In any case, the recent low, circa 1295 on the SPX may be a ‘good’ one unless the news complicates matters.  It was there we saw a nice pullback and flush down last Friday and near retest Wednesday to confirm sellers were drying up.  That was indeed the case and hence the strong rally into the close (with very high tick readings).  I would not call an ‘all clear’ however until there is some confirmation.

How many bought that huge move on Monday only to get burned the following days?  We didn’t see the confirmation on higher volume that is recognizable of institutions coming to the table.  Heading into a holiday weekend we should see volatility collapse (normal into a long weekend) especially if some fear is alleviated prior.  I suspect any unexpected news over the weekend will cause the tightness to come back.

Much of the rhetoric and solutions being talked about are causing nausea for markets. It’s no different than last year however, yet this time around the Euros are facing a grave decision.  There really is NO other decision to make than to do whatever is necessary to keep Greece and others in the Euro.  If that means sacrificing the currency by firing up the printing press then that is what is going to happen (which is one reason the currency is being hit hard – in anticipation).

The ‘backstop’ of the Fed and China are there but not as first responders.  Merkel and Company will have to make the tough choices without the benefit.  The uncertainty over what is going to happen has the market concerned.  Nobody likes uncertainty, traders/investors will reach for protection proactively as we have seen over the past few weeks.  When the right choice is made we may see some relief and a massive market rally ensue.  It may not be until the Greek elections in mid June.

Originally published at: Just Marking Time – Holding That Low

So, yesterday he put out an article he wrote last year that gave us all some good tips about trading options in a bear market.  Who knows if that is the case now, but he certainly hits on some ways to protect.  Read this, and then read it again.

Options Trading in a Bear Market: 5 Tips to Keep Your Money Safe

• stevenplace
• September 23rd, 2011

Increased market volatility doesn’t have to make you upset. If we are in a new cyclical bear market (and the odds are increasing each day) then you need to use a different framework when trading options.

Stock options give you the ability to make money in any market, but first you must understand what “kind” of market it is, so with the right kind of options training you can adapt to whatever gets thrown at you.

Bear markets behave much differently than neutral markets or bull markets. Aside from the volatility and swift downside action, many traders forget that the largest up days historically will come after a strong period of selling. There are some crucial concepts that you have to use if you are going to trade options in a bear market.

1. Embrace the Volatility

Gone are the days in which you could hold a large amount of overnight directional exposure. With voodoo coming out of Europe (and more out of China) the market suffers large overnight gaps as the result of any headlines that come out while you sleep. (continued)

To finish the rest of the article, click here.

Originally published at: Trading Options in Bear Market with Steve Place

This isn’t show friends it is show business.

Originally published at: Trader Habits – Eli Radke Hits Home

We don’t often see price sitting in the ‘outlier’ position for very long.  What is an outlier?  Take a look at how Bollinger Bands are applied.  I use the 2 standard deviation with a 20 MA.  Simply put the bands will contain 95% of the action for the last 20 sessions, anything above or below the bands is an outlier (or called the ‘fat tail’).  Moving averages are smoothing mechanisms that enable the examiner to get an idea of volatility and range in a stock.

So, back to mean reversion.  We saw the SPX veer off to a near 4 SD away from the mean or 20 MA.  Grossly oversold by these (and other) metrics.  What are the odds of that occurring?  Very very small chance.  To be three SD away from the mean implies a 1% probability, so we are talking far less than 1%.  If you wanted to bet on a 99.9 Buying at the close on Friday clearly gave you the best odds to benefit from this extreme oversold condition.

Since I’m sure many of you just LOVED your statistics class back in college (ugh, good grief!), I’m going to lay some stats on you here.  For a three SD event to occur there is a 1 in 370 chance or once yearly probability.  That is really extreme.  A four SD event occurs every 43 years or twice in a lifetime (now, given our timeframes are shorter with stocks we will clearly reduce but the probabilities are the same – these are data points/instances).  These occurrences are extremely hard to find as you can imagine.

I hope the point is clear that being far away (too far?) presents a good short term opportunity but you have to be willing to buy against the grain.  There was nothing pretty about the close last Friday with a highly elevated put/call, extreme bearish sentiment and a rising VIX, not to mention expiration.  Hindsight 20/20?  Sure, and frankly this is not my game as far as playing for falling knives.  Could this trade have been a bust?  Absolutely, and unless you were selling some yesterday or today it could really come back to bite you.  It happened often in Summer 2011 and then in Fall 2008.

Simply put the mean reversion trade is not a change in trend rather a counter attack on the current trend to relieve excesses.  Timing is critical but the odds are very good if you are patient.  In this market of quick moves and emotional responses you rarely have to wait too long.

Originally published at: Mean Reversion – VIX, SPX

It’s Deja Vu all over again.

The above quote is from the file of the inimitable Yogi Berra, former catcher with the NY Yankees.  Since we are in the early throes of baseball season and my good friend Tim Melvin is in 7th heaven with his 1st place Orioles I thought using some of Yogi’s famous quotes (all in italics below) would be applicable to our current market situation; or at least bring a chuckle or two.

We can draw parallels between strong market moves and extremes in sentiment.  I have pointed to several different measures of sentiment in the past – my favorites being VIX, equity put/call, polls (AAII and II), consumer sentiment and Rydex ratio.

Sentiment in March and April had reached high bullish levels – a reason for multi year highs in price.  Currently, market sentiment is as bad as we’ve seen it in recent years.  We could go back to last fall to find as much distaste for equities as we have now.  Palms out – sell anything and stay out.  Far different than a couple months ago – but why such a sudden shift?

The future ain’t what it used to be.

Facebook.  More like Face Plant for some.  Never mind the fact it was the most hyped IPO in the history of mankind (let’s HOPE it dies down and we can start talking about other things).  There is no company on Earth that could live up to the promise.  The public was duped – once again – by the suppliers.

That massive share offering was a deal killer for those buying in the aftermarket.  Who won in the deal?  Clearly Facebook but also banks, brokers and the early investors.  The retail public with an insatiable appetite to participate – oh and Mark Zuckerberg wanted that as well – were taken to the cleaners when the share offering was raised several times.

Facebook the company will be fine – but they got a valuation probably not deserved for a few years from now.  We’ll have to see.  Basic economic principles of supply/demand dictate price.  In this case supply met the huge demand for shares.  Heck, who wants to miss the next Google, Ebay, Microsoft or Apple?

After missing those opportunities the retail investor must have been kicking themselves – who cares if Groupon, Zynga and RennRenn are down, who cares if Globe.com was the most successful IPO ever and is extinct. They wanted Facebook at any price and wanted it BAD – and they got it.

When you come to a fork in the road….Take it.

That Facebook IPO told us a lot about market perception.  Could they have taken the company public during a better time?  Sure, when these big events happen you can never really predict how that is going to pan out.  I didn’t expect too much of a market pop from Facebook due to the reasons outlined above.  So, do we blame Facebook for the markets problems?

I don’t think directly they are the reason.  Technically the market is on shaky ground (see chart).   So far in the month of May we have only seen the market (SPX) advance ONCE – and it was small.  Indicators are very oversold (some ridiculous) but that doesn’t mean it cannot stay oversold.  Oh, there will be a rally, when the selling abates – I suspect at some point this week there will be a ‘stick save’ into the end of the month.

There are eight trading days left in May and being down 7.3% for the month is a bit too extreme.  However, I’m not in the knife-catching business, so I will let the market tell me when the selling stops and buying resumes.

You can observe a lot by watching

Originally published at: We’ve Seen This Movie Before

We also have a very special offer to those who were in attendance and will even stretch this to those who load up the webinar with the link below.  I have authorized for only a couple of days a large reduced price of $33 for the first month of explosive options.  We are having a tremendous year and want to spread the word. The response to the offer during the webinar was so great we are extending the drastically reduced price for just a few more days, but you better hurry!  It’ll be up through the weekend only.  The special link for this price (67% of the normal first month) to sign up is below,  give it a try.

OptionsProfits Webinar

$33 special webinar signup

Enjoy the webinar!

Bob

Explosive Options

Originally published at: Webinar Replay is Here! May 9 session with OptionsProfits Jill Malandrino and Bob Lang

Most ETF’s offer option plays and as you can imagine  the double and triples are like playing volatility on steroids. I am very choosy as to which one I would like to play but the one I have had the most success with is the FAZ – the triple financial bearish fund.  This will move approximately 3x the opposite of XLF (the bullish side is the FAS, which is the triple financial bullish fund).

I have found recognizable patterns in the FAZ that make for some very profitable trading.  However, if you venture into this type of trade you have to define your risk – options do this for you.  Also, you would need to withstand some volatility and be willing to accept lose a large amount (if not all of it).

Inverse ETF’s are a great way to gain leverage if you are trying achieve excess return counter to the market or just trying to hedge a portfolio.  The double and triple really can give you some juice.  But how about the options?

Most ETF’s offer option plays and as you can imagine  the double and triples are like playing volatility on steroids. I am very choosy as to which one I would like to play but the one I have had the most success with is the FAZ – the triple financial bearish fund.  This will move approximately 3x the opposite of XLF (the bullish side is the FAS, which is the triple financial bullish fund).

I have found recognizable patterns in the FAZ that make for some very profitable trading.  However, if you venture into this type of trade you have to define your risk – options do this for you.  Also, you would need to withstand some volatility and be willing to accept lose a large amount (if not all of it).

Originally published at: When to Play the FAZ and When NOT to Play the FAZ

We need to battle through the negativity, poor sentiment and news to seek answers and truth.  Oh, and we have to make money trading, too.  How should we proceed?  It’s best to tread carefully through the murky waters and be very selective.

The bombshells are coming out from every corner of the sky and unlike a few months ago the bad news is having an effect on markets.  There is no problem being cautious, be aware there are uncertainties.

Let’s talk sentiment here.  Clearly as we have heard the fear and uncertainty of news over in Europe, China and here in the US regarding specific issues has paralyzed investors.  We need not look further than the charts to see this in pictures.

The put/call ratio below portrays rising fear as investors/traders reach for protection.  Interestingly, this is a far cry from what we saw in ‘calmer times’ during the first quarter of the year.  Is the fear warranted?  In this very fast changing environment news changes attitudes in an instant.  No longer will investors tolerate a continued beating – one hand always on the exit door.

Part 2 of earnings season is now underway and this group is not inspiring much hope for the rest of the year.  Cisco warns of longer sales cycles while their growth drivers deteriorate, energy companies miss earnings estimates by a mile and now oil is collapsing, retail names are missing from the high-end (JWN, FOSL) to the low end (WMT, TGT), industrials are hesitating and other tech names (semis) are hanging on by a thread.

We’ll be heading into phase 3 soon (end of may thru end of June) where we see only a trickle of names reporting but some have the ability to move markets (ORCL, ADBE and others).  Markets are down roughly 6-7% from the recent highs and buyers are not stepping up to the plate yet.  As the distribution (institutional selling) continues we wait until that subsides and big money decides to step back in the game.  That will happen when the clouds disappear.

Volatility has picked up recently, no doubt a result of the uncertainty surrounding the outlook.  There are still predictions of recession in the US, Greek removal from the EU, China hard landing and Iran/Israel tension.  We certainly cannot dismiss these and other levers that can drive markets lower.  The VIX is picking up the fear.

Originally published at: As The World Turns

Some of my favorite plays of yesteryear that you may remember:

Excite@Home – This was a combo of search/portal with @home, the precursor to the cable companies providing high-speed internet access.  Like many of the dotcoms they went on a massive spending binge in search of a land grab.  They overpaid for names like blue mountain arts (greeting cards?), iMall (nearly a billion dollars for both) and had big nascar sponsorships.  The stock was a hot one back in 1998 and I made some great money on this at one time, but it basically folded up in 2001 and sold their network to AT&T.  Their buildings were sold to Stanford Medical and today are a stark reminder of those good ol’ days.

Lycos -  Like Excite, Lycos was a portal that was trying to compete with Yahoo and go.com (eventually bought by Disney).  They had no trouble finding eyeballs but they did have an issue with profits.  They were eventually bought by a S American firm (Terra) after a heavy investment (which gave them a longer shelf life than Excite).  Lycos made some nominal purchases but eventually they would fall by the wayside.

Doubleclick -  The advertising firm started in the early 90′s and was a firecracker.  This one was a trader’s favorite, it had a dominant share of the market until the big boy (Google) came around.  Ironically, Google bought them a few years ago in what was considered a very costly transaction.  Doubleclick still has influence in this market as Google shapes itself in the world of mobile.

CMGI – One of my favorite and most played names.  CMGI (College Marketing Group) was an incubator of internet companies, a type of ‘public hedge fund’.  They would give seed money to startups, let them get a foothold on their business then unleash them on the market for an IPO.  Some of the more successful ones included Navisite, Alta Vista, uBid and Engage.  Via their @Ventures they made millions bringing eCommerce and B2B firms to market. Today this firm funds alternative and clean energy startups.

Juniper Networks – A high flyer back in the day as they were seen as major competition for Cisco and Nortel Networks.  The gear and packet products were adopted early by major players as Juniper was seen as the alternative to yesterday’s technology.  They were one of the best performers in tech in the late 90′s and garnered the eye of many traders (me included).  They were hammered when the tech bubble imploded and have yet to return to its former glory.  The company is still in the shadow of Cisco as other competition have morphed into the cloud or moved on.  One of my four ‘trading’ horsemen — includes Redback Networks, Ariba and Brocade.

Infospace -  My most favorite name because I received IPO shares on this.  It was only 100 shares priced at 15 bucks.  But I held onto them and in about 3 yrs I had 1600 shares after the many splits and price appreciation (at peak share price my value was worth over 100K without ever adding a share).  The company was started by a Microsoft misfit who saw value early in mobile communication, search and advertising.  They never really put their arms around the technology and it became a game of who can talk bigger.  They faced accounting issues and were forced to restate financials in 2000, which was a bad time as the tech bubble was being popped.  The company is still kicking but is a shell of its former self and is likely dismantling.

Did I lose money on these plays?  Like many whose bubble was burst in 2000 I did take some hits.  I made money in this market for no better reason than being in the right place at the right time with money on the line.  I will never take credit for having smarts in this time, rather I was lucky to be in a bubble.   But the ride up was great.

Facebook will be an exciting offering.  With the lead they have I doubt Facebook will face the extinction (or near extinction) of these companies.  It’s a different world today with the focus on good business models, profits, cash flow, first mover advantage and footprint.  Somehow I believe the giddiness of the 90′s gold rush has passed us by — at least I hope so!

Originally published at: From the 90′s to the Present – How the Internet has Changed Business and Investment

Register NOW!

Wednesday’s FREE Webinar – May 9, 6pm EST

This coming Wednesday will be a great treat for you.  On this day I will join my colleague and good friend Jill Malandrino of OptionsProfits for a fun session to learn about our favorite play for the back half of 2012.  It’s hard to believe the first half of the year is nearly done but the second half will have some great excitement.  Fertilizer stocks are poised for a big run in the back half, Jill and I will talk about them, the rationale and some basic option strategies to take advantage in the trade.

You need to register for the session, FREE to participate, ask questions and learn.  The link below will get you there.

Questions on this just let me know (bob@explosiveoptions.net).  I’ll be in the room a bit early, I look forward to seeing you there!

Bob

https://thestreetevents.webex.com/mw0307l/mywebex/default.do?nomenu=true&siteurl=thestreetevents&service=6&rnd=0.896466693754752&main_url=https%3A%2F%2Fthestreetevents.webex.com%2Fec0606l%2Feventcenter%2Fevent%2FeventAction.do%3FtheAction%3Ddetail%26confViewID%3D1002588408%26%26%26%26siteurl%3Dthestreetevents

http://www.thestreet.com/story/11511526/1/webinar-basic-options-strategies-to-trade-our-2012-pick.html?cm_ven_int=morej%27

Originally published at: Time For a Webinar!! – First EVER RM/TST/OP Combo – May 9, 6pm EST

The last couple of days may have put the bulls on their heels.  No dip buying, increased fear, buying protection (high put/call ratio on both days), and increased volatility.  Perhaps the reality of the economy slowing down from the blistering pace of 2.2% in Q1 (insert joke here) is hitting investors and traders.

Yesterday’s non-farm payrolls number was not horrible when you factor in the adjustments, revisions and seasonality but it is a far cry from where the economy should be on job growth. At this point of a long cycle the economy should be creating more than 300K jobs a month to make up for the enormous losses in 2008/09.

What action did we see the last few days?  Selling – pure selling of stocks.  For whatever reason there is, it doesn’t matter what that reason – the sell button was far more active than we’ve seen in recent days/weeks.  I don’t care the excuse – there are a million of them.

We can argue about the reasons for the dismal numbers but the facts are there – low job creation will hold back a strong recovery.  The results (or lack thereof) may be a game-changer come November. Additionally, there is nothing the Fed can/will do to improve the situation – they have done so much already and have already said the road to recovery would be long and difficult.

Timing is everything in this business.  Not being prepared at the turn can be costly.  As an options trader I prefer to wait for signals before making a financial commitment.  That timing will always be later than most but will serve me better as a trend follower.  Momentum is a powerful signal and shows me where the money moving.  Again, action speaks to me more than anything.

