This is one to keep an eye on, and that's exactly what we'll do.
Position: none
Position: none
MJN (Long)...
MJN is a somewhat new stock. It had its IPO (Initial Public Offering) several months ago. Since the IPO, MJN has gone straight up. IPOs are particularly interesting in that sense. Once it breaks higher/lower from the offering, there is no resistance/support. MJN has been a pretty good buy on weakness since it emerged, and I belive a coming pullback in the stock will present a similar buying opportunity. It reported earnings last week and is very extended, but it'll come to us. As you can see, the 50-day EMA has acted as solid support all along, but that is about 15% below present levels. Be patient with this one. It will present a less risky entry soon. MJN's a bit thinner than I normally like and does not have a very deep options market, but that does not deter me. It just alters my plan.
Position: none
Position: none
EBAY (Long)...
I like what I see in EBAY following its earnings release last week. Like many other stocks, it has a nice gap-up and is in the midst of consolidating. I would love to see that gap-up get filled and I would love even more to see a low-volume pullback towards previous resistance at $18. This is a very extended stock and I would not be chasing it up here. It could take out the highs of the week and keep going higher, but I don't think that is a likely or sustainable scenario. I'm content to be patient with this one.
Position: none
Position: none
Overview Friday 24 July...
It sure looked like the bears were going to be able to get something going, as we had the most significant weakness we've seen in the past couple weeks. However, the bulls had other plans, as they pounced on the weakness to drive the market up into the close. The upside momentum has been extremely powerful and is unlike anything I've ever seen. Momentum this strong does not reverse quickly or easily, though the recent buying feels like panic buying. This is not a market to try to short until it actually tops out. This is a tough market. Either you have to be willing to chase stocks higher and higher or you have to be patient. I'm opting for the latter.
Short-term bias: bearish (I'm still maintaining this as bearish, if only because I'm not chasing)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
Not a lot has changed from Thursday's look, to be honest.
PALM found support right where we thought it would and had a very nice bounce on Friday. I still think it's buyable around present levels and I actually like the fact that the momentum traders didn't run this one way higher.
DFS, of course, keeps going higher. A loss is a loss, but I think this one was actually helpful for me because it kept me from getting more short exposure as the market rallied. It's still unfathomable to me how this thing could rally 33% in two weeks and form some new highs. Though powerful, the rally is still less than convincing to me, and I believe I will get a better price to escape.
F is in a pretty good spot to start accumulating, though I haven't begun to buy it yet. I would be using Thursday's lows around $6.60 as my stop. This is one to be patient with as it consolidates. SBUX has a similar setup, but has not pulled back like F has. What will be a big yellow flag for the sustainability of the bulls is if we see stocks like F and SBUX fail to hold these breakouts.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Short-term bias: bearish (I'm still maintaining this as bearish, if only because I'm not chasing)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
Not a lot has changed from Thursday's look, to be honest.
PALM found support right where we thought it would and had a very nice bounce on Friday. I still think it's buyable around present levels and I actually like the fact that the momentum traders didn't run this one way higher.
DFS, of course, keeps going higher. A loss is a loss, but I think this one was actually helpful for me because it kept me from getting more short exposure as the market rallied. It's still unfathomable to me how this thing could rally 33% in two weeks and form some new highs. Though powerful, the rally is still less than convincing to me, and I believe I will get a better price to escape.
F is in a pretty good spot to start accumulating, though I haven't begun to buy it yet. I would be using Thursday's lows around $6.60 as my stop. This is one to be patient with as it consolidates. SBUX has a similar setup, but has not pulled back like F has. What will be a big yellow flag for the sustainability of the bulls is if we see stocks like F and SBUX fail to hold these breakouts.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Thursday, July 23, 2009
F (Long)...
I like F as a long here. Like many of the recent picks, F broke out following earnings today of a multi-month base. And, like those other picks, I wouldn't be chasing it up here. I would like to see F fill today's gap on low volume and hold above the multi-month base. If it falls back into the base, we know it's not ready to go higher quite yet.
Position: none
Position: none
Overview Thursday 22 July...
The bulls just would not be denied today. They squeezed the market higher on what really felt to me like panic buying. The action was absolutely frantic this morning and held up pretty well into the close. However, we are seeing some weakness in the aftermarket as some weak earnings are hitting in the tech world (MSFT and AMZN most notably). I'm looking for some weakness tomorrow. Markets like this are very hard to trade, as one debates whether to chase it higher or wait on the sidelines. Chasing hasn't ever really worked that well for me, so I tend to opt for the latter.
Short-term bias: bearish (we've had a very powerful rally the past few days, but I believe we will now be dragged lower, as today's action felt like panic buying by the bulls)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
Apparently PALM wasn't ready to rally today. It hasn't done anything wrong technically aside from failing to follow the broader markets higher, which I view as a yellow flag.
DFS clawed higher, but I suspect it will fall tomorrow, as AXP has disappointed in the aftermarket tonight. I'm just looking for a chance to escape this position. I am not looking for a breakdown below established support in the $9 area.
DELL has set up a very nice short opportunity here. Note the inverted hammer it printed today. This is a show of weakness, which I suspect will continue tomorrow given the weak earnings after the close tonight in tech. $14 looks like a great stop loss level on a DELL short, though I did not pull the trigger today. Can you blame me? Trying to short the market lately has been a suicide mission. :-p I'm also liking the short setups in MDR, NOK, and FCX, both of which have tremendous downside from present levels and have fairly low-risk setups.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Short-term bias: bearish (we've had a very powerful rally the past few days, but I believe we will now be dragged lower, as today's action felt like panic buying by the bulls)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
Apparently PALM wasn't ready to rally today. It hasn't done anything wrong technically aside from failing to follow the broader markets higher, which I view as a yellow flag.
DFS clawed higher, but I suspect it will fall tomorrow, as AXP has disappointed in the aftermarket tonight. I'm just looking for a chance to escape this position. I am not looking for a breakdown below established support in the $9 area.
DELL has set up a very nice short opportunity here. Note the inverted hammer it printed today. This is a show of weakness, which I suspect will continue tomorrow given the weak earnings after the close tonight in tech. $14 looks like a great stop loss level on a DELL short, though I did not pull the trigger today. Can you blame me? Trying to short the market lately has been a suicide mission. :-p I'm also liking the short setups in MDR, NOK, and FCX, both of which have tremendous downside from present levels and have fairly low-risk setups.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Wednesday, July 22, 2009
SBUX (Long)...
I don't drink the coffee, but with today's powerful move, I'll start drinking the Kool Aid from SBUX. They reported earnings and the market clearly liked what it saw. The bulls did not let up today, either, as the stock went out right at its highs for the day, a clear show of strength. I'm not going to chase this thing up here, but on a nice, low-volume pullback towards today's low (call it $16), I'll be looking to get long. I would expect it to need some time to consolidate today's big move, so I'll be patient here. However, if it falls below today's low, it will fill that gap and that will take the stock back into congestion, which would tell me the bulls aren't quite ready to run higher with it. I don't expect it to happen, but I would use today's low just under $16 as a stop loss.
Position: none
Position: none
Overview Wednesday 22 July...
Not exactly the most exciting day in the markets today, and the indices finished pretty much flat. The melt-up in tech continues, as it's now up like a dozen straight days or something crazy like that. We had some mixed earnings in the financial sector today, something for bulls and bears alike. In the aftermarket, we have some mixed tech earnings, too. Tomorrow will be interesting, plus we have some more big reports coming up. On the whole, the bulls are still in charge, but I'm starting to see some cracks in their armour. And my instincts say we're not going to sustain this upside much longer, as earnings season will begin to wind down soon.
Short-term bias: bearish (we've had a very powerful rally the past few days, but I believe resistance will kick in and drag us lower, as the big range between 875 and 950 remains intact on the $SPX for now and we are at the upper end of that range now - we're trying to break higher, but it's not what I would call a 'clean break' higher)
Intermediate-term bias: bearish (I still think we have a correction that will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
Let's try something new today. I'll just upload a pic of the watchlist from Stockcharts and comment as needed.
I am deleting BKC from the list, even though it didn't reach my target. It had a weak close today, and volume picked up on the downside. I suspect its oversold bounce is done for now. This was a quickie trade.
With the pullback this morning, PALM has now filled the gap from last month. It's been a gutwrenching pullback the past few days, but this gap fill is a bullish development and will clear the way for higher prices. If you're not in it, it's a very low-risk buy here as long as you have a stop below the 50-day EMA.
DFS continues higher, but volume is declining as it climbs up towards the previous resistance just over $11.50. I think resistance holds and the stock goes lower, but I do not at this time think the stock will break down. I'm looking to escape this busted bearish trade.
NOK appears to have found its footing and now looks ready to move a bit higher on an oversold bounce. This should set up a great short entry.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Short-term bias: bearish (we've had a very powerful rally the past few days, but I believe resistance will kick in and drag us lower, as the big range between 875 and 950 remains intact on the $SPX for now and we are at the upper end of that range now - we're trying to break higher, but it's not what I would call a 'clean break' higher)
Intermediate-term bias: bearish (I still think we have a correction that will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
Let's try something new today. I'll just upload a pic of the watchlist from Stockcharts and comment as needed.
I am deleting BKC from the list, even though it didn't reach my target. It had a weak close today, and volume picked up on the downside. I suspect its oversold bounce is done for now. This was a quickie trade.
With the pullback this morning, PALM has now filled the gap from last month. It's been a gutwrenching pullback the past few days, but this gap fill is a bullish development and will clear the way for higher prices. If you're not in it, it's a very low-risk buy here as long as you have a stop below the 50-day EMA.
