Archive for August, 2009

The DOW formed a Bull Flag this week after breaking higher on last Friday’s session.  The index has been moving in a sideways trading range for most of August.  The immediate upside target is the high from Friday’s session at 9630.  Then look for 9654, 9794 and 10365.  Support resides at the low of the flag at 9459 then 9438 and 9117.  We will just have to wait for the index to decide where it wants to go.  If we get a break out of the flag with decent volume, that will be key.

The SPX is also in a flag pattern. The top of the flag at 1039 is the first upside target with 1044, 1106 and 1134 the next on the radar to the north.  Support is at the bottom of the flag at 1016-1018 and then the swing lows from 8/17 at 978 and 7/29 at 968.  I’m waiting for a break.  Don’t guess, just follow it and hop on board.

The COMPQ attempted to break out of the flag on Friday, but was beaten back into the consolidation.  The first upside target is Friday’s high at 2059 then 2070 and 2211.  Support resides at the low of the flag at 1993 then 1962-9.  The entire gap from 8/14 – 8/17 at 1969 – 1949 will act as good support.  Finally, the swing low at 1930 should provide significant support.

I am still bullish until the market tells me otherwise.  There are many that have tried to short this market too prematurely and gotten hurt by doing so.  Let the market tell you what to do.  You don’t have to get the first part of the move.  When a correction happens you will know when to optimize the turn.  I am currently delta neutral and selling premium.  When the market breaks from its current consolidation then I will adjust and profit from the directional move.

Learn to trade and profit!  Click here!

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Much like the Long Put Synthetic Straddle, this strategy entails selling short stock and buying ratio calls to bring the position to delta neutral.  The risk is limited and the cost is actually less than a standard application of the straddle.  It is best to enter the position at a point of low volatility with an expectation of increasing volatility.

ECONOMIC REPORTS

MONDAY 8/31

Chicago PMI

TUESDAY 9/1

Construction Spending, ISM Index, Auto Sales, Truck Sales

WEDNESDAY 9/2

ADP Employment Change, Productivity – Rev., Factory Orders, Crude Inventories, FOMC Minutes

THURSDAY 9/3

Initial Claims, ISM Services

FRIDAY 9/4

Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate

 

 

EARNINGS OF NOTE

MONDAY 8/31

SINA

TUESDAY 9/1

CRMT, TTWO

WEDNESDAY 9/2

 HOV, JOYG, ZLC

THURSDAY 9/3

CIEN, DLM, JTX, KKD

FRIDAY 9/4

HRB

 

I recently attended a minor league baseball game while on vacation in Oregon where the Eugene Ems were playing the Yakima Bears.  Between innings, the Public Relations people for the Ems pulled people from the stands to play fun games sponsored by local area merchants.

One of the games was “What’s In The Box” and was sponsored by a local hair styling and beauty salon.  The lucky young woman that was chosen to participate was given a 6 month gift certificate for products and services at the salon; a very nice gift.  However, she was given the chance to exchange her prize for an unknown gift in the box.  The crowd was chanting and urging her to choose the box.  She had a very generous prize.  She was already a winner.  She could walk away ahead.  The young baseball fan chose the box.  She chose the box because it’s human nature.  What contributed to her choosing an unknown outcome for a known and generous outcome?  There were several reasons: 1) Peer pressure to do so 2) “Take a chance” mentality 3) Personal greed 4) curiosity and the excitement that I call the “Christmas Morning Syndrome” that you may recall experiencing as a child when you couldn’t wait to open your gifts.  I can guarantee you that the promotional people know human nature.  The first gift would have been the better choice because she got a lesser prize by choosing the box.  The hair salon got their marketing exposure for less.

So, what does this have to do with trading!?  Everything!  At times, we opt for an unknown and riskier outcome instead of a known outcome.  We stay in trades too long, turning unrealized gains into a realized losses.  We sometimes approach the market with a gamblers mentality instead of treating our market activity as a business.

The lesson here is to know that when you feel that you want to choose the box, remember my baseball story and choose the 6 month gift certificate instead.  You will be further ahead.  Best, Robin

As mentioned in last weeks blog, I felt that the DOW was likely to continue its climb and it has done exactly that after a brief two day pullback.  The next stop on the trainride to the north country is 9654, 9794 and 10365.  Look for 9117 to provide immediate support then 9088 and 8878.  I see the index continuing to move higher.  Watch for key areas of support and resistance and observe  how the index reacts to those levels.

The SPX is also likely to continue the move higher.  The next resistance level is 1044 and  1106.  978 and 956 should provide support.

The COMPQ will look for 2070 and 2211 as the next area of resistance.  Support should be located at 1930 and 1905.

I am currently on the road,  so the analysis this week is very brief.  I will go into more detail upon my return early next week.  As such, you will not find the charts as normally provided.  Thank you for your understanding.  Best, Robin

This position is a non-directional play consisting of long stock and ratio puts.  Enough puts should be purchased to bring the position to delta neutral.  This is a volatility strategy and should ideally be placed in a period of low volatility with an anticipation of increased volatility.  The position is a limited risk, unlimited reward play.  It is more expensive than a traditional straddle, however, because stock is used to optimize the bullish side of the strategy, it reduces the negative effect of time decay and volatility that would normally be present if we used long calls.