We are upon one of the worst months historically for markets.  Why is that?  Is there any month in the calendar that tells you to ‘go away’?  From a psychological standpoint the phrase ‘sell in May and go away’ is paralyzing to an investor.  Should you sell some or all of it?  Do nothing?

If you do sell, when do you get back in the game?  There are more questions, too.  Do you play defense?  Protect gains rather than sell?  Do you join the ‘talking herd’ or just follow your own plan?  Too many questions to answer and you then suffer from analysis paralysis.  Confusion – indeed.

What I teach my clients or students about this troubling issue is to be true to the plan – the ultimate goal.  Do not listen to the noise, pay attention to what the market is saying (action) rather than what is being talked about in other circles (words).

If you are a contrarian, don’t go against the grain ‘just because’.  Have a game plan in mind and stick to it.

Originally published at: ‘Actions Speak Louder Than Words But Not Nearly As Often’ – Mark Twain

The constant use of lip service is bold but weakens as time goes by.  Earnings season has been generally good but companies are being a bit more guarded about the future.  No surprise there of course but the tone that I’m hearing is mostly one of optimism over the longer term.  That should bring hope to those looking for a sustainable recovery.

Markets are sniffing out this optimism and continue to repel all that is bad.  How long can that continue?  Taking profits, why not?  The market is up double digits for the year, is there any better time?

Regardless of what you think or want to believe you just have to marvel at the performance.  What is particularly useful is the lower correlation, I talked about recently as did my colleagues Jill Malandrino and Phil McDonnell at OptionsProfits.  Lower correlation makes for a better environment for stock pickers.

We have seen some stocks thrive, others dive and even some that have gone nowhere.  As a technician trading charts this is the best environment for me to trade in because reaction to news and events won’t always swing names for an unrelated reason.  Of course, the price paid for that is in low volatility and as we see on the chart the VIX shows high complacency, and it has been trending down.

That’s fine to have low volatility even as ‘johnny-come-latelys’ put money to work.  As a trend follower it is all about going with the flow if I can identify one.  Certainly in 2012 that flow has been bullish.
As we head into what many consider a weak time for stocks (sell in May and go away – new month starts this week), there is a strong underlying bid to this market.  Dip buyers have been active, look no further than the recent dip in the SPX to 1360 (see chart).  What’s in store?

Certainly if that behavior continues (and there still is quite a bit of money on the sidelines) the old highs for 2012 could be surpassed.  In fact, the SPX is only 1% away and the Dow Industrials have already achieved it.  The Nasdaq and Russell 2K are lagging a bit but are within 2% of new yearly highs.

Sector rotation has been the theme and I continue to believe that to be the case as money flows to equities.  Bonds actually may not be the best investment but I believe it is premature to think they are heading into a bear market.  In my experience I have found bonds to falter when inflation hits the scene and that just isn’t the case at the core.

While we have heard some from the Fed worried about interest rates being to low the inflation monster has not come into play.  Want proof?  Just take a look at gold.  Paradoxically, it appears deflation is the fight of the Fed (or at least Bernanke) as the market struggles with potentially unstable (lower) prices.

The Fed this past week reiterated its support for accommodating a growth platform which if successful would encourage job creation.  We are yet to see that occur to a great extent.

Originally published at: The Teflon Market of 2012

Now we have but a handful of stocks rising smartly and the hope that our markets don’t crumble from weak knees (see chart below).  Signs are out there alright, we just have to be cognizant of them and how we choose to play in a different environment.

The markets are all about cycles – oh, wouldn’t we just love a virtuous bull cycle where nobody loses money (unless you are a bear), the  land of lollipops, sweet cream and sugar plums.  We know of course that is just not reality.

The markets are now entering a period that may limit returns – even for the remainder of the year. Are you prepared to deal with that?

As we know, markets are the great discounting machine.  The current market is looking forward about six-eight months in the economy, ironically that is around where the election will fall.

So, with much uncertainty and angst right now it probably mirrors the uncertainty that will be revealed after the November election.  If there is one thing markets hate it is uncertainty – and it seems far too premature to crown a winner in the Presidential election.

There are too many issues to be addressed and settled – heck we have polls saying so many different things but in reality we won’t have a clue until November.  What if Romney wins?  How will that change the course of direction?  What if Obama wins re-election?

Is that going to put a hole through the economy, which is just trying to get off the floor from a horrible beating?

The Fed has a two day meeting next week and will be followed up by a press conference by Chairman Bernanke.  We will likely hear much of the same language and concerns from the past several meetings:  the recovery is slow, unemployment is too high, accommodation will remain in place as inflation expectations are at the high end of our preferred range.

They may also talk about the uncertainties in Europe and a potential economic slowdown. While some of the rhetoric out there may be for more stimulus, there will be no QE3 nor any promise of it, rather just a ‘cloud’ overhead to keep everyone wondering (the Bernanke put is alive and well) just in case.

As I’ve said many time the Chairman is a master of psychology.  He will supplant whatever it takes to make you feel better – after all, isn’t that what we all want?  Won’t investors come forth if they feel there is not much volatility?  Won’t companies spend and hire if they can accurately forecast their business future?

I’m a bit concerned about the latest economic data and how it may translate into Q2 GDP performance.  Job growth may have started to retreat, industrial production is trending down and perhaps retail sales have peaked for the time being.

High gas prices have only been a complaint so far rather than a stumble for the economy but clearly the US economic engine may not be revving up as we would have hoped.  That does not mean we are heading for a recession – far from it unless some outlier event occurs.

While much of the nation is mesmerized by the sensational performance of Apple stock the attention is pulled away from other great stories.  Facebook is coming out in a month – the most exciting new issue to hit the scenes in nearly a decade.  It’s almost May – and we all know the phrase.  Let’s see if there is truth to it this time around.

Originally published at: This Is Where It Gets Difficult

Unlike some methods, I will often respond to questions with another question(s) (in a similar fashion to the Socratic method).  You see, it is my goal to help you find the answer yourself.  Oh sure, I can tell you the right answer but is that learning?  The fun is discovery and nothing better than figuring it out on your own.

I had a conversation with a colleague last week about protecting positions.  His portfolio is long stocks and has performed incredibly well this year, clients are extremely happy.

With the potential of a correction that could bring stocks down a 3-5% he wondered whether it was time for some short leveraged ETF’s (like the SH).  This would clearly be done to protect his long portfolio from any large adverse moves.

As I asked him questions about what he wanted to do it appeared to me that he expected further downside from Friday.  That makes sense, but to buy when the market is already down?  I asked if his intention was to make money or just protect – he said ‘no difference’.

I get that, but asked him if it would not have been easier buying the prior day, when the markets were flying high and protection was cheap?  The answer was yes, it was.

The point I’m making here is to understand where you are at all times – if possible, and make the moves that make you least comfortable.

Ask questions all the time of what you are doing, where you are going and how you can improve yourself.  A momentum or trend trader has difficulty reaching for puts, shorting stock or buying an inverse ETF when the markets are up 1% or more in a day.

I’m often right there with them, believing the trend plays out longer than I could imagine.  It’s not an easy thing to do but is a move that keeps you in the game when uncertainty is high.  In this case, why not buy the insurance before something bad occurs?  Would you buy fire insurance when the flames started to hit your roof?

Originally published at: Learning To Think

Without the benefit of reacting to the NFP report on Friday (with an open market) there is a great deal of anxiety in anticipation of Monday’s opening.  I want to go over this with you so we can make something of it.  First, take a deep breath with me.  In – Out.  Ok, now one more time.  Great, now let’s move on.

To the jobs report.  I’m sure you heard by now the NFP survey showed there may have only been 120K jobs created in the month of March.  Clearly that number is a setback from the prior few months over 200K but is it really enough to panic?  Recall just a few months ago when the expectation was for some 150K and we came in with 40K, which was revised upward twice to finish more than double.

Clearly the pace of job growth may have slowed this month but is that a reason to panic?  Hardly so.  The markets have enjoyed a nice ride up since Oct and the beginning of the year due to many factors, one of which includes employment.  But selling this number?  Oh, we all know there are a million reasons to sell and only ONE reason to buy.  Maybe this is one of the million.

We didn’t hear/see many complaints over the last few months, right?  That is because private sector job growth was good while government hiring had stalled (see graphic below for a breakdown of categories over the last several months).  I suspect the fear being talked about was meant to ruin your weekend…if it did, then they won.

So, the headline number gets all the attention – and while it is disappointing the hype, hysteria and fear created are hardly worth the effort.  Perception will be created from doubt and belief, and if you panic as you listen to the bearish sentiment from this report that is spewing out of every sewer – well, then you listened to the same people who created the ‘end of the world’ scenario back in early August.

You know what I’m talking about, right?  The debt downgrade by S&P.  Nine months later – how did that work out for those who ran away?

Bottom line, we have a market that is standing tall, earnings season just dead ahead, a seasonal time of weakness but let’s recall in 2009 the old mantra of ‘sell in may and go away’ turned into ‘sell in may, and you’re gonna pay’.  Earnings season is upon us and tell me – do you want to be short or selling in front of earnings?   While a pullback would be great to enter some new trades we will work on our timeframe and not the market.

Index Equity Correlation ($ICJ) is still rather low which means there are trading opportunities to be had.  If the markets do tank on Monday perhaps we can use that as a chance to take advantage of others’ panic, which lasts moments and corrects soon after.  How much money have you ever made when you panic?

I suspect the panic from this number will last about an hour or so into the day and then we move on.  I have taken my breaths and already moved on.

http://www.briefing.com/Investor/Calendars/Economic/Releases/employ.htm

Originally published at: A Little Word on the Jobs Report

Yeah, it also gives me knots; and when you play the options game and rising volatility – well, it become a binary situation.  The past two earning seasons were quite good.

October 2011 showed us a remarkable move as the fear of recession subsided, while January launched the markets into a strong drive up that continues now.  What’s in store for April, the first quarter results of 2012?

This is going to be a decent earnings season.  The economic data for the past couple of months portray an economy that is growing moderately well.

I suspect the GDP comes in 2.5.3% for the first quarter which is similar growth the Q4 of 2011.  Jobs growth has been decent, technology has led the stock market, energy prices have started to come down and the consumer is spending.

Several estimates I have seen show operating earnings growing from 1-3% from a year ago, but let’s not forget the last two weeks of March 2011 had a near shutdown of business and panic due to the Japan earthquake/tsunami.

Some factors I’m looking at:

• Solid job growth throughout the quarter
• Decent export numbers even with a stronger dollar
• Lower overall inflation
• Lesser fear from Europe as they work to settle their crises
• China still growing at a decent rate while inflation there is coming down
• Strong consumer spending as portrayed in consistent retail sale numbers
• A resurgence in banks and housing – sore point for the past few years
• Investment sentiment has been tilting bearish while consumer sentiment is strong

While the economy is in motion and things can change I am somewhat confident this earnings season will bear some fruit.  Of course, the stock market is up strong for the first quarter and may have reflected the enthusiasm.

As always, the guidance is the key for corporate profits and markets going forward.  With low inflation, low market rates and an environment prime for more growth it’ll be interesting to say the least!

 Let me know what you think as well!

Originally published at: Why Markets Will Thrive During Earnings Season

We’re certainly in a different time and space here but as we know patterns repeat, and maybe we can identify one and ride out the trend.  The numbers:  SPX 500 was higher by 12% this quarter while the Dow Industrials picked up 8%, the Nasdaq Composite gaining an outstanding 18.6%.

To say the least, these are enviable numbers for an entire year let alone a quarter.  What can we expect during the next go around?

With the great numbers in the bag for the quarter markets are clearly anticipating some economic growth ahead, yet still not much respect.   Volume has dragged on slowly and while sentiment is improving it usually peaks when the market does.

We know markets discount news and the economy by about six to nine months, so late summer and fall we should start seeing the results.  The economic data of late has been good too, but likely discounted several months back.  If you’re trading/investing today on the data you are late to the party.

We’ll get underway with earnings season in a couple of weeks which should show some of the good/bad from the previous quarter.

What are we looking for?  Guidance is always key, how is the outlook for the rest of 2012?  Most firms ended 2011 in a good spot but there are still uncertainties out there.

I look for much of the same as the last couple of quarters – the ‘have and the have nots’ will be rewarded or punished accordingly.  The economy probably grew 2.5-3% during the first quarter which would support decent numbers.

As information, profit expectations have been coming down in recent weeks, perhaps setting the stage for some excitement.  At last glance S&P is expecting paltry growth of less than 3% for operating earnings from a year ago.

Let’s remember last year when the last 2 1/2 weeks of the first quarter the world was at a virtual standstill following the Japan earthquake/tsunami.

There is always that ‘unknown quantity’, some outlier-black swan event that could trigger a response.  You can’t really play that low probability event other than buying some extreme downside protection.  Let’s just go with the flow until it doesn’t work for us.  Trends can last longer than anyone expects.

Originally published at: After Near Record Quarter, Market Still Gets No RESPECT

Of course, much of that chatter is coming from those who have gotten it totally wrong, while those on the right side feel emboldened and argue for more upside.  Indeed, market results create binary opinions with winners and losers crying out to rationalize their stance.

We’re currently at the end of the first quarter.  The economy is growing again (albeit slower than hoped for), the Fed is still engaged and it appears the armageddon from Europe is off the table (for now).

China is slowing their hot economy (as evidenced from the weaker flash PMI) but we already knew that (they told us two weeks ago!).  The election in 8 months may bring some serious changes to Washington (oh, we can only hope!).  Markets are at/near multi-year highs, reflecting the optimism seen in recently solid economic data.

Further, the volatility index is extremely low (circa 15) reflecting a boldness to invest/chase risk assets.  Oil prices are elevated again, gold still hovers above 1600 while the dollar remains competitive vs other world currencies.

Let’s take a look back at 2011 and see if there is something that can guide us for the rest of the year.  Ironically, the markets took a similar path (higher) in the beginning of the year – and with the disruptions from the ‘Arab Spring’ in Tunisia, Egypt and Libya – markets seemed to take it all in stride, complacency was high and not much worry was present.

Growth was looking steady as the market reflected optimism about the year ahead, but the Japan earthquake/tsunami threw a monkey wrench into that forecast.  A disturbance the size of the tsunami becomes a gamechanger with adjustments to assumptions made almost immediately.  Unplanned events are always surprising, difficult and painful but making the changes are necessary.

Later in the year we had the Greek drama starting to play out, which made for an even more uncertain World.  Then we had the political bumbling over the debt ceiling – and a punishing smackdown from S&P, which lowered the US debt rating below AAA.  Markets swooned and volatility picked up in a big way.  Playing the extreme moves in markets up and down paid off handsomely.  Still, the markets managed to make it through the turmoil in one piece.

So, what can we learn from 2011?  Last year was one of the toughest and most challenging environments we have seen in quite some time.  I spent a great deal of time sitting in cash in many accounts just waiting for the turn – which didn’t happen for me until the beginning of this year.

Being complacent is never a good place to be, but being active and moving your feet, accepting when you are wrong and being patient is where I like to be.  While we are not about predicting events if you are ‘in’ but not prepared by keeping one hand on the exit door you can be hammered – mercilessly.

As positive sentiment and optimism build the margin for error gets smaller.  Therefore, being cautious after a big run is more prudent than going all in with the rest of the crowd.  Many lost money in 2011 because they were fighting the trend and not listening to what the market was telling them (the same has been happening to the bears so far this year).  Will that be  you in 2012?  The lesson:  Pay attention to what the market is telling you and adjust accordingly.

Originally published at: Remembering Last Year’s Markets

The Dow Industrials is positioned above 13K now, up a solid 8.3% for the year.  Can the run continue?  Sure it can – markets run further than anyone believes.  There are plenty of doubters too, bears around every corner just waiting for the ‘I told you so’ moment.

That is why we pay attention to the action in front of us and not make unnecessary predictions about this or that.  That is just market noise – we ignore it.  Just the facts (charts) please!

And Apple!  Whoa,  that stock has given everyone fits.  The bulls can’t believe their good fortune in this incredible run, while the bears have been taken out back and shot – repeatedly.

This past week the stock gapped higher everyday and turned the investing world upside down.  Even CNBC stood there in astonishment.  On Friday they released their latest version of the iPad.

Jim Cramer/Stephanie Link from actionalertsplus.com talked on CNBC about the insides of the new iPad and picked out names such as Broadcom, Skyworks Solutions and Avago as the biggest beneficiaries.  They have been noting (correctly!!) that the upside in Apple is not over – this may not go over well for the bears.

Option volume on Apple this week was amazing – near record dollar volume for one single issue.  One other note on Apple:  For those who think the stock is over done, too hot and can only go down – there is a ‘future’ catalyst out there (which may trigger some selling eventually).

What is it?  Let’s call it a put option on Apple -  the dividend everyone hopes/expect the company to pay with all that cash sitting on the balance sheet.  I suspect they have exceeded the 100 billion level now, and who wants to be out of the name before that announcement comes?  Pure speculation on my part, of course.

Just a Job to Do

Looking to the charts we see markets have broken free from resistance.  Stepping back a few years there is some trouble up ahead at 1440 for the SPX (back to May 2008) but that should not be a huge impediment.  If sentiment and other tools are very overbought at the time then we could see some selling hit.