DFS continues higher, but volume is declining as it climbs up towards the previous resistance just over $11.50. I think resistance holds and the stock goes lower, but I do not at this time think the stock will break down. I'm looking to escape this busted bearish trade.
NOK appears to have found its footing and now looks ready to move a bit higher on an oversold bounce. This should set up a great short entry.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Tuesday, July 21, 2009
BAC (Watch)...
I'm adding BAC to the watchlist today. It's neither long nor short, but a stock to watch. With the reports of WFC and USB coming up tomorrow morning, I think it's a good time to be out of big financials. What interests in BAC is the volatility squeeze we're seeing. That's just a fancy way of saying that the price range is narrowing. We can see this by how the Bollinger Bands are tightening. We can also see it in how BAC is trading between the 50-day and 200-day EMAs, but they're converging on each other. The thing with volatility squeezes is they eventually yield volatility expansions. That's just a fancy way to say the price range will expand. But how do we know which direction the price will expand? We don't.
There are a few ways to play this. If you're trading short-term (a few days) you can play the range between the 50-day and 200-day EMAs, and if you're doing that, now's the time to buy. If you're trading intermediate-term (weeks or more), wait for the volatility squeeze to decisively resolve itself, then pick sides (if it goes above the 200-day EMA, buy, and if it goes below the 50-day EMA, short). Or we could do a complex options play called a strangle. When buying a strangle, you're betting on a volatility expansion, so you buy a call and a put. Since we're at the bottom of the range, I'll be looking to leg into the calls because they're cheaper right now, and when we rally, I'll look to leg into the puts because then the puts will be cheaper. I'll probably buy more calls than I otherwise would (or additional, but different calls) and sell them once BAC returns to the top of the range.
Position: none
There are a few ways to play this. If you're trading short-term (a few days) you can play the range between the 50-day and 200-day EMAs, and if you're doing that, now's the time to buy. If you're trading intermediate-term (weeks or more), wait for the volatility squeeze to decisively resolve itself, then pick sides (if it goes above the 200-day EMA, buy, and if it goes below the 50-day EMA, short). Or we could do a complex options play called a strangle. When buying a strangle, you're betting on a volatility expansion, so you buy a call and a put. Since we're at the bottom of the range, I'll be looking to leg into the calls because they're cheaper right now, and when we rally, I'll look to leg into the puts because then the puts will be cheaper. I'll probably buy more calls than I otherwise would (or additional, but different calls) and sell them once BAC returns to the top of the range.
Position: none
Overview Tuesday 21 July...
It was a back and forth type of day. The bulls came out hot at the open, driving the $SPX to new highs, but the bears were able to knock them down midday, only to have the bulls rally us into the close to take the market to a slightly green day. It was a wild day, and tomorrow should be a wild one, too. We have AAPL, among others, reporting after the close (it's presently up a couple percent in the aftermarket), and we have some banks tomorrow (WFC and USB). This is a very easy market to get whipped around in, and it's almost nauseating in a way. The bears are actually trying to make a stand here, as they've been steamrolled for the past week plus.
Short-term bias: bearish (we've had a very powerful rally the past few days, but I believe resistance will kick in and drag us lower, as the big range between 875 and 950 remains intact on the $SPX for now and we are at the upper end of that range now, but we're trying to break higher)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
Today was one of those days. Guess which stock on my watchlist was down the most. Yeah, it was PALM. No technical damage was done, but when one of your longs drops 5% in a day, it's always gutwrenching. If you're not already in it, now's a decent buying opportunity for a lower-risk entry. Even if $14 doesn't hold, I believe $13.50 will hold.
At least DFS went my way today. Not much, but it's a start. If you're not already short of it like I am, it looks like a decent short here.
RIG made a solid gap-up today, and did not fill it. This one could move later this week when SLB reports. ALVR, DELL, and FCX were also stronger than most today, each up a couple percent.
NOK continues to drift lower with no signs of a lift in sight. I think there will be a better short entry here in the coming days.
Pretty much all the others (AIG, BNI, BKC, BNI, CSX, CY, MDR, PPG, and SGR) were more or less flat today.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Short-term bias: bearish (we've had a very powerful rally the past few days, but I believe resistance will kick in and drag us lower, as the big range between 875 and 950 remains intact on the $SPX for now and we are at the upper end of that range now, but we're trying to break higher)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
Today was one of those days. Guess which stock on my watchlist was down the most. Yeah, it was PALM. No technical damage was done, but when one of your longs drops 5% in a day, it's always gutwrenching. If you're not already in it, now's a decent buying opportunity for a lower-risk entry. Even if $14 doesn't hold, I believe $13.50 will hold.
At least DFS went my way today. Not much, but it's a start. If you're not already short of it like I am, it looks like a decent short here.
RIG made a solid gap-up today, and did not fill it. This one could move later this week when SLB reports. ALVR, DELL, and FCX were also stronger than most today, each up a couple percent.
NOK continues to drift lower with no signs of a lift in sight. I think there will be a better short entry here in the coming days.
Pretty much all the others (AIG, BNI, BKC, BNI, CSX, CY, MDR, PPG, and SGR) were more or less flat today.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Monday, July 20, 2009
CY (Long)...
I'm going back to the tech well yet again and this time it's CY we're looking at. Tech is where a lot of the good charts are, so that's where we want to be, too, but not 100%. Anyway, CY reported earnings last week and there is a lot to like about this stock. It is sitting at all-time highs, having just recently eclipsed its Nasdaq bubble highs from 2000 or so (and there are many big-name tech stocks you can't say that about). This is actually very important because it means there is literally no overhead resistance from the past, meaning basically that the sky's the limit for CY.
In the more immediate term, I like the recent high-volume breakout to new highs that we saw last week. In the short term, I believe CY is too extended to prudently buy, but I view weakness in the stock as a great buying opportunity. Ideally, we would get a pullback towards previous resistance (the dashed purple line) to start a position, and I do expect this to happen. I think we will see another case of prior resistance becoming current support, but if not, further weakness, provided it is of the low-volume variety, would present an even better buying opportunity. Note how CY has consistently bounced off the 50-day EMA for the past several months. The bears won't have a chance to get their claws into this stock and drag it down until they can force it below that 50-day EMA, but make no mistake about it, the bulls are in charge here.
Position: none
In the more immediate term, I like the recent high-volume breakout to new highs that we saw last week. In the short term, I believe CY is too extended to prudently buy, but I view weakness in the stock as a great buying opportunity. Ideally, we would get a pullback towards previous resistance (the dashed purple line) to start a position, and I do expect this to happen. I think we will see another case of prior resistance becoming current support, but if not, further weakness, provided it is of the low-volume variety, would present an even better buying opportunity. Note how CY has consistently bounced off the 50-day EMA for the past several months. The bears won't have a chance to get their claws into this stock and drag it down until they can force it below that 50-day EMA, but make no mistake about it, the bulls are in charge here.
Position: none
Overview Monday 20 July...
Well, that options hangover did happen, but it lasted the whole of about an hour. We were strong right out of the gate today, faded in the morning, but then proceeded to rally hard into the close. We have some big reports coming up tonight and tomorrow morning, so we've got a lot of cross-currents at play here. Today was one of those days where we see some performance anxiety setting in. Since the market has run so far and so fast, there is a lot of chasing going on in the desperate bid to gain long exposure, as there is significant fear of being left behind.
It's not my style to chase these kinds of moves. I'm perfectly content to wait for the stocks I want to pull back and offer up lower-risk entries. They usually come back, and if not, I missed the trade. So what? It's not like there aren't thousands of other stocks out there or anything. :-p It's also not my style to aggressively short this kind of strength, despite the large number of shorts on my watchlist and my strong desire to get some shorts. DFS is painful enough, thank you very much. :-p
Short-term bias: bearish (we've had a very powerful rally the past few days, but I believe resistance will kick in and drag us lower, as the big range between 875 and 950 remains intact on the $SPX for now and we are at the upper end of that range now)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
The bulls continue to take the market higher, and I'm not going to get in their way. So, ALVR, BKC, BNI, CSX, DELL, FCX, MDR, PPG, RIG, and SGR proceed to melt higher without me. We'll see some weakness eventually in these names, which will present a lower-risk short entry in the shorts and will begin to set up lower-risk buying opportunities for the longs.
AIG and NOK continue to struggle. I still believe both present good shorts, but AIG is still very volatile.
DFS keeps dragging me higher, kicking and screaming. This is what happens when you make a plan with a stop loss and you don't take your stop loss when it gets hit. Basically, I screwed up, and am now looking for a pullback to allow me to escape the position with less pain than I would've had if I had just taken my original stop loss.
PALM didn't do much today. I still like it on the long side and it's still buyable with a tight stop.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund and UTX in 401k
It's not my style to chase these kinds of moves. I'm perfectly content to wait for the stocks I want to pull back and offer up lower-risk entries. They usually come back, and if not, I missed the trade. So what? It's not like there aren't thousands of other stocks out there or anything. :-p It's also not my style to aggressively short this kind of strength, despite the large number of shorts on my watchlist and my strong desire to get some shorts. DFS is painful enough, thank you very much. :-p
Short-term bias: bearish (we've had a very powerful rally the past few days, but I believe resistance will kick in and drag us lower, as the big range between 875 and 950 remains intact on the $SPX for now and we are at the upper end of that range now)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
The bulls continue to take the market higher, and I'm not going to get in their way. So, ALVR, BKC, BNI, CSX, DELL, FCX, MDR, PPG, RIG, and SGR proceed to melt higher without me. We'll see some weakness eventually in these names, which will present a lower-risk short entry in the shorts and will begin to set up lower-risk buying opportunities for the longs.
