Wednesday, December 12, 2012

The Fiscal Cliff

The House Republicans have worked themselves into quite a precarious situation. As it stands now, they are facing a lose lose situation.  It could be the death of their party.  Let's examine the possibilities:

1. If they agree with Obama, they lose a lot of credibility and a lot of Republicans will be left feeling alienated.

2. If they disagree with Obama and we go off the fiscal cliff, which was Bush's original plan, the very first bill that the Democrats should offer up is a bill to lower taxes back to todays level for those making less than $250,000 and reinstate the deductions the middle class currently enjoy.  Any congressman who votes against a bill which lowers taxes for 98% of his constituents is sure to lose their seat during the next election.  Even more so, the Democratic party will also become known as the party who wants to lower taxes and the Republican party will be cast as the party who wanted to keep taxes high.

3. Those making over $250,000 are looking at a lose lose situation either way.  Under Bush's plan, which was suppose to sunset 2 years ago, their taxes are going up.  If we go with the Democrats plan their taxes are going up. The thinking could very well be...."If my taxes are going up, let everybodies taxes go up too."

Sunday, September 30, 2012

Feels like we lost the wind at our back

With 2 distribution days, the market is feeling like the wind has left the sails.  And then coupled with Apple's latest blunder with their maps application, and Apple's performance Friday, it's looking quite heavy also.  And now with the most recent PMI numbers coming out of China showing the seventh straight month of slow I said...the wind has appear to have left the sails.

Constructive stocks move in tight ranges.  Lately, we are seeing days were Apple is up 15, then the next day down 17, then the next day up 15.  In 3 weeks Apple will report the quarter, but I wonder what the forward guidance will look especially with the mapping fiasco.

Make of note the following.  We are still above the 50day moving averages, so keep the 401k in place until that thing breaks.  If it does break, you can always hide out in cash.

  • Dow @ 13345, 50 day moving average is at 13,200, the breakout was at 13,340.  If we break down through that breakout (which at 10:50pm CST, it looks like we will) it will not be good news.
  • S&P 50 day is at 1417, we closed @ 1440 and @ 1427 was the breakout
  • Nasdaq breakout was at 3100, we are 3116, 3050 is the 50 day moving average
The transports and semiconductors are looking very weak.  If you are a Dow Theory student, you know that this usually means we are headed lower.

Gold and Silver are looking good and holding a 3 week high pattern which is bullish.  The metals will probably do well as the Fed will continue to print money to help this economy hobble along.  If the $SLV (Silver) breaks above $34.05 or the $GLD > $173.xx it's bullish for both.

Tuesday, July 31, 2012

Trading Stocks - Coulda, Woulda, Shoulda

If I could buy stocks in words, these are a few of the words that would buy stock in along with a few choice 4 letter words that I'm sure are said over and over again on Wall Street as well as everyday life.

The problem with coulda, woulda, and shoulda is that we never really know what would have happened if we bought/sold that stock because the game changes when you are in the security. I learned that lesson this afternoon.  Around 3pm, with an hour to go in the market, I had already successfully traded some call options on the Russell 2000.  This was actually my third trade in that security today.  I had bought some call options yesterday and held them overnight.  I failed to close my position near the open and ended up selling them at a loss.  The next trade during the day, I made up the loss, so I was feeling pretty good.  So, at 3pm, the market started looking weak and I said to myself, I will not trade this market.  However, as the Russell 2000 decided to drop I couldn't resist (I'll do a piece of discipline after I learn how to get some).  I thought that if I don't short this drop, I'm going to be telling myself, "I 'shoulda' shorted that drop and I saw it coming to".

So, I short the Russell using put options.  And as usual, the market decided to turn up on me.  I didn't want to sit overnight in the options because of the overnight time decay (and I also learned a few weeks ago that if the security starts to move against you, get out) I decided to get out and took a loss of about $1.40 per contract. This happened about 20 minutes after I made the trade.  40 minutes later when the market closed, I realized that if I had stayed in the position, I woulda have ended up making about $2.50 per contract!

