Archive for April, 2009

ECONOMIC REPORTS

MONDAY 4/13

None

TUESDAY 4/14

Core PPI, PPI, Retail Sales, Retail Sales Ex-auto, Business Inventories

WEDNESDAY 4/15

Core CPI, CPI, Empire Manufacturing, Net Long-Term TIC Flows, Capacity Utilization, Industrial Production, Crude Inventories, Fed Beige book

THURSDAY 4/16

Building Permits, Housing Starts, Initial Claims, Philadelphia Fed

FRIDAY 4/17

Michigan Sentiment-Prel

 

 

EARNINGS OF NOTE

MONDAY 4/13

OZRK, TLB

TUESDAY 4/14

FAST, GS, INTC, JNJ

WEDNESDAY 4/15

ABT, AMR, INFY, BTU, PJC

THURSDAY 4/16

AMLN, BIIB, BGG, CY, FCS, GCI, GOOG, HOG, ISRG, JPM, NOK, PH, SHW, LUV, VRTX

FRIDAY 4/17

C, GE, MAT

 

Sometimes as traders, we get caught up in a ‘Micro View’ of the market and neglect the longer picture.  It can be detrimental to your financial health to take such a stance.  The debate rages on as to whether or not we have put in a bottom in the market.  As a chartist, it looks like in the short term view we may need to come back down and retest the recent lows of March 6^th.  The RUB is that many traders fail to consider the larger picture when doing their analysis.  We all agree that chart patterns such as double tops and bottoms can be critical areas of support and resistance.  When analyzing charts with 6 month to 2 year times frames, the chartist would surmise that another leg down is required to put in a double bottom.  While that may in fact be the case, it is not necessarily needed.

When considering the 20 year chart of the SPX, you will see my point.  It is many times beneficial to do a top down analysis and start with a ‘Macro View’ of the markets and then narrow the analysis from that point.  As you can see, from the perspective of the 20 year chart, ( one could actually see this in a 10 year chart, but I have included the longer time frame in order to put the trend in context of the overall market) you can see that we have in fact already tested the bottom from 2002-2003.

Please keep in mind that it does not preclude the market from moving down and retesting the recent bottom from March 6^th.  However, from a technical analysis perspective, it is not required that it do so.  Best, Robin

 

How did we do this past week?  We had a brief consolidation as predicted and moved higher as forecast.  However, we did not get as high as anticipated.

Comments from last weeks’ blog posted on 3/28/2009:

The SPX:   “I feel that 804 will hold and the SPX will move higher after a brief consolidation and challenge 875.”

The DOW:  “My feel is that we are still going higher after a brief respite at current levels.”

The COMPQ:  “I feel we will briefly rest at current levels and then go higher to challenge 1598 and then 1666.”

Monday, the Obama administration rejected business plans for GM and Chrysler as GM’s CEO Rick Wagoner resigned at the request of Washington.  The DOW turned down 254 points.

Tuesday, the last day of the quarter, ended on an uptick as the DOW finished higher by 87 points primarily due to “Window Dressing” by fund managers.

Wednesday began with dismal employment data as the ADP numbers were worse by 742,000.  The ISM report pushed stocks higher as Q2 began on the positive side of the ledger with the DOW gaining 153 points.

Thursday revealed better than expected factory goods orders and positive news from the G20 conference in London as the DOW jumped 216 points,

The week ended on a strong note as the market refused to close in the red even after abysmal Non-Farm Payroll numbers.  RIMM bested street estimates and shot higher as the DOW finished 39 points to the good. 

Week over week, the DOW was up 241, the SPX gained 27 and the COMPQ was positive by 77.

Learn the secrets of consistently profitable traders.  Click here!!!

