Friday, June 29, 2007

Are the Bulls Losing Their Grip?

Dedicated bulls should worry about this: the market is starting to make sense to me. Last week was a really good week. This week was a really good week.

Now, if we were at the tail end of a two-year long bear market, it would be easy to shrug this off. "Oh, yeah, Tim the permabear has been doing well because everything has been falling non-stop." But you know that's not the case. The Dow was at its highest level in human history earlier this month, and it still has over 98% of that value. So I've been able to score big profits trading virtually entirely bearish positions in a market which has been in anything but a free-fall.

So it's making sense. Leading up to this month, I was starting to lose my mind with how nonsensical, bizarre, and random the market seemed to be. It would be like living in a town where cars stop at green lights 80% of the time, pedestrians occasionally walked along the middle of the highway, and baby carriages were parked on the roofs of buildings. After a while, you start to lose your mind in that kind of environment and question your own sanity.

But the town I live in suddenly makes sense. People stop at red lights and go on green. Baby carriages are safe. And pedestrians remain on the sidewalks. And the market goes up when I think it's going to go up. And it goes down when I think it's going to go down. It's a nice change. Let's keep those buggies off the roofs for a while, shall we?

If you read my post from earlier today, you know I spent a little time this morning at the Palo Alto Apple store watching the crowds line up for the JesusPhone iPhone. If you didn't see the post earlier, check it out. It's got a cool little video I made.

I'm trading the Russell 2000 options actively, both intraday and on swing trades. A tight stop on the IWM ETF is at 84.19 right now, which was the high for both Thursday and Friday.

There's really no good instrument for trading the MidCap 400 ($MID), but it's a fascinating graph to me. The markets seem to be revving up to be in swoon mode.

I haven't traded the NASDAQ (either index or hardly any stocks) for a while. It's been relatively defiant of the recent weakness in the market. But I have a feeling this group is going to start joining the downdraft party.

Side note, now that I mention NASDAQ - congratulations to RIMM owners, particularly call owners. I see some of the calls were up literally quadruple-digit percent levels today!)

Oil services are looking terrific for shorts/puts. HES is particularly well-formed and liquid.

McKesson (MCK) is another beautiful stock. One of the best examples of exploiting Fibonacci fans that I've ever seen.

RadioShack (RSH) has been on an enormous upswing of late. (Rumor has it that AJC has joined the Battery Club multiple times to keep her bedside electronic accouterments fully-powered, thus the earnings spike). But - - just like JC Penney is JC Penney - - Radio Shack is Radio Shack. And that's all you need to know. I've got puts.

Next week should be relatively quiet with a big fat holiday right in the middle of it. Have a safe one (most of you, at least), and I'll see you on Monday.

Late breaking news!
I was there for the Big Event (the 6:00 opening of the doors at the Apple store). It was a madhouse. Police, news crews, and hundreds of people (half of which were taking pictures).

You know the funny part? People waiting three days to be near the front of the line. And one hour hour......I was able to just walk right in through the front door without a wait. Great use of three days (and nights), fellers. Anyway, here are my two iPhones perched on the kitchen bar:

The JesusPhone Arrives

Today must be Steve Jobs Day, since both the iPhone and Ratatouille make their introductions. That can't be an accident.

I've never done this before, but here's a Slope of Hope Original Video for you that I just put together. Enjoy:

Thursday, June 28, 2007

Once More into the Breach

Well, I'm glad we got that bit of business out of the way!

The stock market did its usual spastic freak-out the moment the Federal Reserve Statement was issued. First it lurched down. And then up, big time. And then down again. And it spent the rest of the day generally heading south. It wasn't a plunge, by any stretch, but it certainly nuked a very healthy rise in equities into oblivion.

Looking at the candlestick chart of the IWM (which is the ETF for the Russell 2000), you can see a picture-perfect shooting star. My feeling is that tomorrow will be a down day, and we can get back to the business of shorting this market.

Colgate (CL) is a relatively stable/"no surprises" stock that might be worth acquiring puts against.

Coventry Health (CVH) appears to have failed to break out of a normally bullish pattern, which is bearish. I'm short the stock.

I've mentioned Jet Blue (JBLU) for the bulls out there. I stand by this position. Maybe this former high-flier is getting its act together after many embarrassing fumbles.