After reflecting on this trade, I realized I did the right now by taking the loss, but I also realized something else.  If I hadn't made the trade, I would have priced the options at 3pm, then priced the options at the close and would have wrongly concluded if I had made the trade, I woulda have walked away with a handsome profit.  My thought process would have been, "Man, I 'shoulda' made that trade and I saw it coming, but noooo, I didn't have the guts to make the trade and walked away from a sure thing." When in actuality, I made the trade but the market was swinging wildly and stopped me out with a loss.

We can always look back on a chart and look at point A and point B and figure out what we should have done, but until there is skin in the game, you never really know.... if I had just stayed in the trade, I woulda done much better......   <---it never ends!!!

Tuesday, July 3, 2012

Obama/Romney ... what's the difference?

This is obviously not about healthcare.  Obama and Romney can at least agree on that.  Rick Santorum was indeed correct when he said there was little difference between Obama and Romney.

Romney agrees with Obama

Here's the audio of Romney explaining his proposal for healthcare. It should sound very familiar.

Saturday, June 23, 2012

Markets, Fed Juice!

Last Thursday about 3:00pm (not this Thursday, but the last one), the Fed started yapping about how it was going to ease this and ease that and the market started rallying.  It had a good day Friday, had a good day on Monday creating a Follow Through Day.  Had good days Monday, Tuesday, Wednesday, then Thursday it was brutal closing near the lows of the day.  On Friday, we closed near the highs of the day.  We got back about a half of what was lost Thursday.

As long as leading stocks didn't break down or break moving averages, those stocks are fine.  Keep in the mind, that in a bear market stocks tend to rally to their moving averages and then break down.  Friday the Dow was up 61 points, still trading below its 50dma, the S&P was down 30 Thursday, and up only 10 today.  Another thing to pay attention is is the Accumulation/Distribution rating.  The rating for both the S&P and the Nasdaq is a D+.  You don't want to go home and show your parents that!  Now it can improve.  

The XLF which tracks financials stopped at the 50 day yesterday and turned lower.  $JPM/$C both still below the 50 day moving average.  If the market will make a meaningful move higher, the semiconductors and financials can't be a drag.  They don't have to lead, but they can't be a drag.

For best investing results keep your strategy simple.  Simple means knowing what you are doing.  Jesse Livermore, had a simple strategy when it came to investing.  He was either in the trade because it was working or he was out because it wasn't working.  When he has to depend on "hope" in a trade, he gets out of it because it will only bother him in his trading and he cannot afford to be in anything but the 'live' ones.  There are many times when he was completely in cash, especially when he was unsure of the direction of the market.  His third point was, don't play the market ALL the time. It can't be done.  It's too tough on the emotions.  Don't try to play the game all the time.  Don't sit at the BlackJack table too long.  The market is smarter than you, smarter than us. (Those of you who follow my twitter stream, will know that I've made this point too many times!)  Casinos, the reason they are so big and so beautiful is because when you sit there long enough they happen to reach into your pocket and take your money. You may have a good hour, a good day, or a good week, but eventually odds favor you will lose.  If you push things in the market when the wind is not at your side or at your back you will lose.  This is why it is easy right now not to consider buying stocks such as $JPM and $C.  Look for something else.  Look for something that can benefit us.  It's a losers game to try to catch the falling knife.

As for the coming week, we should see some "window dressing" which occurs near the end of each quarter as mutual funds and other financial managers have to post their holdings.  This action tends to push the market upward.  They want to be seen holding stocks that look good to be holding.  

There was some shuffling on the Russell 3000 this weekend so some of the volume numbers are skewed. I kept track of volume of the indices on Friday and noticed throughout the day as the market headed upward, the volume percentage change kept going lower and lower, but then at the end of the day, the volume percentage numbers popped to the positive side.  Therefore, the volume numbers are suspect in my opinion, but it is what it is.

