• Earlier today the DJIA was down almost 9% from its intraday high. 
• The S&P 500 made fell a touch over 9% from intraday high to intraday low (and closed below its 200 day moving average for the second day in a row). 
• The Russell 2000 fell over 11.5% from intraday top to bottom (and closed on its 200 day moving average after falling below it intraday).

Those numbers are very close to where I thought the markets might bottom.  My account could stand a flattening out around here for some of my positions through options expiration.  That could allow me to roll a few positions or close them for a small profit while we find out how much deeper we’re headed in the near term.  Even if all of my naked puts are assigned and my long positions aren’t called away with my covered calls, I still have a decent percentage of my account available to get in at lower prices.  And that’s where I stand today, wondering if the risk/reward potential now is starting to tilt more favorably to adding more exposure again.  The jobs numbers scare me more than any part of the economy.  What is considered by many as a lagging indicator could be more of a coincident indicator meaning what we see now is affecting the current economy more than the past.  Until jobs turn better, rather than not as bad, I think jobs could even be more of a leading indicator of what trouble lies ahead.

So, all that together leaves me with no trades so far this week and potential continued inactivity through next week’s option expiration where I’ll have to make some changes by the end of the week or take option assignments.  I’m working on my boss to shift me into a different job internally in the hopes that it saves my employment status, but might not know for a couple of weeks.  Times are not too easy in the land of recruiters right now.

The moving averages tell the story most clearly maybe.  The DJIA is trading below its 10, 20, 50 and 200 day moving averages.  (The 200 sma didn’t fit on my chart, so I penciled it in blue above.)  For the move upward to continue on Friday support had to hold at the 10, 50 and 20 day moving averages, but once those broke, the technicians saw it was time to jump ship and that helped the Dow dive deeper on Thursday, July 2nd.  I drew two trading channels that are still intact.  One is sideways and the other is pointing lower.  Both could keep from breaking for days to come, but they are worth watching.  If the horizontal trend line breaks, we could see the longer downtrend solidify.

The time to get out was after the Williams %R broke and continued to show decline, but the time to get back in isn’t clear yet.  %R can remain in oversold for a long time, so I’m really waiting for it to break back out of the oversold range to be convinced this rally will continue.  As expected, volume was low these past few days due to the short trading week and the holiday, but if you look through the long area I circled you can see volume has been below average since May.

I’m going to continue to keep cash handy and not stay fully invested for now.  If we find support on the moving averages again soon and also move out of these trading channels I’ll feel safer.  It seems for one to happen the other will come along for the ride, so continue to watch the trend lines and the moving averages for a better prediction of what’s to come.

My July goal is to increase my account value by $1,960.44 to $80,377.98.  I come to that number by taking 30% of my balance at June’s closing and dividing it by 12 months and adding it back to my June closing balance.  Nothing high tech here.  As always I’m aiming for a 30% annualized return, but if I can stay ahead of the major indices for the year I’ll be happy.  I won’t be making a deposit to this account in July due to some other expenses our household is taking for the month and an increasing fear of layoffs coming before the end of the summer to my department.  Hopefully I’ll be back to regular deposits again in September.  Since I’m not putting all of my money to work right now it doesn’t actually matter for now.

To grow my account by $1,960 I need to make eight trades where I make $245 per trade.  I came up with eight trades based on my average trade size being $10,000.  To avoid going on margin I’m dividing $80k by $10k.  It’s a nice round number to work with and doesn’t take into account that some trades will likely end in a loss and none will lose full value by the end of July.  Anyway, it’s a way to set a goal using a very simple thought process.  I still have $882 left in time value on the options I’m already short set to expire in July.  So, that should help balance out some of the August options I sell that will still have value at the end of July. 

That’s a nice plan, but I’m not sure if I’ll be trading that much in the near future.  I’m still studying for the series 65 exam and apparently need to spend more time focusing on the job rather than investing and blogging.  July and August will be nerve racking months for our household I’m sure.  I’ve moved my IRA and my wife’s IRA mainly to ETFs.  I might return to a model more like that hear to let me continue to stay invested while I focus on keeping my job.

Here’s how I compare to the major indices.  I’m lagging them all from a 12 month view, but ahead of all aside from the NASDAQ.  Once September, October and November 2008 are off my 12 month view I’ll be back to looking solid.

