Initially I was fairly upset not participating in the past two days of gains. While it is still true pretty much all the stocks I wanted to get back into would be profitable, the action in the broader market is giving me pause. Two times now we have broken above resistance and sold off back below. It is somewhat a confusing time because the Russell already broke and closed above resistance which would lead one to believe the S&P will follow suit. On the other hand, many of the sectors are significantly overbought at fairly historic highs in the bullish percent figures. What this generally means is there is significantly more risk to the downside and much less opportunity to the long side.
This doesn't mean I run out and try and short everything in sight but I will be looking for some good put candidates and may need to buy back my JBLU puts as my original thesis could be broken.
I doubt the old saying of "sell in May and go away" really applies, it is just the fact that stocks have run so far so fast it is only natural to have a pull back but it could be significant if we don't keep getting decent catalysts showing some economic recovery. I am again annoyed by myself in that I have not taken risk day trading as the past 2 days would have been profitable had I traded my plans. It is obviously worthless to say since I didn't do it but at some point I'd like to be comfortable taking the risk again with confidence.
My account gyrated between profits and losses as we traded in a fairly large range but ended up essentially flat. My only real position of concern is JBLU right now with the swine flu weighing on it and if the market rolls over it will not be helped at all. I would be fine if I thought this was a simple dip that will be bought but that has yet to be seen, if people don't buy at 865 or so it could signal an end to the uptrend in the short run and possibly longer. Overall I think people still want to buy the dip, but they may want a much larger dip this time to be enticed to buy.
Total Return for 2009: 133%
Thursday, April 30, 2009
Wednesday, April 29, 2009
New Highs
Even after a dismal GDP number of -6.1% the market rallied as there was evidence the consumer is actually much better than expected. Intraday we hit new highs and the Russell 2000 broke above it's 480 resistance. The S&P still finished right at resistance however this price action can't be ignored. I will look to buy back in on a dip although I am worried it may not come very soon. I considered buying futures at the open and just sitting on them but decided not to take action ahead of Bernanke speaking (aka I wussed out).
Overall the materials are looking to be heating up again on the idea we may actually pull out of this recession by the end of the year. Tech could continue to do well as well, I'd like some china exposure as well. Financials are actually looking fairly strong, MS could be a good play but it is lagging behind GS which is slightly concerning.
Overall I feel like I should be well positioned with my short option positions and I could just sit on those but I likely would be missing out on a lot of good movement and profits. We'll see how things unfold tomorrow.
Total Return for 2009: 133%
Overall the materials are looking to be heating up again on the idea we may actually pull out of this recession by the end of the year. Tech could continue to do well as well, I'd like some china exposure as well. Financials are actually looking fairly strong, MS could be a good play but it is lagging behind GS which is slightly concerning.
Overall I feel like I should be well positioned with my short option positions and I could just sit on those but I likely would be missing out on a lot of good movement and profits. We'll see how things unfold tomorrow.
Total Return for 2009: 133%
Tuesday, April 28, 2009
Mass Hysteria Persists
While I don't believe the swine flu scare is the main reason for a lack of direction as of late it definitely has hindered some of my current positions. JBLU rallied at the open then gave it nearly all back by the close with the continued lack of travel concerns. NVAX was back up another 25% today as people looked to make a quick dollar on a stock that wouldn't be able to help this situation for at least 12 weeks even if it could do anything. AAPL and AMZN fell slightly helping my positions. Overall I was down half a percent, no big deal but of course I'd rather be up, or have bought back my JBLU puts at the open.
Tomorrow I think is make or break day for the rally. I have to admit I was surprised to have a profit when I checked late in the day as I assumed the scare of Citigroup and Bank of America would have kept the sell off going. Buyers continue to step in on dips. If we had a severe sell off today I would have been inclined to take some risk to the long side going into the GDP announcement. I looked at a lot of stocks I want to buy on the assumption of a more sustained recovery but held off because it would be fairly irresponsible to take on more risk ahead of this announcement when I don't know what the outcome will be.
There are some bleak predictions on GDP, one as low at -8.00%, concensus is around -5.0%. A much better than expected consumer confidence number helped stocks and could help the market absorb a slightly worse than expected GDP number, I feel like as long as it improves over last quarter it should be viewed as good but who knows. I'll see how things react after it comes out tomorrow morning then make a decision. If we react positively and get above 870 I think it could point to a lot more upside.
Total Return for 2009: 130%
Tomorrow I think is make or break day for the rally. I have to admit I was surprised to have a profit when I checked late in the day as I assumed the scare of Citigroup and Bank of America would have kept the sell off going. Buyers continue to step in on dips. If we had a severe sell off today I would have been inclined to take some risk to the long side going into the GDP announcement. I looked at a lot of stocks I want to buy on the assumption of a more sustained recovery but held off because it would be fairly irresponsible to take on more risk ahead of this announcement when I don't know what the outcome will be.
