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Posted by Martin September 27, 2011
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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.

Change The Way You Trade Forever

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.




TastyWorks

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Posted by Martin September 26, 2011
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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.




TastyWorks

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Posted by Martin September 23, 2011
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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!




TastyWorks

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Posted by Martin September 23, 2011
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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!




TastyWorks

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Posted by Martin September 22, 2011
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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!




TastyWorks

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Posted by Martin September 22, 2011
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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!




TastyWorks

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Posted by Martin September 22, 2011
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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!




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Posted by Martin September 22, 2011
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Another gloomy trading on Thursday


After the sell off on global markets (Asia and Europe) the US markets are poised to a sharply lower opening. US futures point that the SPY will open at 113 level breaking thru the support of the pennant (or triangle). During the day this gap may be closed, but if the selling pressure during the day will be wild, we may see SPY attacking its next support at 112 level. Remember, it is the closing price which makes signals. If we close below the pennant support, we will attack 112 level this week. If we break 112 level (which I think will happen) we will go to 100 level.

Unfortunately, I am fully invested at this point so my account doesn’t allow me opening another Put position in SPY, which I would definitely do.

Let’s see what’s going to happen today.

Happy trading!




TastyWorks

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Posted by Martin September 21, 2011
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I made $1000 in two days trading options


For the first time in my trading career I can see some success. Yesterday I made $630 and today I added another $400 gain to my account. All in two days. Of course all those trades still can turn into a loss, but I am not expecting it much. And if so and those trades start turning, I will sell them and realize those gains.

for the first time, my hard learning brings results and finally I am recovering my account. Hopefully I will be able to sustain this trend and be consistent in trading. I also understand that I will have loosing trades as well, but hopefully I will be able to have more winning trades.

Trading is frustrating however even though you are making money. I could see several trades such as Netflix, which I wanted to short (buy puts), but my didn’t get filled and now it is probably too late to enter. So I have to let it go.

Well, I am recovering my account. I am not out of the forest yet, but it is quite uplifting seeing the progress I am making.

If you want to see my current trades, go to My Holdings page. There you can see that I was able to recover my account from $3200 up to current $5,700. Also check my exited trades to see my portfolio performance (although the table contains recent trades only and not losing ones made earlier this year. But I will add them, so I will honestly show the whole trading/learning process I went through.

Happy trading!




TastyWorks

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Posted by Martin September 21, 2011
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FED disappoints and the market is poised to fall


Today, the market dropped hard at the very end of the session reacting on FED’s disappointing announcement. Another news which helped markets to tank was a Moody’s downgrade of financial institutions such as Bank of America, Citigroup and Wells Fargo. I think this downgrade was a lot more significant then FED’s announcement.

I do not want to speculate over Moody’s downgrade report and its accuracy on their judgment. However, it looks to be a bit off and it won’t help much at this time. So where are we going now?

If you take a look at today’s trading range, a candle the market created, means a vicious trading and indicating a reversal. An extended bearish candle following a swing high (after a few days of rallying) signals a significant reversal. See similar candles at the beginning of June 2011, July 2011 and at the end of July 2011. All followed rallying market and signaled the top.

Based on that I am expecting SPY reversing and going back down to its support line at the trend line of the triangle (SPY at around $115), which may easily occur tomorrow and we most likely break that line. When we break down through that support at 115, we will go even lower and re-test $110 support level.

I am expecting the market to break that level too, but I cannot say for sure. Thus my target price for SPY is at $110 and then we will see.




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