QLD opened at 74.30 today and that is the price I will use to track this trade. As mentioned before, I would definitely place a stop loss order on this trade around 71.00 and even up to 72.00ish because I don't think that we have seen a bottom that will hold for weeks. There is potential for further sharp declines.
Pete
Monday, June 30, 2008
Friday, June 27, 2008
QLD Trade, SRS Update
In my last post I mentioned that there were signs of a potential short term bottom in place. More of those signs came on Friday, at least as far as I am concerned. While I also mentioned that I didn't plan to recommend many bullish trades in this downtrend, I think now may be a good opportunity to get a bit aggressive. I have ignored the last 3 or 4 oversold readings in the short term indicator, but this one looks better.
Both NYSE and Nasdaq had very heavy volume today. Volume was heavier in the Nasdaq than at the March bottom and only a bit lower than a few days in January and last August which were very high fear sell offs. Also the volume on DXD, which is the 2X inverse fund of the Dow/DIA, spiked to its highest level since the inception of the fund. I believe these are indications of a short term climax bottom.
The Nasdaq and QQQQ ETF nearly completely filled a large open gap up from April that I had mentioned a couple months back. Then price reversed intraday to close near the open to form a hammer/doji candle stick. These three factors (gap retracement, high volume, reversal candle) create what I think is a good bullish set-up.
I suggest purchasing QLD on Monday at a limit price of 75.50. While I haven't suggested specific stops on past trades I would definitely place one on this trade. 71.00 may be a good stop level that could allow a little more downside but keeps the risk within reason.
Also, move the stop on SRS up to 92.00.
Pete
Both NYSE and Nasdaq had very heavy volume today. Volume was heavier in the Nasdaq than at the March bottom and only a bit lower than a few days in January and last August which were very high fear sell offs. Also the volume on DXD, which is the 2X inverse fund of the Dow/DIA, spiked to its highest level since the inception of the fund. I believe these are indications of a short term climax bottom.
The Nasdaq and QQQQ ETF nearly completely filled a large open gap up from April that I had mentioned a couple months back. Then price reversed intraday to close near the open to form a hammer/doji candle stick. These three factors (gap retracement, high volume, reversal candle) create what I think is a good bullish set-up.
I suggest purchasing QLD on Monday at a limit price of 75.50. While I haven't suggested specific stops on past trades I would definitely place one on this trade. 71.00 may be a good stop level that could allow a little more downside but keeps the risk within reason.
Also, move the stop on SRS up to 92.00.
Pete
Thursday, June 26, 2008
It's Scary That Traders Aren't More Scared (also SRS update)
As the Dow is making new lows below the January lows, it is tempting to start looking for a market bottom. I find one of the simplest and most reliable tools to gauge whether the market is bottoming is a moving average of the equity or total put/call ratio. I like to look at both 5 and 20 day averages and then look for crossovers of the averages after they get to historically extreme points. I also like to see the data in relation to standard deviation bands as that will help to locate relative extremes. In my estimation, we are a ways off before those get extreme enough to call a bottom.
Also, I am not an expert on the VIX but I am astounded that the Dow was able to forcefully break its January low, and the VIX is not even close to a relative extreme. I don't think there is enough fear in this measure to anticipate a bottom yet.
On another hand, it is helpful to look at volume on the indices and ETFs to help see the activity at recent market bottoms. One thing that struck me was that the volume on DXD which is the 2X inverse ETF of the Dow was very high.....higher than March, but not quite as high as January or last August. Volume will swell near market bottoms on an ETF like this because people are scared and are hedging other holdings or are trying to speculate on more downside. Based off the surge today, I think it is possible that we are very close to the completion of a first wave down in a much larger decline. So maybe we will get a couple weeks of relief, but I wouldn't bet on a multi month bounce from here.
The short-term model is oversold now, but I don't plan to suggest bullish plays when the market is in a clear down trend. I will be very selective on those.
As an aside move the stop on SRS up 90.81.
Pete
Also, I am not an expert on the VIX but I am astounded that the Dow was able to forcefully break its January low, and the VIX is not even close to a relative extreme. I don't think there is enough fear in this measure to anticipate a bottom yet.
On another hand, it is helpful to look at volume on the indices and ETFs to help see the activity at recent market bottoms. One thing that struck me was that the volume on DXD which is the 2X inverse ETF of the Dow was very high.....higher than March, but not quite as high as January or last August. Volume will swell near market bottoms on an ETF like this because people are scared and are hedging other holdings or are trying to speculate on more downside. Based off the surge today, I think it is possible that we are very close to the completion of a first wave down in a much larger decline. So maybe we will get a couple weeks of relief, but I wouldn't bet on a multi month bounce from here.