Stocks to note (pending market conditions)
ALXN had a reversal to the upside.  Really holding around support, around a pivot point
CRUS a niche company in the semiconductor industry.  They actually supply chips to the iPhone and iPad.  Acceralating bottom line growth numbers.
AMT just in a base, but huge bottom line growth and coming into play as it starts to trade more.
ALGN reversed and closed flat today. They make the invisible braces and other things too of course.
NSN (I know you cringe when you hear mortgage companies).  A new issue! It's had good volume on up days, lighter volume on down days, has tremendous growth.  They service mortgages and make sure everybody's ducks are in a row and take some of the middle money for their services.  On a personal note, I like this company. It reminds me of the MasterCard, Visa model.  A model where they get their money with little risk.
ULTA - not very exciting, but the stocks looks good.  Good volume up days, good sound growth, nice relative strength
VRTX - good top and bottom line growth, big volume days have been to the upside. 95 RS, ascending 50 dma.  Looks like it wants to emerge out of a long base
WWWW - great accumulation over the last 2 months.  Big volume on the up days. 67% earnings growth. It only trades 736,000 shares, but it is getting to a point where institutions can start taking note of the take.  It starts to become liquid enough for them to take a position in it.
SBH - Operate 4300 beauty supply stores.  Stock has nice sound base, broke out and pulled into support, above ascending moving averages.

For boring stocks (low beta stocks).  For those who prefer the slow lane to wealth!  
COST: 1.5 year base.  If it comes out, good things could happen.  They are growing.
TGT: It's been a base for a long time.  The longer time a stock is in a base, the further it can go when it comes out.

Before you buy a stock, you need to have a checklist.  Here's the checklist gentlemen and ladies!

  • Above the 50 day moving average
  • Good relative strength
  • Good top and good bottom growth
  • Good volume patterns
  • A sector that is in favor.
  • Look at the past several months.  See the big volume spike days.  Were they up days or were they down days.  If they were down days and the stock is in a base could indicate that the base will fail.  If they were up days, then it means the stock is getting accumulated.

 Speaking of the slow lane to wealth, when I graduated from college my father bought me a book that he insisted that I read.  The name of that book was "Get Rich Slow".  The book was packed full of great information. The author did make one point though...Would you rather get poor slow?

Friday, June 15, 2012

IBD says "market in uptrend"..history says "no no"

After the Federal Reserve and Central Bank of England has said that they will step in to provide liquidity in case the Greek economy fails, the market reaction has been very bullish.  However, we have massive overhead resistance and that leaves me dubious of how much more 'sugar' the feds can feed the market.
Last year
  1. We broke down to the 200 day moving average
  2. We rallied back up to the old highs on a few of the indices, while a few indices lagged
  3. Rolled over...and boom...we got crushed until August
The market is tracing out what it did last year!  And by the way, wasn't Greece saved last year? Weren't we told that everything other there was better last year? 

History does have a way of repeating itself.  Will it be different this time?  Haven't we heard that before?

Monday, May 21, 2012

Day 1 of attempted rally?

Technically this is day 1 of the attempted rally, however, the volume numbers were very weak even when compared to Thursday's numbers since we know Friday's numbers were affected by the botched Facebook IPO.  Speaking of Facebook, if that IPO had gone as planned we would have seen other companies in a similar space with nowhere near the fundamentals Facebook has come to market.  Facebook was overpriced because the underwriters could gather more fees.  Remember the DOT COM bubble of the late 90's when we had companies with no revenues coming to market with huge valuations?

Speaking of valuations, Linked In comes to mind.  It currently trades at 250x earnings.  That's a pretty hefty valuation.  I'm not sure where Facebook stands at this time, but it is still overpriced and as soon as the Memorial Day Holiday passes, the OCC will start trading options on the company and I'm sure there will be investor's lined up to pick up 'puts' on the company which will probably drive the put premiums sky high.

Just remember today's rally came on the backdrop of a very extreme oversold market.  It was bound to bounce.  However, if history repeats itself, we have be looking and 5% ups and 5% downs over the next several weeks now.  We shall see.