Tuesday, October 31, 2006

Trick......or Treat?

What a roller coaster of a day. I thought we bears were going to get a real treat (Dow was down over 50 points) but it turned out to be more of a trick (market went positive before the close, and finally settled down only 11 points). Here's a line chart of the action over the past few days on the Dow. Totally direction-free. What a mess.


I continue to tout the Russell 2000 as a good place to own puts if you think the market is going to fall. It's got a super-clean stop price too. Puts on this aren't heavily traded, but the bid/ask spread isn't too godawful.


The Transports are looking ready to begin a fresh descent. I like this progression of lower lows and lower highs. A clear tumble here would spook all the Dow Theorists pretty badly.


Bear Stearns (BSC) isn't in any textbook bearish pattern, but the puts on these will have a lot of juice if the steam ever starts to come out of this stock. It is high enough to make this a relatively low-risk/high reward trade.


A more conservative trade would be along the lines of Cigna (CI). I would buy puts many months in the future on this one, since a gigantic insurance stock isn't going to be horribly volatile.


Earnings season isn't providing the kind of clarity/direction I was hoping. Bulls and bears are both losing their minds in this market. So we wait.

8 comments:

Leisa♠ said...

Toshi...On Cigna...just beware that CI is an "odd man out" in this industry of giants, and they are dwarfed by WLP and UNH....news of their being in play (consolidating with another odd man out to WLP/UNH) would not surprise me. I know that you are a technician, but it's worth knowing some of those niggling fundamental risks.
No position.

Leisa♠ said...

Tim/others...any thoughts on the steel stocks? I see OS (more linked to oil) and X rolling over a bit. I'm still mesmerized by Prudential issuing some negative reporting in September and these stocks rallying so hard thereafter. No conspiracy theory, just simple wonderment.

Doug said...

NOV 80 puts on capital one had a sweet day! I sold mine later today for nearly 100% profit. thanks for the tip TK

chronictown said...

Gold is breaking out big time. $614 is the 38.2 retracement from former low. $636 is next.It will be interesting to see if it can close above $614. USGL up 13% in the last two days.All the miners will follow gold. Is this a head fake or is gold going to $700 after the elections?? Stay tuned!Whats a girl ta do?

Andrew Wright said...

Patience bears..... patience....

at the open I cleared out my ESRX long trade on the bounce. and added to my SPY put position on strength earlier this morning.

I'm growing skeptical that we are going to have a meaningful correction this fall.... anything more then a few days of wacking...I'm keeping my eyes open though.

I want the oil to sell off so I can get in.....

Stay patient guys.....it appears that this market whether or not it wants it, needs to have the air removed from it!!! Should create some buying ops.

Andrew Wright said...

I just cleared out of my Spy puts.... I don't like the way the market is trading..... looks like it wants to ramp.

Based on what is going on with the economy...the yield curve continuing to invert... I'm going to stand aside. This market is ticking me off.

Unknown said...

Hi Tim,
You mentioned CMI a while back, Great short down over $10 in less than 2 weeks near 80%gains, has hit resistance just above 123. We will see if it hold tomorrow. Thank you for the great suggestions, it is great to earn while I learn.
K in Sac.

Andrew Wright said...

Man I got shaken out of my SPY puts earlier today..... i'm abit annoyed. But on the good side of the day... ESRX traded up 3.5 bucks in the mornings then sold off 8 bucks...boy was I glad I was watching that closely this morning. Not a bad day, could have been better.

I'm completely bearish right now BUT.... elections are next week and you know they aren't going to take it down for the next week. So if we get a gap down tomorrow...I will be looking to Buy Oil and Alumnium......Rotation time.