Saturday, January 30, 2010

Person's Proprietary Signal Backtesting

Person's Proprietary Signal is an odd beast in the world of technical analysis of the markets. Amid hundreds -- thousands? -- of open source tools whose workings are freely available, it is a black box.

I'm not a fan of faith-based trading, so I have spent the afternoon backtesting Person's Proprietary Signal to see what sort of results it gives. . . .

February Long-Term Trading

January is over -- hail and farewell -- and it's time to run through the long-term charts to see how to manage a 401(k), for example, or something else in mutual funds, where rapid trading is not really an option.

Friday, January 29, 2010

2/1 Almanac

Monday, Feb. 1, is 18 days before the February options expire, 46 days the March and 74 days the April.

Historically, it tends to be a down day of the week on an up day of the month in an up month. . . .

1/29 Watchlist

Blue chip stocks (SPY) for the fifth day are trading within a range, roughly 110.47 down to 107.91. More or less.

ESTRAGON: Charming spot. (He turns, advances to front, halts facing auditorium.) Inspiring prospects. (He turns to Vladimir.) Let's go.
VLADIMIR: We can't.
ESTRAGON: Why not?
VLADIMIR: We're waiting for Godot

"Godot" -- it is a little known fact -- is French for "volatility".

1/29 Morningline

Pop the champagne cork! The recession is over!! Yay!!!

Two quarters of GDP growth!!!! The market must be taking off like a rocket!!!!!


By one rule of thumb, two consecutive quarters of declining Gross Domestic Product signal the beginning of a recession, so two quarters of gains must signal the end, right?

Thursday, January 28, 2010

1/29 Almanac

Fair warning: Market news rant below. Illustrated!!!

Friday, Jan. 29, is 21 days before the February options expire, 49 days the March and 77 days the April.

Historically, it tends to be an up day of the week on a down day of the month in an up month. . . .

1/28 Watchlist

A headline writer on the Investor's Business Daily website at one point in the day said that the major stock indexes "Plunged". The decline today, so far, from high to low is 2.1 percent. They just don't make plunges like they used to.

The blue chip stocks (SPY) are trading slightly below the 50 percent Fibonacci retracement level, the current price is within the range set in trading on Wednesday, and are about where they were in late October.

In other words, 'tain't no thang. Also, there's no pps signal on SPY.

1/28 Morningline

Treasury long bonds (the ones that mature 20- and 30-years out) are showing a potential pps bear signal at the outset of trading. The price of the TLT exchange-traded fund, which tracks such bonds, gapped below Wednesday's trading range and then rose a bit.

Blue chip stocks (SPY) did a reverse move, gapping higher at the open and then declining. It is now back in the trading range of the two prior days. The fear index (VIX) is showing a otential pps bear signal on a gap down and an increase back, both movements on the small side. . . .

Wednesday, January 27, 2010

1/28 Almanac

Thursday, Jan. 28, is 22 days before the February options expire, 50 days the March and 78 days the April.

Historically, it tends to be an up day of the week on an up (barely) day of the month in an up month. . . .

Opened MCO Covered Call

I've opened a February covered call on MCO with a strike price of $30. The shares are trading for $29.18, but I bought them in May2009 for $29.85. The shares are zombies left over from an unexercised covered call.

The call went for a fairly low premium of 70 cents. I made $1.96 in premium from the May 2009 covered call, and 30 cents in dividends since then. So, altogether, with today's premium, I've taken $2.96 in income from the shares. That's 9.9 percent, not too shabby for eight months work. . . .

1/27 Watchlist

Blue chip stocks (SPY) barely blinked at a Federal Open Market Committee announcement that left low to non-existent interest rates in place while dishing out some modest happy talk about the economy's prospects.

SPY is trading down a bit from yesterday's range, Treasury long bonds (TLT) and gold (GLD) within the range, the dollar against the euro (EUR/USD) is worth a bit more, and oil (USO) is straddling the yesterday's range in a downward move.

In other words, its just another day in 2010's low-volatility paradise. (The VIX is trading down for the third straight day.)

1/27 Morningline

A slow start to the morning, as is traditional on days when the Federal Open Market Committee has scheduled an announcement (at 2:15 p.m. Eastern). Of course, these days the Fed doesn't really change rates so much as it tweaks expectations as an exercise in applied psychology.

Riddle: A word with two meanings. One is work that keeps one fed. The other is what happens to expectations when people are fed up. . . .

Tuesday, January 26, 2010

1/27 Almanac

Wednesday, Jan. 27, is 23 days before the February options expire, 51 days the March and 79 days the April.

Historically, it tends to be an up day of the week on an up day of the month in an up month. . . .

Looking at a JCI Trade

The JCI trade identified in today's Watchlist continues to pique my interest, mainly because of the strong trend.

A bull put options spread, created by buying the February $27.5 strike price and selling the $30 strike, would be profitable from a bit above $29 upward. A price of $29 is below near-term resistance, and when the stock fell to that resistance area today, the day after the bull signal, it promptly bounced back up to just below its opening price.

I don't like to buy bullish on a declining day. However, I'll be looking at JCI in the morning to see if it's worth getting into. The net premium on the bull put spread would be about 87 cents at the current price.

