Archive for March, 2009

We didn’t get the bounce off of lower levels before going up; we just continued to push higher this past week.  The following are comments from last weeks’ blog published on 3/21/2009.

Comments from last week on the DOW:  “Look for a retest and a bounce to retest resistance at 7449-7551.  If the index breaks through that area, the next stop is 7800.”   

So what happened?  We ended the week on the DOW at 7776!

Comments from last week on the SPX.  “Look for a successful retest of 741 and a bounce higher to re-challenge the resistance at 804”.  I also indicated in my chart analysis on the SPX from last week that there was resistance was at 819.

How did the week really play out?  The SPX ended the week at 816!

The week began with a massive move up in the markets.  The DOW closed up 497 points.  Treasury Secretary Tim Geithner went from goat to hero as he announced details regarding the Public-Private investment program designed to remove up to $1 trillion in toxic assets from the balance sheets of banks.  Existing Home Sales surprised by rising 5.1% in February.

Tuesday experienced profit taking as one would expect after the large move on Monday.  Geithner and Bernanke testified on The Hill with AIG taking most of the heat on the bonus mess.  The DOW closed down 116 points.

Wednesday, Durable Goods Orders surprised on the upside rising 3.4% in February and New Home Sales increased 4.7% in February to spark a move higher.  The DOW finished the day 90 points to the good.

The market received mixed news on Thursday as  4^thquarter GDP was revised to a more favorable number.  However, the jobless claims made record highs.  Earnings came in strong for some retail stocks and the Treasury auction on 7 year notes went well as the DOW sorted through all of this and decided to trade up 175 points.

The week ended with the DOW retracing 148 points on declining Consumer Spending and Income Reports as several companies announced job cuts.

Week over week, the DOW gained 498, the SPX was up 48 and the COMPQ was better by 88.

Come join us at marketamer and learn how to consistently pull money from the markets.

 

-The DOW needs to break the channel trendline to begin to reverse the trend.  The index is likely to consolidate very briefly before continuing higher to test 8315 and 8405.  If the DOW breaks the lower trendline, it will retest support at 7449.  If that level is breached, then look for the index to challenge the swing low at 7114.  My feel is that we are still going higher after a brief respite at current levels.

-Support at 804 is strong.  Should the SPX break this level, then look for the index to test 780 and then 741 which is crucial support.  I feel that 804 will hold and the SPX will move higher after a brief consolidation and challenge 875.  If 875 is breached then look for 944 as the next target.

-The trend is still valid.  The key is whether or not the index stays within its’ trading channel.  The gap at 1496 should be stout suport.  If that level is broken, then we will look at 1434 which has been strong support.  I feel we will briefly rest at current levels and then go higher to challenge 1598 and then 1666.

TOOLS OF THE TRADE

THE STRADDLE  

 

The straddle is a non-directional trade that is most typically implemented just before a fixed news event such as earnings.  The structure of the trade incorporates two legs 1) a long call and a 2) long put with both options placed at the money.  The risk is the net debit and the reward is theoretically unlimited.

In order for this trade to succeed, we must have a substantial move in the underlying stock.  The move must be large enough to exceed the net debit.  That is why the trade is applied in conjunction with a news event which can act as a catalyst to move the stock.

We do not care which way the stock moves, just as long as it move big.  The trade should be placed with 30-60 cays until expiration.  We want to take advantage of Gamma by placing the trade closer to expiration and at the money.  Implied volatility crush can destroy the trade if the stock does not move.  If the stock remains stagnant then it will require an adjustment. 

