VDM Trading

How I pick penny stocks

2012-01-27T20:13:00.000-08:00

Picking out penny stocks that have huge potential is relatively easy to do.
Now, like I said before most penny stocks are purely based on speculation. In other words; you should be on the lookout for volume and popularity.
How would determine how popular a penny stock is? On the internet, where most penny stock traders seem to hang out, penny stocks are 'hyped up' through newsletters.
Yes, believe it or not, newsletters. I don't know if I just broke a few rules here and there and revealed a secret that penny stock ebooks charge you money for, but it is as simple as... newsletters.

Here's how it works in a general sense; A guy thinks or is a penny stock guru (although more guys think they really are) and they reveal their next penny stock pick(s) in a newsletter. The newsletter is free, nothing wrong with that and you do get indeed a penny stock recommendation, along with a description and the 'why you should trade this penny stock' insight. The reason that is free is because they are likely to promote their other products like ebooks etc through their mailing list. Another reason it is free is because the hype can create a 'self fulfilling prophecy' meaning if there is enough buzz around a certain penny stock regardless of whether or not that company is actually worth buying it, the more people will buy the stock thus the stock price will go up. You can assume that the issuer of the newsletter has some sort of stake in that stock.

That doesn't mean we can't profit from the penny stocks that are recommended.
If you are interested in trading penny stocks, it would be smart to do a few things before you actually start trading them.
The way I did it myself was that I followed a few 'highly recommended' penny stocks myself for a few weeks. Some tanked, but I'd say about 80% were right on the money and the average gain was about 60%.

How do you know which penny stock to buy? I found an excellent website about penny stock research called stockreads.com. Instead of signing up for all the individual newsletters and clutter your inbox with tons of mail everyday stockreads.com does the work for you and lists all the stocks including in how many newsletters they were recommended in.

See the image below;

Image Courtesy of Stockreads.com. Penny Stock recommendations as of 01/27/12

You're also able to click on the stock quote to get a detailed chart, or the newsletter itself to see what the newsletter contained regarding that particular stock quote. Brilliant!

Based on this I get a pretty good idea which penny stocks are popular at this very moment. Check out each individual one that is recommended and see how much they cost to buy. Also you can do a little more research yourself by checking out the company that issues the stock. They more than likely have a website along with their plans for the future.

If you are still hesitant to actually invest your real money in penny stocks, do a test run. Keep a record of the penny stocks you would have bought if you had the money invested in it and see where it goes. Of course, also with penny stocks, have a trading plan and set your price target (exit strategy).

Another one of my favorite penny stock websites is called thehotpennystocks.com. Their site is more interactive and you can even chat with fellow penny stock traders.

Last but not least, I always check how the overall microcap index is performing. This is done by looking at the micro index cap charts, like the one below.

Overall, penny stocks are fun and exciting to own, but are extremely risky and volatile. Only trade with money you can afford to lose when investing in a penny stock.

The pros and cons of penny stock trading

2012-01-25T10:30:00.000-08:00

First of all I want to clarify the definition of a penny stock. What a penny stock is exactly is debatable, some sources say that any stock trading under $5 is considered a penny stock while others say anything trading under $1 is a penny stock.
I stick with the last one, the markets have changed since the financial collapse of 2008 and many well known reputable stocks are now trading for less money than they used to. Anything trading under $1 is a penny stock. (there I said it).
Penny stocks are exciting and fun to trade. And there are many out there that have huge potential. A 'good' penny stock ranges anywhere from 25% profit to a whopping 6300% from your initial investment. There are two different types of penny stocks, pink slips and OTC (over the counter) penny stocks. I always stick with the OTC penny stocks because they likely represent the small start up companies that don't have a whole lot of capital and have the potential to become a great success. On the other hand pink slips are companies that are already under, are liquidating or are bankrupt and hope for a buyout to save their company and their assets. Both types of penny stocks can make you money it's just what you prefer to buy.
When you buy a penny stock (or any stock for that matter) you own a piece of that company and you can hold on to it for as long as the company is in business. Don't expect to receive any dividend for a penny stock. Penny stocks are cheap for a reason. All penny stocks are junk stocks and have little value. They are cheap for a reason. When you trade penny stocks you trade on speculation, yes... forget your analysis - anything can happen when you own a penny stock. You can wake up one morning and your stock is worthless and trades now for $0.001, or it jumped 2000%, which means an investment of $100 balloons up to $2000 overnight. That is the downfall of a penny stock, it's extremely volatile. But that same volatility is also what could be your potential money maker.
So the advantage of penny stock trading is that penny stocks are cheap to buy and have huge potential. The downfall is that penny stocks are unpredictable and extremely volatile. You're technical or fundamental analysis on penny stocks are pretty much worthless. You'd have to pick penny stocks based on speculation and hype.

More to come about this...

Trading the Euro? Seize the opportunity!

2011-12-16T16:34:00.000-08:00

Now here's a good one! Whether you trade the Euro in Forex or the FXE Euro currency spider - you have a big trade opportunity lying ahead! At the moment, under the current circumstances, the Euro is cheap, very cheap. Hovering around $1.30 this currency pair gets a huge buy rating from me. Although it dipped in the $1.29 territory I foresee great potential for this trading vehicle, with a target set to 1.34 by the end of the year. Here's how I came to this conclusion.
First and foremost, the Dow Jones - currently trading in a sideways direction, indicate that the global markets are correcting themselves, given the fact that the VIX is down almost 8% in the last 5 days. European markets are down, but not by much, I've seen this scenario many times before - usually this indicates the 'calm before the bull run' that I expect to see next week. Asian markets are slightly up and are probably right on the same track next trading week which would be considered a continuation of the global recovery.