• My 12 month Return: -36.17%
• Year to date (YTD): +14.50%
• Annualized return since 4/8/07 (blog’s beginning): -15.77%
• Deposits for month: $3,000 on 6/3/09

According to Morningstar, here’s how the major indexes have done over the past 12 months and the year to date (YTD):

• Dow Jones Return:  -23.00% 1 year, -2.01% YTD
• NASDAQ Composite Return: -19.97% 1 year, +16.36% YTD
• Russell 2000: -25.01% 1 year, +2.64% YTD
• S&P 500 Return: -26.21% 1 year, +3.16% YTD
• S&P Midcap 400:  -28.02% 1 year, +8.47YTD

The VIX ended the month at 26.35 and the VXN ended at 26.69.  Those two aren’t typically that close, but it shows what a calm has come over the markets with both of them easing lower lately.  I think the VIX is too low for the volatility I expect to come back soon.  It makes it harder to sell options in a market like this and I’m not convinced of when we’ll see a move enough to make it worth buying options.  That leaves me in a position not to trade much, as you may have noticed.  I’m sure my opinion will continue to change weekly and I’ll have more trades posted soon.

This is how my picks faired over the two quarters:

Here are the current standings and our year to date returns:

1. FourPillars, 48.83%
2. IntelligentSpeculator, 43.32%
3. WildInvestor, 41.45%
4. Wheredoesallmymoneygo, 28.52%
5. TheFinancialBlogger, 13.29%
6. Million Dollar Journey, 4.76%
7. DividendGrowthInvestor, 0.70%
8. ZachStocks, -3.04%
9. MyTradersJournal, -11.36%

If I pointed out that the two of us in the final two spots trade and use options more than invest in a standard buy and hold style it might sound like sour grapes.  Then I’d also have to point out that this contest doesn’t account for dividends which has to hurt the Dividend Growth Investor.  Since I’m not going to point out any of that, I can just simply praise the guys who guessed best so far this year and point out we’re only half way there, so don’t count me out yet.  I definitely recommend reading these other blogs when you have time.   They clearly know their stocks. 

This is redundant for the regular MTJ readers, but worth mentioning for those who are just dropping by for the quarterly update.  I dumped my DRYS shares at the end of January as I saw worse days ahead.  I’ve sold naked puts on NDAQ a few times, taken one option assignment and then sold those shares for a profit once and currently am short NDAQ July puts, which are sitting out of the money.  This has been one of my more profitable stocks to work in 2009, so far.  have been in and out of SSO with options a few times and have made a little money.  I’ve made a couple of USO option trades and have a profit on it too.

It found support at the horizontal line I drew.  That line didn’t have a real clear cut history of being a significant level of support, but I wanted to highlight it because it could act as support on the next little pull back for NDX.  The upper trend line of higher highs is far enough away that I think NDX has decent upside potential.  The trend lines that are going to be most interesting to watch are the lines of higher lows.  I drew two of them which both use the May lows as a point of reference.  NDX is trading close to the midpoint of those two lines and the trend line of higher highs, so either direction has potential pull.  The tie-breaker could be made by the moving averages.

NDX is trading above its 10, 20 and 50 day simple moving averages (sma).  The bearish part is that the 20 day sma just overtook the 10 day sma a few days ago.  Interestingly though, within a day of that happening, the 100 day sma overtook the 200 day sma and that’s bullish.  I couldn’t get the latter crossover on the chart, but it took place just above the 1,300 level.  Using the longer term moving averages as a better measure for long term expectations one might surmise that NDX could dip in the near term and longer term (and I don’t mean far in the future) find support and move higher for much longer.

Williams %R is still showing momentum, but can’t be given too much credibility at this point while it hangs out in the neutral area between overbought and oversold.  I want to see if NDX can stay above its 10, 20 and 50 day moving averages in the next couple of days and if so I might make a bullish trade with QQQQ options, hedged most likely.  Then again if it does fall below those moving averages NDX might get the 10% correction I mentioned looking for in the first paragraph and that could entice me to buy in anyway.

PVI attempts to track the price and yield of an index called the Thomson Municipal Market Data VRDO index. While not guaranteed, it tends to trade within a few cents of $25.00 and pays a monthly dividend. PVI’s current yield is 2.73%. I put a limit order in and bought 2000 shares at $25.00 for a total cost of $50,009.99.  This left me with $11,145.54 in cash.  I won’t be posting all of my moves in and out of PVI, but thought is was worth mentioning where I’m saving the bulk of my cash these days.  Last year I used one of the TD Ameritrade’s money markets, but its yield is so small now that it’s not worth using now.