What is the danger for the markets on the horizon?  Always complacency.  There is not much fear that markets can go down – why should there be?  Unless there are some unforeseen situations then we are looking at domestic issues:  can the economy grow without much inflation, and will the Fed feed more accommodation?

Much has been talked about this lately but in my mind it’s all lip service and jaw-boning.  Until the Fed pulls back the punchbowl and sees some inflationary trends in the channel then the monetary conditions for the economy continue.  Don’t fight the Fed (in either direction).

Originally published at: Market Presents Challenges (For Some!) AAPL, BRCM, SWKS

Remember, going up is a slow, methodical process.  Going down is quick and vicious.  The old saying, you take the elevator up and the window down.  Perhaps  selling into the down day was premature.

After all, Wednesday’s range was only 10 handles on the SPX, even if it was down 25.  The market needs to be reset at times and the longer it goes without some selling then it becomes a game of chicken – who gets out first and will others follow or dare the market to drop.

I don’t like playing that game, I’ll leave it to others.

One of my alltime favorites – hope you like it, too!

The economy is showing some good signs of growth.  The recent data tells us this quarter is shaping up to be a decent one, perhaps another 3% GDP is in the works.

There are still a few weeks left but demand for products and work is still robust.  The recent jobs report put job growth at a level not seen in years.  A 200K+ growth for a third straight month is impressive given the many restraints/regulations on businesses, not to mention the headwinds from higher gas prices, election uncertainty and continued surprises from Europe.

China may be slowing a bit but so is their inflation (and targets), which opens the door for more easing.  Other BRICS (Brazil and India) cut rates or reserve requirements this week.

The market doesn’t seem to be in bad shape, has been taking news in stride (good and bad).  However, under the surface there could be some warning signs.

The recent selling has been on elevated volume – four distribution days in eight is notable.  The recent new highs are becoming scarce – that’s not so much of a problem as markets digest a big up move.  However, the VIX shows complacency and with stocks at new highs that is an opportunity to sell them.

The obsession with Apple and the extreme upside move rekindles memories of absurd moves back in the dot.com era (no, I’m not comparing Apple to theglobe.com or pets.com…the infatuation and fascination is similar).

Again, I don’t see much to be worried about yet, the market is seeing good economic times over the next few quarters, Europe may skirt a big time recession and there is plenty of backstopped liquidity ‘just in case’ (call it the Bernanke put option).

Originally published at: The First Big Spike Down Is a Caution Flag

The website is completely dedicated to the readers.  There are articles that highlight the areas of interest for readers – volatility, options and the latest positions from traders.  The contributors (of which yours truly is one) are just outstanding – an array of traders/writers with a deep background and understanding of the options game.  Many have been/are floor traders who bring the flow and volume to the fore.  Nowhere on the web will you find such a strong lineup of contributors.

The content from contributors are the best feature on the site.  OP has collected a strong lineup of excellent writers who trade live each and everyday.  They will share the intimate experiences with the reader in a very concise and professional way.  The frustration and pitfalls we all stumble through are shared by the contributors but in a way to teach you out of trouble.  Nothing better than learning and it starts with every contributor.  All are on the same page – help everyone as best you can!

Visual content is a main focus for OP.  Jill Malandrino, the editor/curator of the site manages the videos and ‘options TV’ portion with some excellent 2-4 minute talks with experts, analyzing what is moving markets in the moment and what we may see on the horizon.  The production of the videos is usually at the Nasdaq or other location so you get a true feel of being at the market.

The chat portal is a great feature for two-way communication between reader and contributor.  It is here where questions are asked AND answered almost immediately.  The interaction is great and many ideas spring from this forum.  One of the challenges of many other services is the lack of communication – this is surely not the case with OP encouraged at all times.  Further, there are a slew of other educational tools on the site not seen elsewhere.  They offer a complete suite of information – no stone is left unturned, but Jill is always looking to make it better for the user.  The classes are sensational and the feedback just tremendous (there is another one coming up soon – here is the link  to check it out)

Finally, Jill creates some great events for users.  Some of the recent webinars have been fantastic, completely filled with participants and with amazing content.  She has planned live events ‘in house’ for those who want to go old school – a live seminar session with contributors.  The last event was a massive success and I’m sure more will be on the horizon.

Take a close look at OptionsProfits.  I am sure you won’t be disappointed, and I think you can take it for a brief spin on them, check it out.  As a disclosure, I DO NOT receive compensation from OP or RM – this is merely a post for your benefit – I do not make a dime from increased readership.

Originally published at: OptionsProfits Means MORE Than Just Profits – Review. TST

The thrills, chills, excitement and buzzer beaters are unparalleled through the two week tournament.  I also love the action in markets this time of year.  March has brought us conflicting results.

In 2009 there was a dramatic fall to 666 on the SPX, the huge bottom that continues to spur more upside just three years later.  In 2007 we saw the demise of Bear Stearns that started the markets on a charted course to a near disaster.

In 2000, March started the decline of the ‘dot.com’ era as the excesses were quickly removed (and your face ripped off if you were long).

Recently, I put together an article on the Russell 2K wondering why all the worry.  The index has not kept pace with the bigger cap indices but it certainly outperformed in Dec/Jan.  What’s wrong with a little give-back before pushing higher?

The ball is still in the bulls’ court until the trend changes.  The recent earnings season was strong and showed the economy is chugging along.  Chinks in the armor?  Sure, there will always be something to complain about but the data this past week gave us a good look into how this current quarter is shaping up.

At first glance it appears the recent trend of moderate growth with little/no inflation will continue on into April.  The worries that may have been inferred by Chairman Bernanke this past week are nothing more than we have been hearing about for the past year.

We have even heard some Fed Governors think the economy is/will grow to fast under high inflationary conditions (hmm, what data are they looking at?).  Until the jobs situation improves dramatically then expect Fed accommodation to continue on.

The bears are growling.  They haven’t been in hibernation but have been bowled over by the bulls at every turn.  The indices have still not seen a more than 1% pullback in one full session.  WHY SHOULD IT?

The VIX is stuck under 20 – which tells us the market is NOT expecting big swings to occur.   Is there a catalyst to get it moving higher?  What is it?

Should a big move up or down happen that would be the outlier – the unexpected move that if it is two standard deviations away it would only be a 5% chance of happening – hence, low odds (see VIX chart).

A Little Madness – Old School!

The warnings of Caesar are always upon us – ‘beware the Ides of March‘ – which lands on the 15th.  It’ll be interesting to see how the month plays out after a great start to the year.

Comments?  Let me know your view or what you think of the article.

Originally published at: ‘Marching’ into the Madness

I would not consider this a leading index of the economy, stock market or trends.  It is not a sign of a slowdown, either.  The divergence of the small caps with midcap and large cap simply tells me the institutions are picking favorites.  Why should that surprise anyone?

Last year we saw all the markets and sectors move  together in unison – correlation was very high.   The market is not correlated with equities as much today as we were just a few short months ago (witness the ICJ to see this).

In a crude way, if you were an institution and had to choose between Apple, IBM or Caterpillar vs a small cap – well, I think we know the answer to that question.

I have not seen the Russell 2K outperform much other than during the seasonally strong trends between late November and late January.  This year was a great example of that, yet what was the talk in late January?

The Russell needed a correction badly.  It had been up 38% (fib number?) since Oct 2, and now that it has pulled in some 4% we have to be worried.

Taking a look at the chart, we see the 20 MA has just been breached but not confirmed, the 50 MA is lower by about 1.3%.  The indicators are not totally bearish yet but certainly leaning in that direction, but I will first give the benefit of the doubt to price action.

Looking back to the November swoon that was quick, painful and nasty the index regained the losses in about six sessions.

Originally published at: Why Are We Picking on the Russell 2K? AAPL IBM CAT IWM

It’s nearly impossible to replicate what I do – you just don’t see charts, technicals and patterns the same way.  That’s not to say you won’t be successful trading on your own – you can and will be if you put the time in to watch, learn and listen.

The notes below may give you a glimpse into my eyes and mind and may help you learn something as well.

That being said, I want to show you a recent trade in Wynn.  On Feb 22 we bought some Mar 120 calls on the casino name for a price of 3.

The stock was about 119 so it was all time premium.  It was coming off a strong day and broke resistance at 115.  I wanted in as I expected a good-sized move to 130 or beyond.  The choice was the 120 call (see the chart below).

Now, I tend to be notoriously early on option plays.  However, unless the chart breaks then it is no reason to sell the play.

Time decay?  Yes, always a factor – but when you buy time you might as well use the time.  This is counter-intuitive and probably breaks the rules of some risk management systems but it has worked for me over the years.

Some guys would have told you to blow out the trade two days later with the option at 1.6.  Oh, what a miss that would have been – Friday the call was up to 11.

Being patient and waiting pays off.  While I cut the risk down by selling an upside call (and capturing the premium) some held on and made a massive score (over 250%).

This trade setup was perfect – waiting through a little pain as the option dropped some 50% in two days paid off handsomely.  Bottom line:  WYNN was a massive winner for us!

Additional note:  My good friend Ron Roll at daytrader bootcamp was on this name just about the same time.  In fact, after his tweet of ‘getting long WYNN right here’ I sent him a note back telling him which calls we were in (he replied with a smiley face).  R0n has come up with some brilliant plays over the past few months and is on quite the ‘roll’.  He called this market upturn and shows why on this chart everyday.  It’s always comforting  to know when other strong technical ‘marksmen’ are in the same camp.  He tweeted out the name to anyone who would listen – and who wouldn’t if they were truly wanting to cash in (@gtotoy). 

Originally published at: A ‘Look’ Into My Eyes

Since the beginning of the year markets have continued their upward climb started since the frightening dip in early October, and all I hear and read are complaints:  why won’t this market pull back?  why can’t I get back in?  How is this market going higher without me?

One of the most hated rallies ever – as always.  Nearly five months of ‘almost’ uninterrupted movement.  A very impressive move by any measure, but not many have enjoyed it.

Volume has been decent but not vibrant, there are many waiting on the sidelines for that ‘perfect’ entry on a pullback.  As we know, markets rarely accommodate those players.

The roadmap has been pretty clear, and while there are those who try to ‘will the market’ to perform a certain way, that is all just lip service.  Bears?  What can I say – shorting the rallies has created little in terms of profit opportunities.  There have been a few but you needed to be nimble and quick.

Spring is a time for blossoming – perhaps the markets will come in and re-establish itself higher through the summer.  Be alert but not influenced by the noisy news.  Experts, pundits and analysts will do everything possible to twist your head around and back.

Sell here,  buy there.  NONSENSE.   Listen to the markets – they will tell you more about the REAL action and activity than any talking head.

I suppose we could talk about a pullback or correction.  Heck, 27% in the SPX 500 over five months is something to be marvel at, but let’s look at this a bit closer.

On the surface, new all time highs by IBM, Apple, Qualcomm and  other oil, industrials, retail and consumer goods within a whisker of new highs is not terribly bearish to me.  Microsoft is at multi-year highs, and the mantra used to be ‘as Mr Softy goes, so goes the Nasdaq’.  Speaking of Nasdaq – at 11 year highs just last week.

Earnings have nearly finished up for the 4th quarter of 2011, by and large they reflect the results we had been looking for all along.  In addition, the optimism is fairly widespread for a prosperous 2012.

Would that be a reason to sell?  As a contrarian investor/trader you might consider new highs to be the ultimate shorting opportunity.  I get that, but trends continue longer and farther than most expect (see charts below), and that bearish opportunity may just be a bit further out than you might want.

This a good time to take a look at a couple of charts.  These are the SPX on two different time frames.  One goes back to 2009 and the other just the past six months (both are daily charts).

You can see the patterns are clearly showing some different ‘potentials’.  The six month chart says the rally can continue until the technicals breakdown, while the three year chart says previous bullish runs like this expire right about now.

If we follow the pattern of 2009 (which was strong from March without much in the way exogenous events to derail it) then many more will be surprised.

Originally published at: Spring is Nearly Here – How to Approach It

On Feb 2, we bought calls on Herbalife (HLF) as the technical picture had improved.  Knowing competitor WTW was due for earnings in two weeks and HLF was on tap for Feb 21 it seemed March was the best choice, so it was the March 57.5 call for 3 bucks.  From the outset, the stock started moving higher – slowly.

However, our option moved faster as the implied volatility pumped up prices.  On Feb 17 with a three-day weekend upon us, we decided to SELL an out of the money call, the Mar 65 strike for 1.60.  This gave us a credit to offset our cost on the earlier purchase of the March 57.5 strike, lowering our overall cost to 1.40.

If we had done nothing further, we would be looking at a risk of 1.40 per contract for a potential NET reward of 6.1 (difference of the short and long call strikes less the cost of the call spread – or a 435% return on risk).

But today, knowing the earnings would be out and could be a wildcard result – we decided to ‘roll up’ the 57.5 call to the 62.5 strike.  Simply put we sold the 57.5 for 6.50 and bought the 62.50 for 3.50, netting us another credit – this one being 3 bucks.

So, adding the two credits together we picked up 4.60 – completely taking out our cost and then some.  We took our risk in the trade down to zero and banked a 53% profit and stayed with the trade on a tighter spread.  Hence, if the stock were to drop sharply down below the long call (62.5) we STILL would have earned a 53% profit (that would be if the spread went to zero).

An elusive FREE trade with a profit kicker.  Alternatively, if the stock should rise past 65 and stay up there the spread would expand and give us an even greater profit when sold.  The cost being zero, anything up to 2.50 is pure profit!

Earnings are out tonight and they appear to have hit this one out of the park – again.  We’ll see how it goes tomorrow of course, but for those who wonder how/why I like to play earnings, this is a great reason why.  Risk management of a trade is fundamental to success in trading options.

Originally published at: Managing Risk with HLF

Be clear about your goal but be flexible about the process of achieving it.  (Brian Tracy)

It can be challenging to change our way of thinking.  Naturally, we form opinions about people, events and expectations and move forward based on our own logical answers.

But, what if we are wrong?  Is that defeating?  Are we too set in our ways to make changes, stuck in the mud and unable to do what is necessary?  What if the road is blocked on the way to your destination – do you sit there and stare at it or move?

How about Eli Manning reading a defense.  If he sees something ‘odd’ he may call an audible.  To help our bodies become more flexible we may go to the gym for some classes or just even stretch.

The ability to change and do something different when the obstacles are too much to overcome is not a sign of defeat, rather a sign of strength, having the power and willingness to make the adjustments to get ahead.

Stay committed to your decisions, but stay flexible in your approach. (Tom Robbins)

Trading requires flexibility and nimbleness.  Have a bad trade result?  Happens too often, doesn’t it?  How do you handle it?

How about an unfortunate circumstance where you thought you had checked your risk but some ‘outlier’ hits your P/L hard.  How do you make the adjustments to make this work for you?   I have been in many painful situations, as have you.

On Jim Cramer’s Mad Money program Friday  he stresses some important lessons learned over the years at his hedge fund and prior.  I enjoyed the show immensely, I highly recommend this one to you.  He learned to be flexible, admit when he was wrong but NOT defeated and to change the shape of his thoughts to be more accommodating to the occasional surprises.  This change seems to have served him well.

Be firm on principle but flexible on method. (Zig Ziglar)

As a trader I use some simple methods of technicals and charts to enter/exit my trades.  I have survived and thrived for years using the tools in my toolbox, but it’s far from the best.

You’ve heard me say many times that trading is not a game of perfect, and it is so true.  What allows me to continue on in the trade, grow and survive is my ability to change and admit when wrong.

Success requires discipline, flexibility but also humility.  A big ego is destructive to your mind and your bottom line.  Marry yourself to one way of thinking and you’ll eventually find yourself on the short end of the stick.

That which yields is not always weak. (Jacqueline Cary, from Kushiel’s Dart)

Originally published at: Exercise Your Flexibility

Pretty good numbers for an entire year, but for the first five weeks of the year?  Off the charts!  Could the markets have been so undervalued prior to the new year starting?  Are bonds all the sudden poison ivy?

Did the situation in Greece and Europe suddenly make everyone so bullish?  Or is it seasonal trends?   Some of these questions are yet to be answered but when trying  to figure out the market – we’ll let it ‘do its thing’ and not try to explain the action.

Low volatility marks little fear.  For now, stock-picking is the game to play.

We’ll be heading into the last couple of big weeks for earnings as February winds down.  While there are always earnings to consider the majority will be done reporting for Q4 2011 by the end of February.

By and large the results are as I had expected – strong for the biggest and brightest, a few struggles but most with a decent outlook toward the future.  This past week saw some major breakouts on the charts.

Look no further than Apple – a near high of $500 a share.  The stock lifted nearly $30 on the week, a 7% rise.  Others kept up the pace and delivered strong results such as BWLD, CSTR, CERN and CMI.  Several energy names are on tap this week along with names like BIDU, CF, ANF, CLF, WTW, APA, GM, and VFC among many others.

With expiration week upcoming it should be a very interesting time.

Let’s talk a little Fed, housing and Bernanke.  With the explicit dovish policy by the Fed, it appears the Chairman is targeting areas of the economy that could use a bit of juice.

Friday he talked about housing and the drag that it has become on growth.  Some have implied his bold comments will signal another round of QE, but I disagree.  The housing market seems to at least bottomed and at best will show some growth.

