Archive for July, 2009

In last week’s blog, I suggested that that the DOW could move up to 9088.  We finished 5 points higher than my projection at 9093.  The market has shown incredible resilience as the bulls refuse to relinquish momentum.  Support resides at 9088 and 8878 with the upside target at 9654.  There is nothing to suggest that the bullish move is over.  I have been long since early March and will remain so until the Market tells me otherwise.

The SPX finished the week at 979, above the 944 and 956 targets from last week, but short of 1007.  We will likely continue to challenge 1007 and then 1044.  The index looks strong and should continue its ascent.  Support resides at 956 and 944.

The COMPQ closed lower on Friday essentially due to poor earnings from MSFT and AMZN.  The index pulled nicely off of its lows to close right at it highs for the day.  I suspect that the lower close is to be expected after over two straight weeks of gains.  I view this as nothing more than a buying opportunity as the index continues its trek higher.   There is support at 1947 and 1880and the upside target is 1984 and 2070.

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This strategy is the mirror image of the ITM Call Diagonal Spread.  The position consists of two legs 1) a long ITM Put placed 6-8 months out (even LEAPS can be considered) and 2) sell an ATM or slightly OTM front month Put.  The strategy can produce monthly income from the sale of the front month option.  This is best used in a steadily and slightly bearish market.  If the front month Puts are sold strategically, one can proceed to reduce the cost basis of the back month ITM Put and play the longer term appreciation of the long Put.

Review the risk graph and you should gain understanding of the risk and reward of the strategy.  Best, Robin

ECONOMIC REPORTS

MONDAY 7/27

New Home Sales

TUESDAY 7/28

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

WEDNESDAY 7/29

Durable Orders, Durable Orders – Ex Transportation, Crude Inventories, Fed Beige Book

THURSDAY 7/30

Initial Claims

FRIDAY 7/31

GDP – Adv, Core PCE, Chain Deflator – Adv, Employment Cost Index, Chicago PMI

 

 

EARNINGS OF NOTE

MONDAY 7/27

ANR, AMGN, BWLD, CALM, CF, GLW, HON, MTW, PCL, PPD, RSH, SOHU, TLAB, TZOO, VZ

TUESDAY 7/28

CRDN, CHKP, COH, COLM, DB, ELNK, HIT, JEC, MEE, MCK, NOV, PCAR, PNRA, PEET, TEVA, UA, UIS, X, USNA, VLO, VIA, WDR

WEDNESDAY 7/29

AET, AFL, AKAM, AMAG, ACAT, BWA, ELY, CBG, CERN, COP, DAI, ESRX, FSRV, GD, GLBC, GMCR, HIG, HES, HMC, JNY, LNC, MSO, NSANY, NUS, NTRI, PENN, Q, SNY, S, SYMC, TSO, TWX, V

THURSDAY 7/30

APA, BBW, CAB, CP, CI, CL, EK, ESLR, XOM, FARO, FSLR, FORR, BEN, GNW, GT, K, LVS, LVLT, MA, MET, MHK, MOT, NBL, OMX, OSK, PBI, REV, SNE, SWN, SHOO, STRA, TSM, DOW, TRV, DIS, WMI, WYNN, XEL

FRIDAY 7/31

CVX, DRYS, EGO, FUJI, ITT, WPO, WY

 

Stop losses can be very useful in preserving capital and cutting losers short.  It is critical to place the stop loss strategically.  If placed too tightly, the stock may move down and “pick off” your stop loss only to quickly move back up without you.  On the other hand, a stop loss placed too loosely can result in a large loss. 

So where do you place the stop loss?  The following is criteria that you may want to consider.

1)      Look for a confluence of indicators that can collectively confirm a support level (resistance if shorting the market)

2)      The indicators that you could consider are Trend Lines, Major Moving Averages, Fibonacci Levels, Chart Patterns, Candlestick Patterns, Bollinger Bands, Round Numbers, MACD,RSI and Stochastics.

3)      When a preponderance of evidence indicates that there is strong support/resistance at a certain level, then place the stop just below/above that area.  As covered in last week’s commentary, the stop loss margin will dictate the number of shares/options that you buy in order to keep your risk constant.

After the initial trade becomes successful and has not triggered the initial stop, then you should consider scaling out of a portion of the position at a defined percentage gain and placing a trailing stop on the balance of the trade.  We will discuss trailing stops next week.  Best, Robin

The DOW had a weak attempt to break to the downside on the Head and Shoulders and I was not convinced the move was for real as I mentioned in last week’s blog.  As a result, we had five straight bullish days to finish the week 597 points higher.  We are approaching the swing high from 6/11 of 8878 and a lot of congestion from October 2008 through January 2009.  The next target if we penetrate though the 6/11 level will be 9088.  Support is located at 8592, 8221 and the swing low at 8087 from 7/8.  We finished the week with a spinning top which could be an indication that the recent move will begin to stall at this level.  We will need confirmation on that.

As indicated last week, I suggested that the upside target for the SPX would be 932 and we finished the week at 940.  We finished the week with a Long Legged Doji candle right at the congestion area from June and the swing high from 1/6.  The next upside target is 944, 956 and 1007 from 11/4/2008.  Support resides at 910, 889, 879 and 869.  We will probably move into a Bull Flag and trade sideways this coming week as the index sifts through earnings season to decide if it wants to continue up or not.

The COMPQ moved up to the swing high from 6/11 at 1880 and formed a spinning top.  This may be indicative of slowing, but must be confirmed.  If the index sustains its momentum, the next target will be 1896 and then 1905.  We have support at 1880 and 1862 in addition to Wednesday’s low of 1824. If that fails, then 1793, 1778 and 1727 are targeted.  My sense is that we will rest a bit at this level and move into a Bull Flag before moving up.

 Week over week we were up big with the DOW posting a 597 point gain, the SPX up 61 and the COMPQ better by 131.

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