AIG and NOK continue to struggle. I still believe both present good shorts, but AIG is still very volatile.
DFS keeps dragging me higher, kicking and screaming. This is what happens when you make a plan with a stop loss and you don't take your stop loss when it gets hit. Basically, I screwed up, and am now looking for a pullback to allow me to escape the position with less pain than I would've had if I had just taken my original stop loss.
PALM didn't do much today. I still like it on the long side and it's still buyable with a tight stop.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund and UTX in 401k
Sunday, July 19, 2009
Lesson 1: Funds, Stocks, Performance, and the Investment Ladder
In Lesson 0, we discussed:
1. The stock market versus the economy
2. The stock market versus a market of stocks
In Lesson 1, we will discuss:
1. Active-managed mutual funds versus passively-managed index funds versus stock-picking
2. Absolute performance versus relative performance
3. The investment ladder and where stocks fall on it
So let's get going.
1. Active-managed mutual funds versus passively-managed index funds versus stock-picking
We need to break this up into two sections, first mutual funds versus index funds, then funds versus stocks.
Most actively-managed mutual funds actually fail to beat their index benchmarks (many use the $SPX), whereas passively-managed index funds typically replicate the exact performance of an index within a few basis points (for those non-versed in bond-speak, 100 basis points = 1%, so 1bp = 0.01%). I've heard from several source something like 2/3 of active funds fail to beat their index benchmarks. Plus, the active funds charge you much higher fees than the passive funds (typically 2-5x more). So, let me ask you this. Why in the world would you want to pay more for less performance? You're better off just buying passive funds versus active funds. If you don't have the time and/or desire to follow the markets closely, stick with index funds.
But that's not why you're reading my blog,and it's not why I'm writing. I believe picking individual stocks is more rewarding and less risky, though it is defnitely much more work. Look at 2008. If you were in all index funds, you were down probably about 40% (likely even more if you were in mutual funds). A decent active trader lost far less money last year, and the best were up last year (I was up last year).
Hedge funds are a whole other topic for another time.
2. Absolute performance versus relative performance
Relative performance is how well you do at something relative to some benchmark. Absolute performance is how well you actually do at said thing. So, if I was up say 10% last year and the market as we said was down 40%, then my absolute performance is +10%, but my relative performance is +50% (the difference between mine and the market).
I'm not a big believer in relative performance. I always laughed when I heard mutual fund managers say that you should give them your money because they only lost 30% last year while the rest of the market lost 40%. Sure, the manager had good relative performance, but a 30% loss is still a 30% loss. No matter how you try to rationalize it, you still have 30% less money than you did before the start of the year, and that's just not ok.
I believe absolute performance is what counts. But, on a trade-by-trade basis, this does not mean that all profitable trades were good trades and all losing trades were bad trades. This will be a deeper topic for another time.
3. The investment ladder and where stocks fall on it
This basically seeks to answer the question of what a share of stock actually represents. There's a certain hierarchy to investment in a company. This hierarchy is important because it establishes an order to investment in the company. The higher up the ladder you are, the more likely you are to get more of your money back. Basically, there are three major levels on this ladder.
On top are the actual business concerns. These would typically be say banks who lend to the company or other outstanding business-related liabilities. I'm not going to say much more about this level because that's not my level.
In the middle are the bondholders. I need to say a bit more here, but not too much more. See, a bond is basically a contract between the issuer (the company) and the lender (the bond investor) that has the lender loaning the company x dollars to be repaid by y date compounding at a z% annual rate. The company issues these through an investment bank. There are various classes of bonds with various special considerations, but this is the basic premise.
And on the bottom are the stockholders. Again, this is issued through an investment bank and there are several classes of stock, broken up into basically preferred stock at the higher end and common stock at the lower end. A share of stock is, in a manner of speaking, a share of ownership in the company, so shareholders get actual voting rights on corporate matters. Each share represents some percentage of the float (all the shares out in the market right now). Companies can 'retire' shares by buying them back on the open market (many do this because there is no better use for the money, they believe their stock is cheap, or because they want to improve performance - less shares outstanding means more earnings per share). Preferred stock tends to be less liquid, meaning there are less shares out there to trade, may have better voting rights, and tend to pay higher dividends than common stock (meaning they pay more money per share to the shareholder throughout the year). When you type in the ticker UTX to represent United Technologies, you are looking at the common stock, which is trading somewhere around $50 or so.
There is a fourth level of the ladder known as options, but these will be the topic of many later discussions. In a nutshell, an option is a contract that gives the holder of the contract the right to buy/sell (typically 100) shares of a company's common stock at a certain price by a certain date. The contracts with the right to buy are known as calls and the ones with the right to sell are known as puts, so the act of simply buying a call is a bullish play on a stock, but buying a put is bearish. Options are a derivative asset, meaning their value is calculated based upon some other asset. Since they involve shares of a company's common stock, they are a derivative asset of common stock. There's so much more to say about these, but I've said enough for today. :-p
In Lesson 2, we'll look at an introduction to the two basic methods of analyzing a stock, namely fundamental analysis and technical analysis. Just a simple overview of what they are and how they relate to one another.
Positions: long $SPX and UTX in 401k
1. The stock market versus the economy
2. The stock market versus a market of stocks
In Lesson 1, we will discuss:
1. Active-managed mutual funds versus passively-managed index funds versus stock-picking
2. Absolute performance versus relative performance
3. The investment ladder and where stocks fall on it
So let's get going.
1. Active-managed mutual funds versus passively-managed index funds versus stock-picking
We need to break this up into two sections, first mutual funds versus index funds, then funds versus stocks.
Most actively-managed mutual funds actually fail to beat their index benchmarks (many use the $SPX), whereas passively-managed index funds typically replicate the exact performance of an index within a few basis points (for those non-versed in bond-speak, 100 basis points = 1%, so 1bp = 0.01%). I've heard from several source something like 2/3 of active funds fail to beat their index benchmarks. Plus, the active funds charge you much higher fees than the passive funds (typically 2-5x more). So, let me ask you this. Why in the world would you want to pay more for less performance? You're better off just buying passive funds versus active funds. If you don't have the time and/or desire to follow the markets closely, stick with index funds.
But that's not why you're reading my blog,and it's not why I'm writing. I believe picking individual stocks is more rewarding and less risky, though it is defnitely much more work. Look at 2008. If you were in all index funds, you were down probably about 40% (likely even more if you were in mutual funds). A decent active trader lost far less money last year, and the best were up last year (I was up last year).
Hedge funds are a whole other topic for another time.
2. Absolute performance versus relative performance
Relative performance is how well you do at something relative to some benchmark. Absolute performance is how well you actually do at said thing. So, if I was up say 10% last year and the market as we said was down 40%, then my absolute performance is +10%, but my relative performance is +50% (the difference between mine and the market).
I'm not a big believer in relative performance. I always laughed when I heard mutual fund managers say that you should give them your money because they only lost 30% last year while the rest of the market lost 40%. Sure, the manager had good relative performance, but a 30% loss is still a 30% loss. No matter how you try to rationalize it, you still have 30% less money than you did before the start of the year, and that's just not ok.
I believe absolute performance is what counts. But, on a trade-by-trade basis, this does not mean that all profitable trades were good trades and all losing trades were bad trades. This will be a deeper topic for another time.
3. The investment ladder and where stocks fall on it
This basically seeks to answer the question of what a share of stock actually represents. There's a certain hierarchy to investment in a company. This hierarchy is important because it establishes an order to investment in the company. The higher up the ladder you are, the more likely you are to get more of your money back. Basically, there are three major levels on this ladder.
On top are the actual business concerns. These would typically be say banks who lend to the company or other outstanding business-related liabilities. I'm not going to say much more about this level because that's not my level.
In the middle are the bondholders. I need to say a bit more here, but not too much more. See, a bond is basically a contract between the issuer (the company) and the lender (the bond investor) that has the lender loaning the company x dollars to be repaid by y date compounding at a z% annual rate. The company issues these through an investment bank. There are various classes of bonds with various special considerations, but this is the basic premise.
And on the bottom are the stockholders. Again, this is issued through an investment bank and there are several classes of stock, broken up into basically preferred stock at the higher end and common stock at the lower end. A share of stock is, in a manner of speaking, a share of ownership in the company, so shareholders get actual voting rights on corporate matters. Each share represents some percentage of the float (all the shares out in the market right now). Companies can 'retire' shares by buying them back on the open market (many do this because there is no better use for the money, they believe their stock is cheap, or because they want to improve performance - less shares outstanding means more earnings per share). Preferred stock tends to be less liquid, meaning there are less shares out there to trade, may have better voting rights, and tend to pay higher dividends than common stock (meaning they pay more money per share to the shareholder throughout the year). When you type in the ticker UTX to represent United Technologies, you are looking at the common stock, which is trading somewhere around $50 or so.
There is a fourth level of the ladder known as options, but these will be the topic of many later discussions. In a nutshell, an option is a contract that gives the holder of the contract the right to buy/sell (typically 100) shares of a company's common stock at a certain price by a certain date. The contracts with the right to buy are known as calls and the ones with the right to sell are known as puts, so the act of simply buying a call is a bullish play on a stock, but buying a put is bearish. Options are a derivative asset, meaning their value is calculated based upon some other asset. Since they involve shares of a company's common stock, they are a derivative asset of common stock. There's so much more to say about these, but I've said enough for today. :-p
In Lesson 2, we'll look at an introduction to the two basic methods of analyzing a stock, namely fundamental analysis and technical analysis. Just a simple overview of what they are and how they relate to one another.