It's not all so 'doom-and-gloom' as the major business news sources let us believe. Those news sources are driven by sensational news and what is more sensational than negativity?
Besides, when it comes to the Euro, honestly - what is the alternative? In the short term there really isn't one. It looks like Europe is going to be stuck with the currency for awhile, whether they like it or not. The major economies in Europe already announced that they would do everything they can to 'save the Euro'. And it makes sense. They really don't have any other choice. What else are they going to do? Revert everything to the way it was before the Euro was introduced? That would cost such a tremendous amount of money that wouldn't be even thinkable at the moment. (I say at the moment since this is a short term trade).
But why is the Euro trading this low all of a sudden? Obviously people traded an enormous amount of Euros in for something else. Again, panic - that isn't really there. News about printing more Euros - Europe will fall apart - ECB doesn't do enough etc. etc. etc. It the panic had some foundation to it, it would show in the global markets and especially it would show in the VIX which is nicely showing at a comfortable 24 and then some. Not bad considering the current economic climate.

Now, from the fundamentals to a technical stand point to back up my trade setup; I marked the points with circles,

First, the RSI rebounding from oversold territory, in combination with the MACD. Below that is the Bollinger Band Width Average which is already rebounding. The blue line marks the highest and the lowest point in the past quarter.

Buy the Euro around where it is trading now and set a target price of 1.32 or in my case 1.34 (if you're willing to take on a little more risk). In either scenario the Euro will rise from the 1.30 levels next week.

Dow ends day above 12,000 points - now what?

2011-11-30T18:15:00.001-08:00

It was a great day for stocks. The Dow gained almost 500 points due to news about the central banks willing to cooperate to fix the global economy, job creation and better business activity. The question always arises after a huge jump like this, where do we go from here. After all, the VIX (volatility index) is still trading pretty high - and what about the Euro? At the end of the day - something's gotta give, or what goes up most come down, right?

Above is the chart of the Dow Jones Industrial of today. Stock exchanges elsewhere in the world, except for Asia since they were closed when the news broke about the central banks working together to lower borrowing costs.

Whether or not this trend will continue we have to look at the daily chart of today. The velocity of the increase in volume and they way the chart looks we can see a continued trend. I would normally say, that it is time to sell off after such an increase but this trend may continue.
However, how many analysts in these past couple of days were bearish on the Euro Dollar. I personally went bearish with the EUR/CAD (announced on my twitter when I did), the only cross currency trade I've ever made - really!
But where to go next after a big jump like this? Do stocks continue to rally or is it time to short some equities?
Although Bank of America (BAC) did very well today I still don't trust financials, and stay away from them like the plague until this whole mess with Europe is resolved.
My usual ETF spiders have been very profitable - like the SPY - QQQQ and the Diamond (DIA). But once again Oil is over a hundred bucks a barrel, usually this slows rapid growth in the Dow Jones down.
Last but not least - the Euro trade, the overall sentiment for this pair is 50 -50 which makes it really hard to gauge whether or not you should buy or sell the Euro against the US Dollar. For this Forex trade you would have to take on more risk, for me I would be still very bearish on the Euro. I personally think the overbought currency hurt the Euro Zone as a whole. The ECB made a big mistake not to lower the rates so trading with Europe would be a little cheaper. After years of letting it go on like this, countries like Spain, Italy, Greece, Ireland, Portugal and now even Belgium are dealing with high unemployment and a huge deficit. So eventually those guys at the ECB should realize there is something wrong with the current system. When that is going to be, no one knows exactly - all I know is when there is a spike in the EUR/USD - I'm short or I'm short in the FXE - the currency ETF that tracks the Euro performance.

Euro drops significantly

2011-11-09T17:44:00.001-08:00

What a day! Dow down almost 400 points, euro dropping a few hundred pips due to fears that Italy may be next? What does this mean for the EUR/USD trade for the rest of the week? What to do in a volatile market like this.
Well, for one - buckle up because it's going to be a wild rollercoaster ride! I have always been bearish on this currency pair. Ever since it was trading above 1.40..
Remember, a few years ago it was trading around 1.50 and dropped all the way down to 1.19 and that all in a matter of a few months. In my opinion the Eurozone was even in a better shape than it is right now...
First Greece and now it seems like the contagion has spread to Italy. This domino effect is going to continue if Italy fails to get their monetary act together, and ultimately conclude the faith of the Euro.
That's why Italy is such a key player, it is also a much larger economy than Greece and holds about 13% of the Eurozone.
Berlusconi is not quite the most popular figure among the Italian people, however him stepping down could create even more anxiety in the Eurozone - which is highly likely and already sort of began if you ask me.

I'm bearish still on this trade, although the Euro seems incredibly cheap compared to a few days ago, I'm sticking to a negative outlook.
It is heading towards the lower 1.30's and once it breaks under the 1.30 levels be prepared for a nosedive!
For the short term this week, I'm watching the news out of Europe closely but have a 1.33 range already in sight.

Greece leaving the Eurozone? Markets show it. The EUR/USD trade setup.