The short-term model is oversold now, but I don't plan to suggest bullish plays when the market is in a clear down trend. I will be very selective on those.
As an aside move the stop on SRS up 90.81.
Pete
Wednesday, June 25, 2008
Sugar, Corn, Ethanol, and Other Stuff Too
Anybody following the grain markets (or buying boxes of cereal) knows that prices are up. Why? and how do you take advantage?
I am not a fundamental expert, but I can rehearse to you some of the underlying supply and demand factors.
CORN (yellow didn't show well so I used blue font, because there is also blue corn)
There is relatively new legislation forcing our country to use more ethanol in fuel. This demand has been met mostly by using corn starches to make the ethanol. This has driven up corn prices for a while.
SUGAR (this is the color of sugar in the raw)
Sugar is probably the most efficient and least socially harmful way to create ethanol, though this has not been used as much. I suspect with the effects of world hunger from less corn for food, and with the increasing price of corn, there will be increased demand for sugar in coming months/years.
I have tried to take advantage of both these markets though I do not trade commodities. For a person who does not trade commodities, you depend on companies with exposure to the underlying market or to ETF's that track commodities.
DBA is an ETF that tracks corn, wheat, soy beans, and sugar. I have options on this ETF which expire in October. IPSU and CZZ are companies that produce and refine sugar. I have options on IPSU which expire in October. I feel that those securities will give a person a chance to benefit from these trends. I think both could have a ways to go before saying they are too high to purchase and still expect good gains.
If anybody wants further analysis of these markets or trading/investing ideas, please post a comment/question.
Pete
I am not a fundamental expert, but I can rehearse to you some of the underlying supply and demand factors.
CORN (yellow didn't show well so I used blue font, because there is also blue corn)
There is relatively new legislation forcing our country to use more ethanol in fuel. This demand has been met mostly by using corn starches to make the ethanol. This has driven up corn prices for a while.
SUGAR (this is the color of sugar in the raw)
Sugar is probably the most efficient and least socially harmful way to create ethanol, though this has not been used as much. I suspect with the effects of world hunger from less corn for food, and with the increasing price of corn, there will be increased demand for sugar in coming months/years.
I have tried to take advantage of both these markets though I do not trade commodities. For a person who does not trade commodities, you depend on companies with exposure to the underlying market or to ETF's that track commodities.
DBA is an ETF that tracks corn, wheat, soy beans, and sugar. I have options on this ETF which expire in October. IPSU and CZZ are companies that produce and refine sugar. I have options on IPSU which expire in October. I feel that those securities will give a person a chance to benefit from these trends. I think both could have a ways to go before saying they are too high to purchase and still expect good gains.
If anybody wants further analysis of these markets or trading/investing ideas, please post a comment/question.
Pete
Monday, June 23, 2008
SRS update, GLD Puts, OSG exit
Move the stop up to 86.69 on SRS. The real estate stocks are getting hit pretty hard, so this inverse ETF is off to a good start. I will continue to provide updated stop loss points.
I bought July 87 puts for 2.25 on GLD and will track this trade on the blog.
I exited the July 85 OSG puts for 3.50 which is 50% loss. The trade got profitable quickly, but then made a recent sharp rally to the stop loss point on entry. One strategy on a profitable trade is to put a breakeven stop loss after some predetermined % gain. I probably don't do this often enough, but it is always easy in retrospect to say that when a winner turns to a loser. But if you get stopped out in a sharp flucuation before the stock goes your way again, you don't look as smart.
Pete
I bought July 87 puts for 2.25 on GLD and will track this trade on the blog.
I exited the July 85 OSG puts for 3.50 which is 50% loss. The trade got profitable quickly, but then made a recent sharp rally to the stop loss point on entry. One strategy on a profitable trade is to put a breakeven stop loss after some predetermined % gain. I probably don't do this often enough, but it is always easy in retrospect to say that when a winner turns to a loser. But if you get stopped out in a sharp flucuation before the stock goes your way again, you don't look as smart.
Pete
Sunday, June 22, 2008
A Golden Triangle
Gold appears to be forming a triangle pattern before another leg down. It looks to me like the triangle is complete or extremely close to it. I will be purchasing some put options on GLD which is an ETF that tracks gold and has recently become optionable. From looking at the time length of the downward moves in the triangle as well as the time of the first leg down off the March high, I would anticipate a move lasting about 3 weeks and moving down to the 78-80 dollar range. I have included a link to a chart in the next post.