Positions: long $SPX and UTX in 401k
Weekly Preview 20-24 July...
So last week was options expiration week. We saw a lot of wildly bullish action last week, but I do not expect that to continue this week. I would not be surprised to see a pretty weak open on Monday due to the options hangover effect. Given how bullish last week's action was, I would expect the hangover to be particularly nasty. Such a pullback would be a welcomed thing, I believe.
Earnings will continue to pour in this week, too. I use www.earnings.com as my source for earnings reports. These are very important to follow because they have a way of scrambling up the charts. I don't like being in stocks before they report earnings unless I am somehow hedged, be it through reducing my position size or some options action or whatever. I've come to view earnings as a very binary event, a coin flip, if you will. Loading up heavily one way betting on the outcome of a report AND the market's reaction is a very risky endeavour.
The same listing convention still applied. If it reports after the close Tuesday or before the open Wednesday or is shown as Wednesday with no given time, it is listed here as Tuesday. I've also listed the previous Friday's here, too.
I have bold-faced reports that could potentially affect present picks.
Friday: BRO, ETN, GAP, HAL, HAS, JCI, MBT, WFT
Monday: MDRX, BSX, CNI, LM, PKG, TXN, ZION, AKS, AAPL, BJS, BLK, CAT, CMA, CAL, RDY, DD, ELN, FRX, FCX, HCBK, JEF, LXK, LMT, MRK, EDU, BTU, PNR, PCP, DGX, RF, RHI, SGP, SHW, LUV, STT, SY, AMTD, KO, UAUA, UTX, UNH, WU
Tuesday: AMD, AMX, AMLN, BXP, CHRW, CHIC, CNH, GILD, ILMN, LLTC, NBR, PTV, QLGC, STX, SLM, SBUX, SYK, VFC, YHOO, APD, AAI, ATI, MO, BK, CKSW, DAL, DPZ, LLY, FFIV, GENZ, GSK, HST, ITW, ISRG, KEY, NITE, MS, NTRS, ODFL, OSTK, PEP, PFE, PJC, STJ, BA, SWK, USB, WFC, WHR,
Wednesday: ACL, DOX, BCR, CMG, CRUS, CTXS, CLB, CYMI, ETFC, EBAY, EFX, GGG, IRBT, KNX, LOGI, NTGR, NE, OSIP, PFCB, QCOM, RRC, SNDK, STLD, TCK, TEX, MOS, TQNT, TUP, VMW, MMM, ABB, ALK, T, BMY, BG, COG, CSH, CELG, CME, CIT, CBE, DHR, DO, EXP, EMC, ESV, EZPW, FITB, FLIR, F, GR, HERO, HBAN, RX, IGT, JNPR, KMB, LLL, LH, MAN, MCD, MJN, MNRO, NEM, NIHD, NOC, NUE, OXY, OMC, PM, POOL, POT, PFS, RMBS, RTN, RS, R, SWY, SIAL, SPAR, HOT, SNV, TIN, TRA, TNH, HSY, NYT, TMO, TRAD, UNP, UPS, LCC, GRA, WYE, XRX
Thursday: ARG, AMZN, AXP, AMP, BRCM, BUCY, BNI, CA, COF, CENX, CB, DECK, EMN, FII, IBKR, KLAC, LEG, WFR, MSCC, MSFT, TUNE, NFLX, NUVA, PMCS, RFMD, RVBD, SCSS, SIMG, STAR, CAKE, WGOV, ALEX, ASH, BIDU, BDK, EXC, FO, IR, LNCE, OXPS, SLB, SYT, TROW, ERIC, WL
Friday: ACV, ANR, BOH, BWP, CALM, GLW, EPD, HON, LO, SOHU, TLAB, VZ
Position: long UTX in 401k
Earnings will continue to pour in this week, too. I use www.earnings.com as my source for earnings reports. These are very important to follow because they have a way of scrambling up the charts. I don't like being in stocks before they report earnings unless I am somehow hedged, be it through reducing my position size or some options action or whatever. I've come to view earnings as a very binary event, a coin flip, if you will. Loading up heavily one way betting on the outcome of a report AND the market's reaction is a very risky endeavour.
The same listing convention still applied. If it reports after the close Tuesday or before the open Wednesday or is shown as Wednesday with no given time, it is listed here as Tuesday. I've also listed the previous Friday's here, too.
I have bold-faced reports that could potentially affect present picks.
Friday: BRO, ETN, GAP, HAL, HAS, JCI, MBT, WFT
Monday: MDRX, BSX, CNI, LM, PKG, TXN, ZION, AKS, AAPL, BJS, BLK, CAT, CMA, CAL, RDY, DD, ELN, FRX, FCX, HCBK, JEF, LXK, LMT, MRK, EDU, BTU, PNR, PCP, DGX, RF, RHI, SGP, SHW, LUV, STT, SY, AMTD, KO, UAUA, UTX, UNH, WU
Tuesday: AMD, AMX, AMLN, BXP, CHRW, CHIC, CNH, GILD, ILMN, LLTC, NBR, PTV, QLGC, STX, SLM, SBUX, SYK, VFC, YHOO, APD, AAI, ATI, MO, BK, CKSW, DAL, DPZ, LLY, FFIV, GENZ, GSK, HST, ITW, ISRG, KEY, NITE, MS, NTRS, ODFL, OSTK, PEP, PFE, PJC, STJ, BA, SWK, USB, WFC, WHR,
Wednesday: ACL, DOX, BCR, CMG, CRUS, CTXS, CLB, CYMI, ETFC, EBAY, EFX, GGG, IRBT, KNX, LOGI, NTGR, NE, OSIP, PFCB, QCOM, RRC, SNDK, STLD, TCK, TEX, MOS, TQNT, TUP, VMW, MMM, ABB, ALK, T, BMY, BG, COG, CSH, CELG, CME, CIT, CBE, DHR, DO, EXP, EMC, ESV, EZPW, FITB, FLIR, F, GR, HERO, HBAN, RX, IGT, JNPR, KMB, LLL, LH, MAN, MCD, MJN, MNRO, NEM, NIHD, NOC, NUE, OXY, OMC, PM, POOL, POT, PFS, RMBS, RTN, RS, R, SWY, SIAL, SPAR, HOT, SNV, TIN, TRA, TNH, HSY, NYT, TMO, TRAD, UNP, UPS, LCC, GRA, WYE, XRX
Thursday: ARG, AMZN, AXP, AMP, BRCM, BUCY, BNI, CA, COF, CENX, CB, DECK, EMN, FII, IBKR, KLAC, LEG, WFR, MSCC, MSFT, TUNE, NFLX, NUVA, PMCS, RFMD, RVBD, SCSS, SIMG, STAR, CAKE, WGOV, ALEX, ASH, BIDU, BDK, EXC, FO, IR, LNCE, OXPS, SLB, SYT, TROW, ERIC, WL
Friday: ACV, ANR, BOH, BWP, CALM, GLW, EPD, HON, LO, SOHU, TLAB, VZ
Position: long UTX in 401k
CSX (Long)...
CSX reported earnings last week and had a very significant breakout above multi-month resistance as a result. You can see how the stock was unable to clear $36 throughout June and July. Volume was not as large as I would have liked, but I believe last week was a very significant breakout for CSX, as this is also the first time in many months CSX has sustained itself above the 200-day EMA for the first time in many months. Throughout CSX's downtrend last year, it couldn't get above that level. I am looking to buy CSX in stages. I would look to start a position on a pullback towards $36 (the solid purple line), as that was previous resistance, and so often once a resistance level is broken, it becomes support because the buyers who missed the first move step in (we see this same dynamic on the downside, too). I would look to then add more to CSX on either a break above the new highs around $38 or, more preferably, a pullback to retest support (the dashed purple line). If that support line is still intact, then the uptrend is still intact. The buying is strong in this stock judging by the fact that price is going up and the on-balance volume is moving higher.
Position: none
Position: none
Saturday, July 18, 2009
PPG (Long)...
PPG reported earnings last week. Look at that nice, high-volume breakout above multi-month resistance around $46 (the purple line). I would not be chasing this stock up here around $50, as I expect it to pull back in the short term. Ideally, both of those gap-ups get filled. If the optimism about the economy turning keeps going, stocks like PPG are the place to be. Chemical companies like PPG are early cyclical companies, meaning they tend to perform strongest early in an economic cycle or recovery. The economic cycle is a topic for future discussion, and a very important one at that because it is essentially the mutual fund manager's playbook, but for now this is sufficient. Anyway, on a pullback, PPG is a buy, but I would not be chasing up here. If it falls back into that multi-month congestion, that means we're early and we'll take the minor stop loss so we can move into something a bit juicier.
Position: none, but a former resident of Pittsburgh, PA
Position: none, but a former resident of Pittsburgh, PA
NOK (Short)...
I feel like I'm running a long-short tech portfolio here. :-p I don't mind so much having multiple picks in the same sector so long as there's a blend of longs and shorts, as we have in tech. When it's too heavily skewed long or short, that's when I get antsy. Anyway, I've got another tech pick, this time a short of NOK. They reported earnings last week, and you can see the high-volume breakdown from Thursday. This was a significant breakdown below the 50-day EMA, and I believe NOK is a short on strength. I would not look for the big gap-down to be immediately filled, as I believe the 50-day EMA and middle BB will act as resistance. I do still believe NOK has further to fall.