2011-11-01T18:05:00.000-07:00

Ever since the EUR/USD was breaking through the 1.40 mark I issued a short on this pair (see older posts). It seems to me the people of Greece had enough of the humiliation.
The overall problem is; the ripple effect it will have throughout the Eurozone and the world wide economy. Greece could be first and then maybe many more European countries. The Dow Jones lost another few hundred points today because of this news, a -297.05 to be precise. Time for a another shaky volatile market moment. This is the time you want to check the VXX (VIX) index before you make any sort of money market move, whether you are in Forex, Stock, ETF or in any other sort of trading)

As you can see at the chart above, the VXX shot up significantly, meaning we have to use extra caution for any trade that we may have in mind. The VIX is trading high at the moment, very high.

Now lets see what the forex trade looks like;

(click image for a larger version)

As always, we wonder, with this significant drop in price point, is the EUR/USD cheap to buy, or should we wait until it goes any lower? And if it does would a short position be more appropriate? A big fundamental chance has happened today to the currency pair and had such an impact that pretty much we should see what the markets decide what the right price should be - in other words, at the moment we rely heavily on technical analysis. And what does technical analysis show us at the moment? A severely oversold market that's for sure; as a matter of fact (and who knew that I would mention this) the EUR/USD is pretty cheap at the moment. I have a bullish outlook; all the way until the 1.40 mark again. So it's a buy past the 1.37 mark. The remarkle drop (shown in the yellow circle) made me come to this conclusion that a little bit too much panic was into play here.

Coming soon, options education! Learn to trade options the easy way.

2011-10-30T16:39:00.000-07:00

In the next few weeks I'm going to explain a few things about options trading. They'll include:

What is option trading?
Why should you use options?
How do options work exactly?
Different types of options.
Why are options better than stocks if you are a short to mid term trader.
How do I trade options and how much does it cost?

All these will be addressed and explained by me. All the options trading books and websites I've seen so far make it unnecessarily difficult to comprehend. Learn how a relatively easy trading instrument can be added to your trading toolbox. Mark this post if you are interested in simple lessons about options trading as I will update it with links to the appropriate sections of this little 'e-book' about options!

Once done it also will be added to the 'Education' section of the site.

Why the Euro is doomed.

2011-10-26T22:36:00.000-07:00

Great, Europe has reached a deal. That still doesn't make things right though. The overbought, over inflated, overly speculated Euro is in trouble and that's a fact. A deal has been reached to make the banks, top investors, bond holders and multinationals happy. But what about the average Joe. Let me tell you something about the average Joe in Europe; the average Joe in Europe hates the Euro and wishes the currency was never introduced over a decade ago.
It's a big mess for the 'regular' people of Europe. I've been reading up on several European newspapers and pretty much all comments that are posted in reply to the European bailout say the same; "Get the Euro out of our country and convert it back to the way it was!" Most people in Europe absolutely hate and despise the currency. Of course it's not that simple anymore and it will take some time before it gets too out of hand, and even banks for example start to wonder if the Euro was such a good idea. Once again, the higher the Euro trades (a good benchmark is the EUR/USD) the more expensive the exports from Europe are. With China, Brazil and other emerging markets laughing on the sideline loaded with tons of cash, Europe is slowly but surely walking further and further on the path of Doom. A united European monetary system was and always has been a big joke, even since the beginning - and I have always stand by this standpoint and always will be. A united European currency was originally designed to offer a stronger economic backbone to the US Dollar, which was at the time more valuable than the Euro. And at the same time be also more competitive against the Japanese Yen. Whether or not the leaders of the European Union at the time had China, Brazil, India and other emerging markets in mind I don't know, but it certainly doesn't look like it now.
The problem is something that will affect us all, no matter where you are in the world. If the Euro fails it will drag other countries with them, and as far as I know a second major recession like the last one will be devastating to the US and other countries.

Now what would be a solution? The solution in my opinion is not a pretty one but it would be something that works. The Euro is a failed experiment that needs to be converted back to the way it was before this culture destroying currency came to light. However it needs to be done in stages. Slowly but surely the Euro needs to be phased out. Stronger economic nations should maintain the Euro while the weaker ones phase out the currency, starting with the countries with the weakest GDP. This whole process that would eventually phase out the strongest economic member of the Euro-zone of the Euro currency, would take about two decades if handled well.
Each individual country should have its own economy and their own financial responsibility.

Well, that was a nice long intro, how about we get to the actual trade; the EUR/USD
Forgive my crappy handwriting, just trying to get my point across :)

Now earlier I discussed some fundamental issues with the Euro, now it's time to mention some technicals. From a technical standpoint the RSI is in fairly neutral territory. (yes it says 'steady RSI' for those who can't read my writing) - keep in mind this is the chart for the past 30 days. I usually post charts 3 months and longer. Now see where I pointed at the 'volume' and 'downwards pressure'? (yes that's what I wrote), this is something that intrigues me. High volume and a stalling price. This usually indicates a downwards spiral and is almost as common as the usual 'head and shoulders' pattern, meaning we are at the 'head' part in this chart. As of right now the Euro is trading towards the 1.40 level, when it does cross over this line it would be a good idea to see if you can get a good entry point to sell with a target set to 1.37 or less.

Any suggestions regarding this trade or previous comments about the Euro is greatly appreciated!

A spectators guide to the Euro crisis: an overview

2011-10-23T19:43:00.000-07:00

The Euro crisis is a very complicated one. There are so many countries and parties involved it can be pretty mind boggling, let alone who owes what to who. Here's an excellent graphic that shines some light on the current crisis.