Review the risk graph and you will gain an understanding of the risk and rewards of the position.  Best, Robin

ECONOMIC REPORTS

MONDAY 3/30

None

TUESDAY 3/31

Consumer Confidence, S&P Case-Shiller Home Price Index, Chicago PMI

WEDNESDAY 4/1

ADP Employment Change, Construction Spending, ISM Index, Pending Home Sales, Crude Inventories, Auto Sales, Truck Sales

THURSDAY 4/2

Initial Claims, Factory Orders

FRIDAY 4/3

Average Workweek, Hourly Earnings, Non-Farm Payrolls, Unemployment Rate, ISM Services

 

 

EARNINGS OF NOTE

MONDAY 3/30

CALM

TUESDAY 3/31

APOL

WEDNESDAY 4/1

NONE

THURSDAY 4/2

KMX, MU, MON, RIMM, RAD

FRIDAY 4/3

AZZ

 

Trading is a zero sum game.  It makes sense that if you lose, someone else is going to win and pocket your money.  Trading is a serious endeavor; however, some treat it more like a pastime or game.  Those that take the hobby approach will usually lose.

So how does one win in the stock market rather than fattening someone else’s bank account?  The answer is that you need to have an edge.  That advantage can be characterized as follows:

·         You must have a trading plan.  This is a business not a game and as such, you must have a detailed business plan on how you are going to operate your trading business.

·         You must have a system.  If you are random in your approach to trading, you will end up trading on whims and hunches.  The emotions of fear and greed will take center stage and you will make decisions that are fraught with anxiety and uncertainty.

·         You must learn all you can about how the market works.  This is your “playing field”.  When you learn about the intricacies of the marketplace, you will not only be able to “level the field”, but you will in fact be able to tilt it to your favor.

·         I suggest you have a trading partner(s) so that you can exchange ideas and scrutinize each other’s trades.  Trading partners can also be a marvelous resource of general trading information.  No two people see things the same and that is the purpose of a trading partner; they will point out aspects of the trade you may not have thought of.

·         You must develop the proper psychology for trading the stock market.  90% of your success will be tied up with how you deal with losses as well as wins.  I suggest that you attempt to cultivate a dispassionate approach to trading and remove the emotion.

·         Finally, you must be willing to do your own due diligence before placing a trade.  Don’t rely upon other to feed you trades.  You need to do your own homework.

                                    Best, Robin

 

 

  

 

 

The week unfolded as predicted.  Commentary from “THE WEEK THAT WAS” published on 3/14/2009.

  “I feel that we could pause or slow down for a few sessions before continuing up to challenge 780-800 in the SPX”

  In fact, my chart analysis of 3/14/2009 on the SPX indicated that resistance was at 804.  The index paused only briefly on Monday and then made a high on Thursday 3/19/2009 at 803.24 and then retraced.

So where are going from here?  The next stop should be a retest of formally strong support at 741 in the SPX.  If we get a bounce, it would be a good entry point for a move back up.  There is also good support at the 2/27- 3/2 gap at 730-735.  Should those levels fail then we could continue down to retest the 3/6 low of 667.

The market on Monday spent most of the day in positive territory, only to retrace and finish down 7 points.  One could expect a pause after the furious rally this past week.

Tuesday, the market keyed off of the unexpectedly positive housing starts numbers.  Large negative sentiment regarding AIG and the TARP funded bonuses to “fat cat” executives in the insurance company.  Even so, the DOW closed up a healthy 179 points. 

Wednesday was FOMC day and they didn’t disappoint announcing their plans to buy billions in treasurys and mortgage backed securities.  The DOW gained 91 points.

Thursday, investors took profits as a plethora of less than stellar economic news prevailed.  The DOW closed down 86 points.

The week ended with the DOW continuing its’ decline from Thursday’s action, closing down 122 points.

Week over week, the DOW was up 55, the SPX better by 11 and the COMPQ gained 25.

Come on over and learn how to make money consistently without stress.  Click here!!!

 

 

-The channel break was on lower volume which may indicate merely profit taking from the recent rally.  The first support is at 7106.  If the index breaks that level, we may retest 6800.  Look for a retest and a bounce to retest resistance at 7449 – 7571.  If the index breaks through that area, the next stop is 7800.

-741 is a key support level.  We could test there before continuing the move higher.  If 741 fails to hold, we will proceed to retest recent lows at 700 and then 667.  Look for a successful retest of 741 and a bounce higher to rechallenge the resistance at 804.

-1434 is key support.  I am looking for a successful retest at this level and a bounce.