My other move was overdue by about seven years.  I owned shares in Actrade and when it went bankrupt I didn’t remove the shares from my account until this week.  It was just one of those nagging tasks of having to actually call TD Ameritrade to get them to remove the shares that I kept putting off.  Actrade was one of those companies that got some good buzz from reputable industry rags and when one of my friends who was a financial advisor recommended it I got in and when it started to fall I bought more with naked puts.  The premiums were great and I quickly learned what it meant to be too good to be true. 

To remove shares of bankrupt companies, TD Ameritrade charges a regular online commission of $9.99, but “gives” back $1.00 for the shares.  So, it cost me $8.99 to allow me the tax write-off.  I really could’ve used the write-off for taxes in 2007 when I had a pile of realized gains that I was taxed on, but didn’t get to it then.  I’m still carrying over losses from 2008 that I don’t see me exceeding this year and maybe not next year.  Either way, the loss is now on my books, so I can write it off as my gains catch up to my losses again.

While NDAQ was trading at $20.17 I sold three NDAQ July 20 naked puts (NQDSD) at 0.95 and received $272.74 after commission.  With my cautious mindset I could’ve hedged with a lower strike, but I don’t think NDAQ is heading as far south as $17.50.  So instead of hedging, I didn’t sell as many put contracts as I have in the past.  If assigned, I’m only in for $6,000 worth which would be a cost of around $19.15 after the commission from option assignment.  From there I’ll expect NDAQ to rally above $20 again or I’ll just sell covered calls at the $20 strike to work the position back to a profit.

I think the longer term profit outlook will keep it from sinking too deep and the chart looks like it could be at a good turning point near here.  Yesterday NDAQ closed below its 50 day moving average, but it didn’t get a confirmation close below that today as it rallied some and managed to keep its head above that tipping point, for now.  I’ll keep working on my NDAQ position and can add to it with new naked puts and covered calls down the road to bring in more premiums and further reduce my cost per share if needed.

As I’ve been witness to with his work on the loan for my sister-in-law, the mortgage lending business is quite different than it used to be and banks are moving at a much slower pace approving loans.  Be careful about waiting too long to lock in your mortgage if you think rates are going up, but if you think Greg’s right and rates are coming down again, you can take the risk and try to get a better rate.  Be sure to tell your broker when you want to lock in.  Don’t assume it’s done.  With another friend I saw them have a two week delay on the loan being approved, so plan carefully.  Times are quite different now than even just a few months ago.

If you live in Georgia and need a second quote on your refinance or first time loan, let Greg know I referred you.  I’m posting this as an unpaid/unsolicited post.

I think the most interesting line is the horizontal line that starts with the 2008 closing price of 903.25.  It’s interesting because we saw support come from that line when the SPX saw an intraday low of 903.78 this week.  That was just a hair above the 50 day moving average to make the bounce all that more believable that it could hold for longer.  The horizontal line below that is the next point of potential support if this first one breaks.  It’s sitting around 877/878 and marks previous support and resistance points over the past six months.

I circled a few sections in my coloring party.  The red circles highlight the break of Williams %R twice which marked start of the next few days’ downward movement.  The green circles show when the 14 day indicator touch oversold before regaining momentum for a few days.  Now that we’re a few days past that the %R indicators are more neutral, but worth watching to see if momentum starts pushing or pulling in either direction.

Hidden somewhat in the jumble of lines are the 10 and 20 day moving averages. They almost came to touch each other on Friday and if next week starts off below Friday’s close we could see a bearish crossover as the 10 day moves below the 20 day moving average.  If we get a few positive days it could lead to even more positive days to follow.  In other words, I think these next two days could point to how the next full week or two could move.  Going down much pulls the 10 day below the 20 day and breaks the line of support I talked about in the second paragraph and might pull the Williams %R even lower.  If those lines break, so does the 50 day moving average.  As the past few weeks have been, we’re in for another interesting and telling week.  I feel like we’re starting the last season of Lost where we might finally get the answers we’ve been waiting on.  Stay tuned, this is worth watching!

Happy Father’s Day to all dads out there.  I’m on the way to the pool with my son now.