Click on the image for a larger version:

CVS collaborates with Kodak, who cares...really. A tale of a recent classic fail.

2011-10-20T21:44:00.000-07:00

This fiasco has been going on long enough to analyze some of the outcome.
CVS Caremark (CVS) recently in cahoots with Eastman Kodak (EK), another silly attempt by Kodak to make some kind of money somewhere in the market. It is pretty pathetic really, the biggest problem always being the lack of promotion of the product. The product (or service) for those who haven't heard; being the integration of facebook in the photo department of CVS. CVS doesn't really care actually. They have enough money and just got a little bit more by signing a deal with Kodak to feature their products in their store.
However, the concept is a pretty cool service actually. Customers don't have to bring in their digital camera or card to get pictures printed but can as of right now do so directly by logging into their facebook accout in CVS and print pictures by logging into their facebook accounts. However once again it is very poor execution on both sides. Neither company is really promoting the new product that could actually bloom into something nice. The 'workers' or 'clerks' (although I hate that word) at CVS are nothing else but - well.... 'clerks'. Instead of doing a little bit extra like promoting products, promotions or services in the store. When there are no customers at the check-stand, usually this is a perfect opportunity for the 'workers' to tell each other how their day went. There is certainly no-one telling customers about new promotions or deals or in this case the new social media integration, which is by the way by far the biggest in the world, in the CVS's photo department.
But the truth is, no one really cares - from the customers to the people that work there. I actually came across it accidentally when I was bored at the long line at the check stand which happened to be next to the photo department. A little icon showed facebook, and I'm an avid facebook user myself, so I couldn't resist to put my finger on the facebook icon to check out the new service. I'm pretty tech savvy but even I couldn't figure out how to print out actually prints. It showed me everything from T-Shirts, Mugs etc.... but what happened to actually printing a photo? If I couldn't figure it out, how about an average person that just signed up for facebook. Why would it be so complicated? I was looking for two big buttons that where missing; "Log In To Facebook" and "Print Pictures". Besides, even if you use facebook... could you think of pictures in your 'photo album' you would like to print that are somewhat representable? Forget all the drunk party pictures, I'm talking about the image quality that people use in facebook in general. Not many people have actual 'printable' quality pictures on there. Do you really want to put a Kodak stamp on that?
I get worked up over this and I don't know why really. Maybe it's the sad stories afterwards when a company like Eastman Kodak may go out of business because its competitor, likely foreign, came out with a better concept and product, which seems to happen a lot lately.
Could this be Kodak's last attempt to make something happen in their industry? If so this last attempt is really pathetic. Sometimes you may have to stay away from these ideas because, like many other ideas by Kodak, their too outdated, overdone or simply not the right choice.
It's sad really because there are so many people working for this company, that once used to be a staple in American and world wide households, that now fear for their jobs. People whos lives will be affected tremendously if Eastman Kodak goes out of business.
I'm not saying that CVS's 'fantastic' photo program has to take all the blame for it, but it is certainly not helping the company either. They could spend their money, time and energy into a different sort of promotion for their product.

In my opinion this is a perfect example of a classic fail.

Is Kodak doomed? Ever since the recession Kodak has been struggling with their stock price with is now at a $1.24, coming from the double digit range before the great recession. The answer to that question; Yeah pretty much. They simply can't get enough cash flow coming in to operate the company. Their competitors FUJI (FUJIY - ADR) and Canon (CAJ) are just better managed and capitalized companies. It's sad to see EK go, but ultimately it's paying the price for poor marketing techniques.

Jim Cramer's 4% rule

2011-10-11T20:24:00.000-07:00

I was watching Jim Cramer's Mad Money on CNBC the other day and came across some advice he gave that I'd like to share. When picking stocks or ETFs it can be difficult to get it at the right price point. In the general sense when the stock you have your eye on is down 4% for the day it can be a good time to buy or - if it's up (and you own it or want to short it) it can be a good time to exit - or short a trade. I found this to be pretty good advice because I saw this trading pattern myself a few times. When it comes to penny stocks (stocks trading lower then $1) this percentage might be even higher, it all depends on what type of trader and the amount of risk you are willing to take. For me I would go for even a 20% (penny stocks) rule - in that case since those equities tend to be extremely volatile every day. You can imply this rule even with Forex. If your favorite pair trades 5% - 10% or even 20% higher or lower, it might be a good buy or sell. The whole percentage rule if just another tool in your trading tool box. Of course there can be many other factors such as technical or fundamental analysis, but trading with a percentage rule is definitely worth checking out. Nowadays there are plenty of stock and other equity trading websites out there (even on this website!) that let you see instantly which currency pair or stock was up or down for today by what percentage. Most likely, when you check the same equity the next day it's slightly up (or down) by a lot. If you would implement this strategy everyday it would be highly likely you have a winning trade on your side!

Time to short the VXX? (VIX)

2011-10-05T16:22:00.000-07:00

The volatility index (VIX) dropped significantly today because of a better economic outlook. It's hovering in the lower 50, but is in my opinion still severely blown out of proportion. Time for a $48 put option? Open interest spiked to 13k making it the largest cluster around this ETN.
My judgement is based on the fact that the VIX has been around 20(!) for a long time (May, June - when I gave my buy recommendation), in my opinion with even more economic turmoil in the world than today. It baffles me why it spiked up to almost 60. Mainly Europe was the cause of this, but that seemed to have settled a bit as well.
The RSI in the chart below indicates it has been in the 'overbought' territory for way too long.

