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Archive for September, 2011

Posted by Martin September 28, 2011

Market slips after 4 day ride up.

As I expected, the market lost its steam. Seller stepped in and they were selling. Stocks struggled to rise. Durable goods orders slid as expected. Today morning I bought my SPY puts to ride this downturn. At this point it seems like the market is trading in a range within a bear market. We may re-test 112 level.

Happy trading!

Change The Way You Trade Forever

Posted by Martin September 27, 2011

Stocks end with intraday losses

As I was expecting a few hours ago, this market wasn’t strong enough to sustain the gains and closed lower on intraday basis. SPY opened at $118.53 and closed the day at $117.55, not a huge loss, but an evidence of losing steam. Also periodicals are speaking about downside risks outweighing upside.

I will see what the market will do overnight and if it confirms itself in falling (the futures will point to a lower opening) I might buy SPY puts.

Happy trading!

Posted by Martin September 27, 2011

The market continues up on hopes and wishfull thinking

Investors are tired, exhausted and frustrated seeing the market tanking for this long time without any bright light at the end of the tunnel. Therefore they are literally buying any news and today is a great example of them trying to convince themselves that we are out of the forest and we will be growing or being at least neutral. Everybody fears recession and everybody wishes to avoid it.

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But look at the chart. The market is clearly in defensive mode although Euro-commissars are claiming to find a way to get out of the debt crisis.

The first news which came out today morning was a creation of a special fund and the existing fund supposed to save the Eurozone will be backed up by more money poured in it. Markets in western Europe climbed up. But Spain denied such measure and all hopes were wrecked again. The markets eased their optimism.

The impulse for this rally were news released by CNBC that the special fund will be created by European Investment Bank and funded by European Financial Stability Facility (EFSF). The fund would be buying problematic bonds from troubled countries and issuing its own bonds serving as collateral for ECB. However, no one yet confirmed this plan or news and some other politicians consider this plan as bizarre.

Well, at least, even though this news was not confirmed and sounds unrealistic, it was enough to push markets up high.

When you take a look at current SPY chart, you will see that the market gapped up. At this point, at 12:30 MDT it is up at $119.33, but on a very low volume. The Bollinger bands are very tight today, so the market is poised for a move, spike, breakout. It doesn’t say which direction, but it says it will happen.

The market broke the pennant resistance as I spoke about yesterday and this morning, but on very low volume and it hit a downtrend channel resistance line. Also the gap was very large and on volume (once again).

When looking at today’s chart, overall trend, lower highs, fantasy news pushing the market up, I think this market will go down either tomorrow or on Wednesday. Therefore I decided to wait until the last ten minutes of today’s trading and then buy puts on SPY. I will wait where the market will most likely close today and make my decision based on this.

Happy trading!

Posted by Martin September 27, 2011

Funny Money

Funny Money

It is really funny watching what the market is doing these days. Optimism replacing pessimism within days. Last week we heard what the worst week for the markets it was since 2008 and today we see a great optimism again just to be replaced with a pessimism next week.

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Today, the news are trumpeting how optimistic the investors are about the crisis in Europe being resolved. Then I found the following quote:

The plan — reported by CNBC — would allow troubled banks to swap bad debt for bonds backed by the European Investment Bank.
But doubts remain that the action, should it occur, would bring the crisis to a complete resolution given the continent’s extremely heavy debt burden.

Source: CNN Money

C’mon guys! Is this a reason for extreme optimism? You bet no! It will just move the debt from one pocket to another. It will solve nothing and the debt burden will be back again. Those doubts as mentioned in the quote will arise larger and stronger.

This market is poisoned to fall. Do not fall into a bull trap. If you take a look at my yesterday’s chart and look at the latest peaks, highs of the chart, they are lower highs. Let me post it again with the red dots indicating those new highs.

SPY

What trend do you see forming here? Of course, it can all change and the market can turn up and be growing, but it is quite unlikely at this point. And why do I think the market will continue down? What is that catalyst? It is European debt, which is far from solved.

Posted by Martin September 26, 2011

Impressive rally today, but not convincing

Impressive rally today, but not convincing

The market rallied (SPY) today and the rally was impressive after a week of fall. But what is behind this rally? Let’s take a look at fundamental reasons, at least, what I could see on the Internet:

Stocks jump on hopes for a Europe fix; Dow up 272

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That’s what Yahoo! says as its top story. And I think, investors believe it. It is however foolish to believe that Europeans fix something. The only capable country out there is Germany, but Germans are tired of bailing out irresponsible countries. Germans are no longer willing to pay for Greece.

But there are other PIGS countries waiting in the line! (PIGS stands for Portugal, Italy, Greece, and Spain). These are in deep trouble as well and they are already spending their chunk of help from EU funds and ECB. And we can go on listing other countries – Ireland, Island among others, who may need help.

