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.

28 comments:

z-stock said...

I posted on my blog yesterday...SPY has good support at $148....too bad no one was around to read it....
I think, Friday..goes two ways...Michigan sentiment...bad (retail), but CPE (inflation) good (banks)...
zstock...

Arkady said...

Lol @ the croc pic, seems to accurately depict quite a few sharp traders at the moment. TK, you been spot on this whole week - both ways. Good job.

I am always confused on Fed day and never really know which way to play it, so I might follow in your footsteps and play it safe. Although there are enough indications out there that would suggest more upside is in the cards. VIX can still drop to below 14 and remain in an uptrend.

Andrew said...

I somehow very skeptical about this rally. Market was led by SOX, but if you look at the individual stocks, their volume is quite low.

I think it got something to do with the quarter-end window dressing, since SOX is the relative better performer, it got boosted by fund buyers.

There is also no leader in this rally. Apple had a good day, but it appears to be more like a bounce after big selloff.

It will be interesting tomorrow.

Tim Knight said...

Just to be clear - I am serious about nuking posts with URLs. I just zapped one. URLs that are helpful and informative are welcome (and please hyperlink them). Advertisements will be blown up.

JakeGint said...

I am not for sure, but I think that was a parody, Tim.

Either that or Tuna Can is losing his mind.

Lost his mind.

____________________

Pretty amazing today ... if you managed to catch the low for the VTO trade, you could have squeezed almost 22 SPX points out of it in one (reversal?) day. And it didn't seem like we really went anywhere today....

Glen said...

Next date to go short will be July 3rd, or July 5th.

The two preceeding the July 4th holiday are two of the most bullish days of the year. Don't fight that tendency.

TheCapitalGame said...

MU does look good along with SNDK and the SMH in general. Probably a good idea to be long semis and short the general market as a hedge.

Gary said...

If you think semi's are going up why waste money hedging? How often do semi's go up without taking the whole market with them? If you just want to stay even then just don't trade. I never understood the concept of hedging for the retail investor. If you trade correct position size what's the point? If you're the CA pension fund then sure you have to hedge. You can't just sell 100 billion dollars worth of stock without crashing the market. But for us little guys even if we were to dump a million dollars worth of stock it wouldn't have any appreciable effect on the market. So why spend money on wasting assets just so you can break even if the market goes against you? If it goes the way you want then your hedge becomes worthless. Now you've made the right call and still managed to reduce your profit. Doesn't make sense. Just control risk with position size. It will cost you a lot less and if your calls are correct you will make a lot more.

Market Speculator said...

gary you are right, its like cover a paper cut with an ace bandage.

FOMC will sure have traders setting of fireworks. I don't think we'll see high volume trade going into 215 tomorrow.

bmbull said...

So how do you know they're not the CA pension fund... :)

troy said...

hi Tim, I have been Following the BIS reports for some time (the link you gave is linked to newspaper article and , the reporter is not reliable in my opinion).

BIS most important report is the twice a year OTC derivatives report


http://www.bis.org/statistics/derstats.htm



Large numbers are involved that for sure !

If you count those derivatives as liquidity as I do then you can understand why capital markets can head much much higher without large corrections. As many have pointed out big amount of the rally taking place from 2002 is due to liquidity and not real growth or anything like that (partly visable on a dow /gold ratio chart)

This is part of what Im blogging about at :


http://globalgold.blogspot.com


Generally I estimate that gold should head back up quiet soon as to support the stock market.

BB said...

Tim, why don't you use a straddle given the ambivalent nature of the markets today...per Sperandeo - to make money in either direction? (I am speaking from major ignorance on this issue however.)
Thanks.

william bills said...

Your were dead on about the action today. That VIX was a lil too high. I really think the fomc will tell the tale. If we blast off at 2:15, its vertical time, and 15000 on the dow might be here by labor day. I don't want that to happen, because the fast, vertical stage is always the end. Also, I'm not really a believer in this anniversary crap in the market, but if this market does go vertical, fast and hard, then calls for 87 won't be too outlandish; IMO. In fact, the more people talk about it, the more confident I will be in it not happening. But if the media doesn't begin say anything about it until the day before then I will be more nervous. The more they think its an issue, the better prepared everyone will be.

