ROBIN NAILED THE MOVE ONCE AGAIN THIS WEEK. EXCERPT FROM THE CHART ANALYSIS LAST SATURDAY 12/27/2008.
-“Volatility is lower evidenced by the VIX in the mid 40s. The chart indicates the same with narrowing of the bollinger bands and the formation of a symmetrical triangle. Volume has been extremely low for the most part due to the holiday season. I feel that we will go up to test the 9000 area. Note how the market reacts at that level to give you clues on further movement.” The DOW closed last Friday 12/26 at 8515 and finished this week at 9035.
Middle East turmoil translated to a DOW drop of 32 points to open the week. It was a light volume affair primarily due to the holiday season.
Stocks rose Tuesday amidst a $5 billion capital infusion into GMAC. It now appears unlikely that GMs demise is imminent. The DOW posted a 184 point gain.
The market closed 2008 on a positive note with the DOW moving up 108 points. The VIX continued to drop and Initial Jobless Claims improved. 2008 was the worst stock market performance in almost 80 years.
The DOW closed at 9035 up 258 points in the first trading day of the New Year. The poor ISM data was largely ignored as energy stocks led the way higher.
Week over week, the DOW was up 520 points, the SPX better by 59 and the COMPQ up 102.
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-The move this past week was on low volume. My concern is the lack of conviction in terms of the investment communities’ participation. I am not convinced that the move has legs. Volume will return this week and there will be a general mood of anticipation with Obama’s administration taking over. If we do continue up, my sense is that it will be very short lived. The next level up is 9653. Let’s keep a close eye on how the market reacts when everyone is back from vacation. My bet is that the index may flirt with higher levels but very briefly and then will retrace to test 8348.
-I feel pretty much the same on the SPX as I do on the INDU. I believe the index will try to go higher for a brief moment in time and then retrace to test 845.
-Same story here.
TOOLS OF THE TRADE
THE NAKED SHORT PUT
This week we are going to explore the “Naked Short Put”. It is called “Naked” because the position is not hedged. This is a bullish strategy and the potential gain is limited to the credit received. You will notice that the “Naked Short Put” is synthetically equivalent to the “Covered Call”. When placing this trade, your broker will require margin in order to assure that you have the ability to take assignment of stock if necessary. The “Covered Call” with long stock does not require the broker to hold margin because they are covered. If the stock is called away, the stock is available in the account to fulfill the obligation to deliver.
The “Naked Short Put” position possesses the same risk profile as the “Covered Call”. The risk of the position is the short put strike price all the way down to zero. It may be prudent to consider a hedge on the position in the form of a long put below and in the same month as the short put. That position is known as a “Bull Put Vertical Credit Spread”. We will discuss that position at another time.
Please review the “Naked Short Put” and become familiar with its’ risk and reward. Best, Robin
ECONOMIC REPORTS
MONDAY 1/5
Construction Spending, Auto Sales, Truck Sales
TUESDAY 1/6
Factory orders, ISM Services
WEDNESDAY 1/7
Crude Inventories
THURSDAY 1/8
Initial Claims, Consumer Credit
FRIDAY 1/9
Average workweek, Hourly Earnings, Non Farm Payrolls, Unemployment Rate, Wholesale Inventories
EARNINGS OF NOTE
MONDAY 1/5
MOS, PNY
TUESDAY 1/6
AYI
WEDNESDAY 1/7
BBBY, FDO, BLUD, MON, RT, SONC
THURSDAY 1/8
APOL, CVX, HELE
FRIDAY 1/9
KBH, NFLD
It is the time when we all make resolutions for the upcoming year. I only have two. They are the same two that I embrace every year.
· #1. Don’t lose money.
· #2 Don’t violate rule #1.
The only way that this can consistently happen in the stock market is to employ a hedging strategy. Professional traders hedge their positions. You must consider doing the same. The hedging strategy should have embedded in it, the flexibility of adjusting the position to accommodate trend changes yet maintaining the hedge. If the market breaks out either bullish or bearish or for that matter merely remains flat, the trader still has the ability to optimize the market condition and maintain a protected position.
As you continue to develop as a trader, you will likely begin to develop the ability to call short term trends in the market. Even when you add that ability to your tool kit, it continues to be crucial to remain hedged. Unforeseen events can happen that can dramatically affect stock price and when that occurs; you want the ability to preserve capital.
Learn to follow the market. Don’t buck the trend but rather, go with it. Life will be a lot easier if you do that. It seems that many traders want to pick pivot points. Having that ability can be profitable but not necessary to be effective in the market. If you lost a lot of money in 2008, do not try to get it all back in one or two trades. I call that “Revenge Trading” I used to coach football and when we found ourselves 1st or 2nd and long it was important to realize that we didn’t have to make the 1st down in one play. So goes it with the market. If you are down, get it back a little at a time. If you plunge, more than likely you will regret it. Remain diversified and pay attention to position sizing.
If you want to trade like a professional, I encourage you to look at the free lessons at www.marketamer.com. Best, Robin
Monday began with poor quarterly numbers from TM and WAG. Volume was low as expected due to the Christmas holiday week as the DOW closed down 59 points.
Tuesday continued the low volume theme as Existing Home Sales were down 8.6% in November and GM and F received downgrades. The DOW was off 100 points.
Wednesday was a short trading session ahead of Christmas. Jobless Claims registered a 26 year high and Consumer Spending and Durable Goods were weak. The DOW gained a marginal 49 points to close the trading day.
Friday’s trading was uneventful as AMZN reported their best holiday season ever and the DOW finished the day 47 points higher.
The market was down week over week with the DOW off 63, the SPX weaker by 15 and the COMPQ 34 points south.
Learn to tame the market here.
-Volatility is lower evidenced by the VIX in the mid 40s. The chart indicates the same with narrowing of the bollinger bands and the formation of a symmetrical triangle. Volume has been extremely low for the most part due to the holiday season. I feel that we will go up to test the 9000 area. Note how the market reacts at that level to give you clues on further movement.
-Look for the SPX to test 918. As mention in the INDU chart. Look for clues at that level as to further movement. I’ll keep you posted as necessary.
-I believe that the COMPQ is going up to test 1600. Analyze the volume and conviction of the move and how the index reacts at that level.
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