I bought puts on MCK today based on a small head and shoulders pattern plus a falling-away from a Fibonacci fan.

Oils are looking pretty good for put/short opportunities too. I bought puts on OXY just before today's close.

Same story with Southern Copper (PCU).

Potash puts are fairly heavily traded, thus the bid/ask spread isn't atrocious. I picked up some of these today (as with all the other trades, well after the Fed craziness).

...and the same for Schlumberger (SLB).

.....and Exxon (XOM).

I stopped trading Research in Motion (RIMM) ages ago, since the stock is just too weird for me to understand. Congratulations to those long the stock (and, even moreso, long the calls). RIMM had oh-my-God earnings after the close today and, last time I checked, was up 12%. Poor old Fred Hickey can't seem to live this one down.

Wednesday, June 27, 2007

Lying in Wait

If you read yesterday's post, today's action would have come as no surprise at all. Luckily, I sold my puts promptly shortly after the opening this morning. I wasn't slick enough to buy calls - and shame on me for not doing so - but I'm at least glad to have exited. In the meantime, here's a live Webcam of me waiting for the push upward to exhaust itself.

The Bank for International Settlements (BIS) - a widely respected organization - recently issued a report citing the distinct possibility of not just a recession, but a worldwide economic depression. Here's a snippet from an article about the report:

The BIS, the ultimate bank of central bankers, pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.

This isn't some weird crackpot organization (or a crackpot blog writer). This is a fairly sober group of individuals. Take note.

The $VIX, as expected, absolutely plunged today. I'm not sure - no one is - what the market's reaction to tomorrow's forthcoming GDP report and Fed Announcement is going to be - - but it's possible that all the excess in the $VIX got squeezed out today. For myself, I think I'm going to keep most of the powder dry until well after the Fed announcement, which always throws the market into a bizarre spasm.

I've tried to emphasize in the chart below the pivot points of the Russell 2000. Just to be clear, the fact that today's is circled doesn't necessarily mean I think the buying is over. But it's a help visual aid in any case.

As you probably know by now, the Russell is my favorite index for option purchases. It was especially strong today. At this point, I'd say 840.02 is a good stop-loss level.

The S&P 500 also had a good day for the bulls. I've drawn the downward-sloping pennant that I believe is confining the market action these days.

Now it just wouldn't feel right if I didn't offer my JCP chart of the day. One reader commented I should get out of those puts. Well, earlier today, I did. I don't think the fall has exhausted itself, but I'd rather take profits now and re-enter the puts after a retracement. If this stock pushes its way back to the neckline, I'm going in big-time again.

I'm long Micron (MU) now. It won't be a long-term hold, I don't think. But this is a nice little bullish chart for now.

Let's enjoy a little George. See you tomorrow.

Tuesday, June 26, 2007

When It Seems Easy, Feel Queasy...

I began this blog over two years ago, and I think that it has made me a better trader. Having to step up to the podium each day and offer up opinions (which are subject to scrutiny, disparagement, and future review) makes me think long and hard about the market. And the occasional public floggings I have received have imbued with me a healthy dose of humility that I think is essential to profitable trading.

Trading profitably has become far too easy recently for my liking. If bearish trades start becoming like shooting fish in a barrel, I know it's time to take profits. There have been times in the past.......and this is very common among traders.... when easy profits encourage more trading. And the tide starts to turn against you. So you pile on more. And the losses start to pile on. And, before you know it, all your fantastic profits from the last downturn are M.I.A. I really don't want to go through that again.

So as the trading day ended, I was kicking myself for having such a substantial position of puts on the Russell 2000 in place. There are some areas in my life where "irresponsibly large" is welcome, but options positions is not one of them. Let's just say I hope I don't wake up to a huge gap-up in the indexes. It could happen.

The basis for my nervousness.......besides my own the $VIX. Just take a look as this multi-year graph. For ease of viewing, I have circled peaks and troughs. We have certainly had $VIX levels higher than the present one, but let's face it, this is pretty peak-y. As I said: I'm nervous.

The Russell 2000 is below its supporting trendline, but this trendline isn't horribly significant. In other words, I don't put a heck of a lot of weight into the fact that it is broken. I'm glad it's broken, to be sure, but there's still a fair amount of support at these price levels.

