Friday, May 30, 2008

Next Week

Based off of the near overbought short-term readings and the stalling action today, I think that I will end up posting an inverse ETF trade next week. I have used QID before which is double inverse of QQQQ (Nasdaq). I may suggest DXD next week which is the double inverse of DIA (Dow 30). The Dow is in the weakest technical position, though it tends to be a bit less volatile than the Nasdaq. I like volatility for short term trades, but usually it is best to play the laggards when expecting downside.

If if play this, it will probably be by buying puts on the DIA ETF.


Thursday, May 29, 2008

Exit QLD Trade

The short term model is not quite "too high" yet, but it is close and I think that the risk of holding the trade longer could outweigh the reward as we near the highs from early last week.

QLD is at 89.75 as I write this, up from the entry at 84.35 on Tuesday, for another nice gain of 6.4%.

So far that is 4 for 4 on the trades using the short term model.

Past Trades:
QLD 4/9/08-4/16/08 = 2.87% gain
QLD 5/6/08-5/12/08 = 2.73% gain
QID 5/15/2008-5/22/2008 = 2.46% gain
QLD 5/27/08-5/29/08 = 6.40% gain


Wednesday, May 28, 2008


Today I exited PAAS for 4.80 which is a 27% loss. I have a basic rule that I follow where if an option is not profitable after 5 days, and does not seem to be doing what I wanted/expected, then I exit the option. This saves me from just playing guessing games. Better to stay in trades that do what you expect, and leave the others.

As a side note, if tomorrow is an up day in the markets, I will likely suggest exiting QLD.


Tuesday, May 27, 2008

QLD Trade Update and PAAS

QLD opened at 84.35 today, so that is the price for entry that I will use for tracking it.

Also, depending on the next day or two, I may need to exit PAAS. The entry wasn't a real low risk point which is the way I usually trade. It hasn't broken the pattern I traded it for yet, but on a percentage basis it has lost about all I am typically comfortable with. However, the short term indicators like fast stochastic lines are basically oversold, so I will probably just wait to see what the next bounce looks like, if the patterns does not get broken before that.


Sunday, May 25, 2008

New QLD Trade

The short term model is oversold again after a pretty harsh week.

My feeling is that the uptrending environment we were in the last couple months may turn into choppy going or possibly continued hard selling for a fews weeks or months. I am going to make some judgement of which signals to act on and which to leave go. I try to do this by trading in the direction of a 50 day moving average, but some more judgement is needed around potential trend change points. The oversold reading was bad enough that I think there is a good chance of a quick bounce, so I will suggest a trade on QLD.

New Trade:

Enter QLD at the market open on Tuesday. Price is currently around 84.00.


Thursday, May 22, 2008

Trade Exits

Today I exited my trade on NEM for 7.08 which is 53.58% gain. There is plenty of time to expiration, but it (and some other gold stocks) showed bearish candle patterns at their upper Bollinger Band. So it seems like a short term pause is likely. I would be very inclined to look for another entry on a controlled price pullback.

I exited the NKE trade today for 1.80 which is 33% loss. The trade started out well, but then it hasn't been able to make the push up above resistance, and then it closed below its 50 day moving average yesterday. In the past, when a trade like this doesn't make the breakout I expect, it rarely turns out well. So, the key here is to minimize loss.

Also, the last trade on QID should be exited. The entry was 38.97 on the 15th, and the price now is 39.93. That is 2.46% gain. So that's the 3rd winner in a row on the QLD/QID short-term model.

Closed Option Trades on the Blog:
MTH: -42%
GME: -35%, -33%
AGU: 11%
NEM: 54%
NKE: -33%

Tuesday, May 20, 2008


I bought a couple options today.

My order on OSG got filled at 7.00. That is a July 85 Put option. OSG is Overseas Shipholding Group. The shipping sector formed bearish engulfing and shooting star candles yesterday and I think a decline is likely.

I also bought a July 30 Call on PAAS which is Pan American Silver Corp. Entry price was 6.70. I already have an option on NEM which is a gold company. Precious metals futures and the mining stocks all tend to move together. The silver stocks are showing similar patterns to the gold stocks. This stock is moving up off a hammer candlestick reversal. The stock is currently at 36.00 so this is an in-the-money option that does not have to move a lot to breakeven. The precious metals group performed well in the fall and winter market declines. They are more driven by inflation issues, and have less correlation (especially recently) with the broader equity markets. So even if the markets decline, I think gold and silver will do OK or great.


Monday, May 19, 2008

New Trades

I bought a couple put options today at the end of the day after another reversal session. The options were on SPY (exchange traded fund for S&P 500) and CNI (a railroad stock), but I am not going to track those on the blog. I have a couple put option trades lined up for tomorrow as there were many reversal patterns today in different sectors.

I currently have an order to buy a July 85 Put on OSG tomorrow. Many shipping sector stocks formed high volume bearish engulfing patterns and OSG formed a shooting star candlestick pattern. I think it is likely for these stocks to decline sharply. I will track this trade on the blog assuming my order gets filled tomorrow.