Also there are other countries, such as Sweden and Slovakia, which refused to help at all (Slovakia blocked a help package to Greece twice in their parliament). Members of euro-zone are not united in willingness to help. Though all the proclamations we already have heard from ECB and Euro-zone leaders have only one goal: prolong the agony of inevitable – bankruptcy of Greece and huge issues of other countries in trouble.

European banks were, well, ordered or asked, by ECB to increase their reserves to handle potential issues and hardships which may come when Greece goes under. But ECB knows, that there are no more money to take to increase those reserves. Unlike FED, ECB cannot print Euros. No other country in Eurozone will be willing to print more money to bail out other country.

So fundamentally, this rally is weak.

Let’s take a look at technical aspect of this rally:

SPY

We are in bearish trend. We broke a head and shoulders and fell deeply down to $110 level (SPY). We stopped at the major support level formed in May and September 2010. Then we witnessed a creation of a bearish continuation pattern – pennant. On September 22 we broke down thru the pennant (see magenta lines) on heave volume and fell further down and stopped at the same support as in previous sessions on August 8-11 and August 19-23 (see green line on the chart). Now we bounced back up from that support. Well, where is our next stop? The previous support becomes a new resistance. Thus the previous pennant bottom line is our resistance.

Since I believe that this market heads further down, we may see a bounce from that new resistance and continue down, see the blue arrow. As a second alternative, we may see several bounces (see red arrow), but in my opinion it is very unlikely.

If that happens and we bounce from the pennant resistance (now resistance) I will consider re-entering puts on SPY and ride this market down. You can also sell SPY shorts if you like.

If that happens and we break the re-tested support, we may see the market slumping all the way down to 100 level and I hope will be already riding this downtrend.

Posted by Martin September 23, 2011

Agribusiness ETF (MOO) a long term trade with income stream

In many of my previous posts I mentioned that I like my investments to create income, which can be used for further investments. There is an ETF which can provide this opportunity. It is Agrobusiness ETF (MOO) and it trades in a channel and it touched its lower boundary of the range. It is highly expected that over some mid-term time the ETF will go back up to the upper band of the range.

So my outlook and goal here is to hold this ETF for a couple of months and sell covered calls against it to create a stream of income. So this trade will be an investment and not short term trade. Ideal entry point would be at or around $44.17 per share and I will buy at least 100 shares to allow selling calls against it. If the ETF will act as expected I should make capital gains as the stock continues up to its upper band of the channel and I should collect some cash from sold calls.

Happy Trading!

Posted by Martin September 23, 2011

SPY puts closed on rising market

The market waved losses at the opening and continued growing after yesterday’s sell-off. Looks like investors are at ease for now. It is understandable. I decided to get out of my SPY puts to protect my gains and re-enter later. Yesterday SPY didn’t get through its support level. The last 30 minutes rally pushed the market higher and the closing price was above this level. That may indicate that the market can hold this levels for some time or even push higher a bit. I will wait for confirmation to re-enter my puts on higher levels and get better entry.

Happy trading!

Posted by Martin September 22, 2011

Saga continues

The market dropped to my re-entry buy point and I re-entered SPY put position. The market may continue down, or close the gap. I think it will continue down. If I am wrong I will get out of this position quickly.

If you wish to track my trading, check the “Recent buys & sells” in the side bar.

Happy trading!

Posted by Martin September 22, 2011

Update on market – more profit taking this morning

It is nice to be correct. The market was poised to a bearish trend and it sure did. In just two sessions we saw big sell offs. I was thinking what would push the market that down? Was it FED? I doubt this would be the only reason.

There are a few items I could find on the internet:

  • China manufacturing index PMI dropped below 50 which is a sign of a contraction of their economy.
  • As we saw yesterday, FED downgraded the US economy and predicts a big slump which will take several years.
  • The “Twist” plan enacted by FED is a BS. Period.

However, from the technical point of view the market was poised to go down anyway. So more profits on downside. And I decided to preserve some of them by selling SPY early morning and now converting my CRM puts into a spread. I sold October $120 strike puts and collected $849 credit (preserving my gains made by holding naked puts). That limits my risk to literally zero and provides a reward of making another $1600 per spread. What a great risk/reward ratio!

Happy Trading!

Posted by Martin September 22, 2011

Profit taking again – another $1000 gain at opening

OK, the market opened sharply lower as expected and I decided to take some profits. I noticed that when SPY opens lower with gap, it has a tendency to close that gap during the day. If I am correct, SPY will go up today and close around 116 level, where I will re-enter my put position. If it won’t go up and breaks 112 level (closing price) I will re-enter as well. Let’s see what will be happening circa 15 minutes prior to today’s session close.

Happy trading!