Time to short? I think so. Feel free to add any thoughts on this one.

Blockbuster's (BLOAQ) huge momentum, surges over 70%!

2011-09-28T16:36:00.000-07:00

Blockbuster (BLOAQ) jumped over 70% today, even being in the 80% range for a little while, closing at $0.34 a share today. I own the stock in my fund so you can imaging the nice boost it gave my portfolio. It's just a 'fun stock' to own since I usually don't buy penny stocks. Blockbuster is on the rise thanks to the announcement that Dish Network will be streaming their service. Now Netflix (NFLX) has some competition it seems like - and Netflix trades around $127. Of course they are two totally different companies but they operate in the same sector. Fair to set a same price target? Besides that many people left Netflix since their recent price hike. Are people turning to Blockbuster? Whatever the case is, the stock traded around $0.04 cents a share a few months ago, now that's a nice price jump. Unfortunately I got in at $0.20 a share back in the day but I'm glad I held on to it for a nice gain so far. The question always is; should we buy or sell this stock?
Take a look at the chart below:

Notice the huge trading volume? Blockbuster is hot! To me, I think it's still a bargain. However, penny stocks are cheap for a reason. After all Blockbuster did file bankruptcy. With a huge spike like this it's hard to set a target point. I'm still holding tight and see where this is heading. Ultimately its price is determined on how well Blockbuster does with Dish Network (DISH) and is depended on Dish Networks customers. Calculated with everything in mind I see Blockbuster heading towards $1 a share by the end of next month (if not higher), if you own Blockbuster like me; hold on tight!

All eyes on Europe this trading week.

2011-09-26T22:37:00.000-07:00

VIX up and the Dow Jones up; trouble in Europe on the horizon. Never a good combination on what is about to happen in Europe this week. The Euro funds are in peril, but it turns out that there is a plan. There is always a plan. But plans never turn out the way people would like. And that's exactly what I am afraid of when it comes to the Euro zone. I have always been very bearish when it comes to the European economy and the reason for that is the over inflated Euro. In a nutshell; European goods and services are just too expensive and they find it hard to compete with the US Dollar and emerging markets such as China and Brazil. This week is D-Week for Europe; now something has to happen. Enough with the bailouts. It's time for a stronger economy and every European nation agrees that it can't go on like this the way it is now. For me the bottom line is ETFs that track European equities and the Euro.
The European currency is going to drop like a brick if lawmakers can't come to an agreement about the bailouts. The fact that this is not more in the news amazes me. It's a pretty big thing. If it happens it will mark the beginning of Euro being eliminated from the currency playing field. A great money making opportunity if you are on the right side of the fence. High risk, but worth it.
Where does the FXE stand right now;

Now forget the technicals for a second and look at the chart, especially the selling volume at the last few weeks. I've seen many charts like this before and one of two things always seem to happen, either it goes up by a tremendous amount or down. And when I say up or down, it's in the double digit range. This is a tough play I will admit. Remember, not long ago (a year) the Euro was trading at the 1.19 levels, so it's very well possible that will happen again if the lawmakers are unsuccessful to make a deal. Think about it, it's heading pretty much towards the 1.20's levels to find support. This is a difficult trade, but I'm always up for a challenge - this is my mid term trade. (In the long run I think the Euro is pretty much doomed) and the reason I say this is because I think the Euro will spike up a bit before it totally runs off a cliff. Here's my reason why; if it was indeed all heading down, the currency would have been already doing so - and fast. The fact that it is still trading around these levels with this kind of news coming up is an indication to me that most investors and traders are still holding on to the currency and have hopes for the mid term future. Trying to buy into a cheap price before it spikes up again. It already moved over a 100 pips in the last 4 hours of this writing indicating buying strength. A little over half of the investors are bullish on the Euro on most Forex websites. The time to buy into the Euro is now, I see it trading well over 1.40 by the end of the year until another crash (the final one) will happen.

BUY: FXE BUY: DIA BUY: QQQQ BUY: SPY
SELL: VIX (VXX)

Time to buy Gold? (GLD)

2011-09-25T21:25:00.000-07:00

Is the time to buy gold now? When I mean gold I mean the gold ETF GLD. Gold has dropped tremendously in the past trading week. In fact I was going to make a post whether or not traders would think Gold was heading to $2000 by the end of the year. It did the complete opposite, it dropped like a brick. Now this is a trading alert to talk about! Gold is 'cheap' compared to previous trading levels and the global economy is still shaky. Lets take a look at the following chart;

This is the ETF that tracks Gold (GLD) and as you can see it dropped off a cliff. My opinion is, with prices this 'low' and the world economy still shaky, especially what's going on in Europe and their monetary crisis, gold has the tendency to skyrocket. Remember, this precious commodity was heading towards the $2000 levels not that long ago.

Now this is a fast trade; but I'd take some time to let it recover. That's why I recommend the October 22 Call option (at the money @ 160). Already shaky Asian markets indicate a wild ride for the near term; my recommendation is; BUY GLD!

Another recession like 2008?

2011-08-21T19:52:00.000-07:00

The Dow Jones Industrial average lost more then 12% of its total value in the last three months.