Position: none
Position: none
Overview Friday 17 July...
So this is a two-day recap since I didn't do one Thursday (Staind and Shinedown put on an awesome concert). Life's not all work all the time because we should work to live, not live to work. Anyway, we saw the bull stampede continue as they ran over the bears. I still believe much of this week's upside was related to options expiration. What we may see on Monday is the options hangover. Basically, a lot of people tend to end up with much bigger positions than they want as a result of options expiration, so they have to unwind those positions. As a result, we tend to see a countertrend move to options expiration on the following Monday. So, since this week was a hugely bullish expiration week, I would expect to see a down day Monday. We had some big reports in the past couple days, including GE, BAC, C, GOOG, and IBM.
Between a lot of companies having already reported earnings and giving us some good post-earnings setups plus the options hangover, we're going to see some really good opportunities in the coming days. With this, I will be focusing more on stocks that have already reported earnings, but if a stock hasn't already reported, I won't exclude it and I will state the date. Earnings season is far enough underway to give us plenty of post-earnings setups for the coming weeks.
Short-term bias: bearish (we've had a very powerful rally the past few days, but I believe resistance will kick in and drag us lower, plus we have the aforementioned post-expiration hangover)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
I think DFS will have an expiration-related pullback early next week, and I hope to use this as an opportunity to escape this position and hopefully minimize the damage.
I'm liking what I'm seeing in PALM. It is holding tough at support like I expected, and I'm hoping for a rally up towards previous highs around $17 so I can sell some August calls against my November calls.
AIG is still shortable, especially since it filled that gap-down created earlier this week. This is a volatile one, and if you're going to short it, you must hedge. Whether you short common stock or buy puts, buy some cheap calls and/or sell some puts as a hedge, plus keep the position small.
ALVR looks a bit extended here, but it appears to have held support.
BKC still has a bit more upside, but don't look for it to rally huge. This was meant as a quickie trade on a bounce off support, and we're starting to get that.
BNI and FCX remain on the short list, but I don't think either will have substantial downside. I'm inclined to delete BNI entirely from the list and move FCX to a long once it has that pullback to support (the support level I thought would crack, but hasn't).
MDR, RIG, and SGR all, I believe, have strong downside potential. They're not as strong as say FCX or BNI, and I believe all three have further dowside.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Between a lot of companies having already reported earnings and giving us some good post-earnings setups plus the options hangover, we're going to see some really good opportunities in the coming days. With this, I will be focusing more on stocks that have already reported earnings, but if a stock hasn't already reported, I won't exclude it and I will state the date. Earnings season is far enough underway to give us plenty of post-earnings setups for the coming weeks.
Short-term bias: bearish (we've had a very powerful rally the past few days, but I believe resistance will kick in and drag us lower, plus we have the aforementioned post-expiration hangover)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX and I don't think we're ready to power higher quite yet)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
I think DFS will have an expiration-related pullback early next week, and I hope to use this as an opportunity to escape this position and hopefully minimize the damage.
I'm liking what I'm seeing in PALM. It is holding tough at support like I expected, and I'm hoping for a rally up towards previous highs around $17 so I can sell some August calls against my November calls.
AIG is still shortable, especially since it filled that gap-down created earlier this week. This is a volatile one, and if you're going to short it, you must hedge. Whether you short common stock or buy puts, buy some cheap calls and/or sell some puts as a hedge, plus keep the position small.
ALVR looks a bit extended here, but it appears to have held support.
BKC still has a bit more upside, but don't look for it to rally huge. This was meant as a quickie trade on a bounce off support, and we're starting to get that.
BNI and FCX remain on the short list, but I don't think either will have substantial downside. I'm inclined to delete BNI entirely from the list and move FCX to a long once it has that pullback to support (the support level I thought would crack, but hasn't).
MDR, RIG, and SGR all, I believe, have strong downside potential. They're not as strong as say FCX or BNI, and I believe all three have further dowside.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Wednesday, July 15, 2009
DELL (Short)...
Despite today's rally, I see a stock I want to short, namely DELL. Tech in general has been pretty strong throughout the year, but DELL is not looking so strong following its earnings release earlier this week. Note the high-volume gap-down break of both the 50-day and 200-day EMAs yesterday. I would love to see DELL rally on low volume to fill that gap-down, which is around $13 and would also correlate with the middle BB. A starter short could be taken into that rally and a short could be added to upon a breakdown below yesterday's lows.
Position: none
Position: none
Overview Wednesday 15 July...
The bulls were in charge today, no doubt about it. They got a lot of good news at the open, such as INTC's perceived good quarter and news from COF that credit card delinquencies were sliding (this was not good for my DFS puts). Volume and breadth were strong, but the buying felt a bit panicked today, and I'm sure a lot of it was options-related. Tomorrow will be interesting with more big earnings reports and we also have some aftermarket news about the government stopping its talks with CIT.
And, a side note. I do not expect to put out a pick and a recap tomorrow night, thus why I did two picks last night.
Short-term bias: bearish (we've had a very powerful rally the past few days, but I believe resistance will kick in and drag us lower)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
DFS rallied hard today off the COF news. Needless to say, I was too early in this short and I stuck around too long. Clearly, I should have just taken the minor loss instead of letting it turn into a much bigger loss. Though I think $11 will act as resistance for now, I will be looking to exit this position and minimize the loss.
PALM rallied well today. It faded off its highs as the day progressed, but it's holding where it has to and volume picked up today. I'm still liking it.
I am considering dropping BNI from the shorts list, as it has rallied beyond where I thought it would and appears to be stabilizing. FCX, RIG, MDR, and SGR also rallied hard today with the market while AIG was down just a bit, but I still think all of these will prove to be good shorts.
BKC is still looking good as a long. I'm liking it with a stop loss still just under yesterday's lows.
ALVR rallied a bit, too. Some volume came in today, and as long as it holds support, I still like it on the long side.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
And, a side note. I do not expect to put out a pick and a recap tomorrow night, thus why I did two picks last night.
Short-term bias: bearish (we've had a very powerful rally the past few days, but I believe resistance will kick in and drag us lower)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
DFS rallied hard today off the COF news. Needless to say, I was too early in this short and I stuck around too long. Clearly, I should have just taken the minor loss instead of letting it turn into a much bigger loss. Though I think $11 will act as resistance for now, I will be looking to exit this position and minimize the loss.
PALM rallied well today. It faded off its highs as the day progressed, but it's holding where it has to and volume picked up today. I'm still liking it.
I am considering dropping BNI from the shorts list, as it has rallied beyond where I thought it would and appears to be stabilizing. FCX, RIG, MDR, and SGR also rallied hard today with the market while AIG was down just a bit, but I still think all of these will prove to be good shorts.
BKC is still looking good as a long. I'm liking it with a stop loss still just under yesterday's lows.
ALVR rallied a bit, too. Some volume came in today, and as long as it holds support, I still like it on the long side.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Tuesday, July 14, 2009
AIG (Short)...
To go with the short-term BKC long pick below, I wanted to add another short-term pick tonight. We're going back to the well with AIG on the short side. I removed the stock from the watchlist as a short following Thursday's close, and am I glad I did because the stock has almost doubled since. Staying small is vital here. The plan is to take a small short around present levels with a stop above today's high. I will look to add to that on a break down below $14, which has established itself as support over the past two days.
Why am I putting this one out there now? I'm not typically a big user of Fibonacci retracements, but it sure looks to me like AIG just put in a 38.2% retracement of its recent plunge. It coincides very cosely with today's high (my lines aren't exact).
My expectation is that the bears will reassert themselves here and drive AIG lower again. Note also how large today's volume was, yet the stock closed relatively flat. This is a whippy one, so tread carefully.
Position: none
Why am I putting this one out there now? I'm not typically a big user of Fibonacci retracements, but it sure looks to me like AIG just put in a 38.2% retracement of its recent plunge. It coincides very cosely with today's high (my lines aren't exact).
My expectation is that the bears will reassert themselves here and drive AIG lower again. Note also how large today's volume was, yet the stock closed relatively flat. This is a whippy one, so tread carefully.
Position: none
BKC (Long)...
Let's take a look at BKC. This one is a bit shorter-term than I would normally want to play on the blog here, but it is a good long play here. BKC doesn't report earnings again until late August or early September. What I see here is a stock that hit a climax low today. Note the heavy volume today, yet the stock closed well above its low for the day, suggesting to me that the sellers were flushed out on that plunge below $16 this morning. $16 has proven to be a strong support level here for the past couple months, and I think a bounce up off that level could be playable for a quick long trade. I think the 50-day EMA is the more likely resistance level for such a bounce versus the upper band or the most recent highs around $17.50. I would absolutely not give this trade any more room than say $15.50 (about a dime below today's low). If that level fails, there is literally no support in sight until we go back three years to its all-time low around $12, and I'm sure not willing to sit through that kind of pain. The options are too thin for my liking, so I'll only be looking to play this through common stock. Plus, this is a trade we could be in and out of in a couple days, and I tend not to use options for trades that quick.
Position: none
Position: none
Overview Tuesday 14 July...
Today was a relatively lifeless day in the markets. It was one of those days where bulls and bears just kind of stood back and let the market drift for the most part. It was like neither really wanted to do much ahead of earnings reports. Plus, it's expiration week. INTC seems to be perking the market up in the after hours, so we could be looking at an up day tomorrow. I'll still give the edge to the bulls in the short term, but I feel like they're running out of juice.