If gold is declining, does that have implications that the inflationary period of rising commodity prices and expanding credit (currency devaluation) is ending?
Pete
If gold is declining, does that have implications that the inflationary period of rising commodity prices and expanding credit (currency devaluation) is ending?
Pete
Wednesday, June 18, 2008
Harry Dent/ Demographics
I have a link to Harry Dent's website on the right hand side of the screen. I did not mention Harry's perspective in the last post, though it is the most fundamental and understandable type of forecast. His work is based off of demographics.
When you boil a market or economy down, a market that is producing, earning, and spending is a healthy one. All of those factors can be quantified demographically by looking at how many people in a population are of a certain age and where that age is in relation to the peaks and valleys of productivity, spending, etc.
We are fast approaching a time when the world's largest generation is going to move past its peak spending point, then not too long after, drop dramatically in productivity as the baby boomers mass retire. It is hard to imagine this being a good scenario for markets and the past research of Harry Dent will bear that out.
There are a number of free resources that you can view on the site. I would urge anyone reading this blog to become familiar with the basics of this research and look into how to protect assets in a deflationary period. It may sound like Doomsday talk, but realize that Doomsday has came and went for generations past, and there are reasonable fundamental causes and ways to forecast those time periods for the future.
Pete
When you boil a market or economy down, a market that is producing, earning, and spending is a healthy one. All of those factors can be quantified demographically by looking at how many people in a population are of a certain age and where that age is in relation to the peaks and valleys of productivity, spending, etc.
We are fast approaching a time when the world's largest generation is going to move past its peak spending point, then not too long after, drop dramatically in productivity as the baby boomers mass retire. It is hard to imagine this being a good scenario for markets and the past research of Harry Dent will bear that out.
There are a number of free resources that you can view on the site. I would urge anyone reading this blog to become familiar with the basics of this research and look into how to protect assets in a deflationary period. It may sound like Doomsday talk, but realize that Doomsday has came and went for generations past, and there are reasonable fundamental causes and ways to forecast those time periods for the future.
Pete
Monday, June 16, 2008
Market Perspective
If you follow investing or trading for any length of time, you come across various analysis systems and gurus who have their time in the sun. I don't suggest following any one guru but there are a few voices that have my respect, and I thought I'd briefly pass some perspective along.
Glenn Neely form Neowave.com believes that we have entered a new bear market that will likely be severe and lengthy (4-6 years). His analysis is a logic based Elliot wave theory.
James Flanagan of GannGlobal.com shows that the average first leg down in a bear market is about 20-21% and takes about 4-5 months. That is very similar to our current situation. Also, the average first bear market rally is about 50% retracement of the first leg down. Also, right on que. They view our current market as a relatively early stage bear market.
Jason Geopfert of SentimenTrader.com shows similar stats as James Flanagan and seems to be favoring a bear market view until proven otherwise.
Bernie Schaeffer of Shaeffersresearch.com offers a more bullish view based off some recent comments. Bernie knows his stuff so I always find his comments useful when he posts them on his site.
On a shorter term note, I have posted a link to TickerSense blog which polls prominent bloggers on short term market perspective. I haven't followed this enough to know how accurate the blog community is, but it definitely can be used in a contrary sense. Looking at their history of the poll, shows that the blogging community falls prey to the same sentiment extremes as other surveys have shown.
http://tickersense.typepad.com/ticker_sense/
Pete
Glenn Neely form Neowave.com believes that we have entered a new bear market that will likely be severe and lengthy (4-6 years). His analysis is a logic based Elliot wave theory.
James Flanagan of GannGlobal.com shows that the average first leg down in a bear market is about 20-21% and takes about 4-5 months. That is very similar to our current situation. Also, the average first bear market rally is about 50% retracement of the first leg down. Also, right on que. They view our current market as a relatively early stage bear market.
Jason Geopfert of SentimenTrader.com shows similar stats as James Flanagan and seems to be favoring a bear market view until proven otherwise.
Bernie Schaeffer of Shaeffersresearch.com offers a more bullish view based off some recent comments. Bernie knows his stuff so I always find his comments useful when he posts them on his site.
On a shorter term note, I have posted a link to TickerSense blog which polls prominent bloggers on short term market perspective. I haven't followed this enough to know how accurate the blog community is, but it definitely can be used in a contrary sense. Looking at their history of the poll, shows that the blogging community falls prey to the same sentiment extremes as other surveys have shown.
http://tickersense.typepad.com/ticker_sense/
Pete
Quick Update on Short Term Model
Today the short term model got clearly overbought or "too high." I had traded the oversold signal last week using QQQQ call options and sold them today for 25% gain. I considered posting a trade on DXD to the blog, but there is something telling me that the markets could have some more upside in them, even if they continue down the next couple weeks.