-The DOW formed a classic “J Hook” pattern and it looks like it wants to move higher.  Friday’s action formed a “Hanging Man” on lower volume.  Under normal circumstances, I would speculate that the index wants to go lower based upon that candle and coupled with the decreased volume, however I don’t think that is the case.  We have a shortened trading week with Easter just around the corner, so I am not expecting huge volume this week anyway.  There is not a lot of economic news on the horizon, but we do kick off earnings season with AA reporting on Tuesday.  I feel we are still going up with my first target at 8315 and then 8405.  If we do have a pullback, the target is 7600 and then a bounce higher.

-We will continue to rise to challenge 875.  The next stop if we successfully breach 875 is 918.  Despite the lower volume, we have a “J HOOK” pattern that moved through the recent swing high of 3/26 at 833 which is very bullish.

-The COMPQ is going up to challenge 1666.

TOOLS OF THE TRADE

THE STRANGLE

Much like the straddle which was discussed last week, the strangle is a non-directional strategy that benefits from volatile stock movement.  As such, it is best to place the trade just prior to a fixed news event like earnings.

The trade structure comprises two legs: 1) a long call and a  2) long put.  The position is very much like a straddle except, the strangle does not share the same strike price for the options.  Instead of placing the options ATM, the options are placed usually one strike price OTM.  The trade is most often applied instead of the straddle because the stock price is between strike prices.

The debit for the strangle is less than the straddle, however, because the strikes are further apart, the stock has further to move in order to achieve a profit.  The Break Even for the strangle is the long option strike (either call or put) plus the debit.  The risk in the trade is the debit and the reward is theoretically unlimited.

Study the risk graph and you should gain an understanding of the risk and reward of the trade.  Best, Robin

ECONOMIC REPORTS

MONDAY 4/6

None

TUESDAY 4/7

Consumer Credit

WEDNESDAY 4/8

Wholesale Inventories, Crude Inventories

THURSDAY 4/9

Export Prices, Ex-ag,  Import Prices Ex oil, Initial Claims, Trade Balance

FRIDAY 4/10

None

 

 

EARNINGS OF NOTE

MONDAY 4/6

BLUD

TUESDAY 4/7

AA, BBBY, PIR, RT, MOS

WEDNESDAY 4/8

FDO, SGR,

THURSDAY 4/9

CVX, FC, MTRX, NFLD, PBY

FRIDAY 4/10

NONE

 

Overtrading has afflicted all of us at one time or another.  I have come to learn that less is more. In the trading game, simplicity trumps complexity.  More often than not, in my maturation as a trader, it seemed that I fiddled with a trade and adjusted it only to later regret my meddling.  Embedded in this premise is the virtue of patience.

It is crucial to give your position time enough to work without tinkering with the trade.  You should only consider adjusting when the original premise for entering the trade changes.  I was brought up to believe that “work ethic” is the gold standard.  I came to believe that if you want to get ahead you must work hard.  Unfortunately, trading does not necessarily reward over activity, in fact, the contrary is true.

 Hopefully I can best explain through an analogy.  Some of the most beautiful music in the world has not been defined as the piece with the largest number of notes in the work, but rather, the dynamics of the music;  the spaces between the notes, the timing, the blend of instruments.  In other words, it is the subtleties of the music.  The beauty of the musical composition is not measured by how many complex passages the composer has created; rather, it is the flow, the dynamic and mood that is most important.  So it is with successful trading.  Don’t get caught up in thinking that you need to “add more notes to your composition (the trade).”

  Do your do diligence and place the strategy that best optimizes your expectations at the time of trade entry.  If your expectations change then consider adjusting.  Part of your expectation is based upon the time frame that you are trading.  If you are a day trader, then your expectation may be based on a 1m chart.  However, if you are an “End of day” trader with a longer term perspective, then do not make adjustments based upon small insignificant and normal fluctuations in the market.

I have learned through my years in trading, that money flows easiest when I refrain from overtrading.  It is less costly and less stressful to “Chill Out” and let your position work.  It is not as important that you understand every strategy known to man, but rather, how to best apply what you know at the right time and do so only when needed.  Best, Robin