Trade Exits

Today I exited AGU at 10.10 for 11% gain from 9.10 entry. The whole fertilizer sector lacked conviction on its advance the last couple weeks. After the sector wide bearish engulfing patterns today I feel that this trade will fail to make new highs before expiration, so better to exit now with a small profit.

I exited my second contract of GME today for 2.80 for 33% loss from entry at 4.20. This stock closed back below its 50 day moving average today after a brief bounce. I still like the long term outlook for this stock, but I will have to look at it again another time.

Closed Option Trades on the Blog:

MTH: -42%
GME: -35%, -33%
AGU: 11%


TKC option and Cell Phone Stuff

As an aside, I did not trade any QID or QQQQ puts last week. The market seems to be ignoring the "too high" signal on the short term model. The reason you use models and charts is to NOT rely on emotion. However, if I was in the QID trade I would have sold already with a loss. I will let this play out for sake of the trade and post an exit when the model shows "too low."

On another note, I bought an October 20 Call option on TKC today for 2.20. TKC is a turkish cell phone company. I looked at a bunch of cellular company charts this weekend, and I would say that it looks to me like the whole sector will be moving higher.

I believe that the foreign companies provide a better opportunity on cell phones. Their demographics for usage tend to lag ours. So some of their companies may still have a lot of phones to sell (and profits to make) before the population is saturated with cell phones.

I love the pattern on TKC. The stop loss for me on this is if the stock closes below 17.28. If the pattern goes as I anticipate, I think 300% profit is achieveable before expiration. That gives a good reward on risk. I think the stock is likely to go above 30 this year and it is a little below 20.00 now.


Wednesday, May 14, 2008


Earlier today, the markets made a strong upward move, but then reversed sharply at the end of the day. The Nasdaq lead the way down. The short-term model I follow is overbought and the price has confirmed that. There are a confluence of factors right now that I think are likely to lead to at least some short term declines in the market if not more hard selling like we saw in the winter.

So, I am going to recommend a trade on QID which is the 2x inverse of the QQQQ ETF. This fund will gain about twice the percentage the QQQQ loses and vice versa. QID closed at 39.00 today, but I will start tracking it as of tomorrow's opening price. I may play this move by buying puts on QQQQ.....likely the June 50 put.

Trade: Buy QID 5/15/2008 on the open.


Tuesday, May 13, 2008

Nike and the Olympics

Today I bought a June 65 Call on NKE for 2.70. NKE is Nike. I have watched this stock periodically for some time. The stock is showing a support pattern around its 50 day moving average after backing off from all time highs in March of this year.

One interesting aspect of Nike is that the stock tends to perform very well during the weeks the Olympics are held. The summer olympics are stronger than the winter olympics as well. I know that the Olympics are in August and that past tendency is not enough for me to trade off of, but this bit of history is a nice addition to other factors I find favorable about this trade set-up.

The stop loss for this trade is tight. The stock is currently at 65.80. If the stock closes below 64.19 I will exit with the loss.


Exit the last QLD trade

Yesterday afternoon the short term model became overbought and signaled an exit for the last QLD trade. Yesterday's closing price was 87.41. The entry price was 85.09.

This turned another positive trade, this time of 2.73%.

Past Trades:

QLD 4/9/08-4/16/08 = 2.87% gain
QLD 5/6/08-5/12/08 = 2.73% gain


Sunday, May 11, 2008

Peak Oil

I am sure that everybody has realized the changes taking place in the price of oil. At least everybody probably sees that indirectly through gas prices. Unfortunately, the trend of higher priced petroleum based products is not likely to end any time soon.

The term "Peak Oil" refers to a peak in oil production. The US peaked in its oil production in the 1970's. Almost the whole world has, without a doubt, peaked in their production already. Their are only a few places in the world where production has not peaked or is not known to have peaked. I could list some of these places, but basically think of places where the US military is very active, and there you will find oil.

The global production of oil is expected to peak by 2010. The increasing production phase of oil production follows a bell curve in returns basically. The oil is easy to get. However, the declining phase is often dramatic and sharp rather than a steady bell curve descent. The remaining oil is hard to get and takes new technology and more energy to extract. While this will hurt stock markets in general, I believe that there is and will be a window of opportunity for investment in energy related companies, both conventional and alternative.

As oil prices continue to rise, those companies that can relatively efficiently extract oil or produce other energy will be rewarded, and their earnings and share prices will rise. Stephen Leeb has a couple good books on the subject of oil and investing. The takeaway message for individual investors is that in past inflationary times, when oil was rising, gold and oil service/production related stocks have tended to fare very well while the markets overall have done poorly.

Stephen Leeb references a couple studies published in Science that indicate that wind energy may be the most realistic, healthy, and cost effective alternative energy. Mark Jacobson is the author for anyone interested in further pursuing some of the research.


Gold and Inflation

Update on MTH and GME option trades....