Some experts and even Weyerhaeuser believe new home starts will be roughly 650K per month this year, a far better pace than in 2011 (but well off the hot pace of five years ago plus).  The chart below shows perhaps the slow climb is happening.  So, does the Fed need to ‘prime the pump’ more?

Highly unlikely, just as they didn’t do much to improve the domestic economy recently other than some ‘choice words’ and rhetoric.  We can argue day and night about it but the reality is sentiment and psychology are chief drivers of action.

The Fed is more likely to ‘manage the mind’ rather than destroy what has been achieved.

Originally published at: Steady Markets Reflect A Steady Economy

You can look at the portfolio results page on the website when logged in and see how the numbers stack up.  I have put the trades closed below along with the current positions we are holding.  Looking to book more wins over the coming days to lighten up some.

Have a great weekend, I’ll see you on the twitter stream Monday!

Bob Lang
Explosive Options

Originally published at: Markets Suffer Biggest Losses of 2012 – But It’s OK

Trends like jobs growth tend to last long because they are so large – it’s like turning around a cruise ship.  Once in the right direction, a full head of steam.

We have seen a slew of good economic data for months, so this one piece should really be no surprise.  Oh, there are the doubters out there – that’s fine, a ‘wall of worry’ is healthy.

I recall back in 1999/2000 you could look long and hard for a bear – and it was not easy.  Back then the market was priced for more than perfection – it was priced for ridiculous, a huge bubble that seemed to make everyone who participated wealthy.  But, we know how that ended.  I don’t believe we are at that stage just yet.

From back in my younger days

Speaking of those go-go days of yesteryear, the Nasdaq hit levels not seen since those times, an 11-year high (2001).  (Where were you back then?)

The Dow managed to reach levels not seen in four years and just nipped the 2011 highs.  The SPX 500 for its part is still lagging behind and has not exceed its 2011 highs, nor has the Russell small cap index.

Markets are overbought, some momentum indicators are embedded so it may not be too long before they exceed levels.  Breadth has been excellent while sentiment indicators are getting pummeled (put/call, VIX).

Pullbacks/corrections are a healthy part of a bullish market trend just as  short-covering/buys are good healthy parts of bearish cycle.  So as we have only had one small pullback (that was bought up on the dip) it would not surprise me to see some giveback over the next few weeks.

The market structure is strong , bullish and in force until further notice.  The VIX shows some complacency here but until sentiment turns then stay with the trend.

Taking a view of the chart and technicals, we notice the strong rally from the lows in October and dips in November/December.  Since just prior to the Santa Claus Rally markets have been rolling higher in one direction.

Notice the crossover of the 50/200 (which is the golden cross, spoken about last week) which offers some major support.  The Nasdaq chart is similar but provides support at a much lower level (the RS is notable here).

February is off to a good start but let’s be clear – this cannot continue at this pace and coming in some would set up the next move higher.  The longer we go without a dip the more treacherous it gets.

Hard to believe I wrote an entire article without mentioning Europe, US politics, China or the election.  Times can change.

Originally published at: New Highs All Around – Well, Almost

As I wrote about last week the earnings picture has been mixed (as expected).  Some great stories and guidance from the likes of IBM, Apple, Caterpillar, McDonalds and Stanley Black/Decker, while some disappointments from Google, Cliffs Natural, Riverbed and Potash.  This coming week is the heaviest action yet, we should see some more good/bad/ugly before it’s over.  The recent GDP shows some steady growth but clearly we need to see more upside.  But given the alternatives (Europe, S America), where else other than China are you going to find some growth?

There is no question the market character has changed from just a few months ago.  I’ve mentioned previously about the imploding correlation.  We have seen some market rotation these last several weeks – money flowing from one group to another.  That can be bullish (if  nobody believes it).  In any event, the trend seems to be pointing higher but perhaps after a slight pause.  There is a positive chart development – an impending ‘golden cross’ of the SPX 500.  That can be a support level eyed closely by institutional investors (chart below).  The VIX shows some complacency here so nothing would surprise me.  With two days left in the month and some big economic data due this week (and Chinese markets back after a week off) expect some good shuffling.

Originally published at: Markets Heading for a Crossroads

I normally do not talk about overall results.  After all, you’re only as good as your last trade and there is no doubt some bad karma exists when you start boasting about it.  However, I wanted to point out our consistent and measurable gains over the last several weeks.  Trades are documented, timestamped and sent via twitter and/or email.  I recognize this may be hard to believe but subscribers are winning – and winning BIG (see the testimonials page here).  You get more than just trade ideas.  Our model portfolio is up 40% in 2012 with defined risk (including open trades not listed here).  Check out the trade results, decide for yourself what this could be worth to you!  To try it out at a special price, click here.  Questions about the service?  You can reach me  right here.

Originally published at: Trading Results in January

Steppin’ Out

This coming week will be the heaviest so far with earnings.  So far it has been ‘mixed’ as I had expected.  Last week strong results from EBAY, IBM, UNP, FCX, SLB, MSFT and INTC;  while GOOG and C were the big disappointment among a few others.  Financials escaped the scalpel with good posts by GS, MS, BAC, USB.  Some of the names I’ll be looking at this coming week to step up for a plays include:  COP, OXY, MUR, NFLX, SWK, BTU, IGT, CSX, ATI, CAT, POT, CY, RVBD, QLGC, SBUX and a slew of others.  The earnings will tie into the economic data and advanced look of GDP.  Some estimates have the growth as high as 3.5% but consensus is 3.1%.  Decent job growth, solid economic internals and positive sentiment probably lifted the economy to these growth numbers.  The key of course is guidance and outlook.  So far it has not been too bad.

The Fed has a two day meeting upcoming and I do not expect much different to occur than the last couple of meetings.  Bernanke has talked endlessly about his displeasure with job growth and will continue to pound that drum.  The Fed will remain accomodative and fan the flames of potentially more ‘easing’.  The economy does not need this shot but the ‘threat’ or presence of the Fed is critical for psychology and market sentiment to remain strong (not necessarily bullish but rather confident).

Market sentiment is solidly in the bullish camp, but more importantly it’s confidence that is improving.  Overbought readings, too many bulls in surveys, low put/calls (chart below) and multi-month lows in the VIX (chart below) – sure, I get that we could (should?) see some backing off – heck we have not seen a sizable drop down on the close since just after Christmas.  Maybe some of the issues nagging the market have separated from the strong correlation of equities we witnessed in 2011.  It’s scary to just dive in to the markets with this much bullishness – I know how hard it can be, but the character has changed and I’m certain more will come back in to play before too long.

Originally published at: Markets Are Stepping Up

The Shadow Knows

For me, the order entry portion is the most attractive part of portfolio shadow.  I need something basic and simple to use.  Much like an order entry ticket, you just need to enter the relevant data with correct dates, times, quantities and then watch it work for you.  I particularly like recap of your daily portfolio performance and different timeframes.  There are many other wonderful features including expiration of options, cash out/in calculations and conversions.

I use the portfolio shadow to track our trades daily positions and will soon have a customer viewing tab on the website for all to see (just like the one below).  I’m excited to share this with you and equally thrilled to be tracked by professional service such as the ‘shadow’.  Take a look at the site here http://www.portfolioshadow.com/ and take the demo.  Below is a screen shot of what the portfolio view is like.

Originally published at: Portfolio Shadow ROCKS!

I expect some good and bad, but this week we warm up with some high profile names.   On my radar:  IBM, FCX, UNP, EBAY, SLB, GE, GOOG, ISRG, INTC.  Now, we won’t play every single name here but be more selective, next week brings a slew of names – so we need to have some dry powder.

I anticipate some trades on both sides, with straight calls/puts, straddles and strangles.  Should be a good time for us!  I’ll have a chart or two  to work from that highlights what I’m looking at.

CAUTION:  I cannot be more serious about risk management. DO NOT toss all your coins into ONE or a few trades.  Trading is not a game of perfect, therefore we have to expect that we’ll have some losses.  Those are NOT mistakes:  the mistakes are when you OVER SIZE your trade.

We usually do well during earnings season, but let’s be responsible.  If you need any help or guidance – let’s talk about it, I’m here to help you.

Let’s have some fun and continue this nice run we’ve had to start to year.

GAME ON!

Originally published at: Earnings Ideas – EBAY, UNP, FCX, IBM, GOOG, ISRG, SLB, GE

This past week was quite interesting.  With low volatility and little in the way to ‘shake the trees’ the setup was there for individual names to stand out from the rest.  If you recall a key generator of poor performance in 2011 was the strong correlation between markets and stocks.  Once that separation occurs it will open the door for stock picker performance to shine.  Friday had all the makings of a disaster.   With an imminent downgrade of some European nations by a ratings agency it appeared the markets would be on the ropes.  Afterall, what was there to lift markets intoa three-day weekend?

We haven’t looked at the charts in quite awhile, so I want to focus on the SPX 500.  It appears the days of big volatility and wild swings are behind us for now.  I suppose we will see that pop up when the next disaster occurs, crisis, fear or uprising.   As Roseanne Rosannadana (SNL fame) used to say, ‘It’s always something‘.   The uptrend has hit some resistance at the October highs, perhaps some good earnings will lift it past here into higher ground.  The seasonal trend is not so positive here but will become more so by the end of January.

Originally published at: It’s That Time Again – EARNINGS!

TIME FOR ACTION – To give it a try at 25% off the first month, click here.

A great month so far….21 winners and 6 losses….all subscribers saw these opened and closed!

Eye of the Tiger

Originally published at: It DOES NOT Get Any Better Than This! EBAY, FCX, RIMM, MON, BRCM

A strong day for us as we booked three more good winners – JOY, POT and MOS – anywhere from 23% to 59%.  Patience is a virtue.  Below you’ll find a graphic of closed trades over the last week or so, and while we still have ‘plays in the oven’ we’ll look to unload these over the coming days and weeks.  For now, we’re hitting on all cylinders – 13 win and 3 losses since the year started.  All trades told we are up 22% for the year.

Questions on the trades, let me know – bob@explosiveoptions.net

Bob

Originally published at: Gap Up Holds For Now – JOY, POT, MOS

These are the kinds of trades that we put out regularly on our private twitter feed and email alerts.   To get on board and share in the trades, sign up here RIGHT NOW.

                                  Trade Exit                                                               Trade Entry

Originally published at: Anatomy of a Short Squeeze – NFLX

With Some Hot Weather….

Speaking of earnings, we’ll start to see how the 4th quarter looked starting next week.  If the recent sentiment is any indication we’re likely to see some very good results but with the usual disappointments.  I believe estimates to be far to low (bar set easy).  This could be the floor for stocks, at least through the first quarter.  Perhaps there is some separation of the US from Europe (oh, I don’t really believe that…and neither should you).   With 2011 in the rear-view mirror it’s time to see stock prices catch up company performance.

Charts are starting to become more constructive.  The technical picture is improving as well.  One thing to notice is the separation of leaders and laggards.  This is a positive development.  Last year saw the markets correlate highly with stocks, rendering stock picking a useless exercise.  Remember those days last year when the market would tank and it seemed everything went with it?  Today we see some leaders such as retail, restaurants, rails, industrials, select energy…while some laggards include coal, steel, other energy, some financials and technology.  A bifurcated market is okay to have, then we rotate as time moves on (as long as the money stays in equities).

Last quarter was pretty good for us trading through earnings, and I plan to have some trade ideas on the website through the entire season.  Keep an eye out for them!

Originally published at: As January Goes…

• Long GS 95 weekly calls at 1.22 (from yesterday) – sold at 1.14  (8% loss)
• Long GS 95 weekly calls at .43-.52 (from today) – sold at 1.14    (148% winner)
• Long BIDU weekly 120 call at 3.3 (currently open)

Just a quick word about playing options and the style for which I operate.  Trading options offers no guarantee of success, and with the double issue of finding direction within a certain time frame, it can present problems.  The odds are against you when you buy premium – you will lose more often than you win (statistically true).

So, I ask…what is the ‘dream trade?’  Naturally, one that goes up right after you enter, hits your goal right away and you can escape like a thief in the night.  Think about your trading – how often does that happen exactly that way?  I would guess no more than 5% of the time.

Sometimes we buy options that have little or no intrinsic value, because we look at the charts/technicals and make assumptions about how quickly the price can rise past an objective.  There are many factors involved, of course – but the main point is using the leverage of options to make a big score.

Every 100 trades you might get the ideal situation 5 times.  So, we have to make adjustments, and our time frame (holding time) may change.  It’s possible we might have to hold longer than we hoped or expected to – maybe up to the bitter end.  Now, I know that bothers some people.

Makes them nervous, concerned the trade may flame out.  After all, we’re not in this game to play chicken against the clock.  Because once that expiration occurs, it’s permanent death for that option.  Holding a wasting asset?  Not the most desired position.  My thinking however, is as long as that trade is good – it’s LIVE.

Late last year we had trades that moved to big wins (200% or more) in get this – the LAST 5-10 minutes on a Friday!  Some of you know of the FAZ trades in September.

So, what I’m saying here is this:  follow the option trades with the charts/technicals and not the price, move with the rhythm of the markets and don’t panic – for that is where you will find yourself losing every single time.  Why not stay longer to see how the trade plays out?  If you buy the time, might as well use the time.

The hardest thing is to hang on until the end – but if that is where your payoff lies, then why not hang around for it?

Originally published at: When You Buy Time, You Should USE The Time

• CF Jan 160 calls   169%
• CLF Jan 62.5 calls  64%
• MON Jan 70 call  21%
• MOS Feb 50 call 49%
• CMI Jan 87.5 call  55%

WHAT DO THESE RESULTS MEAN TO YOU?  COULD THEY TAKE YOU TO ANOTHER LEVEL?  THE ANSWER IS YES!!

I heard from many of our subscribers today who booked some/all of these gains with me today.  Nice work!  Nice patience!  We have some good ones still open, some not so good as you would expect.  We have a big winner working with Google among others.  We’ll be looking to ‘ring the cash register’ again soon – then re-loading.  So, don’t miss the boat – now is YOUR TIME!

Sign up here – and get these types of trades and much more!

SPECIAL BONUS – receive the either/both of my eBooks when signing up – with my compliments!

Bob

Originally published at: THIS is How it’s DONE!

I’m ready to get of to a RED HOT START!

Before we get started there are some rules that we have to remember in order to save our bacon.  Some of the action we saw in 2011 was horrific or even downright disgusting.  I don’t care anymore – that year is over and I am moving along.  However, we must remember some of the things that make us better and stronger:

• I will only rely on the charts/technicals to make my plays and decisions
• I will not make decisions based on someone’s opinion of macro events
• I will not listen to hype, guesses or any media ‘head’ looking for recognition or stardom
• I WILL listen to the market and play it accordingly – the markets are always right
• I will not let outside opinions influence my own
• I will take profits, I will take losses, I will manage accounts responsibly
• If trades go bad, I will live to fight another day
• My self-worth is not my net worth

I look forward to coming out with some big plays and ideas in the new year, communicating ideas and sharing over twitter and making some BIG MONEY!

Bob

Originally published at: Some Like it HOT!

No question this past year has been one of the most turbulent we have seen.  Of the more than 200+ trading days the Dow Industrials moved triple digits 100 times.  Market volatility was more like taking a ride in the spin cycle, there was little smoothness to be had.  The one consistency was uncertainty.  As we know markets hate guessing an outcome – more reliable is preferred.  However, trying to guess where our political future is going, Europe’s debt crisis solution and the economy make for lots of opinions.  I cannot recall such a challenging year for trading.  Even some high profile professionals like my colleagues James DePorre and Doug Kass at realmoney.com showed some frustration with  the trading in 2011.  It’s one thing to go straight up or straight down but moves this year triggered deep emotional moments (as reflected in the VIX below).  Money was flowing out of equities at a record pace, headed for safety.  With the big moves up and down, who could blame anyone for seeking the sidelines.

As we turn the calendar it is time to look at the chart (below) to see what it may teach us about the year ahead.  We can see below how the jagged edges of a turbulent year may have clocked many traders who have leaned the wrong way.  Punishment is swift and painful in this unforgiving market.  That is the landscape we are in.  My best advice in 2012 and beyond – size your trades properly, pay heed to your rules, be nimble and quick, take profits and don’t be afraid to take a loss.  Know that it is OK to sell and take a position down – win or lose.

Finally, I am thankful to all of you for hanging in there with me through a turbulent year.  I am also grateful to my friends at optionsprofits.com, thestreet.com, realmoney.com, mrtoptstep.com, cboe.com and greenfaucet.com.  Thank you everyone helping to make 2011 a banner year for Explosive Options – moving ahead toward bigger stuff in 2012!

Originally published at: Moving Forward

Where will we find the companies leading markets in 2012?  That is the million dollar question.  Your recent leaders of today may not be your leaders of tomorrow.  PCLN?  LULU? CMG? NFLX?  CRM?  Nah, there are new kids on the block.  Depending on where we may be in the business cycle, the news events of the world and the political realm can give us clues to where the leaders may exist.  For 2011 we saw leaders thrive and then falter.  Groups were taken apart by the uncertainties of the day.  Quite often we see new leaders emerge and attract funds.