A sign another recession is coming up? Will it be anything like what we went through in 2008? Most newscasts and articles on this topic claim that it will never be anything like 2008, the main reason being lessons learned from the great recession, banks that are better structured and have more cash on hand and a lower unemployment rate. Over and over again I hear; “This is not 2008”. But it makes me wonder, even with all those figures factored in, how do most analysts come to the conclusion that it will be nothing like we have seen in 2008? There's more turmoil in the world then in 2008, think Middle-East and Europe with their debt problems. On top of that the U.S has built up more debt, so bad the debt ceiling even had to be raised, doing so losing favor with the public. China, Brazil and other merging economies are becoming stronger and stronger, yet they claim it will be nothing like 2008. How about something like 2008 but worse? Something along the lines of the past three months something happened with the global economy. It was recovering at a pretty steady pace, slow but steady, something changed and we all have to figure out where to go from here.

I'm not trying to be all doom and gloom here, but as a trader I have to be cautious where to put my money. To tell you the truth I still believe the economy is recovering only at a very slow and sluggish pace, getting a lash once in awhile from the great recession but the bottom line is that the economy is recovering. I base that analogy on the fact that the unemployment rate is nothing like or heading towards what we have seen in 2008.

But in these volatile times it is hard to determine what works and what not.

Especially last week was a hell of a ride, something I've never seen before. One moment the Dow was down over 400 points then it was up about the same amount, quite a roller coaster ride if you ask me. Many people on- and offline ask me pretty much the same question when it comes to this subject; “what's going on and where should I put my money”. I'd be confident answering these questions under 'normal circumstances' if the banking sector wasn't performing so poorly, especially one giant in the playing field Bank of America, (BAC).

I always try to be positive in bear markets like these (although it's pretty difficult) and look at it as a big bargain bin of stocks, how low can a stock go before it's cheap enough to buy?

I mentioned Bank of America earlier, take a look at the stock below;

with the help of fundamental and technical analysis and a bit of common sense it should be relatively easy to determine whether or not the stock price is bound for an upswing.

My point is, that I see a bear market as a positive thing, stocks are cheap – BAC being an example. In times like these look at the majority of stocks and compare them to their 'usual performance' under 'usual times' and determine if the stock looks cheap enough to buy. I wish I would have bought some stocks in 2008 because they were so dirt cheap.

On a last note and I really want to emphasize on this fact that I have been saying all the time about the level the volatility index (VIX, VXX) was trading; Since the beginning of this year I said it all along that anything that trades under 20 points is a bargain. The VIX is one of the most important indicators that you should have on your radar when you trade stocks, etfs or options. The VIX and the Dow Jones index give you a general idea where the economy stands, even at a global level; since the economies are all connected.

VIX now trading in extremely high territories and until this index is not going down to in the 20's again (normal trading levels) which will be soon (another reason I recommend a short position on the VXX, the ETF that tracks the VIX) I don't recommend buying any stocks right now, rather buying ETF/ETN's, something that's easier too analyse. Same goes for OIL and Gold (GLD). I see gold rising to the $2000 level by the end of the year... more about that in another post.

Dow sheds over 500 points. Recession part 2?

2011-08-04T20:21:00.000-07:00

Dow dropped over 500 points today! Global market panic for the long run? Maybe. Although it's nothing close from what we have seen in 2008, it is pretty scary if you ask me. I've said since the beginning of this blog that I believe that regarding to the VIX anything trading under 20 was a steal... was I right? Absolutely. I saw that part coming from a mile away. I found it quite interesting that back in the day (when the Dow was trading sideways in the 12k territory) with all the turmoil that was going on in the world, markets were relatively quite. That has changed. With the Dow Jones shedding over 500 points it is time to rethink our usual trading strategies and focus not just on stocks anymore (since they tend to be to volatile under these market conditions) In these times I recommend ETFs, especially the spiders that track the DOW, NASDAQ and the S&P as a whole. In these volatile times, risk is subsequently higher, so use extra caution entering any trades. For me, I don't trade stocks under these circumstances but the ETFs DIA, SPY or QQQQ. And to make things interesting we'll throw in the FXE; the spider that tracks the US dollar performance against the Euro (the EUR/USD for Forex traders). Usually volatility of this magnitude lasts just for a few days, so in that case I'm taking out options with the ETFs mentioned above as their underlying security. To take advantage of this wave, the shorter the expiration, the better.. The cost may be a little higher but it's worth it. My analysis lean to a correction soon. I'm quite optimistic about the future, therefore I take bullish positions. For the FXE ; 1.40 The Diamond QQQQ and SPY all bullish. Except for the VXX which will be sinking as soon as 'panic mode' has settled.

Dow Jones advancing too quickly? Tomorrow Euro may stall it.

2011-07-04T21:36:00.000-07:00

Speaking of a rally. The Dow Jones raked in some awesome numbers this past week. Better then expected actually, and personally beyond my expectations. I mean we're talking about 500+ points since I wrote my last post about it struggling around 12k. The only issue here is and always has been is that whenever something like this happens (a rapid rise in any index) chances are it has a tendency to plummet just as fast a few days later. The same goes for this scenario. This US holiday the markets in the United States stood still, but not anywhere else in the world. A lot of news has been coming from the Euro zone for instance, and I'm not talking about the good kind. I still believe that sooner or later the euro will be either dropped by the weaker countries in the union or will vanish all together. For the sake of the European union and its people I hope, from an economic standpoint, this will happen soon. It's a big monetary mess across the pond that is weighing on not only the European economic block, but also the US and the world economy. First off, the Euro is incredibly over inflated. It currently trades around $1.44 which is insane if you ask me. Goods from the Euro zone are expensive and noncompetitive in this global market, just as they can use the money from abroad.
But anyway, what does this mean for the US markets? Which stocks to buy, which to sell? Personally in a turbulent market like this I rather not focus so much on stocks or bonds, rather on ETF's that follow generally the outlines of the markets as a whole such as the DIA (the diamond) QQQ, (Nasdaq) or SPY (S&P). Now you can short these equities if you wish but in such a short scenario as this (meaning the pull back won't last very long) I recommend you start trading options on these ETF's, preferably ones with the closest expiration as possible (yes it's that soon!)

