Archive for November, 2008

As I had predicted in the weekly chart analysis, I felt there would be follow through on Friday 11/21’s move.  Obama continued his proactive planning which instilled market confidence as he filled out his administration positions in anticipation of moving quickly to solve our economic woes when he’s up to bat in January.

Citi got bailout treatment on Monday as the DOW closed positive by 397 points. 

Tuesday’s action marked the third day in a row to the upside.  The DOW posted a small gain of 36 points amidst a GDP downward revision for the Third Quarter.   Consumer confidence rose to brighten the picture.

Wednesday was highlighted by a low volume move of 247 DOW points despite a plethora of ugly economic reports.  Consumer spending was down and durable goods suffered a fall as Initial Jobs Claims were up. 

Thursday, we all rested and stuffed ourselves with turkey and gave thanks.

We ended the week with a shortened session as the DOW closed up 102 points.  The last five trading sessions have been positive.  The DOW hit a bottom of 7449 last Friday and has gained 1380 from that low to the close this Friday.  The week over week closes on the indexes were all positive with the DOW up 786, the SPX better by 96 and the COMPQ north by 154.

 For more help in trading strategies, this is what I recommend.

 

Watch to see how the market reacts at 8923.  This level also happens to be a 61.8% Fibonacci retracement from the 11/4 swing high and the 7449 low on 11/21.  I feel we are going to pull back.

See INDU comments.

See comments above.

THE TOOLS OF THE TRADE

THE SHORT CALL 

A short option position comes with obligations.  When the trader initiates a “sell to open” order he/she is obligated if the option is assigned, to sell shares at the strike price of the short option.  When selling calls, it is generally not wise to sell “naked” or uncovered positions because the obligation leaves the seller of the option with a theoretically unlimited risk.

The short call is most commonly used in conjunction with another investment instrument such as a long call in a spread position or in association with a long stock to form what is known as a “covered call”.   The short call when used with another trading instrument, be it a long stock or a long call, can reduce the cost basis of the aforementioned stock or call.  Many use the short call to create monthly cash flow in a long stock portfolio. 

However, it is important to realize that the short call creates some limitations in that its’ presence in tandem with a long stock will limit the upside potential of the stock position.  It does, however, provide a limited hedge to the downside. 

When selling an option, the premium for that option will appear immediately in the trader’s account and may be used for other investments.  It is important to know that even though the premium for selling the option is  in the trader’s account, the premium is not necessarily earned.  If the trader closes the position prior to expiration, that transaction may either result in a profit or loss depending upon the value of the option at that time. 

If the underlying moves swiftly toward the short call option strike yet does not breach the short call strike, the option will likely have increased in value and would cost more to “buy to close” than the premium that was received for the option initially.  If the option expires out of the money, the trader will keep the entire premium initially received when it was “sold to open.”

Study the graph and fully understand the risk and reward characteristics of the short call position.  We will review the short put next week.  Best Robin

ECONOMIC REPORTS

MONDAY 12/1

Construction Spending, ISM Index

TUESDAY 12/2

Auto Sales, Truck Sales

WEDNESDAY 12/3

ADP Employment, Productivity-Rev., ISM Services, Fed Beige Book

THURSDAY 12/4

Initial Claims, Factory Orders

FRIDAY 12/5

Average Workweek, Hourly Earnings, Non Farm Payrolls, Unemployment Rate, Consumer Credit

 

 

EARNINGS OF NOTE

MONDAY 12/1

None

TUESDAY 12/2

CRMT, BZH, OVTI, SHLD, SIGM, SOLF, SPLS

WEDNESDAY 12/3

ARO, DLM

THURSDAY 12/4

GES, JTX, NOVL, TOL, WSM, WIND

FRIDAY 12/5

BIG

I feel there is much to be thankful for; family, friends, wonderful business partners and an ability to successfully navigate this difficult market.  I know that a good bit of the suffering in this market has been the result of perception and psychology.  In fact, the psychology of the market becomes its’ own self fulfilling prophecy.  “If you think that it will be, then it shall be.”  That is why I sense more hope and positive energy surrounding the Obama administration that I have seen in years.  I am saying this as a “best government is least government republican.”  If Obama demands transparency and accountability in government and Wall Street, I think that has got to translate in a positive way to Mainstreet.

None of us can predict the outcome, but I have an overwhelming feeling that we are beginning a renaissance period.  Not to say that we don’t have a ton of issues to deal with.  Among them, housing, credit, bank insolvencies, automakers, unemployment, hedge fund redemptions, the Iraq war, terrorism etc.

So, I am giving thanks.  Thanks that we as Americans can change our direction if we choose.  Thanks to be able to live in a country that allows me to voice my opinion in a blog.   I am thankful and proud of the American people for their resilience, strength and resolve.  Finally, I am thankful for the circumstances that bring together arguably the most daunting set of issues that we have faced as a nation in decades to intersect with the Obama Presidency.  I am excited to face the challenges as an independent business person and do my part to turn this thing around.  We all need to do our part to be a piece of this recovery.  So, ask yourself what can be done and then do it. If you can’t be part of the solution, for sure, don’t be part of the problem.   Best, Robin

 

The week started weak with the Empire State Index down to levels not seen for 7 years. The DOW closed down 224 points.

Tuesday HD beat their numbers but guided negatively. The PPI was down in October and Uncle Ben was less than convincing in his testimony before the House. The DOW finally closed up 151 points after a volatile session.

Wednesday, the CPI dropped by an unprecedented amount and the automakers began their Capitol Hill testimony. Mix all of that in with an ugly housing starts number and you have the recipe for a 427 point drop in the DOW.

Thursdays’ Jobless Claims were up to record levels while job cuts at JPM, SLE, and AKAM underscored the measures that ate being taken in corporate America to trim costs. The automakers were told to go back and put together a business plan (imagine that!?) before resubmitting their collective request for a bridge loan of 25 billion from the government. The DOW was off 445 points.

The week ended on an up note with the DOW closing 494 points north. C was in meetings trying to come up with a game plan to save the bank. The GSEs FNM and FRE decided to suspend foreclosures during the holiday season. Finally, the announcement of Timothy Geithner as the new Secretary of the Treasury sent the market higher in late day trading.

All of the indexes closed down week over week with the DOW down 451 the SPX off 73 and the COMPQ negative by 133.

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