One way to look at the market is that, for the past month or so, we've been caught in a trading range, and we are at the bottom of that range now. I've highlighted the range area on the S&P 500 daily graph here. I do not think we would break into new highs from here, but we might wind up with a triple top or at least partially retrace our way back up near the former highs.

One could look at the market another is pretty easy to lay out a massive rounding top. Just look at the intraday chart of the S&P 500, where I've embellished it with probably one of the worst arcs drawn in human history. (I am not much of an artist).

Returning to the $VIX, however, the zoom upward has been swift. And if the market settles down and starts marching upward again, the premium values built into options are going to shrivel up faster than Strom Thurmond's johnson on a chilly southern evening.

OK, a few stocks. Stocks like CROX! I have, as I've mentioned before, lost some cash on buying CROX puts before. Fool that I am, I gave it another go today. My puts are slightly profitable. I was inspired by an article this week in Barron's. They say that easily 20% of this stock's value could be blown away just by right-sizing it to its industry. Plus, I think it's a fad.

One similar shoe fad which is already "post-bust" is Heelys (HLYS), those obnoxious shoes that kids wear with the wheel on the heel. As you can see, the stock is doing poorly.

I hate to mention JC Penney every day, but this continues to do beautifully. I've highlighted my price target. The puts I bought on this are up huge.

Vulcan Materials (VMC) has a plainly defined range which seems to be breaking down. I'm short this, and it's got a nice ways to fall to the trendline.

Monday, June 25, 2007

Oh, Baby...........

I'm feeling a terrific sense of control over this market (at last). Recently, I've been doing extremely well. Even with intraday trading, I'll buy calls at just about the bottom, sell them at just about the top, then buy puts, and then ride those all the way down. I'm rarely this "in synch" with the market, but it's been a good feeling.

I noticed that Barron's this week features Blackstone's CEO on the cover, pointing out that a massive public offering of the largest private equity partnership clearly signals the peak of these beasts. I couldn't agree more. Oh, let's check in to see how the public's investment in the two-day old Blackstone has been faring.......

Of course, the big news today is that today's bounce from last week's downside action completely evaporated. The Dow surged 120 points higher (and I profitably closed out some calls I bought earlier in the day, then gobbled up a huge number of puts), then the entire gain by blown to smithereens. As you can see from the Russell, the medium-term trendline is now broken.

About half an hour before the close, I sold all my puts (DIA and $RUT), since I felt the selling was - - at least very short term - - overdone. Here's the S&P 500.....

In a broad sense, I think things have changed. It's been horrible awaiting the change, but I think it is finally here. In the broadest view, I think we have witnessed the passing of the Mother of All Double Tops.

This is not to say I'm speculating on outright collapse from here. On the contrary, I think we're probably due for another bounce up. But - as with today's - I may well decide that the bounce has exhausted itself just a couple of hours into a single trading day. My portfolios are devoid of any index positions right now, and consist of carefully-selected equity shorts, equity puts, and a couple of longs (DXD and BBI).

If you're just dying for a bullish stock, AutoDesk (ADSK) looks interesting:

Real estate has been in a freefall for months. I was thinking it would stabilize. But we might be in for some more downside action. Apartment Investments (AIV) has an impressive head and shoulders pattern.

My short in BEAS had a good day. I've put the clearly defined support and resistance horizontal lines here.

Bear Stearns was the "culprit" behind today's fall. I've been mentioning this as a short (or put purchase) for a long time. You can plainly see how, after its fall from its ultimate high, it tried to retrace........but the jig is up, and it's been falling ever since.

Looking at a broader chart, you can see a major, major supporting trendline has been shattered.

Goldman Sachs - employer of the hottie pictured at the top of today's entry - is suffering as well, although not to the same degree. My puts in this are up, and there's plenty of downside left on the stock, tinted here.

Another set of puts that's doing great is JC Penney (JCP). I've illustrated a potential target. Thank you, polyester! Thank you, leisure suits! Thank you, lawnmower care supplies!

Massey (MEE) is sporting a monstrous, gorgeous head and shoulders, and I think the retracement is complete now.

A bunch of people have written me asking to explain some options trading basics. I'll do it on a quieter day when the market is up half a point or something. I've had enough. I'm going for a swim........