Home In the Range

What a week! And a great week it was.

For those of you insane enough to have owned July puts on Google until today, congratulations. The slight earnings disappointment from GOOG nicked $40 off their stock price at one point, and naturally the options were going insane.


The sea-change that has taken place is that all the sub-prime woes have elevated the volatility in this market. It's very plain to see from the $VIX graph below.


But this market right now is all about one thing - range, range, range. As David Byrne once sang: "I go up and down/I like this/curious feeling." If you are able to pay close enough attention to it, and you've got your groove on, you can make a lot of money.

But a glance at the Dow graph below shows that the price is currently about in the middle of a very sweeping range. And now we're in no man's land. Do we bounce off the horizontal line and fly well above 14,000? Do we push our way through the muck beneath that line and start and honest-to-goodness bear market? Or do we continue to fart around ad nauseum. I dunno. And you don't either.


The Russell is even more "range-y". Hell, I was in and out of calls AND puts all day long on this, and nary lost a cent in the process. It was quite a ride. But I'm about as flat as Kate Moss right, since I'd rather enter Monday morning with a relatively clean slate. (e.g. mountains of cash).


One last intraday index to show you - the S&P 500. I'd say we are at an important "bounce or break" point here. It will take a lot of strength for either the bulls or the bears to reach escape velocity from the range shown here, but once either side wins, it's going to be dramatic.


The rest of the charts are just short/put ideas. I sold a lot of "I told ya so" graphcs today (e.g. items I had suggested which went very much as planned), but I don't want to waste your time with those. You know I've got good ideas from time to time, don't you? Once in a while?

Here's BP.


CAH looks ready to break its neckline.


Colgate (CL) might have finished a nice triple top here.


CVX also looks good.


I'm putting GOOG here not as a suggestion, but mainly to show how nicely it retraced its entire hard-fought gain in just a single day. Who knows - those who bought in the low 500s might be very happy in the long run. After all, it's still a nice bullish pattern. But today it was a better buy!


HES, like many oil-related stocks, looks great to short.


I suggested MLM a while back (howdy, Leisa!) It's doing well.


I made so much cash today I decided to risk a bit on a couple of RIMM puts. This sucker has to fall some day.


Here's a final thought for you. See ya Monday.

Melt-Up

Well, it finally happened. We broke out of the consolidation that's been grinding along for six weeks now. The action was just bizarre. I suppose shorts were getting squeezed left and right, and bulls were jumping in with both feet. It was like an orgy of buying.


Based on traditional technical measures, the target for the Dow at this point would be 14,100. I'm not saying it will necessarily get there, but this has been a really clean consolidation, and it seems a sensible conclusion. Particularly given the strong psychological import of the Big Round Number 14,000.


My index-of-choice for puts, $RUT, wasn't as strong as the other indexes, and luckily I was kicked out of my puts the moment the market opened (sparing me most of the day's strength). The high price of 856.39 is awfully close.


Looking at a long-term S&P 500 chart, you can see the index is approaching its lifetime high reached nearly eight years ago.


Now, a moment about the comments section. I totally expected the bulls to rip off their bras and swing them over their heads today - - that's fine, because I would be just as obnoxious if the Dow was down 283 points. There's one particularly poster who doesn't crawl out from under his rock very often, but when he does, his posts are little more than hate and vitriol (he is hiding behind a screen name, but his name is Ryan and he lives in Phoenix). I look forward to being on a new blog platform where I can block sub-humans like this.

In the middle of 1999, Newsweek proved once again the "cultural saturation" rule by having the cover below. The market still had six more months of climbing before it started eroding (not going into full bear mode for another six months after that), but it definitely was a signal of a looming top.


A new best-seller reminds me of the same cultural phenomenon. I actually picked up this book a few days ago and am looking forward to reading it. I guess I'm a frustrated sociologist.


The $VIX has been beaten back into submission again. I'm surprised how cheap puts are these days. I am seeing lots of November puts that are priced no higher than August puts - - - time premium seems to be about zero for some stocks. In most cases, I am seeing in-the-money puts that are barely higher priced than their intrinsic value. So they're basically giving them away.