There are some bleak predictions on GDP, one as low at -8.00%, concensus is around -5.0%. A much better than expected consumer confidence number helped stocks and could help the market absorb a slightly worse than expected GDP number, I feel like as long as it improves over last quarter it should be viewed as good but who knows. I'll see how things react after it comes out tomorrow morning then make a decision. If we react positively and get above 870 I think it could point to a lot more upside.
Total Return for 2009: 130%
Monday, April 27, 2009
Profiting from Pandemic Panic
I don't want to sound insensitive and I can't predict the future but as of right now things don't add up. All financial journalism was focusing on the supposed "swine flu" pandemic possibility after 100 people in Mexico died and we have some reported cases in the US and abroad. Let's think about this logically for a minute. During the normal flu season, there are 36,000 deaths, does this cause a panic? No. This strain of Influenza A, which has caused deaths in Mexico where they likely have much less preventative vaccines and had direct contact with pigs have had 149 deaths. All the cases in the US have been mild and people have made full recoveries. Is this cause for panic? The media loves it, and again it may turn into something more severe but I highly doubt it and for people's health I hope it doesn't.
Because I thought this was completely overblown I thought about ways to profit from the exaggeration. Imagine it as a bubble but very short term. There were small biotech companies doubling in value because of this so I thought it would be a profitable idea to fade their rallies. I decided to sell calls on one company and the company would currently have to double again to even hit the strike price I sold. I had to sell June paper as that was the only option but if the stock collapses back down as I suspect I'll buy them back for cheap and close the trade.
Airlines got killed today, and normally I would not go out and be long an airline however one airline in particular seemed like a much safer play. Jet Blue is near relative highs and has very defined support and resistance. Unfortunately I got in too early and could have gotten quite a bit more premium but the window of opportunity was only about 10 mins. I sold puts near support. I sold puts because I figured it would snap back but if it didn't I don't mind owning the company as it is one of the few airlines doing well and has some sound fundamentals.
Both of these plays are working out so far. The concern I have is more of the fact that we could be setting up for more downside. The BKX is close to breaking a support level which would signal further downside. US Steel reported after the bell and missed badly showing that materials demand is still soft at least for steel in the US which could weigh on materials. This could give me my opportunities to get in but if there will be further downside I must be cautious. With the fed meeting coming up I'll likely wait to do anything unless I see some opportunities where I think things are getting over done to the upside or downside. There are some great looking entry points but it is hard to buy dips with the idea of more downside risk. I still think there is the possibility of bullish surprise to GDP but that has yet to be seen and we have to get through the fed meeting first. We did work off some of our overbought levels today a bit more and if we happen to have a large down day it would be a good opportunity to take lower risk long positions. For now I'll be patient and see what the market does. Futures are pointing lower right now.
Total Return for 2009: 130%
Because I thought this was completely overblown I thought about ways to profit from the exaggeration. Imagine it as a bubble but very short term. There were small biotech companies doubling in value because of this so I thought it would be a profitable idea to fade their rallies. I decided to sell calls on one company and the company would currently have to double again to even hit the strike price I sold. I had to sell June paper as that was the only option but if the stock collapses back down as I suspect I'll buy them back for cheap and close the trade.
Airlines got killed today, and normally I would not go out and be long an airline however one airline in particular seemed like a much safer play. Jet Blue is near relative highs and has very defined support and resistance. Unfortunately I got in too early and could have gotten quite a bit more premium but the window of opportunity was only about 10 mins. I sold puts near support. I sold puts because I figured it would snap back but if it didn't I don't mind owning the company as it is one of the few airlines doing well and has some sound fundamentals.
Both of these plays are working out so far. The concern I have is more of the fact that we could be setting up for more downside. The BKX is close to breaking a support level which would signal further downside. US Steel reported after the bell and missed badly showing that materials demand is still soft at least for steel in the US which could weigh on materials. This could give me my opportunities to get in but if there will be further downside I must be cautious. With the fed meeting coming up I'll likely wait to do anything unless I see some opportunities where I think things are getting over done to the upside or downside. There are some great looking entry points but it is hard to buy dips with the idea of more downside risk. I still think there is the possibility of bullish surprise to GDP but that has yet to be seen and we have to get through the fed meeting first. We did work off some of our overbought levels today a bit more and if we happen to have a large down day it would be a good opportunity to take lower risk long positions. For now I'll be patient and see what the market does. Futures are pointing lower right now.