Above you can see how fast the Dow is advancing compared to a few months before. The classic saying goes; what goes up must come down, and in this case it's time to come down. How quick and how much depends on a few factors, how traders and investors alike cope with the troubles of the Euro zone tomorrow and other global events. Regardless it won't be positive. Some trading vehicles to keep in mind are DIA, SPY and QQQ, short them while you can, next week I'm sure we won't see 13k, or anywhere near it. Another one is the VIX, likely in a case like this the VIX (VXX) will spike, currently trading at an insanely low level (under 16) BUY people BUY BUY BUY! (again, like I always mention in almost every post on this site, a VIX level under 20 is a steal!)

Forex: Short the EUR/USD or (FXE for ETF traders) ; when US markets kick in again, (large) banks, institutions and (private) investors will probably trade their Euros in for US Dollars which will set off the currency pair in a downwards spiral.

Market panic imminent? What to look out for upcoming trading week.

2011-06-05T19:20:00.000-07:00

Most of the financial news reports I read lately don't paint a pretty picture when it comes to the economy. Jobs, inflation, gas prices etc seem to weigh heavy on the economic recovery. Something I have mentioned a while back, even when the economy was in an 'upswing'. The rapid rise of the Dow in the past few months to me was just an indication that the economy as a whole was overheating. Looking around me in on 'main street' I don't see any sign whatsoever the economy is improving. Guess what. It turns out the economy is in fact stalling. It's the classic 'what goes up must come down' scenario, and in this instance it's bound to go down a lot. I think by the end of the week we'll see the Dow even under 12k.
This is, in my opinion, caused by panic. Investors and traders are likely to pull their money out of the markets next trading week and as a result, this brings clear direction on what I want to invest in. A couple of thing actually. First and foremost, the VIX, the volatility index, a.k.a the panic index has a tendency to rise quickly in turbulent markets.
Let's take a look what the index is trading at right now;

Again, it still amazes me that after all that happened and is going on right now with the economy that this particular index is still trading below 20 points. Anything under 20 points is a bargain to me and given the fact the VIX is now at around 17.95 it is a steal considering the calm before the storm.

A relevant to the market circumstance commodity I want to address just because it's in the news a lot and I get a lot of questions about lately is oil. OIL (the etf fund) is momentary in my opinion extremely volatile, and I wouldn't touch it with a ten foot pole. No matter how the markets react, either positive or negative, oil seems to do what oil does best lately and that is being unpredictable. Especially now how the middle-east is behaving, there are mixed messages coming from the region which are correlated to oil. Stay away from it is my recommendation.

However, the second index I wanted to mention today is the DIA (and its relative indexes such as the QQQQ and SPY), shorting those indices until the next option expiration is not a bad idea for next week. When markets tumble, these are the spiders that fall immediately after.

As far as the Euro is concerned, this currency is trading at a ridiculous high level at over 1.46. Will it hit 1.50? Last time when it did hit 1.50 it pulled back really quick and all the way to 1.19. Keep an eye on this one for your short position. The FXE is bound to drop drastically when it does.

Take a look at the technical prediction of the FXE next week;

A nice time frame to short this currency for the upcoming week. Even though the MACD is indicating an upswing (although minor) the RSI is heading to overbought territory. A likely scenario is that due to the market volatility (that's why we need to keep the VIX in mind) investors will dump Euro's and pull back in the 'safe haven' zone of the US Dollar.

Fast Traders trading group on LinkedIn.

2011-05-18T20:44:00.000-07:00

I'm excited to announce that I'm now hosting and moderating the Fast Traders trading group on LinkedIn. I'm in search for professionals and beginning traders in the financial markets to join and share advice, ideas, recommendations and engage in discussing regarding;

stocks
bonds
options
ETFs/ETNs
commodities
Forex

Best part of it all, and the reason I set up this group, connecting with other traders around the world! Head over to Fast Traders on LinkedIn. And join the discussions!

Follow up trade of the FXE, Jim Cramer explains.

2011-05-13T23:20:00.000-07:00

I usually don't post links from other sites, but this one is directly related to the trading decision I made yesterday. I'm talking about the FXE the Euro ETF currency share article I posted yesterday. 'Lo and behold', Jim Cramer's Mad Money has something to say about this.. watch the video!

A closer look into the FXE, a must BUY! ETF option analysis

2011-05-11T21:31:00.000-07:00

I love these moments in the market. I'm excited about this one! A sudden drop or spike in price always means opportunities in my book. Especially when it comes to trades I'm following and familiar with. In this case I'm talking about the Euro. The sudden drop in price to the 1.42 levels in the past few days had me keeping my eyes open for entry trading opportunities. And I think one came along.
For currency traders it's the EUR/USD, to gain a few pips here, I definitely recommend a BUY position here with a target of 1.44.
For my own portfolio, I'm going with the ETF EURO Currency Shares Euro Trust, a.k.a FXE.

