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Posted by Martin March 11, 2015
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$SPX bounce play still intact


March 11, 2015 trading brought the market drifting lower. Does it mean the sellers are done with selling or are they getting ready for a new wave of selling? It seems that nothing has changed so far and we still may see some uptrend bounce prior to renewed selling. Unless we see some kind of recovery which would change the trend back up again. The support at 2040 seems to be holding as of now. Tomorrow session will show more clues where the market wants to go.

SPX expected move

Happy trading!
 

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Posted by Martin March 10, 2015
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$SPX expected move for March 11, 2015: bounce or more sell off by Wall Street clowns?


Irving KahnIrving Kahn, a legendary investor, and student and later coworker of Benjamin Graham, once said about speculators and investors in Wall Street:
“… I thought the people were crazy … They were running around and screaming at each other during trading hours, and they were like clowns!” He considered these people evil, destroying the market. I must admit, at some point I agree with Mr. Kahn, that speculators at Wall Street are clowns (well except myself and many of my dividend invostor blog friends – but they are not speculators). I also think that many of them do not know what they are doing. Many of them are just trained monkeys to sell stocks to public no matter what the stock is worth. Mr. Kahn died at the end of February at 109.

So what the clowns were doing today at the market? Freaking again. Everything they were buying yesterday they started selling again today. And I bet, they were running around and screaming at each other acting like clowns.

The price action of the S&P 500 has changed the picture however. Long term, we are still bullish on the market but short term, we are in trouble and heading down. There is a saying that markets take stairs up, but elevator down. It looks like, we just entered that elevator.

Today, markets sold off again blasting through all supports and statistical levels on increased volatility. So tomorrow we will probably see another technical bounce up and then later a renewed sell off. Here is my expectation for tomorrow:

SPX expected move

We have last support to hold the market. That support will most likely be broken, the question is when. I think, tomorrow it may hold and bounce the market back up to 2065 – 2070 level. Then we will see another trend down to 2010 or possibly even lower to 1990.

And what is the trading range for tomorrow?

SPX trading range

We reversed our bull put spread into a bear call spread today. With one more volatile day like today, our trade will be fully profitable. The goal here is to stay patient, do not panic, have your head always clear and know what to do when the trade goes against you.

You do not have to be right all the time, but you have to know what to do when you are wrong. And the best thing is to make money, even when you are wrong.

Let me finish with two Mr. Khan’s quotes I liked:

“The analyst must both practice, and to his client preach, patience.”

“If you command a lot of cash, you can be wrong and still not have to worry.”

Happy trading and let’s hope, tomorrow will show us we are on the right side of the trend.
 






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Posted by Martin March 09, 2015
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Will the support hold?


As expected, after a violent move last Friday, the market stopped at some significant supports at 2070 level:

  • 50 day moving average
  • lower Bollinger Band
  • previous channel resistance, now support

Having three significant supports being met at the same spot seems to be a very strong. But question is – will it hold?

 
SPX study
 

I believe it will hold.

But the market is weak and you can smell that weakness in every move. Any move higher is sold and bulls struggle to move up. Will we be able to move higher or will the sellers attack once again?

I expect the market to move higher to 2093 level, the previous support, now resistance again. This bounce would be just a technical event. It may last longer or only a few days. I could have lasted only today and tomorrow we will see another sell off based on who knows what hysteria.

Historically, March is a strong month and usually shows profits:

 
Seasonality - March
Source: CXO Advisory Group, LLC
 

Will this March show profits too? I hope so.

Here is my expectation for tomorrow:

 
SPX expected move
 

The light grey box indicates the range for tomorrow where the market would move tomorrow. The move can go up or down. I expect it up (but don’t take this as a prediction, just my expectation, which may be wrong). With such weakness in the market a renewed selling may come back.

Let’s see what tomorrow brings.

 






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Posted by Martin March 08, 2015
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SPX (un)expected move for March 9, 2015


What a trading last week. I must admit, $SPX tricked me into a trap. If you go back to look at my market expectation from last Sunday I expected the market to fall down and correct the uptrend.

This is a picture I originally posted:

 
SPX expectations
 

From the chart above you can see what my expectation for the last week was. A no brainer bearish trade. Yet I decided to open a bullish put spread against SPX last week. What changed my mind was last Monday trading which showed a very strong bullish move. So I got to believe the bearish trend will not happen.

Obviously, I was wrong. The Monday’s session was a trap.

But, are we supposed to predict where the market or stock will go or will be in a week, two weeks or in 4 days?

No. We are not. Nobody can predict where the market will be. But we can get some clues from the market.

It works in patterns and cycles. Humans act that way. We like to use and behave in cycles or patterns. We have a weather patterns, seasonal patterns. We do same mistakes over and over. We react to certain situation in predictable ways with predictable actions. We learned that throughout thousands of years of human history. If there is a danger, we panic and run for shelters, if there is a sign of prosperity we are pushed into participation.