Total Return for 2009: 130%
Saturday, April 25, 2009
Sidelines Suck
The market continued higher Friday which makes me wonder how high it can ultimately go. It also makes me irritated I am not long anymore . Optimism continues to win out and we have gotten some better than expected indicators to keep that optimism alive. Up until now I really have not doubted the rally so it begs the question of why start to doubt it now, especially since there hasn't been much reason for negativity as of late. Jobless claims continue to rise although not as quickly, housing was much better than expected as well as durable goods being not as bad. Those could have been reasons to sell it off but it keeps being somewhat of a surprise or a reason to not sell. There are people on TV who say "this is a bear market rally we aren't interested." While I am not delusional and realize it is a bear market rally there is no reason to not ride it while it lasts.
So far I have captured a majority of the move but the dilemma is to decide when to get out. The market is at a critical point finishing just at the 870 resistance level but not able to break above it. The odd thing I have noticed which could be a bearish divergence is the fact that while the market is back at new highs, the stocks I was in that were previously leading are not at previous highs themselves. PCU is still below resistance, ACH also off its highs. This could be sector rotation but generally materials demand is a good indicator of economic recovery. The other possibility is that these stocks are making a lower high and could possibly start reversals over the short term. Then again, shippers are looking strong and coal could be turning around also both things I'd like to be involved with when they happen. From a technical standpoint if we break above 875 it's likely we go to 900 like I had said before. Like I also said I am just hesitant to commit longer term capital at these overbought levels but it sucks not participating in a trend.
AMZN was up 4 dollars on friday after earnings, again going higher when people said there is no way it should. Even with that move up I did make money on the calls I sold. This is a perfect lesson on why options can be risky and why speculating about earnings has to be done with care. Those with in the money options likely made out nicely from the day before but the people who bought the options from me lost money even on a nice move higher because so many things are going against you. From my couple years experience it is generally better to hold options up until earnings then sell if they are out of the money still, or do like I did and sell a couple strikes out of the money if you feel there is some safety but again manage risk. AAPL was down on the large up day which was good as well for my position.
Going into next week I'll see what the market does. It is hard to know what is built into stocks and what isn't. GDP will be announced and I actually have a feeling it will be not as bad as feared again which is bullish but if it is worse that will likely be the catalyst for pause. The 10 year treasury is at a critical level of 3.0%, if it breaks that it should point to higher stock prices as well and more favorable to commodities and foreign currencies. Bernanke made his large announcement about the fed buying treasuries last time we were near this level and something could be said again to try and keep rates capped for the time being but ultimately the market will win out.
My short call positions netted a small 1% gain, which is less than I am used to but again it isn't a loss.
Total Return for 2009: 125%
So far I have captured a majority of the move but the dilemma is to decide when to get out. The market is at a critical point finishing just at the 870 resistance level but not able to break above it. The odd thing I have noticed which could be a bearish divergence is the fact that while the market is back at new highs, the stocks I was in that were previously leading are not at previous highs themselves. PCU is still below resistance, ACH also off its highs. This could be sector rotation but generally materials demand is a good indicator of economic recovery. The other possibility is that these stocks are making a lower high and could possibly start reversals over the short term. Then again, shippers are looking strong and coal could be turning around also both things I'd like to be involved with when they happen. From a technical standpoint if we break above 875 it's likely we go to 900 like I had said before. Like I also said I am just hesitant to commit longer term capital at these overbought levels but it sucks not participating in a trend.
AMZN was up 4 dollars on friday after earnings, again going higher when people said there is no way it should. Even with that move up I did make money on the calls I sold. This is a perfect lesson on why options can be risky and why speculating about earnings has to be done with care. Those with in the money options likely made out nicely from the day before but the people who bought the options from me lost money even on a nice move higher because so many things are going against you. From my couple years experience it is generally better to hold options up until earnings then sell if they are out of the money still, or do like I did and sell a couple strikes out of the money if you feel there is some safety but again manage risk. AAPL was down on the large up day which was good as well for my position.
Going into next week I'll see what the market does. It is hard to know what is built into stocks and what isn't. GDP will be announced and I actually have a feeling it will be not as bad as feared again which is bullish but if it is worse that will likely be the catalyst for pause. The 10 year treasury is at a critical level of 3.0%, if it breaks that it should point to higher stock prices as well and more favorable to commodities and foreign currencies. Bernanke made his large announcement about the fed buying treasuries last time we were near this level and something could be said again to try and keep rates capped for the time being but ultimately the market will win out.
My short call positions netted a small 1% gain, which is less than I am used to but again it isn't a loss.
Total Return for 2009: 125%
Thursday, April 23, 2009
BMC vs. S&P 500
I figured I would make a graph from when I started tracking my performance and compare it to the S&P 500 over the same time period. As a full disclosure the S&P graph was hand calculated using 931 as the closing high at the beginning of the year and rounding to the nearest whole percent.
The graph looks fairly impressive but I will only be impressed if I can keep the upward trend in tact and have fairly low volatility and draw downs because this is also over a period of time of the market jumping about 30% off it's lows. Even with that being said I have four times the gains so it's not too shabby.
