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Archive for November, 2011

Posted by Martin November 30, 2011

Be aware of next bubble to burst

There are many many news media out there excitedly creeping around “finally solved” or “European hopes” bushes (read: news). The news media such as Yahoo or CNN Money are among them. Almost worthless to read it!

However, you can find commentaries out there that are not that optimistic and that are providing with more realistic, and skeptical view on the debt crisis.

The news such as:

Fed bails out Europe while ECB dithers
IMF rescue of Italy will spark global uprising

and many others however are not that excited. The core of the problem hasn’t been solved. It is still there waiting to burst, when our so-called financial leaders and professionals run out of measures available to take to kick the can further down the road.

I am almost close to thinking that we are heading into another financial bubble which will burst one day as soon as bankers will be unable to do more and this crisis will hurts in its full strength.

Well, lets see, where these “hopes” take us.

Happy Trading!

Posted by Martin November 30, 2011

How are you positioned in this market?

Today the central banks claimed their will to allow unlimited access to dollars for whoever needs them. Don’t be too excited. It will not be you or me who can ask for the new printed money. It will be given to those who spent them recklessly and now need a bailout. How often have we seen it?

This market is acting on news only at this point and in so chaotic way that (for me) it is hard to determine the trend (besides that there is no trend). It goes up one day or two and falls down the next day.

When in doubt stay out.

Has the European crisis been solved by this move? No, it hasn’t. It is weird watching analysts and news commentators along with public on discussion boards saying the same thing that all these measures are wrong and not solving anything (just a smoke and mirror) to camouflage the real steps which need to be done and no one has done them yet, but the market reacts with full of excitement by gapping up (or down when the same news claim that they were wrong yesterday).

Looks like we need to get used to gaps in today’s trading.

Apparently I misjudged the market once again and sold my calls early, so I missed this fake rally. However, we are now higher and in my opinion this move is not sustainable. Now I will be waiting for a signal which direction the market wants to go and based on that position myself.

Happy Trading!

Posted by Martin November 29, 2011

Where is the market going? A bounce or a new trend?

Today morning I opened SPY calls position thinking the market is going for something big, maybe a reversal and better performance.

When you check MACD, you can see a divergence of the current trend and the indicator. That may be a sign that this downtrend is weakening. And that was my initial reason for going bullish.

However, when looking at what is the market doing, the price performance is mediocre. There is no steam, no power behind the move as we could see yesterday. My only concern when I was opening this position in the morning was that we are close to 50 day SMA and that may be the resistance this market won’t be able to overcome.

Apparently we are stalling at this level. The true resistance would be at 121 level, which we have touch slightly today, and since then we are heading down. Now this market looks like a bounce only which won’t change the course of the overall trend.

That’s why I decided to close my calls and wait before re-entering SPY positions. On Friday, we will have an unemployment report, which may move the market either way. Based on that I will review whether to open puts, calls or stay away.

Apparently this market is now very confusing to me and at this point I do not know how to trade it effectively. So I am staying out for some time.

Happy trading!

Posted by Martin November 23, 2011

ACE failed as a buy candidate

As I expected ACE failed as a bullish trade candidate. It didn’t hold and fell below 50 day MA along with other potential trades I mentioned in my last post. Partially it is due to a sharp sell off in the market. Thus I considered those trades as potential candidates and not a buy candidate. I needed to see that those stocks would hold those levels, bounce off of them and move up. Then I would be buying.

However, it didn’t happen and basically all of those candidates are out of my watchlist.

Here are the new candidates as bullish setup. I will be watching them carefully waiting for a confirmation and potential buy signal:

AJG
BKI
CPX
DKS
DPZ
DY
INT
KEX
KSS
LIZ
NSC
RGC
TCO
TGI
TSS

Note, these stocks are selected based on a technical, not fundamental analysis.

Happy Trading!

Posted by Martin November 23, 2011

Germany is seeing debt crisis problems

Eurozone On Wednesday Germany offered a new set of 10-year bonds on Wednesday’s auction for about 6 billion Eur. Due to lack of interest from investors, almost 3/4 of of the offer wasn’t sold.

One reason could be the upcoming holiday here in the US so the volume was low overall. However as Reuters mentioned this failure to sell German bonds, which are considered as the most secure in the entire Europe is a signal that something is wrong.

Is Germany though seeing the debt crisis spreading into its economy?

This failure is indicates that investors are becoming tired of the long lasting debt crisis. It is a German economy here and not one of the weak countries at the far end of the Euro zone. Shall we be worried though?

This puts an increased pressure on ECB to handle this crisis faster, but has ECB any options here?

This can push the stock market even lower than what I was originally expecting. Let’s see if the US holiday calms investors a bit or we will face another sell-off on half-day trading on Friday.

Happy Trading!

Posted by Martin November 22, 2011

ACE in a bullish trade setup

ACE in a bullish trade setup

ACE Ltd is now creating a new bullish trade setup. After nice run up in previous month the stock created new 52-day year high price and now is pulling back to 50 day and 200 day moving averages. It is in 50% retracement zone and it would be expected that the stock bounces back up.