The political landscape may blur the vision somewhat in 2012.  While it is difficult to predict the results of the big election in November we can see how a new landscape may shape the markets.  For the new year, all eyes will be on the financials.  Can they finally pick up the pieces after a wretched 2011?  Regulations, fees, fine and settlements have been strangling the banks and threaten to keep them down, but a change in Washington may curtail some of the headwinds banks are facing.  Charts look in disarray but perhaps a turn of the calendar might attract some attention.  Make no mistake, right now would be far too premature for my sake but this group should be looked at closely in 2012.

Big caps dominated the action last year – numerous Dow stocks hit all time highs at one point (CAT, MCD, IBM, others).  When there is uncertainty investors flock to safety, so this makes sense.  With less uncertainty to snag markets we could see a broadening out of leaders.  A group that I favor with excellent fundamental prospects and cheap valuation are the fertilizers (CF, POT, MOS, AGU).  Other commodity groups (copper, steel, silver) could return to their former glory if the growth countries (BRICs, US, Australia) move ahead.    Energy is an area of interest especially those associated with the red-hot growth of shale and natural gas.  Names in this area include EOG, CLR, PXD and PXP.

Strong markets garner support from technology and if we are to see a higher move in 2012 this group would need to be a leader.  I like the largest most dominant names that continue to gain share – AAPL, GOOG, AMZN, EBAY, BRCM, BIDU and IBM.  While these have been recent leaders they should also attract new money if the markets are poised for a higher move.

Originally published at: Looking for Leadership in 2012

We know each year gives us some unknowns that are tough to handle, but I cannot ever recall a year like 2011.  The turbulence was unreal and not all natural.  The quake/tsunami in Japan was a gamechanger and really set the tone for what would be a volatile year.  As the uncertainty unfolded from that fallout there were several uprisings in the Middle East/North Africa that would change the look of that region forever.  If it weren’t so oil-centric the revolutions in Egypt, Libya and other countries would have been largely ignored.

Let us not forget about the uncertainty from our own government.  The decision-makers are woeful, I won’t spend much energy discussing what we already know, but suffice to say the voters will let them know about it in 2012.  Lest we forget the European debt crisis, a case study of ineptitude with governments unable to come to an agreement on fixing their problems.  One thing is certain – if anything, we have some good can kickers around.  Let’s hope for less stress and angst in 2012 from the Euro zone.

It wasn’t an easy year, but with all that we saw in 2011 that could have taken markets down into the abyss we find ourselves slightly higher on the year.  An amazing achievement with bonds having another stellar year, gold likely to finish higher for an 11th consecutive year and the big Chinese economy slowing down from dizzying heights.  They should still be a driver of growth for the world in 2012 along with the US.

Lastly, I should remind everyone that we take our trading cues not from the macro events, chatter, rumors and stories…rather we trade based on what we see in markets.  The noise makes us tone deaf to what is really happening.  If there is one thing I can pass along  to help you become better in in the new year and beyond it would be to pay less attention to the noisiness, focus on what is meaningful – data, charts, statistics and trends.

Originally published at: Reflections on 2011

I tell you about this because I want to help you succeed.  I have nothing to gain here other than helping you gain some knowledge and leverage.  Trading is not easy but this is certainly a way to make your life easier.

I recently spent time in Chicago with Danny Riley and Stephen Eubanks, co-founders of Mrtopstep.com.  If you haven’t heard of them, you surely will in the near future.  Their methods of educating the masses has become viral on the internet, and soon they will conquer other areas of media.  I cannot stop expressing the pleasure of this group to anyone who is willing to listen.  Now, why do I bring this up?  Mrtopstep is a community of traders in different areas that have been helping new and experienced traders get ahead by educating on what veteran traders see everyday.  It’s not easy nor a guarantee of success but they bring years of experience to the table – sharing what traders see and hear from the trading floor.  This is becoming the new world of trading – share information and flow with anyone who wants to gain an edge.

GIVE YOURSELF A GIFT THIS HOLIDAY SEASON – TRY THESE BOTH FOR FREE FOR TWO WEEKS – RISK FREE.   Click on these links to get started.  MrTopStep 2 Week Free Trial and OptionsProfits 2 Week Free Trial

Their main operation is via chat room where you have access to a variety of traders – SPX, futures, options, treasury, oil, currency and other commodities. THEY SHARE IT WITH THE ROOM.  In the old days this was unheard of!  There are already many traders – new and experienced – in the room watching the markets for setups, paying attention to levels and listening for perhaps the next BIG trade.   Oh, what is that?  There have been many days this year where 10, 20 even 40 spx handles or more have been gained from trader calls in the room (IN ONE DAY).  Do the math – what is your time worth to you?  It’s not easy but it’s the experience that stands out, the recognition of patterns that is essential to avoiding errors (knowing when to zig when everyone else zags).

While in Chicago I also met with OptionsProfits‘ (OP) Jill Malandrino and some of her writing colleagues.  If you do not know OP it is now time to open your mind to a great new brand.  They offer some of the most comprehensive and sophisticated writings about trading options, volatility and hedging.  The education portion is truly priceless – the videos, articles, chat, conversation, feedback and discussion make this the most rounded product offered on the internet.  The community is growing, the dialogue is strong and the learning is top notch.  I am honored to be part of the team, too.

Together these two offerings will take you to new heights in your trading, bypassing the expensive tuition of going it alone in a very dark and cold trading world.  Trading can be a lonely experience, but it doesn’t have to be.  Think about it.  Do you want to continue losing day after day until you reach the point of no return, or perhaps take the easy route?   Take a ride with Mrtopstep and OptionsProfits and bring your trading education to a higher level.

GIVE YOURSELF A GIFT THIS HOLIDAY SEASON – TRY THESE BOTH FOR FREE FOR TWO WEEKS – RISK FREE.   Click on these links to get started.  MrTopStep 2 Week Free Trial and OptionsProfits 2 Week Free Trial

Originally published at: How MUCH Will You Pay For Tuition?

The charts and technicals tell us where price, momentum and sentiment have come from, while we interpret levels and decide which pattern is being set up.  For the last month the markets have provided some jagged moves within a narrowing range (see chart below).  Historically this is a great setup for a big move in one direction or the other.  With low volatility being the case the market is not looking for such a move certainly before the end of the year, so it would likely be a surprise.  Where we see buyers (1160-1200) and sellers (1260-1280) exist in size it would be very difficult to see price stay here (1220).

So, when the charts say move we have to be ready to move.  The window of opportunity has been narrow but good profits can be had on both sides.  To be sure, swing trades have been a disaster.  Stay too long with a trade and suffer the fate of time decay.  Being in tune with the rhythm of the markets will not only create capital but will save from losing too much if you have a quick trigger.  In other words, MOVE YOUR FEET.

I like to move it, move it

The last two weeks of the year could bring us some surprising moves.  For the year markets are down single digits.  Without much in the way of earnings or news prior to the new year we are likely to see positioning for year end.  Tax selling, portfolio management and hedging.  Volume levels have been low recently, institutional participation is lacking.  The days are long for those who trade this time of year – many give it up and just come back later.  I’ll be looking for strategic trading chances without being married to any trade over the next couple of weeks.  The shorter term ideas are more ideal through year end.

Originally published at: It’s Time to Move!

Time for Remembrance – Enjoy this great song by John Lennon (hard to believe it’s been 31 years)

The news is still driving market action and delivering whiplash everyday.  What I find is an uncomfortable feeling putting on new positions, almost like holding your nose before diving in as you know it’ll be mess and probably smell awful.  This week gave us good news from Europe but mixed sentiment for the markets.  Traders held their breath on Wednesday, exhaled the rest of the week and we found ourselves up a decent amount.  I don’t believe there is a tragedy here as the markets took the news in stride (see chart below), volatility collapsing once again giving those a chance to get on the trend.

The charts are setting up for a decent move, the odds favor higher.  Technical indicators are lined up to show the way to higher relative levels.  The 200 ma continues to be resistance but Thursday’s drop may have wiped out some of the excess enthusiasm from the prior week.  Market correlation is tight with stocks now making individual stock picking the most challenging exercise and tough to beat the market under those circumstances.  With high market correlation the diversification ‘free lunch’ is not at work.   As the volatility drops complacency makes its way into the trade, clearing the way for dip buyers to pick up the pieces (like this past Friday).  Maybe then we’ll see shoppers come in and hit their stride!

Originally published at: Time For Some Holiday Shopping

A bit of indigestion for sure.  Back in risk ON mode now?  I cannot recall such an extended time of quick turns in trading and very little pleasure from these moves.

This week was a great example of how you miss out when you’re out of position.  On Monday and Wednesday the market gapped higher on the open more than 3% each day.

Friday also saw a big gap higher following the jobs report but then traders faded the market.  Still, the markets had one of the best weeks ever – rising nearly 7% across the board.  Of course, those expecting some mean reversion like Darren Miller knew there would be a big move.

As we navigate through this news-driven market our challenge is to sift through the rummage and find the names that will give us profit opportunity.  With the markets not giving much chance to get in ‘safely’ we look toward the best trends up and down.

Clearly the down trends favor sectors such as large banks, brokers, ag stocks,  consumer durables and retail, while tech, energy, materials and industrials have shown some life.  The difficulty of course for making bets is knowing you’re on the right side of the trade.

Last Friday’s sentiment was as dour as could be, setting the table for a potential rise.

Looking to the chart we see more back n’ forth action within a wide range.  At some point there will be a powerful move above 1290 or below 1160 (the bollinger band ranges).  The noise in the market is loud and with the volatility this is a trader’s dream.

Markets are slightly down for the year.  News will continue to move markets through the end of the year and beyond.  With the big move last week I’ll be looking for a bit of back n’ fill and adding on dips.

Originally published at: Does The Future Seem Brighter Now?

The ‘Endgame’ is the name of a book written recently by John Mauldin that portrays a new world with less reliance on debt.  He talks of the end of the debt supercycle not from a standpoint of a ruined economy rather from the view of a more healthy system, sustained by real money.  While he predicts a sluggish future for years it is no different from a hangover effect that lingers.  Mauldin does not talk about the end of days rather just pulling in the reins from a time of excess.  The can kicking has continued far too long and will eventually have to be picked up.

The VIX is a great indicator for fear and greed in markets.  Extreme readings tend to be great points to look for market reversals (it’s a contrary indicator).  You can see earlier this year we had good entry points when fear peaked in the Spring and then in late summer.  This time around the fear levels have not been excessive, and with the SPX selling off 8% in about seven days that is quite curious.

Originally published at: Are We Entering Darkness?

Been seeing many calls out there for the Endgame.  Hedge fund manager Richard Lees called it TEOTWAWKI (The End Of The World As We Know It).  You know how it goes;  the disaster that is Europe and their sovereign debt crisis hits their banks, which spreads to US banks and kicks off a global recession unseen on any scale.  Even though the evidence and facts are just not supportive of this (yet), we know if we hear it often enough then it becomes a self-fulfilling prophecy.  But in this world of never-ending fear and greed, the shocks from bad news hit us like a lightning bolt.

So, as we look  to the chart and technical picture it appears we’re at a crossroads (see chart below).  The markets have been down seven days in a row and nary a rally has been seen.  We’ve been at this crime scene before, just look at the similarities recently in August.   The oversold nature of the market has truly hit an extreme rarely seen.  I suspect a big move higher is just days away as this rubberband is stretched as far back as possible.  I thought August and early October were bad, but clearly this recent drop is comparable.  Unless you believe in these ‘doom and gloom’, armageddon scenarios then the odds seem the favor upside to come – and soon.  I’ll be looking to play a bounce  but with one hand on the exit door just in case.

Originally published at: Just The Way It Is

With the uncertainty from DC, Europe and other parts of the World are storm clouds brewing?  Should we be more cautious than usual?

I’m sick and tired of it.  What you may ask?  The macro news has been filling the slot each and every day – twists and turns to make one feel ill.  No wonder the VIX hovers around 30, protection being bought with every piece of bad news.   I realize there is no way to make the ECB, EU and whoever is running the show across the pond to actually do the right thing, but clearly they are bungling an opportunity to calm everyone down.  I suspect at some point they will ‘get it’, but will we spoil a great opportunity?

The US economy is showing some resilience now and with some slack in certain areas, tightness in others there is a nice balance for extending growth into 2012.  The following is a list of some anecdotal and true evidence I have seen to support my view.  While I realize the stock market is not the economy the strength of the market ex macro issues should start to come through.

• improved industrial production – 3 months running
• better retail sales than expected and trending higher into the holidays
• marked improvement in jobless claims – falling
• better sentiment among corporations, executives about future business
• far less inflation than anyone believes – it’s coming down
• stronger export pricing than expect, lower import prices (hence, no inflation)
• solid productivity numbers 2 of last 3 quarters
• highly accommodative fed that will act at a moment’s notice
• verbal evidence of smooth sailing in several sectors, including industrials, retail, manufacturing, energy/discovery/services, oil, exports
• surprising strength 2 straight months in housing
• Caterpillar building 9 new plants in China, making acquisitions and hiring here and abroad
• Retailers by and large expecting a very strong holiday shopping season
• resurgence in auto industry with strong demand here and overseas
• rail cars filled and shipping – fedex and ups moving goods and expecting the best holiday delivery season ever
• coal supplies near five year lows, China demand still robust
• low rates – for borrowing by corporations, small biz and consumers

This list is not complete, I’m sure I missed a few areas but clearly this is not the end of a business cycle.

Originally published at: Calm Before the Storm

What started out down then back up seemed to be a carbon copy day from Tuesday.  However, some brutal selling hit the tape in the last hour any good support was knifed through viciously.  I can’t begin to explain these markets with rational thinking.

Up or down, bull or bear we seem to dragged though the muck each and every day.  This is exhausting, for sure.  As my colleague at thestreet.com Jim DePorre will tell you, bear markets will ‘wear you out, no scare you out’.  If any of you are not tired by now then you have more stamina than me!

In any event, we do have two more days left in the November expiration and we’ll work through it as best we can.  Breadth was bad but had turned positive before the late day 20 handle nosedive.  The VIX roared higher as did FAZ – we follow this one closely – banks seem to be up for the next beating.

The cause for the late move down was – surprise – EUROPE.  Once that gets settled perhaps we can get back to normal markets.  Oil rising 2.4% was notable today, first close over 100 in a few months.

Stocks on the radar:  CAT, BA, DE, FIO, CMI, JCI

No new trades opened today.  We should see some snapback here by the end of the week.  Pay attention to the stream, ask me some questions there, too.

If you need more details than were provided in the alert let me know, bob@explosiveoptions.net.

Have a great night, see you on the stream tomorrow!
Bob Lang

Originally published at: Tough Ending For the Bulls

Originally published at: Earnings Season Drawing Dim, But We Have Some – CRM, HD, PETM, ARUN

So is now a time to get bulled up or remain with a cautious view?  There are very few times where it seemed ‘right’ to go all in – THIS IS NOT ONE OF THEM.  Conditions are improving but I’m moving forward with guarded optimism and keeping a very tight leash on trades.

As a reminder – WE ARE IN THE MOVING BUSINESS, NOT THE STORAGE BUSINESS.    Remain nimble and ready to move at all times.

The macro issues that are prevalent in Europe and other areas continue to move markets.  Why, last week it seemed we were in the clear, then Japan intervenes with the yen and the Greek PM decides to put a referendum out to the people.

That was a 1-2 punch that took out 5% in just two days.  Just this past week there was fear Italy would become the latest casualty (again).  Yields rose sharply on their 10 yr and caused some extreme bearishness – overnight!

Clearly the fear is warranted as any misstep along the way cold be severe punishment.  However, it seems the world may just barely skirt this latest ‘end of days’ assumption.  Be wary of sentiment.

A tribute to our Wonderful Vets!  Thank you!  Never forget

The sad part of it all is the lack of attention being paid to what is really happening in our economy.  Without much fanfare companies are seeing some good things happening on the horizon.  I can point to several pieces of evidence – anecdotal and general ‘big picture’ views.

Caterpillar just announced a big acquisition of a mining firm in Hong Kong, and they will also build nine new plants in China.  Rail cars around the country are full and delivering goods, while coal supplies are at their lowest in five years.  Fertilizer demand is robust as pricing levels are very sticky.

Retailers are seeing a resurgence in their sales, and just last week UPS said they expected to see the busiest holiday shopping season ever – and will hire 55K temporary workers for the season.  I think Amazon.com, Walmart and others might be a reason.  Export prices showed a surprising gain recently, solidifying growth overseas.

Let’s face it;  these facts are not part of the end of a business cycle.  We can talk about half a dozen other items but unless the macro issues resolve then any of these are moot.  I sure hope we don’t waste a great opportunity.

Originally published at: Ain’t No Stoppin’ Us Now

Originally published at: NVDA, MCP – Let’s talk Earnings !!

For Monday there is not much that is appealing but Tuesday I am favoring call plays on STEC, WTW and ROVI.  I’ll have a chart and specific play idea up by Tuesday (before earnings).  Later in the week we’ll talk Green Mountain, MCP and NVDA.

Let’s make lots of money together!!

Talk with you later in the week!  Make sure you are following the twitter stream, this is a MUST!