The short term selling extremes last week brought lots of pessimism back into the market, which may put a short term halt to selling. And based off the low breadth readings, I have seen some other bloggers post past returns after such poor breadth which indicated very positive results up to 10-12 days later. So I don't want to jump the gun. If the markets rise further and create an even stronger overbought signal while remaining in a clear dwontrend, then I will post a new ETF trade.
Pete
The short term selling extremes last week brought lots of pessimism back into the market, which may put a short term halt to selling. And based off the low breadth readings, I have seen some other bloggers post past returns after such poor breadth which indicated very positive results up to 10-12 days later. So I don't want to jump the gun. If the markets rise further and create an even stronger overbought signal while remaining in a clear dwontrend, then I will post a new ETF trade.
Pete
Thursday, June 12, 2008
Barchart.com - Charts - CLN8 CRUDE OIL July 2008 NYMEX
I am testing to see if I can post some charts on this blog. I have posted the July Crude Oil futures contract. There is a big harami candlestick as crude made a record surge to new highs on Friday then gapped back down Monday. This is occuring with technical divergence indicating loss of momentum. Also, while not visible on this chart, I believe there is a good possibility that the current advance has occured in 5 Elliot Waves and may be complete or near complete and ready for a decline.
Barchart.com - Charts - CLN8 CRUDE OIL July 2008 NYMEX
You may need to hit "Draw Chart" to view the chart.
Barchart.com - Charts - CLN8 CRUDE OIL July 2008 NYMEX
You may need to hit "Draw Chart" to view the chart.
Wednesday, June 11, 2008
Exit DXD and DIA puts
I have exited my DIA puts and am recommending exit of the DXD trade based off short term negative extremes. I think it may work fine to hold this longer, but my goal with using this short term model on this blog is to present a method of high probability investment growth with little drawdown (negative swings) in the overall scheme. So I think it best to wait a bit to see if another better opportunity presents itself.
DXD is currently at 57.01 up from 52.98 at entry for a 7.6% gain.
The DIA puts are 6.50 up from at 3.40 entry for a 91% gain.
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
DXD 6/5/08-6/11/08= 7.6% gain
Closed Option Trades on the Blog:
MTH: -42%
GME: -34%
AGU: 11%
NEM: 54%
NKE: -33%
PAAS: -27%
WFC: -28%
DIA: 91%
Pete
DXD is currently at 57.01 up from 52.98 at entry for a 7.6% gain.
The DIA puts are 6.50 up from at 3.40 entry for a 91% gain.
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
DXD 6/5/08-6/11/08= 7.6% gain
Closed Option Trades on the Blog:
MTH: -42%
GME: -34%
AGU: 11%
NEM: 54%
NKE: -33%
PAAS: -27%
WFC: -28%
DIA: 91%
Pete
Tuesday, June 10, 2008
New Link to Telechart
I have added a link in the Favorite Sites section to www.worden.com.
This is the website for Telechart software which is the best technical analysis software I have used and is affordable. It allows you to sort all stocks by many different parameters. I like this software mainly because I can program sort criteria to search for specfic candlestick patterns at the end of each day. Then I can filter through these candles and narrow the list by using Bollinger bands and stochastics or RSI, etc.
This is only useful for technically minded investors/traders.
Pete
This is the website for Telechart software which is the best technical analysis software I have used and is affordable. It allows you to sort all stocks by many different parameters. I like this software mainly because I can program sort criteria to search for specfic candlestick patterns at the end of each day. Then I can filter through these candles and narrow the list by using Bollinger bands and stochastics or RSI, etc.
This is only useful for technically minded investors/traders.
Pete
Trade Updates
The SRS trade was triggered at 90.00. Move the stop loss order to 82.00
I exited the WFC option for 2.25 for 28% loss.
Closed Option Trades on the Blog:
MTH: -42%
GME: -34%
AGU: 11%
NEM: 54%
NKE: -33%
PAAS: -27%
WFC: -28%
Open Option Trades:
OSG puts
DIA puts
Pete
I exited the WFC option for 2.25 for 28% loss.
Closed Option Trades on the Blog:
MTH: -42%
GME: -34%
AGU: 11%
NEM: 54%
NKE: -33%
PAAS: -27%
WFC: -28%
Open Option Trades:
OSG puts
DIA puts
Pete
Monday, June 9, 2008
DXD Trade Update
If you traded DXD, move the stop loss to 52.00. I will let this trade ride a while if not stopped out. Also, I will continue to monitor for new entries as short-term conditions present themselves.
