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Archive for February 20th, 2013

Posted by Martin February 20, 2013

Trade adjustment – Gold (GLD) addition

Trade adjustment - Gold (GLD) addition

Today I added a few shares of GLD into my portfolio as Gold suffered a huge sell off. As I wrote in my previous post I believe the today’s price action is an overreaction of investors, most likely responding to (outdated) report from Sorros Fund Management.

As I wrote I believe GLD indicated a bearish exhaustion as is due for reversal. Let’s take a look at charts:

First take a look at 5 year chart, which nicely shows the new support line formed in October 2011.

Gold 5 yr chart

(Click to enlarge)

The red horizontal line indicates the support at which I originally placed a trigger buy order ($151.60 a share) and honestly I haven’t expected the price ever touch this level again.

Following is the 6 months daily chart:

Gold 6mo chart

(Click to enlarge)

In this chart you can see a very extended bearish candle and trippled volume. In my opinion this is a bearish exhaustion and we may experience a rebound. This price action also triggered my buy order today and I added shares to my portfolio.

02/20/2013 14:05:43 Bought 6 GLD @ 151.6

This trade lowers my cost basis in GLD from $164 a share to $160 a share.

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Posted by Martin February 20, 2013

Is today’s trading marking the beginning of the correction?

Is today's trading marking the beginning of the correction?

Today’s trading was hectic and markets fell hard after FOMC meeting. The market is idicating nervousness and today’s price action – extended bearish candle may indicate the end of the trend.

Almost all my stocks fell hard as well. I am not that concerned about it however, since I have been expecting correction since two weeks ago. I just moved more cash to my account to protect my current posittions against potential margin calls, and will be riding it down where I may start adding more shares.

However today trading offered some nice opportunities as well. I was watching GLD and I had a buy trigger order at $151.60 a share. Honestly I didn’t expect Gold to reach this mark today. I was expecting a couple more days for Gold to slide towards that mark.

Gold was under sell off recently because of some institutional investors unloaded Gold from their portfolio. For example Sorros Fund Management sold 50% of his stake in Gold as reported in December 2011. I am not sure when this latest 13-F filling came actually out, but it is quite outdated. If traders were reacting to this news today, then it is a very stupid reaction.

Gold is very oversold these days and today trading could mark an exhaustion day. An exhaustion day can indicate the reversal in stock trend. It is a day, when everybody give up and throw the towel into the ring. Usually retail investors aren’t willing to bear more losses anymore and sell. Typically it is that last wave of selling (or buying if we look at bullish exhaustion), where there is no more sellers and the stock reverses. This day is marked by large extended bearish candle (or bullish) with unusuall increase in volume and it must occur during a continuing trend. When you take a look at Gold, you can see the stock falling since October last year. Today the stock fell sharply on heavy volume and it reach major support line. This support line has been formed in July 2011 when the parabolic run up in Gold started and this support was tested (and held) for many times during the last period.

Based on above technical anaylisis I believe Gold has reached bottom. Based on that I accepted my buy order and let it executed. If however Gold continues falling I have reserve funds and will be buying on my next buy point level which is at $140 a share.

Posted by Martin February 20, 2013

New Trade – 8×8 Inc. (EGHT) covered call

New Trade - 8x8 Inc. (EGHT) covered call

My MBI covered call trade was cleared this Saturday with a nice gain. This released some cash and I am looking for another opportunity to make some cash. I found 8×8 Inc. (EGHT) stock which seems to be a good candidate to deliver a profit.

The stock recently corrected and is considered undervalued based on PEG value of 0.4346, one of the lowest in the Communications Services industry, which is supported by a PE of 6.519 that is also among the lowest in the industry.

From 5 yr chart you can see nice growing graph with healthy corrections:

EGHT

Take a look at daily chart. You can clearly see the stock undergoing correction. At this moment the stock corrected below 50 day MA, but it still is well above 200 day MA. From the technical analysis perspective, this correction seems to me in line with the previous ones, so I can expect the stock to rebound and go higher.

EGHT daily

Analysts are positivie on the stock and recommend moderately buy. Earnings and revenue are expected to grow from 0.06 a share to 0.20 a share (300%) in the next quarter and by 40% annualy. If that happens, this should provide enough boost to the stock to go higher.

8×8, Inc., is a United States-based company, which provides telecommunication services and technology for Internet protocol (IP), telephony and video applications. The Company provides voice over Internet protocol (VoIP) and Video Telephone service that enables broadband Internet users to add digital voice and video communications services to their Internet connections. The Company also offers voice mail, caller ID, call forwarding, call waiting, 3-way calling, online account management and billing, international call blocking and caller ID blocking services.

Here are the trade details:

Bought 100 shares EGHT: $6.79
Strike: $7.50
Sold 1 Covered Call: $0.45
Total Purchase: $634.00
Commissions: $8.78
Total purchase: $642.78
   
Expected Option Assignment: $750.00
Option Assignment Fee: $19.00
Expected Proceeds: $731.00
   
Expected Net Gain: $88.22
Expected ROI: 13.72%

If my expectations are correct and the stock rises above 7.5 a share by the option expiration, the stock will be called away and I will realize the profit listed above. If it doesn’t end up above 7.5, I will continue selling covered calls as long as it will be called away. That should also increase the potetial return. If the stock however continues falling, I will apply a correcting measures by selling calls longer away and with lower strike to still end up with gain when called away – a similar approach to what I am currently doing with a DMD trade.

Happy Trading!