In regards to today, the volatility continues. We rallied into the close in the opposite fashion of yesterday, finishing pretty much right at 850 again. We started to break down and I sold my last small position in DSX as to not give up the rest of the gains but it recovered as the market did. So I am in cash besides my short call positions in AAPL, despite the stock being up almost 4 dollars I made money on my short calls, thanks to an over 10% collapse in volatility the one time I welcome it. AMZN reported after hours and is moving up but again I suspect the volatility decay will overall work in my favor. DSX was an example of frustration when the stock is down 30 cents but the option is down 40 cents when the delta is only supposed to be .75 but acts like 1.25 because of decay.
It seems like the extended pull back may not happen or at least not for now. We had generally positive earnings and reactions after hours today from AMZN, MSFT, AXP. That will go up against the supposed "stress tests" of the government releasing details tomorrow. If that is a negative surprise it could cause the sell off but with a slew of better than expected earnings we could push higher. I am reluctant to put long term money to work so I may take the opportunity to do some day trading. Many of the positions I cut yesterday continued lower today which is another reason to follow rules and sell on breaks of support. CHK failed to finish over 20, ACH is looking decent but if the market is going to roll over everything will get pulled down with it. ANR was strong again which was annoying because I'd like to get in but will have to keep waiting.
I had a small loss today which is always annoying but in the context of my broader performance I have managed the draw down fairly well so far.
Total Return for 2009: 124%
Whiplash Wednesday
Wednesday was fairly frustrating as I got out of pretty much all my positions. IPI gapped down 10% on a downgrade from GS which at the time was not really public knowledge so I had no idea why it was happening, the general rule of thumb is if you don't know then sell, which I did. The stock then rebounded but finished right where I sold it originally so overall it wasn't a huge deal. PCU broke down below support and was already pushing past my 2% loss limit so I cut that loose, it rebounded but broke down again at the end of the day, again making my sell alright. I sold my puts as we started to rally which was genuis when we hit highs but dumb when we came back to the lows. CHK also broke down below my line in the sand during the day so I sold as natural gas does continues to trade down.
As of this writing CHK is higher, I will wait for it to close above 20 again to get back in. I decided to sell some calls ahead of both AAPL and AMZN earnings. Seems like a stupid plan to sell calls on two of the strongest stocks of the year right? Maybe, but I went with a conservative option, the probability of the stocks gapping to my strike prices is very unlikely. I sold 135 calls on AAPL and 90 calls on AMZN. In Apple's history of the past 2 years the most I have seen it gap is 14 dollars and that was in a bull market without a run up before hand. Apple is up 40% this year already going into earnings so I assumed any reaction would be muted and the volatility decay would be in my favor. So far it is working out, we'll see what happens with AMZN. I only have 3 positions, my remaining position was my only recent remaining profitable one in DSX.
I am thinking I'll sit on my hands for a while as I have been off a bit lately and given back some money and I feel like this volatility could be a sign of a pullback. I am really wanting a significant pullback to occur to get back into the market but I don't know if it will happen, like a move down to 800. I'd like to get back into energy and materials at lower prices. ANR is looking good but has moved about 15% in the past 2 days so it's hard to buy it up so high.
We'll see how the day finishes out, I'd like it to finish lower, or at least below 850, maybe have a large down day after the stress test info, the next day gap down to 800 then reverse higher would be ideal and likely what others are watching for as well.
Total Return for 2009: 124%
As of this writing CHK is higher, I will wait for it to close above 20 again to get back in. I decided to sell some calls ahead of both AAPL and AMZN earnings. Seems like a stupid plan to sell calls on two of the strongest stocks of the year right? Maybe, but I went with a conservative option, the probability of the stocks gapping to my strike prices is very unlikely. I sold 135 calls on AAPL and 90 calls on AMZN. In Apple's history of the past 2 years the most I have seen it gap is 14 dollars and that was in a bull market without a run up before hand. Apple is up 40% this year already going into earnings so I assumed any reaction would be muted and the volatility decay would be in my favor. So far it is working out, we'll see what happens with AMZN. I only have 3 positions, my remaining position was my only recent remaining profitable one in DSX.
I am thinking I'll sit on my hands for a while as I have been off a bit lately and given back some money and I feel like this volatility could be a sign of a pullback. I am really wanting a significant pullback to occur to get back into the market but I don't know if it will happen, like a move down to 800. I'd like to get back into energy and materials at lower prices. ANR is looking good but has moved about 15% in the past 2 days so it's hard to buy it up so high.
We'll see how the day finishes out, I'd like it to finish lower, or at least below 850, maybe have a large down day after the stress test info, the next day gap down to 800 then reverse higher would be ideal and likely what others are watching for as well.
Total Return for 2009: 124%
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