1/26 Watchlist

The blue chip stocks (SPY) have risen to the top of Monday's trading range, and then pulled back. Today's high so far: $110.47. Monday's high: $110.41.

This is not progress.

The Treasury long bonds (TLT) are within the 5 cent difference between the high and low on Monday. Also, barely moving, despite a higher opening this morning from which the price dropped. . . .

Thinking About the PALM Covered Call

My PALM covered call, which I opened on Jan. 20, has moved below the point of profitability. So, what to do now?

The February options are 24 days away from the last day of trading before expiration, and the stock has 2-1/2 or 3 percent to go before it hits the next support point.

The position was structured as follows. Shares of PALM bought at $12.63, and the FEB 13 call option sold for an 83 cent credit. (The FEB 13 means the options expires in February and has a strike price of $13.) . . .

1/26 Morningline

The blue chip stocks (SPY) are trading near the bottom of the range set by Friday's large decline.

The blue chips have fallen half the distance of the rise that began in November. SPY set a low of $103.08 on Nov. 2 and showed a steady daily increase up to a high of $115.14 on Jan. 19, and then fell to the current level.

As a result, the blue chips for a third day were paused at a key level, called a 50 percent Fibonacci retracement. . . .

Couple of Changes

I'm making a couple of a changes to this market letter, both of them minor, but sort of important.

One is to start using a dollar sign when quoting the price of corporate shares or exchange traded funds. It's a reminder that real money is on the table with each trade. The common practice of quoting prices just using the numbers moves the quote a step away from the underlying reality. . . .

Monday, January 25, 2010

1/26 Lookahead

I'm reading an AP after-market story, by Stephan Bernard and Tim Paradis, saying stocks recovered today because the chances have improved that Ben Bernanke will be confirmed for another term as chairman of the Federal Reserve. ("Recovered" is the AP's term, not mine. I would prefer, "bounced gently".)

I mean, if Bernanke is only worth a 0.46 percent rise in the S&P500, then he must not be much of a Fed chairman in the eyes of the market.

No matter. On a day when 3.2 billion shares were traded, I'm always impressed when anyone can peer into a sufficient number of minds to know why they were traded. Uh huh.

1/25 Watchlist

No new signals on the indicators or currencies I follow, nor on my holdings. The price action is in line with what I saw this morning.
I'm seeing very little of interest in the major exchange-traded funds.

I'm going to decline to do a corporate shares scan today, and cut this short. Look for a full Watchlist lookup on Tuesday. With luck, we'll see some market movement.

Blue Chips Support, Resistance and Risk

Blue chip stocks (SPY) are trading around $110.

The next support level is $103, or 6 percent below the current price.

The next resistance level is about $115, or 4.5 percent above the current price.

Bottom line: There's 1.5 percentage points more downside risk than upside risk..

1/25 Morningline

After last week's Sturm und Drang in the markets, my indicators this morning have all opened shy, passive and lethargic, with barely a blip up or down to enliven a Monday morning.

Currencies were aflutter like humingbirds before the bud.

What is it about a slow start that turns prose purple?

Friday, January 22, 2010

1/25 Lookahead

Blue chip stocks (SPY) ended today's drop within the mid-November to mid-December area of sideways congestion. In terms of the price technicals, the price could move either way, or barely budget.

One economic report, existing home sales, is due for release on Monday, at 10 a.m. Eastern. Wednesday is the key day with the FOMC meeting and announcement, and in the evening President Obama's state of the union address.

On Monday, the February options are 25 days away from expiration; March options, 63 days; and April options, 81 days.

I'm trading February calendars, diagonals, verticals and covered calls. Individual stock option trades are generally for April expiration.

New to Private Trader? Check out the Reader's Guide.

S&P 500, SPDR, Spiders.

1/22 Morningline: OK, maybe panic just a little

Blue chip stocks opened below the low set on Dec. 31, 2009, breaking a bullish price pattern of higher highs and higher lows that began on July 7 by one reckoning, or on March 6 by another.

Using prices on the SPY exchange-traded fund that tracks the S&P500:

The long-running uptrend ended Jan. 14 with  a high of 115.14, and opened this morning at 111.20, dropping rapidly to 111.01, the low so far today. The Dec. 31 low was 111.39.

The uptrend began either at the July low of 87 or the March low of 67.10.

The VIX -- the so-called fear index --  has risen to 24.16. That's 23 percent above the low of just three days ago. . . .

Thursday, January 21, 2010

1/22 Lookahead

Job one on Friday will be to watch what happens with the blue chip stocks and the broad market in light of Thursday's price declines.

(I could call it a "selloff", like so many in the financial media do, but every sale has a buyer, so I'd be equally justified in calling it a "buyoff".)

1/21 Watchlist: Don't Panic Yet. It's All Good.

Blue chip stocks tumbled as much as 2.1 percent from today's open to the low (so far), on a bear signal from Person's Proprietary Signal. The so-called fear index (VIX) rose 18.8 percent on a bull signal.
The news coverage no doubt will be apocalypic. But, it is important to note that the S&P500 (represented here by SPY, the exchange-traded fund) remain in a bullish price pattern.