Short-term bias: bullish (I think the oversold rally has a bit more juice, but not too much more)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
I got filled on some PALM calls today. I took some November $12.50's. My intention is to turn these into some call spreads as I sell nearer-dated calls against my purchased calls. The fun thing is, if properly constructed, the stock doesn't have to rally huge over the duration in order to make money. Whether you put on a spread or not, PALM is still a very worthwhile stock to be in. Lovely chart if you're a bull.
DFS continues to drift higher. I still think this stock will turn lower soon, but I've not added any further to my puts. This is another position I may turn into a spread, but in order to do that, I'll have to roll out my present puts into a later strike.
BNI rallied today off of CSX's quarter, like I was expecting. Also like I expected, it brought up MDR, SGR, FCX, and RIG. These are all economically-sensitive stocks and all hedge-fund favourites, so they tend to rise and fall together most days, barring something sector-specific. All of these are creeping higher, but RIG is looking like the most promising short, as it continues to rise on weak and weakening volume. It could probably get to $73 before reversing lower, but a move up to $77 is possible, so entry in stages is the way to go here.
ALVR didn't do much today. It broke that resistance line yesterday on weak volume, but drifted about today. Yesterday's break was not very vigourous, and it makes me wonder whether support will hold here.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Short-term bias: bullish (I think the oversold rally has a bit more juice, but not too much more)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
I got filled on some PALM calls today. I took some November $12.50's. My intention is to turn these into some call spreads as I sell nearer-dated calls against my purchased calls. The fun thing is, if properly constructed, the stock doesn't have to rally huge over the duration in order to make money. Whether you put on a spread or not, PALM is still a very worthwhile stock to be in. Lovely chart if you're a bull.
DFS continues to drift higher. I still think this stock will turn lower soon, but I've not added any further to my puts. This is another position I may turn into a spread, but in order to do that, I'll have to roll out my present puts into a later strike.
BNI rallied today off of CSX's quarter, like I was expecting. Also like I expected, it brought up MDR, SGR, FCX, and RIG. These are all economically-sensitive stocks and all hedge-fund favourites, so they tend to rise and fall together most days, barring something sector-specific. All of these are creeping higher, but RIG is looking like the most promising short, as it continues to rise on weak and weakening volume. It could probably get to $73 before reversing lower, but a move up to $77 is possible, so entry in stages is the way to go here.
ALVR didn't do much today. It broke that resistance line yesterday on weak volume, but drifted about today. Yesterday's break was not very vigourous, and it makes me wonder whether support will hold here.
Postions: long DFS August $12.50 puts, PALM November $12.50 calls, and $SPX index fund in 401k
Monday, July 13, 2009
SGR (Short)...
SGR is a new short pick. It reported earnings late last week, so that's not an issue for another couple months. SGR broke down convincingly through multi-month support at $26 (the purple line). It then proceeded to gap up on heavy volume on Thursday, but was unable to reclaim that level. It gapped down hard with even bigger volume on Friday following earnings (which I did not think were bad enough to justify this drop, but the market doesn't care what I think), and today it rallied a bit into that gap-down. A stop above Thursday's high just over $26 would work nicely. I believe SGR will rally on low volume up towards $26 and fill that gap-down, and will then proceed to fall further. I would not be surprised to see SGR return to the March lows at $20 (orange line), but I will give it room to rally a bit first to improve the reward/risk ratio. At the present $24.50 level, it's $4.50 reward for $1.50 risk. That's 3:1, which is pretty good, but I'd like to see that improve a little bit more.
Position: none
Position: none
Overview Monday 13 July...
We got some pretty bullish action today. Not a good day to be short, particularly in the financials. Some upgrades really drove this group higher. But, besides that, there really wasn't much of interest going on during the day today. We have some afterhours fireworks as DELL has apparently disappointed and is down a few percent. Tomorrow we'll have the highly-anticipated report from GS. Today felt to me like the market got very optimistic ahead of earnings and today felt like a day where the bulls trapped the bears pretty good. It was a good countertrend day, but the volume was pretty low.
Short-term bias: bullish (I think the oversold rally has a bit more juice, but not too much more)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
Well, I was a day too early on DFS, as it rallied along with the other financials when it caught an upgrade. It gapped up above that $9.70 level and appears destined to fill that gap-down from last week. I was not impressed by today's rally in the stock, and I do still expect it to turn about and go lower. However, I'm not going to add to this one until I see some sign that the multi-day uptrend is cracking. In hindsight, I maybe should've just taken the stop loss earlier today. We'll see what happens tomorrow.
ALVR rallied through that trendline I showed this weekend, but I did not buy on that breakout, as the volume was sorely lacking in the stock. I'll keep an eye on this one.
PALM is pulling back quite nicely for us. It pretty much filled that gap-up from late June with today's early-morning decline. I'm liking what I see in PALM, and I plan to initiate a position tomorrow, starting small with the August $11 calls. A little weakness in PALM tomorrow would not surprise me, as DELL has poured some cold water over the tech sector with its earnings report tonight.
RIG, BNI, MDR, and FCX continue to rally slightly into resistance. I am still stalking these for shorts, but have not pulled the trigger yet. Fellow rail company CSX reported earnings after the close and is up slightly in the aftermarket. This should give BNI some upside tomorrow, in particular, as it trades up in sympathy with CSX. I would expect to see the other three stocks rally tomorrow, as well.
Postions: long DFS August $12.50 puts and $SPX index fund in 401k
Short-term bias: bullish (I think the oversold rally has a bit more juice, but not too much more)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
Well, I was a day too early on DFS, as it rallied along with the other financials when it caught an upgrade. It gapped up above that $9.70 level and appears destined to fill that gap-down from last week. I was not impressed by today's rally in the stock, and I do still expect it to turn about and go lower. However, I'm not going to add to this one until I see some sign that the multi-day uptrend is cracking. In hindsight, I maybe should've just taken the stop loss earlier today. We'll see what happens tomorrow.
ALVR rallied through that trendline I showed this weekend, but I did not buy on that breakout, as the volume was sorely lacking in the stock. I'll keep an eye on this one.
PALM is pulling back quite nicely for us. It pretty much filled that gap-up from late June with today's early-morning decline. I'm liking what I see in PALM, and I plan to initiate a position tomorrow, starting small with the August $11 calls. A little weakness in PALM tomorrow would not surprise me, as DELL has poured some cold water over the tech sector with its earnings report tonight.
RIG, BNI, MDR, and FCX continue to rally slightly into resistance. I am still stalking these for shorts, but have not pulled the trigger yet. Fellow rail company CSX reported earnings after the close and is up slightly in the aftermarket. This should give BNI some upside tomorrow, in particular, as it trades up in sympathy with CSX. I would expect to see the other three stocks rally tomorrow, as well.
Postions: long DFS August $12.50 puts and $SPX index fund in 401k
Sunday, July 12, 2009
Lesson 0: Stock Market vs Economy and vs a Market of Stocks...
This will be the first in a series of educational posts I'd like to start writing. I'd like to get one of these out per week in the early going here. I know there are various levels of experience reading this blog, and some of the stuff can be quite confusing if not framed properly. I try to teach a bit with the picks and overviews to show what I'm seeing. It's not entirely selfless, as I feel like it helps me frame my own thoughts and will help me focus on the best picks out there.
I figure we'll start the lessons series with an easy one. Basically, today will be the ground floor, as I'll discuss the following.
1. The stock market versus the economy
2. The stock market versus a market of stocks
So let's go.
1. The stock market versus the economy
There is a common misconception that the stock market is the economy or the economy is the stock market. This is wrong. The two are related, but they are not one and the same. Stocks tend to be perceived as a leading indicator of the economy, meaning that stocks will strengthen/weaken before the economy does. We know this from what we've seen in the past couple years. In the most recent cycle, the market, as measured by the S&P 500 large cap index, topped out in late 2007 (I use this as my broad market tell versus the Dow Jones Industrial Average, as that is only 30 large companies, but the S&P 500, or $SPX, is 500 large companies). The economy was visibly weakening by this time, but it was not falling apart. That wouldn't begin to happen until early 2008, when Bear Sterns collapsed. We had yellow flags prior to that, but Bear was the red flag. Sure enough, throughout summer 2008, the economy fell apart and the market tanked.
The big point here is to remember that the market and the economy are related, but not one and the same. The market can rally, as it did in Q4 2008, to make people think the economy is improving, but then come crashing down like it did through March 2009, showing that it was early to call a bottom. I find the stock market to be more tangible of a tell than the economy itself because the market is a forward-looking entity, but economic releases are backward-looking. The stock market says what it thinks is going to happen, but the economy says what has happened. Both tell what is happening right now, as well.
2. The stock market versus a market of stocks
The stock market is a market of stocks, but it is not often viewed that way. It is important to think that way. Think of the stock market as a huge river. We know that rivers as a whole flows with one average velocity. It's a vector, a magnitude with a direction, as opposed to a scalar, which is simply a magnitude. In physics parlance, speed is a scalar (45 meters per second), but velocity is a vector (45 meters per second due east). This is a very tricky river because it can flow in two directions and it can change every day. If the market is rallying, that means it's flowing more up than down.
Now, think of an individual stock as a small, defined section of that river. Maybe this section of river today has something in it that disrupts the flow and causes this particular section to not have any flow through it. What we see here is a river that has an average flow of x magnitude in y direction, but we have a section of the river with no flow. The point here is that the main river matters, but sometimes there are parts of the river that just don't go with the flow. Just because the market was up huge on the day doesn't mean a given stock was.