Bob

Originally published at: Earnings News Still Driving Markets – GMCR, MCP, NVDA, CSCO, STEC

This last week was typical of what we have seen for the past several months.  The macroeconomic issues dominate the news and the move markets.  Monday it was Japan and yen intervention, their attempt to take some heat off the yen and inflate.  Tuesday it was all Greece all the time, the PM deciding that maybe the Greek people would decide whether or not a Euro bailout was right.  As one would expect that infuriated those involved, the market took the cue and sold off hard.  Fear rose sharply, the VIX flying more than 50% in two days.  I suppose some day these issues will subside and then we can really focus on what makes a difference rather than the manipulation of markets.

There are some very nice looking chart and technical patterns of individual issues.  The most recent pullback was bought up aggressively, so let’s give the benefit of the doubt to the bulls – for now (see chart below).

As we head into the final stretch of 2011 we are reminded of the chase for return.  Believe me, as a former hedge fund manager and pension investment manager these last couple of months are a scramble.  You don’t want to post returns that are less than the market at year end.  I remember in 1999 when the markets were up strong money continued to flow in a big way from Halloween until end of year.  I suspect we’ll see similar action with a very accommodating Fed and strong earnings.

Bulls are hungry here, but the news wipes out any momentum or trend.  Like a dog that has not eaten for a week they want to eat but continue to be denied.  Perhaps feeding time happens soon.

Originally published at: Bulls – Chomping At the Bit

Originally published at: Earnings Pace Picks Up – QCOM, WFM, PRU, RIG

My choice on the APC would be a call spread for November (80/90) but with a 75 put as insurance.

Originally published at: More Earnings Explosions – HLF, SM, APC, FMC

Just before this rally started it appeared everyone had given up on any kind of rally before year end, in fact there was talk of a swan dive toward levels not seen since 2009.

Sentiment as bad as could be, short interest highest since 2009 and price action so nasty and filled with surprises everyday seemed like a funhouse.

But then something turned.   Maybe it was a light switch or just a call to order, but the buyers came with a fury at the end of the day on a clear October afternoon; a forty point SPX rip in forty minutes.

Game ON!  Is it coincidence the market rallies up during earnings season or into the European settlement deal?  I’ll let you answer that, but my best clue was a lower trend in volatility, specifically the VIX (see chart).

As we stand here on Halloween, the biggest moves of the year could be upon us.  Seasonality issues persist, hedge funds chasing performance – many are lagging the indices with only two months remaining in 2011.

Ask any fund manager and they will tell you the superbowl of trading starts now and finishes up at year end.  I’ve achieved some of the biggest trading gains ever during the last couple of months of the year.  Up or down, it doesn’t matter.

So, how many have really embraced this market?  Not many it appears.  Sentiment is still showing skepticism.  The latest polls reflect the caution, money has been leaving mutual funds at nearly a record pace.

Retail investors are fed up, exiting in droves.  Sound familiar?  Yep, the crowd is usually wrong at turns.  But with the many hits and whacks this year who could blame them?  But maybe now is the time to shelve that fear and put some trust in the market.

Originally published at: Do You Trust This Market?

Originally published at: BIDU, ARBA, LVS – More Big Earnings Plays -4th Installment

Originally published at: Earnings Plays of the Week – #3

Originally published at: Earnings Plays of the Week – #2

Originally published at: Earnings Plays of the Week – #1

Are we dreaming things will get better?

Sentiment seems to be quite twisted now, which frankly bodes well if you can grit your teeth and stomach some volatility.  I generally thrive in this type of environment, letting others worry about macro issues while I dig down deep for some nice winning trades.  Let the concerns be debated by others, I’ll take care of business.  Well this time around I find it much tougher to ignore the mainstream issues such as Europe, China growth and our own domestic problems.  The noise is loud and a major distraction.  The jury is still out on the market and while it may be pointed higher markets at an eleven week high is probably not the best time to enter new positions.  (See chart below).

By and large companies have been beating expectations.  Some 70% have exceeded the bar when reporting the 3rd quarter numbers.   Guidance for coming quarters has mostly been positive too, a welcomed surprise.  However, without much leadership from financials, technology and commodities – the stalwarts from the previous rally – it will be difficult to move ahead.  Oh sure we have some sprinters such as healthcare, retail, energy and industrials but I would like to see more broad participation.  And volume – let’s talk about it.   The turnover has mostly been absent since the beginning of the month, which tells us institutional sponsorship is lacking.  That may change soon.

The macro issues have been front and center for months.  A resolution is likely at hand but let’s not put the cart before the horse.  If/when the Europeans get their act together is when we may find some return of a sane market environment.   With meetings and a plan on the table perhaps it’s much closer than we think.  Be mindful the market may have anticipated such a result.  In that case, let’s wait for our moment.

Originally published at: Bulls Are Running With The Caution Flag Raised

The hype and expectations for a big move continue to be priced in, and when they deliver or miss big the option prices are reflecting it.

This past week Google hit one out of the park and was rewarded in a nice way – a nearly 7% rise (ironically, Google traditionally moves about 7% after earnings).

A great gain if you hold the stock, but how many of you hold say, 100 shares of Google?  Probably not many.  I didn’t play it this time around, nor did I this past July.

Could I have made a good return on options even if for one day?  Yes, a decent return but relative to risk it wasn’t worth the effort.  In fact, the 555 calls doubled (for a little while).

But would you want to be naked on the upside or even want to buy a little protection ‘just in case’?  I’m always erring on the side of conservatism when it’s not lining up exactly how I like it.

I read about some who ‘claimed’ to have made the trade on Google before earnings.  With options, it was nearly impossible to get paid for the risk you were taking…period.

We know there are times when you ‘have’ to throw caution into the wind.  I get that, and defining your risk is the way to go but when looking for the jackpot on trades like GOOG, ISRG, PCLN, CMG even AMZN you want to come in ‘under the radar’ – before anyone has a chance to get caught looking the wrong way.

In 2010 it seemed like avoidance rather than a crowd (more on that below).

Let’s take a look at implied volatility, which is normally rather calm (historical vol is under 30).  The options expiring next week were more than double that level – hence you needed to pay up to play.

But, it’s earnings right?  Should be a premium on the move.  This is true, however my best plays are not when the market ‘knows’ the move will happen.

You don’t get many chances to hit big on these kinds of names, and when I have a chance I choose to make it count.  So, on Wed the stock was around 548.

The weekly options were just opened on strikes from 550-585, and man were they pricey!  The 585′s were about 7 bucks, so I would need a move to 592 just to break even, or an 8% move.

Not a smart bet.  And there is the risk of failure – if the stock moves far less the premium is destroyed, no chance for anything re-captured.

Now, I have had some of my greatest triumphs trading Google options.  But I want the risk/reward tipped in my favor before I venture out.

In 2010, one such opportunity occurred, I mentioned it to a few friends and posted it on the Realmoney.com Columnist Conversation four days prior to closing out a trade that hit 1000% post earnings.

I heard from many readers on that site who followed along with me and made a bundle.  That trade was NOT there this past week.  Of course,  a different market environment, too.   History repeats over and over, which is why technical analysis is so crucial.

Originally published at: Playing Google on Earnings Was a Monster Trade – LAST YEAR

All is well here on the homeland and in Europe again – thanks to that great little machine we call the printing press.  I’m probably being a bit facetious but the investing world has never been driven by such activities.

Seriously, the economy here in the US seems quite a bit firmer than first thought.  The data seems to support a slowdown but not quite the recession that has been talked about of late.

Across the landscape there is strong evidence of good business growth.  Transportation companies talk about good business trends, retailers are reporting better than expected sales and industrial firms are shipping product.

China seems to be back in the game, Japan is showing interest and other nations are coming to the aid of Europe to help ring-fence their troubles.

These are just a few anecdotal lights fanning the flames of modest growth.  We certainly have troubled areas, looking no further than financials and brokers, airlines and certain commodities.  However, the stock market is telling us even these groups have been beaten too hard.

Going old school here!

I have been watching volatility here for a long while (see chart).  Friday got the move down I was looking for, a close below the key 30 level.  Fear has been elevated since late July and hit a crescendo early that month, then tested the high early in October.

Is the reduction in fear warranted?  I have no idea, rather would let the market tell me.  The truth lies in the charts and this tells me fear is receding.

If that is the case then we can look for more funds to come into the market.  What I’m hopeful is the days of gaps up and down have ended for now – the ‘mystery news’ that seems to steer markets up and down.  Alternatives are simply not comparable to what can be achieved in equities – as an example Apple is up 15% in just about a week’s time.

As we head into a seasonally strong period for stocks we must be concerned about a market that moves too far too fast.

One of the characteristics of this market is the hyper fast moves of stock prices, steep rises and falls before your very eyes.

As the markets had their biggest week in just over a two years we are always cognizant that news can turn sentiment on a dime.

While it’s more fun to run run run as prices chase higher, that is probably a market in the past.

With the arrival of earnings season, the wheat will soon be separated from the chaff.

Originally published at: Greener Pastures

Today we added a few plays:  gold, silver, an index put and a netflix risk reversal.

GG Nov 47 call at 3.4 – this is really a combo gold/silver play and one of the best performers this spring when both metals were rising sharply.

SLW Nov 31 call at 3.5 – best silver play out there, looking for a move to 40 or so here and on the metal, too.

SPY Oct 125 put at 3.85 – some insurance against a drop, after all the market has had an incredible run.

If you need more details on the trades or an update, let me know via email, bob@explosiveoptions.net.    See you all on the twitter stream tomorrow!

Bob

Originally published at: Time To Make Some $$$

Some have been ‘playing along ‘ with me trading the FAZ of late.  If you did not know, the FAZ is the triple bearish ETF, opposite of FAS.  What strikes me most about playing this vehicle is the stocks that are in this – banks.  If you needed an excuse to short banks then look no further than this essay by Josh Brown (heavy language, if offended do no read) to see why it’s easy.  However, the chart offers a great appeal as well.  In a world of uncertainty and high volatility look no further than FAZ to portray the landscape.  On the far left side of the chart you find a calm, benign environment with only modest price movement.  Look to the right and you see strong moves, a jagged chart and wild returns.  The options traded offer extraordinary returns, but you have to be willing to hold on, even five minutes into the close.

The chart below shows some excellent buy and sell points, specifically buys on the 50 ma and sells on big volume spikes.  Let me know what you think and how you did if you traded it with me.  We have had some triple digit gains on this in over a month – may just be getting started!

Originally published at: Thrill Ride – Anatomy of an Adrenaline Rush

by Josh Brown, 10/9/11

You want to know why everyone in this country hates you and wants you dead, you big stupid fucking bank?

Here’s why, pay attention:

(Reuters) – Bank of America Corp will pay $11 million to ousted executives Joe Price and Sallie Krawcheck, a large payout at a time when banks face protests over pay but smaller than the eight-figure packages some executives received before the financial crisis.

Krawcheck — a former Citigroup Inc executive who came to Bank of America in 2009 and was one of the top-ranking women on Wall Street — will receive a one-time payment of $5.15 million, according to separation agreements filed by the bank on Friday.

Price, a Bank of America veteran, gets $4.15 million. Each will also receive $850,000 over a one-year period.

Price was head of consumer banking and Krawcheck led wealth and investment operations.

Elevenmilliondollars?  What the hell world are you inhabiting?  Eleven million dollars for two departing executives because things didn’t work out?  I’m sorry, but were these two executives of Derek Jeter and Alex Rodriguez-level importance for your organization?  Is that why there are severance deals like this in place?  Or are you just completely psychotic?

It’s not that this isn’t your prerogative as a private company – it is.  But seriously, numbers like these at a time when you’re instituting added fees on customer accounts just sound farcical, almost like you’re making these payments to get a reaction out people.

You look completely ridiculous with news like this at a time when thousands of people are massing in every major city in the country to make the case that you don’t deserve to exist.  At a time when you’re being investigated for employing robo-signers just to maintain a certain level of foreclosures processed per month. At a time when you’re laying off rank-and-file employees not by the hundreds, not by the thousands – but in the tens of thousands.  At a time when retired seniors, desperately seeking income, have been pushed into annuities, life settlements, commodities and junk bonds because of the zero percent interest rate policy that was meant to nurse you and your balance sheet back to health – and this is what you do with the money?  With OUR money?

Are you crazy?

You pay fired executives more in severance than the average American worker will earn in a lifetime.  For most people on the outside looking in, this seems like it’s from outer space, another world entirely.  These numbers just do not exist to regular human beings, they cannot be fathomed.  The ordinary American is not a class warrior or a woe-is-me whiner coveting the rewards of others – the ordinary American simply believes that extraordinary rewards should go to those who do extraordinary things, not to paper-pushing failures at parasite banks.

So let me give you a hint that will save you countless hours and millions of dollars spent on consultants and the public relations morons you keep on staff:  This is why they hate you.  This very type of thing, while just a single example, epitomizes the piggish mentality that has set you apart from everyone else.  This is why they’re marching against you and calling for boycotts and writing their politicians.  And this is why your whole model and way of life is on its way to being dead.  Forever.

You want to roll your eyes and make snide remarks about “dumb college kids” and “socialists”?  Go ahead but you’re be missing the point.  Because it is the small business owner who’s really been wronged here, not the fringe elements you mockingly dismiss.  The business owner whose losses are not socialized like yours, the business owner without the government in his pocket, the business owner who is forced to play by the rules that you have paid to have written.  He’s not a hippie, he’s not a Marxist…but he’s waking up, dummy.

You blew the second chance you got with TARP to re-enter society as a productive component of commerce.  You went back to bonus-swilling, full-retard mode as though nothing ever happened and 13 million people weren’t sitting around in their post credit-bubble joblessness for three years now.  Your tone-deafness and utter disconnection from the rest of the country has produced something extraordinary – You’ve managed to awaken one of the most indolent, lethargic and apathetic populaces in the history of the world.  You’ve now stirred a slumbering nation of 300 million from it’s Entennman’s and Zoloft-induced stupor.  America is awake now and it’s pissed.

Good luck with that.

Originally published at: Banks Are Out of Control

This past week saw a penetration of the August lows on an intraday basis.  For now, the SPX is back in the range of 1120-1220 or so.Unless you’re skilled, quick and lucky at picking the buy and sell points then it’s just best to wait for some trend to develop.

Trading options is difficult enough but with the wind in your face makes for dire consequences if wrong.  While we cannot predict the future using technical tools can certainly give a hint to momentum and direction.

I like to look at sentiment indicators regularly, and some of the best predictors are the tallies of bullish/bearish attitudes.  There are many out there and most say the same thing but depend on the timeframe.

We look for extreme readings and then go the other way (contrarian indicator).  Recently we saw the investors intelligence peg a multiyear low in bullish sentiment while the bears were near a high.

This sentiment indicator takes much longer to turn than most others and could be considered a reliable one.  The AAII is another indication of sentiment which seems to change directions as often as the wind in Chicago.

Lately this indicator has been flashing rather mixed signs but overall seems to be working as a good contrarian indicator.

If this doesn’t motivate you, then I don’t know what will.

The VIX is another indicator you’ll see me talk and chart about frequently.  Currently the VIX is elevated and continues to show the fear associated with investing in equities (see chart below).

Put/call ratios have been high for some time now reflecting the purchase of put options (a high VIX also implies option prices are expensive for they are being chased).

Finally we look at short interest, which recently clocked in at the highest levels since early 2009.  Naturally, it’s tough to look at the raw numbers on short interest as they reflect arbitrage and hedging but when the trend is rising then we take notice.

Bearish conditions can persist much longer than anyone expect.  Bear market moves tend to be vicious, nasty and quick – and end with a good capitulatory move (like last Tuesday).  I’m not saying the move down is over – but as the range exists the opportunity is there to trade it.

Originally published at: Challenging Times For Bulls and Bears

History repeats or just rhymes?

You tell me!

Originally published at: Some Things Stay the Same

From an hour before the close Tuesday until today’s finish the SPX has moved an amazing 90 points.  Should we have expected anything different with a VIX in the 40′s?  Let’s flash all the way back to Tuesday of this week.

It appeared the market would drop to new lows for the year and indeed it did – but it didn’t finish there.  Ok, a 40 handle move on SPX in 40 minutes – we’ve had these brisk HFT-driven frenzies a few times since July.

Bank of England is providing more liquidity, the ECB didn’t cut rates but they seemed to have something new to unveil.  There was a strong bid under the market all day as the Fed commenced with selling and then buying securities today (their operation twist, or what I call operation karate chop).

Yesterday was good followthrough on lighter volume and then today’s sharp spike, again on lower turnover.  This puts the average back to the level of last Thursday.  Having made a lower low and the character V-shaped bottom.

Unless you’re willing to guess or play the extremes during the day this is a very difficult market to play for swing traders.  Unless I am comfortable staying with a trade for more than one day then it becomes ‘lucky’ if you get it right.  Is that how we should play this market?

Looking around charts tonight most of what I see are V bottoms.   LVS, BRCM, CRM, IBM just to name a few.  Even the banks show it as well.  It’s as if the rocket fuel came for the shorts with their hair on fire.

Some of the recent twitter trade ideas had mixed results – some good and some fell flat.  I’ve been playing it rather guarded as you can imagine.