There has been hundreds of books written about human behavior in their lives and in Wall Street. And I do not write this to make yet another study and academic paper on human psychology. This is to acknowledge, that although I try to assess where the market could go or be next day, in a week, or in a month, it is not a prediction.

I try to use statistical data and chart reading to create my expectation of where the market will be heading. On Friday last week, take a look at what a statistical expectation was and what the market did:

SPX finished

As you can see the market blasted thru all supports and levels. Investors freaked out about too good job reports that they would move FED into increasing interest rates earlier than expected. Did this fear have legs and be justified?

I am not convinced. First, look at the structure of the jobs. In February employment rose by 295,000 jobs. Per the Bureau of Labor Statistics, “Job gains occurred in food services and drinking places, professional and business services, construction, health care, and in transportation and warehousing“:

 

  • Food services and drinking places added 59,000 jobs (20%) – low wage, mostly seasonal jobs
  • Construction added 29,000 jobs (10%)
  • Healthcare added 24,000 jobs (8%) This was decline from average 29,000 job additions in previous months
  • Transportation and warehousing added 19,000 jobs (6%)
  • Retail trade added 32,000 jobs (11%)
  • Manufacturing added 8,000 jobs (3%)
  • Business services added 51,000 jobs (17%)

 

So, who was the biggest contributor? Food services business services and retail trade. Food services and retail trade are mostly seasonal low paying jobs in fast food and hospitality.

I live in an area with economy based on hospitality. We have seen companies hiring. Grocery stores, fast food, hotels, all those were hiring. But they were hiring knowing that when the season ends in April or May, when the resort closes, these people will be laid off again. They even openly admit this.

What else the Bureau of Labor Statistics says?

Employment in other major industries, including wholesale trade, information, financial activities, and government, showed little change over the month.

What else do we know about the newly added jobs? The average workweek hours haven’t changed for the fifth month in a row and stays at 34 hours a week. Doesn’t this sounds like a part time job to you? It does to me. Also wages didn’t grow in February. They added 3 cents to salaries and the overall hourly rate was almost the same – $24.78 per hour.

Can we be excited about this data? In January a great growth of 257,000 new jobs was revised to 239,000 – revised down by 7%.

If investors were fearful that these numbers can make FED increase rates sooner than later, then I am not impressed at all and I think they are crazy. And what media say while investors are freaking out?

Reuters:

“U.S. factory orders fall again in January”
“U.S. jobless claims rise; fourth-quarter productivity revised down – The number of Americans filing new claims for unemployment benefits unexpectedly rose last week and nonfarm productivity contracted more sharply than previously thought in the fourth quarter.”

What Washington Post says although they praise the employment data?

But the recovery is still a fragile one, particularly because wages have been flat for years and consumer spending could pull back if energy prices again climb.

I hope I made a point, saying that the jobs weren’t that impressive as they may look at the surface and that the economy is still not in a such good shape to justify too early interest rates hike. But I may be wrong. FED may impose rates hike, make it harder for Americans (and Treasury) to pay their debt, people and business borrow more expensive money, mortgages going up higher and refinancing becomes more expensive.

I do not try to predict when and whether this event of rising rates happen. It is not my job whatsoever. And I am not even qualified for that.

In trading stocks or options, the key is not predicting the market or events. The key is to have a plan and solid money management to be able to properly react to those events. If the trade goes with you, great, make your money. If the trade turns against you, know your steps how to avoid a disaster. When trading options, you need to know how they work, where the risk is and how to manage them and eliminate that risk. Not premonitions, predictions, or witchcraft.

So what did I do with my trade? It obviously got in-the-money. Nothing enlightening and to be happy about.

But I decided to move the trade away in time and moved it. I kept the strikes.

Originally we had:

long SPX 2080 puts and
short SPX 2085

This trade was expiring last Friday. I just moved it three weeks away. I collected a credit for this roll. I increased a potential gain if this trade finishes worthless. I still have the same in-the-money trade as before. Only the expiration is now at the end of March.

From my employment data hysteria review above I believe the selling was too violent and it created a buy opportunity although people are now scared again and expect more selling. I am bullish on this trend more than before. I expect this market to reverse and move higher.

If I am correct and the market starts rising again or even goes sideways, I can roll the trade again and lower the strikes this time to increase chances that it expires worthless.

If I am wrong (remember, I do not try to predict the market, only assess all possible options) I will reverse the trade into either a bear call spread or debit bear put spread.

SPX expected move

The market stopped at 50 day moving average and a previous sideways channel resistance, now support. If this level holds, we will see the market going higher, potentially to new highs. If it doesn’t, we will see more selling.