It will be very interesting to see what the fed says. They have to straddle inflation, and nurse the housing/CDO debacle. I think they err on the side of inflation taming, but I don't have a clue as to how the market will take that. My guess is it that they'll react positively because the fed will be seen as not worrying about the CDO mess.

Brett said...

Tim,

are you noticing the bid/ask on ONT creeping up this morning in the premarket? With a symmetrical triangle wound very tight and the bollinger bands also setting up for a big squeeze, I hope this is the morning the stock breaks loose in its inevitable rocket shot over $4.

Thomas said...

Gary knows what he's talking about. Great point. I used to work for a $600M hedge fund--we did not hedge positions for the same reason. If you're right, then calibrate your position size. If you're not sure, don't trade it. We performed pair-hedges (rarely) and had an extensive short and option portfolio. However, this portfolio only took down our exposure. 90% of the trades we entered were alpha trades on the short and option side. Even at hedge funds, hedging doesn't happen. My personal pf is substantially smaller than $600M. Sometimes I will use pairs hedging but the only true hedging I do is taking on market puts against my long pf (not a true hedge) or shorting a broad index to hedge longs that are clustered in a particular industry or market. --stealthelephant

newequity said...

ONT will be $10 in the next two years.

Tim Knight said...

Someone be sure to wake me when the Fed announces.......

AssetStrategists said...

Tim,

While we are waiting on the Fed, here's a question to help keep you awake...

You mentioned that you were in the Tahoe area during snow season. Do you have a cabin in the Tahoe area? If so, is it near the big fire?

We live between SacTown & Tahoe. A five acre parcel adjacent to our parcel burnt to a crisp Monday. That was scary!

JakeGint said...

My cousin designs and builds houses out there... I guess he'll have some more work this Fall!

Stay safe!

Tim Knight said...

"You mentioned that you were in the Tahoe area during snow season. Do you have a cabin in the Tahoe area? If so, is it near the big fire?"

Thanks for asking. Nope, my place is in North Lake Tahoe.

beanie11111 said...

Solar stocks are en fuego!!!

FSLR, STP, JASO, TSL, SPWR.

Our special pick TSL july 45 calls @ 2.2 or less is now on fire!!!! Over a double but i think it could grab a 10-bagger.

TSL is headed to $90 soon is what i think. Too cheap in the right industry. Too beautiful a chart to resist.

Tim Knight said...

*Yawn*. Well, at least there's no URL. So it stays.

stevegill43 said...

Does anyone see a bearish candlestick on the Russell 2000 today? I bought the Proshare MZZ near the close hoping for a 2-3 day trade.

wincity said...

Solar stocks are about to reverse, IMO. I've been trading JASO mostly today and yesterday - shorting it.

TSL is black-listed in China since a while ago, according to my nanny. Not sure what that means, but definitely not something good.

The market can't stay up even after a softer FED. This means the bounce is over, IMO.

Thomas said...

Looking forward to shorting Beanie1111's pf. Not quite there yet. Still counting my profits from the SBUX "bottom" Bonehead1111 called two weeks ago. I'll get ideas where I can and Beanie looks like a shit-Midas. Everything he touches turns to poo. Do the opposite of what he says to do. --stealthelephant

Market Speculator said...

wincity...are you calling for a short-term top in JASO or something more dramatic?

I do not see an ultimate top but more of price consolidation needed, it remains in an uptrend.

wincity said...

I'm not calling for JASO's head. Just feel it's due for a consolidation at least. I only short the spikes. JASO is 100% traders trading so it retraces reliably and easily. I wouldn't be surprised if it comes down hard with the market but I don't bet on it.

plunger said...

Beanie may be annoying, but the solars been money makers lately, hoax or not.

I picked up fslr @ $64 watched it fall to @$61, got out at $72.85 and the things at $90 now, [I never learn.] A few of the others been up steady since he started spouting about them here. Annoying? yes, but they're still in the green, and he's probably made a good deal of money on them. If he knows when to sell, he'll have a decent profit in them.