I need to see some rhythm in this market without being flipped and shaken out by the hyperspeed of each day.  It really seems this market is bent on breaking every last participant unless you are swift and move your feet.

Current trades still open -Older trades Dec WYNN call spread (150/160), WLT iron condor and short AAPL iron condor (via twitter).  We’ll have some new trade ideas soon as there are a few decent setups, but I expect some backing and filling here in the interim.

If we are embarking on a new bull rally we will not miss it.  If this is a fake out, we will hit it hard on the downside, too.

The jobs report will be a market-moving event.  At this point any number will be relevant.  I’m not going to guess here but we’ll see how the market reacts and move accordingly.

Make sure you are following me on twitter!  See you on the stream tomorrow.

Bob

Originally published at: Did the World All the Sudden Get Well?

The market for jobs is difficult if not damned near impossible.  I don’t know how the President’s Job Bill will work out but I can tell you this much – there are more structural problems than anyone is willing to admit.

Last month there was a sobering article that detailed the difficulties in landing a new job.  Perhaps it is now time for an entirely new approach.

19 Scary Facts about Getting a Job in America (click here)

Originally published at: Jobs Data on Tap For This Week

Therefore, our job is to best identify when it is coming at a feverish pitch and either step out of the way or profit from it.  The evidence is heavily weighted toward market distribution and has been for quite some time.

My realmoney.com colleague and friend Ken Shreve (click here) has been talking about the institutional distribution signals since July.  I would actually go back a bit further to when the distribution started – following the March tsunami in Japan.

That is where we saw the first big signs of institutional selling.   Oh, we had some decent price moves following that low but there was no conviction.  All paths lead to the institutions, who make up 80% of the market action.

I look for strong volume on the up days as the best way to measure institutional participation.  Turnover has been absent – therefore buying levels are missing. support is tenuous.

Who is doing all the selling?  Maybe that’s the wrong question – who isn’t selling?  Bear markets are not fun but are a fact of life.  What goes up eventually comes down (and goes back up, etc).   We will ride the trend until it doesn’t work.

Is it ok to sell here?  Anytime it is ok to sell.  As option traders we cannot hold onto trades for very long.  Calls and puts are wasting assets – we need to move quickly.

As Jim Cramer mentioned on his Mad Money show the other day it is so much more fun being bullish.  Yet, we must accept and embrace the conditions that are in front of us.

Some bulls have dug themselves a hole as they have been buying all the way down, some very deep.  That is just not the best activity here.  Warren Buffett once said in order to get out of a hole you need to stop digging first.

I don’t care what is being flaunted out there about ‘great buying opportunities’ here or ‘cheap valuations’ there.  When the selling exercise commences you stand back and let it finish.

There are strategies and tactics to navigate through choppy waters – I suggest you use them.  Now is not the time for complacency, it is a time for action.  This excerpt from my early Friday realmoney.com post:

This is a time to be defensive – buy some put protection, sell some longs if you can, sell calls and take in the nice premium if you want to hold.  Now is the right moment to be active and not sit around to get run over.

The chart up above tells the story.  The most accomplished bear market serves to trap those with hope into the market only to spin them around and make ‘em so sick they can barely move.   I’ve been there – and if you have been around markets for awhile so have you.

Legends are made by making a correct timing call.  After all, you get many chances to get it right once.  That’s all good and well for the ego but does it make money for you?

That’s all I care about.  I measure success strictly by the bottom line.  Am I making money for clients (or at least not losing them money…cash is a decision and a position)?

Are we positioned correctly, flexible and ready to move our feet when the winds change?  Can we accept losses and turn it around?  Our beliefs are embedded in our minds and make it very difficult to shift gears.

With a market that moves at hyper speed, from up to down and back again we must let go of our beliefs and just move with the market.

Is my focus on the charts and what is happening today and likely to occur in the future or am I lamenting my losing positions in the market?  A bear market can be the most humbling experience yet as we continue to fight it the fatigue sets in.

Jim ‘Rev Shark’ DePorre of Shark Investing (click here) says it right – ‘A bear market will wear you out, not scare you out’.  We have just finished the worst quarter in quite some time driven by some of the worst policy decisions in history (globally).  What to expect in the 4th quarter?  You won’t get that from me, rather we’ll play the market in front of us.

Originally published at: A Million Reasons to Sell….

This thing really ramps up and when it gets going – the power in the move is breathtaking.  The best gains in options happen in very short time frames.  The two components of an option price of course are time decay and intrinsic.

If you can override the time element then you have an instrument than can move with the stock – kind like moving at the speed of light.  It’s a beautiful thing when you’re on that horse and are able to ride it out.

Today I mentioned my affection for FAZ again.  Early in the day, it was flat to lower – as you can see from the 15 min chart below.  But it ramped up in the last hour, closing up near 10% from the lows and now with three days left on the weeklies we could see this back to the 70′s of last week.

What all the sudden turned this on today?  An overbought market, profit-taking and some cold water thrown on some brokers by Meredith Whitney.  Whatever the reason, it moved.  I suspect if the markets pull back into  the end of the quarter then we’ll see this run some more.

Originally published at: FAZtastic Trading – Again!

Keeping the powder dry and waiting for a better trending market is often the best choice.  Nobody wants to get in and trade more than I do but this is not a time to put risk on the table.

There are several reasons below but simply put I have to be comfortable entering and staying with a trade:

• Volatility – normally a trader’s friend, this is reflecting the mass uncertainty over macro issues.  The tail is wagging the dog here and until that switches then fear will be priced in.  A VIX hovering near 40% indicates high fear.  We are in a world that is moving and changing directions fast.
• Jagged markets – Gaps up, gaps down.  This is the mark of a casino environment.  I like trading casinos but am not comfortable trading IN a casino.  The gaps mean you literally have to guess right on news flow.  That is no way to play and have conviction.  The charts tell the story for me only.
• News – From Europe to Asia are dominating the headlines each day.  Macro issues are clouding better judgment of investors and traders, no longer will good company news trump all other.  Each day news changes – intraday!
• Inflation – Precious metals have recently been in a tailspin but may start to turn higher.  Why?  The effects of a bold move by Europe to clip their problems could be ultra inflationary.  Another macro issue that is nearly impossible to game.
• Volume – It is quite clear  the institutional players are waiting this out.  The biggest volume days are down days – institutional distribution – it makes little sense to put big capital at risk without much certainty.
• Quick turns – Our style is not to daytrade.  That is not a bad thing but to change styles without testing is a recipe for disaster.  I would prefer to wait and be a bit late rather than step get into a trade that goes awry quickly.

This market requires a clear head and fresh thinking each day.  Sometimes we need to be in cash – which is a decision and a position (we currently have two positions on).

With so many tripwires out there (just look at last week if you were long or this week if short) the best action is to wait and not attempt to catch knives.

Originally published at: Why We Are Playing it Tight

His technical books are must reading for a well-rounded education and can be found on the Hard Right Edge (click here).  Alan recently penned what I imagine was a difficult piece.

He talks about a disturbing new trend that is taking shape – disinterest in investing.  I hope he is wrong but I’m afraid he is not.

Enjoy this great piece, think about it and comment on it below… and visit his site frequently -  where you’ll find some great insight.

below written by Alan Farley 

We’re entering the 3rd bear market in the last four years (if you view the flash crash as a mini-bear, which I do). This is the nail in the coffin for the quaint idea of buying stocks as investments.

The public already knows this, which is why we’ve seen a mass exodus out of the stock markets in the last 18 months. In fact, I think the only ones that don’t know it is the Wall Street crowd because they’re so immersed in the con game that they have no conception of reality.

Two generations of demographics support this death of equity investment: I’m in the middle of the baby boomer generation and will turn 60 in three weeks.

Folks like me are looking to reduce risk so we can pay for our old ages. We have no intentions of taking our low return nest eggs and betting on the next Internet or Starbucks, especially in a Taco Bell society that has lost its flair for innovation.

Our kids, aka the next generation, are dead broke because the old folks in power have abandoned them. They know better than we do that Wall Street is a rigged game because they’ve grown up to an evening news environment that’s bombarded with financial crisis after crisis.

Maybe that’s why my two grown children want nothing to do with this industry. Meanwhile, the financial elite have sucked the life out of healthy trends in real estate, raw materials, Internet and a dozen other growth sectors with artificially-created bubbles that are now broken beyond repair.

They got rich while their customers got lectured about personal responsibility and thrown out of their homes. This is fine for me because trading isn’t investment, which still works, so I can stick around and turn out the lights and lock the doors when it all ends.

But, to tell you the truth, I find the whole thing quite depressing because capitalism is a beautiful thing, when done correctly.

Originally published at: The Death of Equity Investment – Alan Farley

From the violent revolutions in the Middle East to the tsunami in Japan, the European Crisis to the US debt ceiling mess – we have had our fill of macro events influencing decisions.

In a world of uncertain outcomes investors and traders find safety on the sidelines until issues are resolved.  Today’s trade is as tough as we’ve ever seen.

Sentiment is as bad today as we’ve seen in a few years, and without the government there to backstop failures (well, I sure hope that is not the case again) it’ll take a a great deal of time before the environment clears up.

Trading the news is tricky, but it’s best to avoid the noise and just trade what you see.  Too often we put the cart before the horse in hope of making the right trade.

In most situations what is needed is a clear head, fresh perspective and no outside influence.  I trade based on the charts and  technical patterns based on years high probability of success.

They don’t always work, but then again what system is perfect?  The news can get loud – deafening to a point – as CNBC and Fox Biz feast on the fear of the public to garner huge ratings.  I often have the mute button on.  My head is clear and fresh to make winning trades.

The influence of news causes a chain reaction.  Lately the European Crisis has been front and center as many try and game the final chapter.

I have never seen such a close correlation between stock markets and news as we have today.  It’s as if players are placing bets based on the type of news that will be released – and the magnitude of it.

Big gaps up, big gaps down, 20-30 handle moves on the SPX in the pre-market.  This is no way to invest, no wonder the public has been forced to the sidelines.

Unfortunately, investing and trading in the stock market has become a gaming exercise.  News flow is disseminated at hyperspeed in the internet and smartphone world.  We react and make our moves just as quickly.

It’s time to slow down – because we all know what happens when we travel too fast – accidents happen.

Originally published at: The News Drives Market Action

We’ve hit this for BIG 300%+ wins a couple of times this month on this vehicle while the banks crater.  I like the action on this issue as it ramps hard and delivers some juicy profits.

Further, playing the weeklies allows us to play this with less time decay – the reliability of the instrument to ramp hard end of the week gives us a chance for a big score.

In September we’ve seen this happen on three occasions, and I’ve taken advantage of it each time.

You’ll recall I sent these trade ideas on twitter, many of you caught them and rode to big profits alongside me (only subscribers to THIS service could get this in time).

Below is a chart with notes that demarcate the technicals I’m looking at on the setup of the trade.  Some were in the 58 call from Monday and sported  300% winner, others were in the spread from yesterday and netted a 100% winner (or more).

Earlier in the month I tweeted two other opportunities for a big score on this ETF.  Chart of FAZ is below, you can see what I’m looking for.

Originally published at: FAZ IS FANTASTIC!!

by Frank Zorillo

Certain tweets on the stream got me back to reading The Art Of Contrary Thinking by Humphrey B. Neill.  It seems many on the stream believe that we have too many bearish folks in the market today, and somehow believe that it is worth a contrarian play.  

I love this, she just nailed it!

I’m of the opinion, that, if the market is trending lower it is only natural for investors to feel skittish and perhaps even bearish.  It is human nature.  So, when I see a lot of put buying, or bearish talk, I say to myself; it comes with the territory.  

Many investors still have open wounds from 2008, a period that dissipated what took many a lifetime to make in a matter of a year.  If they believe that something similar is happening now to what they saw in 2008, they will probably become defensive just so the same thing won’t happen to their portfolio again.  

The 2008 massacre is the reason why…cont’d

To read the rest of the article, click here.

Originally published at: The Art of Contrary Thinking

Today I tweeted out a trade idea on FAZ, which some of us were stopped out on.  We’ll look at this one again on the heels of this downgrade above.  Be looking for it if you’re  on the list!  Not signed up?  Here’s your chance – click here and you’re on your way!   If you downloaded the eBook there is a coupon to use for 25% off the first month (email me for the code and I’ll send it over – bob@explosiveoptions.net).   Keep coming to the site for good content – I’ll have some new articles up over the week.

Twitter is a great way to get trade ideas out to all subscribers and share with one another.

I’ll see you on the stream tomorrow!

Bob

Originally published at: Arrivaderci!

The Fed is front and center next week with a two-day meeting scheduled.  All eyes will be on their statement and perhaps some clues about future policy.  It’s widely expected Bernanke and Company will propose some sort of easing that may stimulate the economy or help job growth.  The last two rounds did not help that cause too much – in fact the jobless rate hovers near 9% while job creation is falling.  It’s debatable that Fed policy can influence corporate action but it’s undeniable that Bernanke would like to keep trying.  The uncertainty and tension around the meeting and statement is bound to create some anxiousness and volatility.  The earnings picture is slowing down but there are some big ones on tap – BBBY and ORCL are just a few.

I wonder if there is something else going on here.  I get it about the Fed – sure, some are getting in front of a big move and don’t want to be caught off guard like in 2010.  But maybe the economic climate is not nearly as bad.  Industrial production continues to improve and while Fed regions are weak (Empire, Richmond, Philly) and sentiment weak (Michigan, LEI and investors intelligence) there seem to be some rays of sunshine. CMI talked positively this week, mergers are active and technology stocks are undergoing a renaissance.  Inflation is still a concern which is why I believe the Fed’s future actions may not be full throttle.  Economic growth is clearly below trend and acceptance but I suspect the committee will do the right thing – whatever that may be.  Don’t fight the Fed have been great words to live (and trade) by.

Originally published at: Is The Market Front Running QE3 or Something Else?

On a day/week such as we are having you are either happy or sad.  Happy if you are long and have skin in the game, sad if you missed out or were on the wrong side of the trade.

In this business especially in this type of market the window of opportunity is short.  If you linger to long with positions you’re bound to get pasted.

As long as you have capital you’re always in the game but lose your precious chips – then you’re out of the game.  When I miss out on days like this it’s frustrating.

I start asking questions:  Why didn’t I have something on?  Why couldn’t I have hedged a few positions?  How flexible?  Could I have traded differently?

When trying to answer these questions I have to keep them in context of how I trade, my style and remain consistent.  We can always let the emotions of a big day have an influence, but I would rather keep a steady head.

Having a long trade with the futures down 17 Tuesday evening wouldn’t have made me feel good, likewise having a short position with the market gapping higher and reaching for 30 handles would have made me ill.

I will miss many opportunities – and so will you.  I prefer to play within my own sandbox – it works best for me.  Therefore missing out on a chance is not a tragedy, it’s just a part of trading.

Denise Shull put out a great paper about conquering the 4 fears of trading.   One of the fears is the fear of missing out.

We’ve all been there.  How we handle the psychology of trading is critical to our long-lasting success or failures.  I would like to share a blog that I found not long ago that is not specific to trading but can certainly be substituted.

We can all relate to this story.  Have you found yourself like the little boy below?  I certainly have.  Step back, think about it and whether it really matters if you miss out on this one, for you will likely not miss them all if you are focused.

written by Leo Babauta, seen on zenhabits.net

A father and his son went fishing on a small boat, hungry.

The father helped his son reel in his first fish, and it was a beauty. “Great catch, son,” the father said.

“Yes, but I’m worried I’m missing out on better fish,” the son said. “What if I could catch a bigger, tastier fish?”

“Maybe you should try,” the father said.

And the son did, catching an even bigger fish an hour later. “A real beaut,” the father said.

“But what if there are better fish out there?” the son asked.

“Maybe you should try,” the father said.

And the son did, catching a bigger fish, then wondering if there were better fish, catching another, and so on.

At the end of the day, the son was exhausted. The father asked, “How did the fish taste?”

The son hesitated. “I’m not sure. I was so busy looking for better fish that I didn’t taste any of them.”

The father smiled contentedly, patted his belly. “Don’t worry. They were delicious.”

We are all of us like the son. We all worry, at some time or other, that we’re missing out on things.

It’s why we’re so busy — we take on so much because we don’t want to miss out. We take on dozens of goals and aspirations, because we don’t want to miss out.

But here’s the bare truth: we will miss out, no matter what. It’s inevitable. We cannot do or try everything in the world, even with lives twice as long. We cannot see every town and city, read every interesting book, watch every important film. We will always, always miss out.

Here’s the second, more important truth: if you always worry about what you’re missing out on, you will miss out on what you already have.

Don’t make a reading list a mile long — focus on the book in your hand. Don’t pack your vacation itinerary with every highlight of the city you’re visiting — walk around and enjoy what you find. Don’t worry about traveling the entire world — be delighted with the world around you. Don’t worry about what you’re missing online, or in the news — what you’re doing is good enough.

And let go of your long to-do lists and goal lists. They are a futile attempt to keep from missing out. You will miss out, but in striving to do everything, you’ll miss out on the wonder of the thing you are doing right now.

What you’re doing right now is all that matters. Let the rest go, and enjoy the fish you’ve already caught.

Originally published at: Afraid of Missing Out?