Next time, we will look at the following.
1. Active-managed mutual funds versus passively-managed index funds versus stock-picking
2. Absolute performance versus relative performance
3. The investment ladder and where stocks fall on it
Postion: long $SPX index fund in 401k
I figure we'll start the lessons series with an easy one. Basically, today will be the ground floor, as I'll discuss the following.
1. The stock market versus the economy
2. The stock market versus a market of stocks
So let's go.
1. The stock market versus the economy
There is a common misconception that the stock market is the economy or the economy is the stock market. This is wrong. The two are related, but they are not one and the same. Stocks tend to be perceived as a leading indicator of the economy, meaning that stocks will strengthen/weaken before the economy does. We know this from what we've seen in the past couple years. In the most recent cycle, the market, as measured by the S&P 500 large cap index, topped out in late 2007 (I use this as my broad market tell versus the Dow Jones Industrial Average, as that is only 30 large companies, but the S&P 500, or $SPX, is 500 large companies). The economy was visibly weakening by this time, but it was not falling apart. That wouldn't begin to happen until early 2008, when Bear Sterns collapsed. We had yellow flags prior to that, but Bear was the red flag. Sure enough, throughout summer 2008, the economy fell apart and the market tanked.
The big point here is to remember that the market and the economy are related, but not one and the same. The market can rally, as it did in Q4 2008, to make people think the economy is improving, but then come crashing down like it did through March 2009, showing that it was early to call a bottom. I find the stock market to be more tangible of a tell than the economy itself because the market is a forward-looking entity, but economic releases are backward-looking. The stock market says what it thinks is going to happen, but the economy says what has happened. Both tell what is happening right now, as well.
2. The stock market versus a market of stocks
The stock market is a market of stocks, but it is not often viewed that way. It is important to think that way. Think of the stock market as a huge river. We know that rivers as a whole flows with one average velocity. It's a vector, a magnitude with a direction, as opposed to a scalar, which is simply a magnitude. In physics parlance, speed is a scalar (45 meters per second), but velocity is a vector (45 meters per second due east). This is a very tricky river because it can flow in two directions and it can change every day. If the market is rallying, that means it's flowing more up than down.
Now, think of an individual stock as a small, defined section of that river. Maybe this section of river today has something in it that disrupts the flow and causes this particular section to not have any flow through it. What we see here is a river that has an average flow of x magnitude in y direction, but we have a section of the river with no flow. The point here is that the main river matters, but sometimes there are parts of the river that just don't go with the flow. Just because the market was up huge on the day doesn't mean a given stock was.
Next time, we will look at the following.
1. Active-managed mutual funds versus passively-managed index funds versus stock-picking
2. Absolute performance versus relative performance
3. The investment ladder and where stocks fall on it
Postion: long $SPX index fund in 401k
Weekly Preview 13-17 July...
It's options expiration week this coming week. This can make for some tricky trading and generally leads to increased volatility. Combine that with the start of earnings season and it can get crazy. You'll see some big names reporting earnings through the end of July. I've got a list below of the ones I'll be watching this week. There are some big ones, too.
I use www.earnings.com as my source for earnings reports. These are very important to follow because they have a way of scrambling up the charts. I don't like being in stocks before they report earnings unless I am somehow hedged, be it through reducing my position size or some options action or whatever. I've come to view earnings as a very binary event, a coin flip, if you will. Loading up heavily one way betting on the outcome of a report AND the market's reaction is a very risky endeavour. When I list them here, I list them based on the day by which you must have taken action to prepare for earnings. In other words, stocks that report earnings after the close Tuesday or before the open Wednesday will be listed as Tuesday because you will have had to take action by the close on Tuesday to prepare for it. Sometimes, the website just lists the day the company reports without a time, so those will be included on the previous day. If a stock is listed as reporting on Wednesday with no time provided, it will be listed here among on Tuesday. This saves me from having to list the before the open or after the close stuff because I'm lazy like that. :-p Plus, I have trouble enough getting them right, so you should verify them yourself and tell me if I'm wrong.
I do not plan to list the various government macroeconomic releases throughout the week in this weekly preview unless it's something really big like a Federal Reserve meeting. I'm a stock trader, not an economist, and this is a stock blog, not an economics blog, though the two topics are somewhat interrelated.
These will get shorter once earnings season fades and now that I've got the first one out of the way. I'll be able to say the earnings stuff in a much more concise manner with a 'See this post' note. :-p
Monday: CSX, NVLS, GS, JNJ
Tuesday: YUM, INTC, ABT, GCI, KMP, KMR, GWW
Wednesday: CTAS, LSTR, PLCM, BAX, BIIB, EWBC, GPC, GOOG, HOG, IIIN, JPM, MAR, MTG, NOK, PPG
Thursday: CY, CYT, DTLK, IBM, PBCT, TPX, AOS, ACU, BAC, BBT, C, FNH, GE, MI, MAT
Friday: BRO, ETN, GAP, HAL, HAS, JCI, MBT, WFT
Position: none
I use www.earnings.com as my source for earnings reports. These are very important to follow because they have a way of scrambling up the charts. I don't like being in stocks before they report earnings unless I am somehow hedged, be it through reducing my position size or some options action or whatever. I've come to view earnings as a very binary event, a coin flip, if you will. Loading up heavily one way betting on the outcome of a report AND the market's reaction is a very risky endeavour. When I list them here, I list them based on the day by which you must have taken action to prepare for earnings. In other words, stocks that report earnings after the close Tuesday or before the open Wednesday will be listed as Tuesday because you will have had to take action by the close on Tuesday to prepare for it. Sometimes, the website just lists the day the company reports without a time, so those will be included on the previous day. If a stock is listed as reporting on Wednesday with no time provided, it will be listed here among on Tuesday. This saves me from having to list the before the open or after the close stuff because I'm lazy like that. :-p Plus, I have trouble enough getting them right, so you should verify them yourself and tell me if I'm wrong.
I do not plan to list the various government macroeconomic releases throughout the week in this weekly preview unless it's something really big like a Federal Reserve meeting. I'm a stock trader, not an economist, and this is a stock blog, not an economics blog, though the two topics are somewhat interrelated.
These will get shorter once earnings season fades and now that I've got the first one out of the way. I'll be able to say the earnings stuff in a much more concise manner with a 'See this post' note. :-p
Monday: CSX, NVLS, GS, JNJ
Tuesday: YUM, INTC, ABT, GCI, KMP, KMR, GWW
Wednesday: CTAS, LSTR, PLCM, BAX, BIIB, EWBC, GPC, GOOG, HOG, IIIN, JPM, MAR, MTG, NOK, PPG
Thursday: CY, CYT, DTLK, IBM, PBCT, TPX, AOS, ACU, BAC, BBT, C, FNH, GE, MI, MAT
Friday: BRO, ETN, GAP, HAL, HAS, JCI, MBT, WFT
Position: none
RIG (Short)...
Back to the short side with this selection. I am looking at RIG as a short. It does not report earnings again until 5 August before the open. RIG looks to me like a broken stock that has recently begun a confirmed downtrend. You'll note the steady uptrend from March to June as RIG consistently held above the middle BB line and the 50-day EMA. RIG even popped its head above the 200-day EMA, however it failed to stay there. That's red flag #1 that the uptrend is in danger. Not enough to justify shorting, but enough to be careful about getting long. Red flag #2 is RIG's failure on its last bounce up from the 50-day EMA to reclaim both the 200-day EMA and the middle BB line. Red flag #3 was RIG's failure to hold its 50-day EMA and collapse to a new low. With this, RIG has now formed a lower high and a lower low. The bulls are no longer in charge of RIG.
We see now RIG is having a rally up towards resistance with declining volume. This is an ideal short setup. I think RIG has some more work to do on the upside. A rally into the low $70's would not surprise me, as there is an unfilled gap-down from earlier in July that tops out around $73.50. I expect that gap to get filled and by then, the middle BB line and 50-day EMA would likely be near. I think the gap, 50-day EMA, and middle BB line will act as resistance, along with the 200-day EMA a few dollars higher.
I will be looking to put on a starter short position in RIG as it rallies up towards those resistance levels. I will be looking to add to that short either once the stock drifts up even higher (should it get that far) or once it breaks the multi-day uptrend it has going right now.
Position: none
We see now RIG is having a rally up towards resistance with declining volume. This is an ideal short setup. I think RIG has some more work to do on the upside. A rally into the low $70's would not surprise me, as there is an unfilled gap-down from earlier in July that tops out around $73.50. I expect that gap to get filled and by then, the middle BB line and 50-day EMA would likely be near. I think the gap, 50-day EMA, and middle BB line will act as resistance, along with the 200-day EMA a few dollars higher.
I will be looking to put on a starter short position in RIG as it rallies up towards those resistance levels. I will be looking to add to that short either once the stock drifts up even higher (should it get that far) or once it breaks the multi-day uptrend it has going right now.
Position: none
PALM (Long)...
I must be feeling bullish this weekend because I'm putting out another long. This time, it's PALM. Am I late on this one? Yes, very. And we need to consider this in how we play the stock. PALM's up like 500% year-to-date, and 1,400% from its lows back in December. PALM doesn't report earnings again until sometime in mid or late September, so no worries there. As you can see, the stock has consistently held the middle BB line (green dashed line) throughout its long uptrend, save for one brief dip below it in May. However, at that time, it held the 50-day EMA (blue line).