Since Friday was extremely extreme trading, I expect a bounce next week. I expect the market to bounce up to previous resistance at 2092 or even back up to 2119 level from which the market may reverse down again. The 2092 level is more likely resistance from which we may bounce down again.

SPX expected move

Above is a picture of what the market may do next week. Monday and Tuesday may set the tone for the week. If we see a bounce on Monday it may spark more selling as traders will sell the move up. Even Tuesday may see more upward pressure and yet I expect it to fail and the market may continue lower. Remember, once selling is undergo, it feeds more selling. Nevertheless, any bounce up would help our trade to roll it again or convert into a bearish trade easier.

Let’s see next week rolling.
 






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Posted by Martin March 05, 2015
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SPX expected move for March 6, 2015


Tomorrow is expiration day for our SPX bull put spread. Today’s trading bought us a little padding for tomorrow, making our trade safer than what it was yesterday for example. Hopefully this relief will help us tomorrow.

The market is weak and it stayed around $2100 level the whole day today as investor are expecting employment data tomorrow. This weakness along with a few indicators pointing down I expect the market to go down again tomorrow.

There are two things which may help this market to stay where it is or move it higher – employment data and a fact that we are at the mean market value (21 day MA and middle level of the Bollinger band. This is typically an important support (or resistance) and markets tend to bounce from this level to move back up higher. However, the employment data may change everything tomorrow.

With the weakness and a few positive technical indicators my expectation for tomorrow is mixed with downward pressure. The worst case scenario I see here is that the market may go all the way down to 2086 – 2088 level where it should stop (unless the employment report is so bad that it would shoot down though those levels without any stop or brake.

Let’s see if sellers take the control tomorrow or we will see yet another bumpy day with a bunch of ups and downs but without jeopardizing our trade.

And here is a visual look at my expectations:

SPX expected move

The light grey box indicates my expected range of move where I expect SPX to stay. The dashed magenta lines indicate three downside levels. The first two higher levels are statistically more common levels, the third lower one is an extreme for the day, so I do not expect that level to be breached. And even if so, it is still above our trade and we should be safe though.

The market is also hovering around 2092 – 2093 level which is a strong support from previous high (reached on December 29, 2014) which may stop the market from further falling.

We will be watching this market carefully tomorrow to see if we need to roll the trade or let it expire worthless for a full profit.






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Posted by Martin March 04, 2015
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SPX expected move for March 5, 2015


The market outlook doesn’t look good for our bull put spread against SPX. If the selling continues tomorrow with the same magnitude, our strikes will be breached and we will have to roll the trade away in time to give this market more time to consolidate.

On Tuesday, there was no reason for selling at all; today, the economic news were also silent giving no catalyst for selling. Were investors taking gains after a nice and long move up? Looks like.

The fight between bulls and bears continued today as well. In the morning a huge sell off took place when market dropped 17 points. That is a significant drop already. But then bears lost control and bulls pushed the market back up. At some point it looked like we would recover all losses and end the session in green.

It didn’t happen.

SPX daily

Later afternoon even bulls lost steam and trading went almost sideways.

Today’s trading changed the bullish outlook back to bearish for the week and it looks like I should have stayed with my original assessment of what the market would do this week and as I posted this in my post “Will S&P 500 go up or down next week?”.

With the retrospective it is now obvious that Monday’s trading was a trap.

SPX yearly move

There is now only two things which may save this trade: tomorrow’s jobless claim report and employment data on Friday. It can also destroy our trade if the report is too good or too bad (you never know what those guys in Wall Street deem as good news and what’s bad news. So let’s hope that data will be good and send market up high again. Let’s hope that data will be that good that investors will see it as a good sign that our economy is improving amid “bad automakers data” we saw as a reason for selling yesterday.

So, what is my expectation? On the low side it doesn’t look well and the outlook is bad. If we see renewed selling tomorrow with the same strength our trade will be breached and we may want to roll it away:

SPX expected move

It will a tough decision to make if we see selling again. If more selling takes place in the morning and in the afternoon the markets recover, there will be no need to roll the trade. If it however falls down and stays there, it may be difficult to roll the trade whatsoever (our trade is marked with a yellow price line at 2080/2085 and the market must stay above 2085 in order to profit from our trade).

Tomorrow is somewhat important for our trade as we may build more cushion for Friday and stay profitable. So let’s see.

Happy trading!
 






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Posted by Martin March 03, 2015
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SPX expected move for March 4, 2015


Today, we saw SPX retreating from its all-time high level. Surprisingly, it wasn’t economic data which sparked the selling but not so good sales reported by automakers. That’s at least what media are trying to tell us.

On Monday the trading was strong and bullish enough to reverse bearish outlook and my technical indicators shot a bull signal again. But today’s trading makes it a weak bullish trend again. Will the bullish outlook stay or not? We will see tomorrow.