Apache (APA) is a pretty promising bullish pattern.


And Blockbuster (BBI), which I've mentioned before, also looks bullish.


I think JC Penney (JCP) is at or near its full retracement today. I'm ready to jump into puts on this one again.


There are three stocks that look surprising flaccid given today's action. The first is Baidu (BIDU), which is part of beanie's bombast.


The second is CROX - - I admit, I see the shoes everywhere (ahem - I only wear Eccos, in case you were going to send me some shoes) but I still think it's a fad stock.


And finally, Google (GOOG). For a stock like Google to go up 0.16% on a day like this is pretty lame.


Today's rally was supposedly prompted by strong consumer spending. For a real view of American Consumerism, enjoy this clip from George Carlin - - the portion on consumers starts at the 4:00 minute mark.

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.

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 angst........is 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 way........it 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.

Do We HAVE to Have a Bounce?

I started the day off, before the opening bell, feeling very discouraged. The market seemed inclined to stay at - to borrow from Irving Fisher - a "permanently high plateau". Today provided a welcome respite, with interest rates gutting the Dow for 146 points.

But surely you've seen a change in my temperment. Whereas typically I would be tooting the celebratory horns at such a thing, all I can think now is, "Great, we'll just go into another bounce now." And, perhaps, in my own twisted way, that's actually a really bearish sign. Because when I was feeling balls-out, it's the end of the world, the market invariably pushed higher. I regard these recent jolts downward not with glee, but with dire suspicion, bordering on a sense of dread.

Not to say that, from a chartist's viewpoint, the indexes (and carefully chosen stocks) don't look terrific for the bears. The S&P 500 looks gorgeous.


And yet, as I look at the minute bars of the same index over the past 60 days, unless the lows of last Thursday, June 7th, are taken out we're going to continue to stay stuck in this f*cking grind upward. If there is, in fact, a loving God, and we blow out the lows of June 7th, then it's time to rock. But I'm a doubter until it happens.


Another reason for my skepticism is that whenever the VIX goes rip-roaring higher, it is prone to ease back down (lately, at least). You can see the general range I've highlighted below. We're a bit above it.


Apple (AAPL), on which I own a small put position, edged down both yesterday and today. Next Friday is when the JesusPhone gets introduced. Obviously it will be fascinating on the 29th to see what happens to the stock. To say this product is widely anticipated is a gross understatement.


Let me pause for a second to make a socionomic observation. I saw a full page ad in the WSJ this morning for a series on CNBC (of course) called American Greed. Just another sign of the apocalypse, folks. The world's vomit-inducing obsession with cash, stoked terribly over the past few years, is reaching the saturation point. Barf.

Real estate stocks are a strange one to me now. They have very toppy formations. But they have also fallen far enough to be resting on some pretty significant trendlines. It is a difficult call. Apartment Investments (AIV) is a good example. I don't have a position in this one, although I do in some others, such as ESS.


Bolt Tech (BTJ) finally started to fall a bit today, although it would be hard for any stock not to do so on a day like this. I have great hopes for this one.


CVH doesn't have any particular bearish pattern per se, but it does look like what would normally be a really bullish breakout is going limp-dicked. And that's bearish. Oh, random thought: if you ever see anyone spell it per say, shoot them. Because they are an abomination to the gene pool. Aw, hell, let them live. Most people are idiots anyway. No harm in letting a few more loose.


I'm sorry to say I got stopped out of John Deere this morning, but it went on to form a lovely shooting star. Sigh. Could have to re-enter this sucker.


InfoSys (INFY) isn't my favorite pattern in the world, but as lower lows and lower highs go, it's not terrible.


Lehman Brothers (LEH) is mushed up against its Fib Fan. Nice.


My bullish notes on ONT have panned out OK, but, I dunno, I'd edge away from this one unless it busts through yesterday's high. Volume is slipping fast. And if you look at the entire history of this stock, it definitely is not beneath wrecking a perfectly good bullish pattern by going limp.


The SPY (whose options have a surprisingly sucky bid/ask spread) sports a nice bearish engulfing pattern. Heavenly Father, would you please make the market fall hard for more than one day in a row? Please?


Remember: it's a beautiful world.