Pete
Pete
Index and Sector ETFs
ETFs stand for exchange traded funds. They are like mutual funds in a sense, but they trade like a stock on the exchange throughout the day.
Proshares is a company that has a number of these ETF and has also inverse ETFs that will rise as the underlying sector or index falls. When markets decline, these inverse ETFs give a way to profit without having to sell short or use options. This can be done in retirement accounts as well because the ETF trade just like a stock.
The first recommendation I have here is on SRS. SRS is the ultra short (double inverse) of the real estate sector ETF. If real estate related stocks decline, SRS will rise.
Recommendation:
Buy SRS using a "Buy Stop" order of 90.00. Then place a stop loss order at 79.00 after entry.
Once a trade that I post here is entered, I will periodically post adjusted stop loss levels, and at times suggest an immediate exit instead of waiting for the stop loss to trigger.
http://stockcharts.com/h-sc/ui?s=SRS&p=D&yr=1&mn=0&dy=0&id=p98025001157
Pete
Proshares is a company that has a number of these ETF and has also inverse ETFs that will rise as the underlying sector or index falls. When markets decline, these inverse ETFs give a way to profit without having to sell short or use options. This can be done in retirement accounts as well because the ETF trade just like a stock.
The first recommendation I have here is on SRS. SRS is the ultra short (double inverse) of the real estate sector ETF. If real estate related stocks decline, SRS will rise.
Recommendation:
Buy SRS using a "Buy Stop" order of 90.00. Then place a stop loss order at 79.00 after entry.
Once a trade that I post here is entered, I will periodically post adjusted stop loss levels, and at times suggest an immediate exit instead of waiting for the stop loss to trigger.
http://stockcharts.com/h-sc/ui?s=SRS&p=D&yr=1&mn=0&dy=0&id=p98025001157
Pete
Thursday, June 5, 2008
New DXD Trade
Today the Nasdaq very nearly made a new high realative to last months high, and the QQQQ ETF which tracks the Nasdaq did make a new high. Despite this, there is a divergence in the markets because the Dow and S&P are well off their high from last month. This situation seems similar to mid October of last year.
Also, the short term model moved right up to "too high" area today. Based off this I am suggesting a trade on DXD which is the 2X inverse ETF of the Dow/DIA fund. This will profit if the market declines. The current price is 52.98 which is what I will use to track the trade.
I did buy July 127 Puts on DIA to try to profit from any downward move in the markets.
New Trade:
Buy DXD at a limit of 53.00 6/6/2008
Pete
Also, the short term model moved right up to "too high" area today. Based off this I am suggesting a trade on DXD which is the 2X inverse ETF of the Dow/DIA fund. This will profit if the market declines. The current price is 52.98 which is what I will use to track the trade.
I did buy July 127 Puts on DIA to try to profit from any downward move in the markets.
New Trade:
Buy DXD at a limit of 53.00 6/6/2008
Pete
Banking index and WFC option trade
I just bought a July 25 call option on WFC for 3.14. Sentimentrader.com posted a comment yesterday detailing the banking index and shows that on comparable declines in the past there has been a 2 week gain of around 6% on average for the index. WFC is Wells Fargo Bank. There was a doji candlestick yesterday, which today has gapped up to form a morning star reversal pattern.
Also, the short interest has been skyrocketing in recent months as the stock bounces around above $25, which is the point of peak put open interest in June and July. Heavy out of the money put open interest can act as a floor for the decline, and if a rally occurs, I think it will be sharp because a short covering rally is likely to occur as the stock moves above the breakeven point for the cumulative short interest in the stock.
If this trade takes off, then I think it would be OK to hold till expiration, but I am planning on just a quick trade of a few days hopefully to get a nice bounce until the slow stochastics get overbought. The stop is 26.20 on a closing basis. I would anticipate about 50% or more return if successful.
The stock is cuurently around 27.35. Breakeven is 28.20 area.
Pete
Also, the short interest has been skyrocketing in recent months as the stock bounces around above $25, which is the point of peak put open interest in June and July. Heavy out of the money put open interest can act as a floor for the decline, and if a rally occurs, I think it will be sharp because a short covering rally is likely to occur as the stock moves above the breakeven point for the cumulative short interest in the stock.
If this trade takes off, then I think it would be OK to hold till expiration, but I am planning on just a quick trade of a few days hopefully to get a nice bounce until the slow stochastics get overbought. The stop is 26.20 on a closing basis. I would anticipate about 50% or more return if successful.
The stock is cuurently around 27.35. Breakeven is 28.20 area.
Pete
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