In my case I chose the FXE1121E141, the 21st of May 11 Call Option on this one. Based on the fact the Euro almost rallied to 1.50, and suddenly pulled back almost 8 cents and now is rising in value again indicates, the markets are correcting and upwards pressure is continuing to built up. Regardless whether or not the oversold RSI is not yet in its recommended territory (at least not on this chart) I'm jumping in early, purely based on historical analysis on this pair, I've been following the EURO trade for years and it's not the first time I've seen such a drop or spike in price moment, sometimes completely unrelated to technical indicators, but mainly fundamentals that toss around price movement.

Follow up post to come,...

BTW, Silver trade (SLV) turned out beautifully... :)

Is silver too overbought?

2011-04-27T21:35:00.000-07:00

The recent run on silver (SLV) since the beginning of February has been incredible. Due to a weak dollar and heavy speculations this commodity is now valued over $47.
Today the Fed spoke about keeping interest rates near 0% even though the economy is growing. This fuels inflation which automatically means the US dollar is getting weaker.
So now the question is, what's going on with silver? How all of a sudden has this become such a precious metal? Well, it actually hasn't.
Like I said before, the weak dollar and traders that are seeing the silver charts breaking all the resistance levels on their screens to new key levels are to 'blame' for the sudden spike in silver.

But is silver overbought?

As you can see in the chart above, silver (SLV) is definitely in the overbought territory, and it has been like this for a few weeks. To answer the question whether or not it's too overbought I think we have to look at the 'rate of inflation' by looking at this time at the US dollar index.

On the chart above you can see the US dollar isn't doing to well. (A steep decline since July). A reason why the US dollar is in question to remain the world's reserve currency, but that's another story.

Now, back to silver, in other words in order to calculate the 'true value' of silver I think we should keep the rate of inflation in mind. To me, the rate of inflation is out of control! In fact, I think we should have raised interest rates, a long time ago to tell you the truth. But it is what it is and this is the market we have to work with, so when it comes to the actual price to silver it may seem like an incredible spike but it's really not due to the devaluation of the US dollar.

Another reason is, ever since the earthquake and tsunami in Japan, the global markets have been pretty steady. What that does is encouraging and engaging investors around the world to invest in assets and markets other then the US dollar. (You see investors in difficult economic times flocking to the safe haven of the US dollar, adding value to the US dollar index, and likely to the VIX).

It's only a matter of time for silver to pull back, and I think that's going to happen very soon. Yes, even with all the factors and scenarios I mentioned before, I just don't think the US dollar is going to weaken that much that the 'true' value of silver is going to be overpriced.

In this case I'm not going by the 'trend is your friend' theory and short silver withing the next few days, depending on if certain key levels are breached.

I'm bearish on Silver (SLV)!

SLV last 5 trading days;

Approaching the Euro trade

2011-04-19T11:22:00.000-07:00

Just as the Wall Street Journal wrote an article two days ago about the Euro steadily rising to $1.50 according to some professional analysts, the opposite happened instead. Aggressive selling of the Euro against the dollar occurred due to worries of the European debt crisis.
I've been monitoring this trade closely from the beginning of the month (read previous posts) and speculated that sooner or later the currency pair was bound to drop (finding a bottom), and found it interesting that most investors were so optimistic about the Euro, even though Portugal, Greece, Spain, Ireland and Italy are in some serious trouble. It didn't make any sense to me, and indeed the 'expected' (to me) happened. A little later then anticipated but it happened. The value of the Euro dropped over 1.35% in a matter of a week. High volatility means an increase in risk, but also an increase in money making opportunities.
Now is the time to look for a market bottom. A sharp plunge like that likely means an major upswing is brewing. And in a trade like this, like with any trade you want to get in when the price is low.
If indeed the majority of the analysts are bullish on this trade, and given the fact that the US Dollar continues to weaken and a possibility of a downgrade in the credit rating of the S&P from AAA status. Also, most technical indicaters are hinting towards a strong buy, it's time to buy the Euro, or take a bullish position in the FXE trust. (if 1.50 is a target, 1.42 seems a bargain to me)

The Elliot Wave seems to forming the 4th wave, with a target of 1.45.

Time to buy into the VIX

2011-04-07T18:17:00.000-07:00

A stalling Dow may indicate the rally is over. Maybe it's time to buy into the VIX (VXX). Its out-of-the-money call option is currently trading at $0.62 (April 16). Although the Japanese nuclear dilemma seemed to have settled down a bit, with a European debt crisis looming, mainly because of Portugal asking for a billion dollar bailout, and Spain on the verge of doing the same, the 'fear' is bound to be coming up in the next few days. Especially now also there is a good chance of a US government shutdown.
Therefore I'm buying into this cheap call option. Another reason is that it looks to me the VIX is bottoming out, in other words, it won't go much lower then this.
As you can also see, the RSI is now in oversold territory (below 50).

This is the overall VIX pictured below, the actual option ETN looks likes this;

You see that its RSI value lies even lower then the actual VIX index

I'm putting in probably 10 contracts for this one..

Another few to look out for is still the;

FXE ▼ (Still valid)
SPY ▼
QQQ ▼
DIA ▼

These are all before April 16, the position size and strategy is of course determined on how much risk you can handle in your personal portfolio.