Below is the chart of my expected moves of SPX for tomorrow. The light colored box indicates the low and high level where the market can go. If selling continues the worst case scenario would be that we fall down to 2088 – 2090 level and then we may bounce back up again.

 
SPX expected move
 

I do not expect the market to fall lower below 2088 level tomorrow. Unless selling is reversed in coming days, it may happen that the stock market falls below our bull put spread strike and we will have to roll the trade. But that is still too early to say at this point.

Let’s see what is going to happen tomorrow.
 






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Posted by Martin March 01, 2015
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Will S&P 500 go up or down next week?


My quick answer to that question is “I do not know.”

But I may at least to try to set boundaries for its move next week, so my potential trade would sit outside of those boundaries and safe. So I cannot say where the market would go next week.

Let’s take a look at what may happen however.

Last week, Thursday and Friday set a new tone to the short trend of the market. Long term – we are still heading up and we will once again see a great bull trend this year. But next week story seems to show a different picture. We are most likely heading down.

 
SPX expectations
 

The chart above shows a nice move up and break through the channel resistance. Yet last two days are showing slowing down of this trend and turning down. I pictured three possible scenarios of the trend continuation. I expect the market to move down and retest 2080 support before it turns back down.

It can turn into something more dramatic and we may move even lower and retest 2055 lower channel support or 2000 support. But I do not see any catalyst for such dramatic move. This move is very unlikely.

We have a few market moving reports coming out next week. One is a personal income and expenditure report issued on Monday. If the report shows that consumers have more disposable income, this may be seen positive and move the market up.

Second, it is the ISM manufacturing index also reported on Monday. A rising ISM index would be bullish for the market and may push it higher. Last few months ISM index was declining however.

 
ISM index
(Source: Nasdaq)
 

If we still see the index declining this may help the market going down.

Lastly, on Friday a traditional employment data will be posted. These may have mixed effect on the market. Too good data may spark a fear that FED may rise interest rates, or spark an optimism about economy improving.

And what about the next week? See my expected boundaries for the week:

 
SPX expected move
 

Hopefully, the trend would stay within those boundaries. But to say for sure, we will wait for Monday trading to see which direction the market wants to go.

Good luck for the next week trading.
 






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Stocks to buy in March 2015


February finished fast and it is time to choose new stocks to buy for the next month. If you purchased my stocks at the beginning of February, your portfolio would be 4.58% up today.

It could have been better but the stocks, mainly the energy stocks, fell down during the second half of the month. You can review my February selection in this post.

In the middle of February I created a portfolio out of my stocks selection in Motif Investing and called it “Undervalued Stocks”. Unfortunately I created the motif when stocks were high, so the motif is now losing.

Today, I rebalanced the Undervalued Stocks motif removing stocks which no longer meet the criteria, added new stocks, and rebalanced portfolio allocation to equal weight.

The removed stocks should bring in 3.15% gain if they sell on Monday for today’s prices or better.

And here is a new selection for March which will be also used in the motif:

 

As oil rebounds this year (and it will) many of these stocks will have a great time.

You can buy this motif if you want if you open an account with Motif Investing. Then you can buy the entire portfolio the same way as a mutual fund – you buy all positions at once with minimum $250 investment. You will be buying fractional shares if you do not have large amount of money.

 

 

 

Thus this is a great investment for small investors

I purchased this motif myself to show confidents in my stock selection. You can open your account too and if you start investing, you will receive a $150 bonus from Motif Investing.

I will be rebalancing this motif every month. Let’s see, how well this portfolio will do at the end of the year.

Good luck to all of you!
 

Previous selection:

Stocks to buy in January 2015
Stocks to buy in February 2015
Stocks to buy in April 2015
Stocks to buy in May 2015
Stocks to buy in June 2015
 






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Posted by Martin February 27, 2015
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Bull Put Spread against SPX expired for 6.38% profit


Although yesterday the trading looked dramatic, no actual drama has happened today and our SPX bull put spread we put out on Wednesday with strikes at 2080/2085 expired worthless for a full profit of a received credit (our subscribers and I realized 6.38% profit this week). If we will be able to maintain such profit every week, our trading might end at more than 300% profit for the year.

Let’s see if that happens.

Below is the summary chart of my SPX weekly expectations – at the beginning of the week up to yesterday’s and today’s trading. I was wrong on volatility but was right on the max high level of the market calling it $2118 while we hit $2119 mark.

SPX predictions

Volatility dried last week making this an easy trade. Let’s see what we can expect next week. There is one thing for sure – the trend weakened significantly and from the short term perspective we are looking at possible reversal and retest of $2100 price level next week.

We will see on Monday and Tuesday next week. We may open a new trade either on Tuesday or Wednesday next week.
 






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