A more exciting week, but what really happened?  All the usual stories about Greece defaulting and, far more significantly as it seems, some big name European banks in trouble as a result.  An emergency G7 meeting ( but not the more fashionable G20,  we’ll return to that ) and, by far the biggest news in our view, Jurgen Stark hands in his cards.

First to the weekend get-together in Marseilles, which the Wall St Journal describes as involving the G8, though we cannot identify the final participant.  Madame Lagarde found her way into the photoshoots, so perhaps it was the IMF.  Anyway, they announced in their communique that they had agreed to work together towards a solution to their problems, though according to other sources they couldn’t quite agree on whether it was actually a communiqué or perhaps something less definitive.  This sounds so vacuous that it might reasonably have emanated from the larger group, so why were the others not invited?

The answer seems to be that the two groups within the G20 have understood the truth, which is that they have nothing in common.  The developed economies have managed the last few crises which they have created by transferring the damage to the emerging markets, but this ruse has finally been…con’t

To read the rest of of the article, click here.

Originally published at: Stark – Is Raving Mad about the EuroZone

What Has Changed Isn’t the Right Question

Originally published at: A 9/11 Memory from Tim Collins

At best it’s challenging, at worst impossible to trade this market.  The range is wide – call it 1120-1230 on the SPX. For those who are patient and waiting for things to turn that is ok – but certainly patience may be running thin.  As the troubles deepen in Europe and solutions are not found the fear about some sort of ‘end game’ will constantly be lurking.

Chart Time!

The chart of SPX is constructive and definitely showing a wide range.  The current high volatility portrays wide ranges in the distribution – so no surprise when we see big moves up and down.  Technical factors are mixed here but can certainly go either way.

The recent low of 1120 on the SPX seems solid but we’re in a fearful market – so trying to pinpoint levels that ‘should’ hold is really useless.  That should not render charting and technicals invalid, rather trying to draw a line in the sand may prove to be futile.  Emotions, fear and machines dictate movement right now – there is no rationality, trend or pattern to discern on a daily basis.  When markets move with such force on news it is best to wait for it to pass.

Best Currency in a Bad Neighborhood

Don’t look now but the buck is rallying.  It has been on a tear for several weeks now as many flee the rotten currencies and seek the ‘safe’ status of the dollar.  Now, isn’t that interesting?  For weeks and months the currency gets hammered, smashed and humiliated – heck, I saw a picture of George Washington on the bill with a black eye.

Too much debt, the Fed debasing the currency and a weaker economy.  The Chinese preferring to diversify and sell dollars as they lack confidence in the greenback as the world reserve currency.

Originally published at: Market Range Still Intact – For Now

The big stories in global financial markets have rumbled along for the past week, but there have been no major developments.  Perhaps we shall discover after the final holiday weekend of the summer whether Bank of America and/or some French banks really need a another big bailout, or whether the one in progress for Greece will collapse, but for now there is nothing new to say.

This break gives us the chance to comment on a topic which has held our interest for some time, the misery index.  This evocatively named economic statistic, which came to the fore in the dark days of the late 1970s, is obtained very simply by adding the unemployment rate to the 12 month rate of price inflation.  Given that these twin ogres feature regularly at the top of the list of the greatest fears in the minds of the general population, it comes…con’t

To finish the rest of the article, click here.

Originally published at: How Miserable are Thee?

So, therein lies the problem – our elected leaders will not play ball.  We can all understand the frustration.  After 2008 with a clean sweep Obama went on to push through his agenda without any compromise whatsoever, passing the blame along to all those in the previous regime.  He was arrogant (probably still is), and remember when challenged?  He said – I won (click here) - and he most certainly did, but with that stroke and shoving through Obamacare he lost any chance of ever compromising with the opposition.  Who could blame them for being angry with Obama?  We know there will always be differences between parties, but for the welfare of the country could we put petty differences aside and just lead?   The great divide in Washington between the parties is as extreme as it ever was.  Time to put politics aside and do the job voters sent you to do – LEAD THE COUNTRY.

I really do not know where the President is going with this new jobs plan.  Perhaps he has a true broken heart for those who are suffering.  Maybe it’s just a political ploy, or just a stunt to make the Republicans look bad.  All I know is the country needs a lift from whoever it may be.  I could care less who originates the idea or plan, but let’s get one that makes sense and creates jobs.  I’m afraid a bold spending plan by the President would lead to a bigger debt burden – and aren’t the ratings agencies just waiting for that?  We know the Tea Party will vote down any additional spending – but I am yet to hear what their solutions are regarding job growth.  I heard a small businessman on the radio the other day saying the simple solution is to revive the economy – he’ll hire plenty of people if that were the case.

Originally published at: A Presidential Dilemma

Got that ugly report out of the way.  Done…gone….history.  Let’s move forward with some solutions.  It should send a message, but hasn’t that been the case for months if not years?  When you look back at August is it any surprise we saw no job growth?  I suppose the most optimistic could see some light – but when you put the pieces together it makes sense.  The beginning of the month saw us dealing with that debt ceiling fiasco, transcended by the debt downgrade just days later, a big Fed meeting, new Euro issues and then the uncertainty of Bernanke’s Jackson Hole speech.  Add in the government was on vacation (hence, who was there to hire anyone) and they are cutting spending, so there you have it.  It was a complete ‘freeze out’ of hiring.

Companies will hire back when they have clearance.  Simply put when there is some visibility of business prospects and growth then hiring can happen.  Some would argue that many of our jobs have been lost overseas.  This would be correct, an unfortunate circumstance when our very own companies become slaves to the bottom line, and hire abroad.   According to a recent article in Newsweek there have been half a million jobs created since 2000 – 2.9 million offshore by multinationals, while simultaneously cutting 2.4 million jobs here at home.  Other countries partner up with our firms and offer generous benefits to bring jobs to their people.  Sounds like stealing, but it’s more like ‘come to our house, we have better food’.  Does it make sense for companies to hire with so much uncertainty and trends calling for weakness?

I’m not sure what the President has in mind for his speech on jobs but the bar is set quite low.  After all, it was a year ago where he started to lay out plans for job creation, but that fell far short.  In Dec 2009 Obama boldly went after the middle class with a jobs creating agenda, but that was dropped.  I suspect with a Congress that will not work with him to get something done on behalf of the American people it will be difficult to make headway.  So therein lies the dilemma – a Congress who is willing to let things blow up only to lay blame at the doorstep of the President so as to make him a lame duck.  With 9% unemployment this is most likely the case already.  With the election just 14 months away does it make sense to keep job-seeking Americans wanting and waiting longer just to achieve this objective?  The markets will be keying in on this but is likely factoring in some weakness.  After all, the White House threw in the towel this week and forecast 9% unemployment for next year – a far cry from the bold 7% or lower number projected in 2009.  This could be a very difficult year unless some compromise and agreement are reached – for the people.  It may be wishful thinking.

Originally published at: Bad Jobs Report. So, Now What Do We Do?

Let’s see now:  debt ceiling, debt downgrade, multiple issues in Europe, the Fed and Bernanke…let’s throw in an economic slowdown and you have the ingredients for volatility.

Too much uncertainty and the VIX rose sharply.  The markets hate uncertainty and when there is fear it becomes a ‘shoot first, ask questions later’.  The month ended rather boldly, four straight gains for the markets but still left it down 4-6% depending on your poison.

This was one of the worst months we’ve had in over a year, but perhaps there is some relief coming with stimulus.  I for one do not believe it’s necessary and that the economy is stabilizing, but we’ll move according to what we see.  There were some good performers during the month but the market still needs some work.

As the next uncertainties are peeled away we could have the makings a good rally.  Earnings are strong and money is starting to flow back to stocks.  We start a new month tomorrow – and we’ll hear many talk about September being the worst month of the year – we’ll let the market tell us what to do, thank you very much.

Our results for the month were mostly mixed.  As you recall the early part of the month was a mess as we unloaded many call plays that were hit hard when volatility started to rise.

We took a breather and then picked up the trading pace as volatility started to contract.  We finish the month a bit higher than when we started but did manage to book a bit more wins than losses.  Let’s hope the next few months are clearer and less volatile for all.

We swapped out of our Sept WLT SPREAD and bought a Dec 85/100 while simultaneously selling a put spread to help finance it.  We sold three positions, exiting with gains on QCOM, FCX and our BTU spread.  We have several plays open now, mostly spreads which we will be working through and booking when we are able.

Have a great night, see you on the stream tomorrow!  Questions, email me – bob@explosiveoptions.net.

Bob

Originally published at: August is Done (Thankfully!), We head into a New Month!

There’s no alternative, this week we have to comment upon Ben Bernanke’s speech to the Jackson Hole assemblage of the great and the good, even though he was, as we expected, careful to avoid saying anything.  In fact, such is the extent to which the man has left the confines of this planet that he may really believe that his comments represented a valuable contribution towards the solution of global economic problems.  For instance, he strongly recommended that Europe’s leaders should take all necessary and appropriate measures – why hadn’t they thought of that?  For some reason, even though they have seen their path ahead lit up so clearly by this pearl of wisdom, the present weekend turns out to be one of the few in recent memory which has not featured an emergency meeting of the Old Continent’s senior politicians and bankers.  Perhaps they recognize that they need more time to digest the full depth of his advice.

There is certainly no doubt, because he said it several times, that the current travails may be laid at the door of the Eurozone, and…cont’d

To read the rest of the article, click here

Originally published at: The Three Stooges – Naked Trader

from Brian Shannon:

trading can be stressful
but the stress comes from us and the pressure we put on ourselves to perform everyday
our self worth should not be tied to our P/L
trading can be gratifying but it is not to be confused with real life

life is more satisfying if you are actually living it
instead of obsessively looking for the next great trade

the best trades (and people) usually reveal themselves
when we don’t expect them to be there
our job is to recognize the great opportunities and then pounce at the right time
to maximize our chances of success

we are supposed to put our emotions aside when we trade
it is difficult to flip the switch and be an emotional,
caring person after the market closes

don’t neglect your kinder side
while you try to be the big swinging dick trader
the people who care about you will hopefully remind you of what is truly important
and maybe more importantly, you will listen and hear that message
because losing money is easier and less painful than losing important people

trading can be lonely
if you surrender to it, trading can become unhealthy
it can be the most seductive mistress
but the love is always one way

someone wise once told me once
don’t love something that wont love you back
and the market loves NO ONE!!
don’t be seduced by her charm, because she has broken many a good man before us
and the biggest egos are usually cut down first

computers are programmed to do our job for a good reason, we are human!
we have “flaws”
and in this business it is our emotions which are called the enemy

emotions can be tough, but neglecting them is more difficult to overcome
emotions are more rewarding (okay, maybe more disappointing too) than monetary gains or losses

stocktwits can help alleviate the loneliness of trading
and put you in touch with some amazing professionals,
with great information to share
but don’t forget to think for yourself
it is your money, no one is going to care about it as much as you do
but really, it is just money…

I have made many real friends on stocktwits
I used to think only losers made friends online
i’m glad i have kept my eyes, mind and heart open
and my greed in check

sitting in a chair all day is not what our bodies were designed to do
get up and walk around the block
meditate, sit on an exercise ball
do some push ups, get the blood flowing
just be alive somehow
don’t let the market suck the life out of you!

three day weekends shouldn’t be spent at your computer staring at charts
jonesing like an impatient lover to spend another hour together
the market will open again, it always does, try to chill…
drink some beer or wine, smoke a bowl, whatever you do… just relax
life and the opportunities it offers seven days a week are more important than the next trade

try to keep your priorities in check
it is okay to love what you do, but
trading/ business/ money is how you support the things you love and enjoy
not what you should love first

don’t forget how to be a kind and caring person, it isn’t easy but
it can mean so much more than another zero to your net worth

love the important PEOPLE in your life First
not the pursuit of wealth, riches
and all the associated bullshit
not that those things can’t be fun,
because I still want to own a Ferrari one day!

i guess that is all for now….

Originally published at: Things We Sometimes Forget As Traders

Some of you respect my technical analysis prowess. Most of you do not. As I continue to carve notches of deviant SPX conquests on my 4-post bed, a few of you are coming around. But what almost no one realizes is that my mad TA skillz are the direct by-product of my ultra-mega-macro-fundamental-analysis (UMMFA); and yes, it’s quite a bit bigger than yours.

You see, the cornerstone of UMMFA is a little thing I like to call reality. You might’ve heard of it. It may have even slapped you across the face with a weighted fleshy girth a time or two in the past. But in my experience, most traders flee like a streetwalker in 6-inch pumps running from a Japanese fishing village hanging-10 in March at the first glimpse of it. This reality…con’d

To read the rest of the article, click here.

Originally published at: Fundys Vs Technicals – Who Wins?

Removing Uncertainty is a GOOD Thing

Markets just hate uncertainty.  When it’s there the first response is the reach for protection.  When you are not clear of an outcome and you have assets at risk the options are clear – sell and come back another day or buy protection.  For this reason the VIX rose sharply to levels not seen in over two years.  Good reason for this:  how was the debt ceiling crisis going to be resolved?  How about the consequences of a debt downgrade?  Earnings have been less-than-stellar this month, and then there was angst about the Fed and future monetary policy.  Let’s not forget about the troubles in Europe (more on that below).  As these uncertainties are peeled away the fear level subsides.  Some may have been dissatisfied with Bernanke’s speech Friday, yet the VIX dropped sharply – after rising 10% it closed down 10% – and there you have it.  There is no doubt more uncertainty and issues to resolve but for now the fear is slowly being removed.  A trend down in volatility would be good for stocks.  Gold continues to shine, so we may not have seen the entire removal of fear.  However, this new Hurricane Irene could wallop the east-coast and businesses may suffer – this is not priced in.

Maybe The Economy is Not So Bad – In the US, not Europe

Back in 2009 Chairman Bernanke was quoted as saying he saw ‘green shoots’ in the vast wasteland of a devastated economy.  The 2008 recession spared no sector – everything was hit, even gold and oil.  But the  recovery was spotted early and with a boost from fiscal and monetary policy the US economy made its way to higher ground.  All is not great now of course, with issues such as higher debt, slowing growth, global economic crises, and political impotence, we continue to muddle our way through.  Growth is lethargic, less than 1% in the first half with a bit of inflation.  The second half looks less encouraging but the good news is there are some signs of stabilization.  Sentiment and business conditions have come in very negatively, but industrial production and durable goods portray some positives, along with reduced jobless claims and moderately strong retail sales.  Europe on the other hand continues to show bad numbers – for example a few weeks back Germany’s GDP was a disappointing, hence the DAX is down 28% for the month alone!  Uncertainty remains over how best to handle the struggling economies of Greece, Italy, Spain, Portugal and Ireland.  That dark cloud is also holding back markets and keeping fear levels elevated.

Originally published at: When Genius Doesn’t Fail

Enjoy the article.

Here’s a link to a report written by Paul Desmond of Lowry’s about using 90% up/down days to help identify bear market bottoms. The report is posted for free at Lowry’s, so I don’t think I’m violating any copywrite laws by posting it here. It was written in 2002, and other than my desire to get the author’s opinion as to the effect of high frequency trading, I believe the info is still relevant.

Bear market bottoms and new bull markets from Paul Desmond (click here)

Originally published at: Bear Market Bottoms and New Bull Markets

We have to confess that we’re not among the most diligent readers of the New York Times, and in particular tend to avoid the work of their star columnist Thomas L. Friedman, but one particularly unsettling example did come to our attention last week.

It is of the “I have a dream” species, and imagines President Obama able to persuade Democrats and Republicans to set aside their narrow prejudices ( presumed to be respectively unlimited spending and balancing the budget ) and work together towards a better future.

Some of us are doubtful that merely splitting the difference between these two opposing views will put right the massive damage which has been done to the global economy over the past two decades, but Friedman’s punch line leaves us in no doubt as to his value judgement – the reverie end…cont’d

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Originally published at: When Governments Must Be Cool

I suspect the markets are overreacting to a very weak economy.  But as with anything we often find the cart is put before the horse.  The media profiles the awful market action and immediately throws people into a panic.  Look, there is no arguing with the economic numbers, they are truly awful and we saw a big dose of how bad things might be with the recent Philly Fed report, Empire State report and Michigan sentiment.   There is no doubt in my mind that the 3% GDP estimates from the Fed for 2H are way off the mark – in fact more than one brokerage house has taken their estimates down sharply.   The dependence on the Fed to stimulate demand via monetary policy just won’t work this time, inflation expectations are elevated now far more than in 2010.

From a technical point of view charts are a mess.  I have observed short term and long term charts and they all seem to tell the same story – Pain.  You probably don’t need me to tell you that.  With summer nearing an end and the party may just be getting started.  I guess we can hope buyers can come back in earnest – but hope is not a great strategy, now is it?  Looking at the daily action it appeared the washout post S&P downgrade put the downside in the rear-view mirror.  That proved to be incorrect.  Next week many are once again hopeful that Ben Bernanke will say something cheery about another QE program, perhaps bolder and bigger than before.  Those hopes and dream are likely to be dashed this time around unless there is some globally coordinated action.  Europe?  Unlikely to participate.  We’ll see if the other major nations can rally around to provide some help.  At this point, I’ve gone from being optimistic to hopeful.

Originally published at: More Pain Arrives, More On the Way?