Archive for September, 2009

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The markets have finally pulled back as many had anticipated.  The question one must ask is whether this is the beginning of a larger market correction.  My feeling is that this is nothing more than a healthy and normal pullback on profit taking.  As levels become even more attractive to institutional investors, they will enter and push the market higher into the end of the year.

It is prudent to hedge the downside on the continuing move to the upside because one never knows if and when a larger correction may occur.  However, with that said, I feel that more market participation will occur as measured by increased volume into the end of the year.

 Defined risk strategies such as Long Calls, Married Puts and even Bull Puts can optimize the continued move to the upside.  Broad based ETFs like the QQQQ, SPY and DIA can offer diversification, massive liquidity and reduced company risk if you choose to participate.  Make sure that you do your own due diligence and proper portfolio and risk management is in place.  Consider consulting your financial advisor before putting money at risk.

We have produced a very valuable Disk that includes much of what we teach at http://www.markettamer.com/.  We only ask that you pay our shipping.  We are not making a penny on the project.  We merely want you to experience what we are doing.  We have a rapidly growing and loyal student community and I encourage you to order the Disk immediately.  We have a limited supply and when they are gone, we will discontinue the offer.  Best, Robin
 

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-The Double Diagonal is a non-directional four option trade that can be set up as either a credit or debit spread.  It is preferred to set it up for either a SMALL debit or a SMALL credit.  It may be tempting to seek out a trade with high front month volatility, but it is suggested to avoid such situations because high IV may be indicative of a large impending move which can be adverse to the Double Diagonal.  The risk in the trade is the difference in the spread between the short and long option less the credit or plus the debit as the case may be.  The reward can be hard to determine because volatility will impact the resulting profit.  Ideally, you want to enter the trade at a point of low volatility with an expectation of increasing volatility.

 The trade is similar to an Iron Condor in that we sell out both Puts and Calls usually in the front month and we have protective outside strike long Put and Call options. The difference is that the long options are in the back month.  So instead of two verical credit spreads as is incorporated in the Iron Condor, we have two diagonal spreads thus, Double Diagonal.

The roll to the back month is when the most money is made in the position.  If the stock remains fairly stagnant we can then buy back the decayed front month short put and call and roll to the same strike in the same month as the original long options.  The resulting position is now an Iron Condor.  If the stock does remain stagnant into the roll, we should end up with a very attractive risk reward on the Iron Condor.

Study the risk graph and you should gain understanding of the risk and reward of the position.

ECONOMIC REPORTS

MONDAY 9/28

None

TUESDAY 9/29

Case- Shiller Housing Price Index, Consumer Confidence

WEDNESDAY 9/30

ADP Employment, GDP – Final, Chicago PMI, Crude Inventories

THURSDAY 10/1

Personal Income, Personal Spending, Initial Claims, Continuing Claims, Construction Spending, ISM Index, Pending Home Sales, Auto Sales, Truck Sales

FRIDAY 10/2

Average Workweek, Hourly Earnings, Nonfarm Payrolls, Unemployment Rate, Factory Orders

 

 

EARNINGS OF NOTE

MONDAY 9/28

CALM

TUESDAY 9/29

DRI, MU, NKE, ZZ, FUEL, WAG

WEDNESDAY 9/30

 None

THURSDAY 10/1

CAN, STZ, BLUD

FRIDAY 10/2

None

Stock Market seasonality is an interesting topic.  There are well documented seasonal tendencies in the Stock Market that have proven to be statistically credible over the years.  September is the worst performing month of the year, although this year has seemingly been countering that trend.  The DOW is up 1.8% for September at market close today 9/25 with three trading days remaining.  The market has been retracing the last three days and it may continue through the end of the month.  Even with a pull back, this September has been quite remarkable from a historical perspective.

After considering September’s performance as it relates to historical trends, I decided to revisit some of the other more visible seasonal tendencies.  So here they are.

1.  The top performing months from 1926 – 2004 in the S&P 500 are January, April, June, July, August, November and December.*
2. One of the most recognized performance trends is the retail months of November and December with the holiday season.
3. Dove tailing on the retail season is the January Effect with institutional investors moving into primarily small cap and value stock to begin the New Year. **
4. Monthly timing can be rewarding.  Again, institutional money flows into stocks in the final few days of the month and continues into the first few days to a week of the new month.
5. You may have already discovered that Mondays almost always have the blues and underperforms while Fridays post the best returns.
6. Finally, trading sessions just prior to extended holiday weekends tend to be bullish.

There are many other seasonal tendencies that warrant attention.  You can use this knowledge to time your entries and exits to profit.  This brief commentary is only meant to whet your appetite to explore this area further.  Best, Robin

*Ibbotson & Associates

**Jeremy J.  Siegel “The Definitive Guide to Financial Market Returns and Long – Term Investment Strategies”

Primary Source:  Investopedia Article “Capitalizing On Seasonal Effects”  Author, Derek Polcyn.

I had anticipated the DOW staying within the recent trading range this past week and it didn’t cooperate.  It just goes to show you that the market is going to do what the market wants to do.  Friday 9/11 printed a Spinning Top and a Bearish Harami which was followed by a Hanging Man at a Double Top.  Under most circumstances, the aforementioned confluence of indicators would have resulted in a bearish to flat market.

 The fortitude of this market is remarkable.  One of the thesis that I have ascribed to for the run into the end of the year is that there are some institutional investors that have missed a good portion of the move from March and they must show positive results or they will be sweeping floors and not managing a fund any longer.  There are still trillions of dollars sitting on the sidelines.  Much of this money is wrestling with coming to the party late.  If that money decides to get back in the game, we will have an explosive move into the end of the year.

 In the meantime, I will pay very close attention to the volume and the reaction of the market at key levels of resistance and support as my indication as to where we are going from here.  Following is my chart analysis on the markets.  Best Robin