There are a few ways to play PALM here. My plan is to take a small starter around current levels. From here, we have two possible scenarios. Either PALM powers its way even higher, or it continues to pull back. If PALM shows signs of holding that middle BB line and begins to power higher, I will look to add some in expectations of a breakout to new highs above $17. From there, we'll look to buy more on a pullback from the breakout.
However, if PALM fails to hold the middle BB line, which is likely because it has a gap-up from late June to fill down around $14, I would look to add a little more upon the filling of that gap. If that support level fails to hold, then we have the 50-day EMA right below it. This would be the final add point. If that 50-day EMA fails to hold, this stock is going way lower, and we're not going to sit through that (we may even get short at that point).
One thing to note with these two scenarios is variations in position size. Either way, my initial purchase will be small, but if we have the pullback continue, then my purchases will be smaller than they would be if we had the rally scenario. In this situation, we are using position size to mitigate risk, but because we don't know which scenario is going to unfold, that's why we're starting small.
So, why be willing to buy weakness here? This stock has a very strong uptrend and very powerful momentum to the upside, and the trend is your friend except for the bend at the end. With the way we're playing this position, we'll protect ourselves if we're at the end of the trend, but we'll also put ourselves in position to profit should the trend continue.
Position: none
There are a few ways to play PALM here. My plan is to take a small starter around current levels. From here, we have two possible scenarios. Either PALM powers its way even higher, or it continues to pull back. If PALM shows signs of holding that middle BB line and begins to power higher, I will look to add some in expectations of a breakout to new highs above $17. From there, we'll look to buy more on a pullback from the breakout.
However, if PALM fails to hold the middle BB line, which is likely because it has a gap-up from late June to fill down around $14, I would look to add a little more upon the filling of that gap. If that support level fails to hold, then we have the 50-day EMA right below it. This would be the final add point. If that 50-day EMA fails to hold, this stock is going way lower, and we're not going to sit through that (we may even get short at that point).
One thing to note with these two scenarios is variations in position size. Either way, my initial purchase will be small, but if we have the pullback continue, then my purchases will be smaller than they would be if we had the rally scenario. In this situation, we are using position size to mitigate risk, but because we don't know which scenario is going to unfold, that's why we're starting small.
So, why be willing to buy weakness here? This stock has a very strong uptrend and very powerful momentum to the upside, and the trend is your friend except for the bend at the end. With the way we're playing this position, we'll protect ourselves if we're at the end of the trend, but we'll also put ourselves in position to profit should the trend continue.
Position: none
Saturday, July 11, 2009
ALVR (Long)...
Here's a change of pace. I'm throwing out a long pick over the weekend here, namely ALVR. This one's thinner than I typically go for, but it's also a stock I've been following for a few years now, so I'm comfortable with how it trades. You'll note the two massive gap-ups from June (orange arrow). Those were on news that ALVR got a big new contract. So, what we see here is a stock that moved huge on news and has been consolidating for the past month or so. ALVR doesn't report earnings again until 29 July before the open.
I'm thinking the 200-day EMA (which corresponds well with the open from the second gap-up day) will act as support (dashed black line). However, if that is not the case, then I think the stock will fall to fill that second gap-up. That's about another 10% drop or so, which is more than I'd want to sit through (plus if it fails to hold that second gap-up, it could even fall back far enough to fill that first gap-up, which would be even more painful).
Here's the way I plan to play this one. I'm looking to buy a little bit here around present levels, but I'm going to leave plenty of room to add. I plan to use Thursday's low around $3.80 as my stop loss because if it falls that low, it's likely to fill that second gap-up and I don't want to hang around for that. Assuming it holds support, I would look to add a bit more because ALVR is providing us a setup called a multi-day pullback. The way to play this setup is to buy your starter with the stop and be ready to add once we see a move above the previous day's high with some volume (the dashed purple line represents this).
If you really think about it, we're looking to play a similar, but less-pronounced, setup to this in the other direction with BNI and MDR. In those cases, it's a high-volume breakdown followed by a low-volume rally.
Position: none
I'm thinking the 200-day EMA (which corresponds well with the open from the second gap-up day) will act as support (dashed black line). However, if that is not the case, then I think the stock will fall to fill that second gap-up. That's about another 10% drop or so, which is more than I'd want to sit through (plus if it fails to hold that second gap-up, it could even fall back far enough to fill that first gap-up, which would be even more painful).
Here's the way I plan to play this one. I'm looking to buy a little bit here around present levels, but I'm going to leave plenty of room to add. I plan to use Thursday's low around $3.80 as my stop loss because if it falls that low, it's likely to fill that second gap-up and I don't want to hang around for that. Assuming it holds support, I would look to add a bit more because ALVR is providing us a setup called a multi-day pullback. The way to play this setup is to buy your starter with the stop and be ready to add once we see a move above the previous day's high with some volume (the dashed purple line represents this).
If you really think about it, we're looking to play a similar, but less-pronounced, setup to this in the other direction with BNI and MDR. In those cases, it's a high-volume breakdown followed by a low-volume rally.
Position: none
Overview Friday 10 July...
There isn't really much to say about Friday because it was a pretty boring day in the markets. As expected, it was your typical summer Friday. Volume was low and there really wasn't much to write home (or to the blog) about. Today really felt like a consolidation day.
I'll put up a post later talking more about what I'm thinking and expecting for the coming week.
Short-term bias: bullish (I think the oversold rally has a bit more juice, but not too much more)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
My order for DFS puts got filled. I chose the August $12.50 puts, starting small and leaving room to add. I use options when possible as a stock replacement strategy to minimize risk. I will talk more about using options in later blog posts. For those not into options, shorting the common stock will do just as fine. DFS stock was up a bit Friday and flirting with the bottom of that gap from Tuesday.
I still like BNI, FCX, and MDR as shorts. FCX was flat, BNI was slightly up, and MDR was down a bit on Friday. MDR was weak because another stock in the infrastructure sector, SGR, reported earnings that were perceived as weak and subsequently lowered guidance (on the headline, it was a bad quarter, but digging deeper, one sees that the reason for the lowered earnings and guidance revolves around some bond financing/accounting issues between SGR's Westinghouse unit and Toshiba), driving SGR down about 10% on the day and dragging the rest of the sector down with it. I still expect the oversold bounce to continue in that sector, and I think MDR will give us a better short entry.
And we really should be glad we removed AIG from the short list yesterday. It rallied about 25%. That's the oversold rally I was afraid of. We'll let it rally a little bit before revisiting it on the short side.
Postions: long DFS August $12.50 puts and $SPX index fund in 401k
I'll put up a post later talking more about what I'm thinking and expecting for the coming week.
Short-term bias: bullish (I think the oversold rally has a bit more juice, but not too much more)
Intermediate-term bias: bearish (I still think this correction will take us lower, perhaps to 800 on the $SPX)
Long-term bias: bullish (I believe we put in meaningful, long-term bottoms in March, and would use the aforementioned correction to increase long exposure)
Pick updates:
My order for DFS puts got filled. I chose the August $12.50 puts, starting small and leaving room to add. I use options when possible as a stock replacement strategy to minimize risk. I will talk more about using options in later blog posts. For those not into options, shorting the common stock will do just as fine. DFS stock was up a bit Friday and flirting with the bottom of that gap from Tuesday.
I still like BNI, FCX, and MDR as shorts. FCX was flat, BNI was slightly up, and MDR was down a bit on Friday. MDR was weak because another stock in the infrastructure sector, SGR, reported earnings that were perceived as weak and subsequently lowered guidance (on the headline, it was a bad quarter, but digging deeper, one sees that the reason for the lowered earnings and guidance revolves around some bond financing/accounting issues between SGR's Westinghouse unit and Toshiba), driving SGR down about 10% on the day and dragging the rest of the sector down with it. I still expect the oversold bounce to continue in that sector, and I think MDR will give us a better short entry.
And we really should be glad we removed AIG from the short list yesterday. It rallied about 25%. That's the oversold rally I was afraid of. We'll let it rally a little bit before revisiting it on the short side.
Postions: long DFS August $12.50 puts and $SPX index fund in 401k
Thursday, July 9, 2009
MDR (Short)...
Another hard day to make a stock pick, but only because there are so many I'd like to put up as potential shorts. Today, I am going to put MDR out there as a short pick. MDR has had a pretty good rally over the past several months, having more than doubled since March. However, not only has MDR's upside waned, but I believe it's due for a further drop. Note the breakdown below both the 50-day and 200-day EMAs. Also, note the lower high that was created as a result of that first breakdown. You can see that lower high failed to clear the 200-day EMA and the middle BB line. The stock proceeded to roll over and broke down again earlier this week. Over the past two days, it has had an oversold bounce. The big red volume bar for Wednesday and the close well off the lows of the day indicate a short-term selling climax. Today's rally on lower volume was a continuation of that oversold bounce. This bounce may continue a little longer, but in the mean time, I am looking to begin building a short position in MDR as it rallies up towards the broken support levels. I expect the moving averages to now act as resistance rather than support as they have in recent months.
One potential snag with this position is that it is an infrastructure stock, and we do have rumours of a second stimulus bill floating around. Be mindful of that, as it may ignite a further short squeeze. MDR does not report earnings again until August.
Position: none
One potential snag with this position is that it is an infrastructure stock, and we do have rumours of a second stimulus bill floating around. Be mindful of that, as it may ignite a further short squeeze. MDR does not report earnings again until August.
Position: none
Subscribe to:
Posts (Atom)