There are two potential scenarios:

1) the stock will bounce back from those two moving averages or support line at 64 and it will continue back up, at least to a resistance at $70 level, which was shortly broken at the end of October and the beginning of November.

2) the stock will not sustain its levels on 50 day MA or support at 64 and continues lower.

 

ACE Ltd

 

If the scenario #2 occurs, I will discard this stock and will not trade it.

If the scenario #1 occurs and the stock closes above 50 day MA and shows reversal in a couple of upcoming days I can consider this stock as a good bullish trade and I will most likely open this trade. If so, I will be buying call options with a potential of later adjustment into a spread.

Another similar bullish setups:
ONB
PII
WAB
KLAC

I do not have any bearish potential trades at this time.

Happy Trading!

Posted by Martin November 19, 2011

Is Mercadolibre (MELI) breaking down? Let’s protect it!

Is Mercadolibre (MELI) breaking down? Let's protect it!

I have a long stock position in Mercadolibre. Last Friday the stock seemed to break down from a narrow consolidation sideway range trend which occurred after a large runaway gap. Normally this would be a healthy move, but at the market environment like these days, the market can drag this stock down.

Mercadolibre

This break was on a low volume, so it may be a fake head, but I would like to protect this position in case this is a signal telling me that the stock is heading down.

Why down?

At this point the stock can consolidate by a pull back to 200 SMA (since it was quite overextended when I was buying it). If that happens, my stock position will be sold on a stop loss (set at 82.63 per share), but my protective puts will live on and increase in volume and make up the loss on stock and actually may turn this trade profitable.

If this break is a fake head and the stock returns back up and continues growing, I will sell my protective put (realize a loss on puts) and leave the stock to live on. If the stock continues running up it should make up the loss.

Thus on Monday I am buying the following:

BTO 1 MELI Dec17 2011 82.5 puts

Happy Trading!

Posted by Martin November 18, 2011

Autonation (AN) range trade

Autonation (AN) range trade

Autonation is a stock trading in a range. Today it rebounded from the support line (see green horizontal line) and it seems it may go up to the upper resistance line (see higher green horizontal line) to complete another wave of range trending.

Autonation (AN)
Click to enlarge

However, there are two obstacles on the way. The stock is trading below 200 day SMA (see lower red line). The stock may recover and re-test this line as it is now a resistance, or it can break thru as it did at the beginning of October.

well, right now I am buying one call contract and later (maybe next week) I will be looking at adjustment of this trade.

Here is the order:

BTO 1 AN Dec17 2011 33 strike call

Happy Trading!

Posted by Martin November 18, 2011

SPY put adjusted into Diagonal Put Spread

I decided to adjust my original SPY put trade into a diagonal put spread. That will bring some income and reduce the original put cost.

I have:

1 SPY Dec17 2011 124 strike put

and I adjusted this trade into a diagonal put spread, so the final holding will be:

1 SPY Dec17 2011 124 strike put
-1 SPY Nov25 (weekly) 2011 118 put

The ideal landing spot will be slightly above $118 per share next week, when weeklies expire. In that case I will keep the whole credit I received and I can repeat this again the following week or liquidate the entire position for max. profit, since my longer term puts will gain a lot as well and short term puts will expire worthless.

Happy Trading!

Posted by Martin November 18, 2011

Options expiration Friday – November 2011

Today is an options expiration day. That means I had to take care about some of my holdings:

SLV

I hold long term SLV January 2012 Put contract. Against this contract I was selling covered calls and this month I sold one SLV Bear put Spread contract. This contract was as follows:

-2 SLV Nov19 2011 31 Put
1 SLV Nov19 2011 33 Put

Looking at this contract it landed at the ideal spot (well at the time of this writing it is still traded and it could change a lot, but I decided to take profits now). The ideal spot would be that the stock price lands slightly above $31 strike price. It happened today several times and if the market runs sharply down by the end of the day the stock may drop lower below 31 and I would be giving my gain back.

So I decided to close SLV bear put spread and take profit $1.48 (or $148) per contract. With my original cost 0.23 per the contract I collected 1.25 (or $125) per contract.

This trade along with my previous covered calls lowers the cost of my original long term SLV position from 2.78 to 0.78 per contract.

DIS

This trade was a disaster and all options will expire worthless (most likely) I am not going to take any action and take 100% loss or $38 per contract. Before the end of the trading I may close the trade to recover some of the money back.

GDX

This Bull Put Spread acted well over last few days, but today (at expiration day) turned bad. I owned:

-1 GDX Nov19 2011 58 put
1 GDX Nov19 2011 55 put

I closed my short 58 strike put, paid 0.23 per contract and let 55 strike put expire worthless. The profit is 0.57 per contract.

APA

This put butterfly ended upside down (well, not that bad) so I had to close it. I had

1 APA Nov19 2011 100 puts
-2 APA Nov19 2011 95 puts
1 APA Nov19 2011 90 puts

The 100 strike puts were jumping around 100 dollar level, so I tried to sell the whole contract when the 100 strike put was In-the-Money to collect the most out of this position and recover as much as possible. I was able to do so and limit my loss to 5% only.

Overall, this month was quite successful. Let’s see what the next month will bring.

Happy Trading!