Sold MTH for 1.85 for a 42% loss.

I had bought 2 GME calls. I sold one for 2.75 (35% loss) when the 50 day moving average was breached. I decided to hang on to the other contract for a couple reasons. There is a previous gap up that may act as a spring board, and there is still plenty of time for this trade to work. Also, the loss was less than 50%, and that still keeps my risk/reward above 2 to 1 beacuse a successful trade will typically lead to greater than 100% gain. I will update the exit of this contract also.

On Friday I bought a September 45 Call on NEM for 4.55. The stock is around 45.00, so this is an at-the-money trade where the stock needs to get to 49.55 ish to breakeven by September expiration. NEM is Newmont Mining Corp. It is one of the largest gold mining companies in the world.

Historically Gold prices have risen during inflationary periods. Inflationary periods also tend to correspond with periods of currency devaluation. I am no economist and the reasons for those trends are many, but there are currently strong fundamental trends toward a declining US dollar value, and I don't see that changing real soon. As you could infer, there is a strong negative correlation between gold and the US dollar. Some of the factors driving dollar devaluation are increasing liquidity from the federal reserve, lowering interest rates on US notes, and increasing price of oil.

The earnings and price of gold mining stocks also tend to rise as the market price of their product (gold) rises. Gold prices have eased off their highs of the last few months. Many leading gold stocks have (at least temporarily) bounced off their old price breakout points and it looks likely that the sector will rise from here.
I like the pattern on NEM and think that it is enitrely possible that NEM will move up above 57.00 on the next advancing phase. A move to 53 or 54 dollars in the next couple months would create a 100% return, so that would be the target if the trade goes as expected.

The stop loss for me on this trade will be if NEM's stock price closes below 42.93.


Tuesday, May 6, 2008

New Option Trade

Today I bought a July 55 Call option on GME. GME is the ticker for Gamestop which is the world's biggest video game retailer. Despite rising cost of living and less entertainment spending, GME has been posting great growth. Netflix and GME have both benefitted from consumers trying to get more bang for their buck. GME has been a strong performer the last couple years (Nintendo also has been booming).

Their is always a specific pattern that I look for before making a trade. This stock has pulled back to its 50 day moving average and looks to be forming a bullish engulfing pattern as we speak. My entry price was 4.20. The stock price is currently 54.00ish. If the stock price closes below 52.00 then that would be my stop loss and exit for this trade.

I would anticipate this stock moving up above the 59.00 or 60.00 level in the next few weeks. The stock must rise to at least 59.20 to break even if holding until expiration.


Monday, May 5, 2008

New QLD Trade

Today the Nasdaq ventured into short term oversold territory based off the model I follow. I am not going to trade this in any way, but I am going to track this trade as of today's close of 85.73. I would be come interested in actually trading if the price pulled back a bit more. The market is still in a clear uptrend based off the time frame of this model, so the most probable trades will be buying small declines in the uptrend and then selling into (anticipated) future market strength.

I do not plan on posting stop losses on the QLD trades typically, especially if I don't actually make the trade. I simply will let the model tell me when to enter and exit, and post the resulting performance.

Trade: Buy QLD at a limit price of 85.73.

Option Trade Today

Today I bought a September 20 Call Option on MTH. MTH is a residential housing construction company. The price was 3.20. The stock is currently at about 19.50. The stock has consolidated for 1 month above its 50 day moving average. The Bollinger Bands (an estimate of volatility) have contracted which can help increase the trade profitability as implied volatility is likely lower. The stock must go up about 4 dollars or 20% by September to breakeven.

Despite the woes of the housing industry and the huge declines over the last couple years, this industry group has been one of the strongest performers so far this year. Also, there are positive demographics for homebuying through most of 2008. This may well allow some recovery in homebuilding stocks before a more dramatic and longer term decline a few years down the road.

I have a stop loss based off the stock price for MTH. If the stock closes below 17.78, I would have to have a very sound reason not to immediately exit the trade.

I will update the exits and profit/loss of every trade I post on this blog.


Friday, May 2, 2008

Options and other stuff

I may start posting the option trades that I am making on this blog. I would not recommend anyone trade these without following past performance, etc. Most people should not trade options (sometimes I include myself in this group), but as with any worthwhile pursuit, it takes dedication to become successful.

The trade I made today is to buy a July 80 Call option on AGU. AGU is a fertilizer producing company. In case you haven't noticed, the price of all grains have risen sharply in the last 2 years. This has created rising demand for fertilizers and farm equipment among other industries. The use of ethanol in fuel is a related issue and I believe it to be a grave mistake conceptually and a bigger mistake from a policy standpoint.

Fertilizer stocks have been the best performers for the last year or so. AGU recently broke out of a price basing pattern. Then it pulled back to the breakout price level. It announced earnings today and bested expectations and offered strong guidance. I believe based off the price pattern and fundamental trend that this stock will likely move above 96 dollars in the next month or so. The breakeven point for my option is around 89 dollars.

The purchase price for the option was 9.10.