The bull price pattern is a series of high highs and higher lowers. The market never moves in a straight line for long periods of time. As J.P. Morgan said when asked what the market would do: "It will fluctuate." That's no less  true today than in his day.

1/21 Morningline: Home on the range

You know it's a slow morning when selling a covered call on PALM the most exciting thing around. (See the previous posting.)

It's a slow opening so far. Blue chip stocks have opened about where they opened yesterday, and are barely moving.

An eight-day chart how little movement there has been, as the SPY etf meandered between 112.98 and 115.14. What the market tooketh a away, it gaveth back, usually on the next trading day.

Update: Excitement at last. After this was posted, the blue chips showed a bear signal and dropped below the low set the last eight days. So perhaps volatility is picking up.

Completed PALM covered call position

I've finished legging in to my PALM covered call options position. The February call, with a strike price of 13, sold for an 83-cent premium with the underlying stock trading at 12.95

I opened the first leg of the position yesterday, buying the stock for 12.63.

Here's the potential profit of the completed position, which expires Feb. 19. (I've ignored the trading fees that are part of doing business.)

Wednesday, January 20, 2010

1/21 Lookahead: Quoth the Raven . . .

My tasks tomorrow:

Try to make sense of what's happening with the S&P500 index. Earlier discussions here and here. . . .

Opened ERTS iron condor

I've opened an iron condor options position on ERTS with the underlying at 17.20 for 0.38 credit. This was a difficult fill. I tried to open the position half a day yesterday and all day today at 0.42, but could get no play.

Details are in my earlier analysis of the position.

Electronic Arts games

1/20 Watchlist: Whither Blue Chips?

Three days within a trading range (about 113.50 to 115 for SPY).
Three days of signals bear bull bear (using Person's Proprietary Signal).

What to make of the blue chip stocks? A major longer-term top or not? That is the question. . . .

Opened PALM stock position

I've bought 100 shares of PALM stock at 12.63 as the first leg of a covered call with a strike of 13. See my analysis of the trade, which at the time was center on a strike of 14.

PALM has pulled back a bit in today's decline at the top of a high-volume rise to 12.43 on Jan. 8. My goal is to sell the 13-strike covered call when the stock bumps back up closer to 13 (which now shows a 0.80 premium).

Closed ORCL -2.2%

I've closed my February bull put spread on ORCL with the stock price down 2.2 percent from where I opened it. Altogether, the position was open five calendar days.

I opened the position on a gap past resistance the day after a bull signal from Person's Proprietary Indicator. The stock has been in an upward trend since last October.

1/20 Morningline: Blue Chips topping at the Fibonacci 50% Retracement?

Blue chip stocks are drifting down after opening around the middle of yesterday's trading range. The stochastic has fallen below the 80-line, and the macd, below the zero-line. This is after a bear signal and then a bull signal, from Person's Proprietary Signal, one trading day after another.

The so-called fear index, the VIX, is showing a potential pps bull signal, which is bearish for stocks.

Is this a topping pattern, as confused puppy mode often can be? The S&P500 etf, SPY, is trading at 114, right at the point where it has regained half the loss it suffered from October 2007 high to its March 2009 low. That Fibonacci retracement level is often a turning point for shares.

In the long term, if the market is stair-stepping down, this a point where it typically takes the next step down.

Tuesday, January 19, 2010

1/20 Lookahead

Housing starts and the producer price index, both at 8:30 a.m. Eastern, are the economic reports for Wednesday.

I'll be watching the blue chips (SPY) to see how they follow from bear-to-bull whipsaw between Friday and Tuesday. . . .

1/19 Watchlist: Whipsaw Fever, Nothing is Forever

The blue chip stocks (SPY) are showing a pps bull signal, after they showed a pps bear signal just one trading day prior, and have retraced all of the loss they showed on the day before the long holiday weekend. This is the Mother of All Whipsaws. It certainly justifies my cautious stance on Friday.

Also goes to show, in the markets, nothing is forever. Ever.

The other indicators: The same as I noted in the Morningline, except more so.

Here's what's interesting in high-volume . . .

ERTS iron condor candidate

While looking for covered call posibilities over the weekend, I ran across ERTS -- the game maker Electronic Arts. I rejected it for a covered call -- there's no uptrend -- but it would make a reasonable iron condor.

Trading Psychology

Mitchell Brown at Enlightened Wallstreeter has compiled a list of useful articles on the psychology of trading.

Trading is divided into three decisions:

  • Choosing - Deciding what position to enter.
  • Sizing - Deciding how much money you want to risk on the position.
  • Timing - Deciding when to enter and more important, when to exit.
If any advisor tries to tell you that there's an objective science for these decisions, run away. Each is mediated through the human brain, and each has strong elements of hope and fear. . . .

1/19 Morningline: VIX play prairie dog

The volatility measure, the so-called fear index or VIX, popped out of its hole, gapping up to open 5.2 percent above Friday's close and briefly showed a pps bull signal, which disappeared within minutes. The index then popped back down.

Blue-chip stocks opened quietly at the lower end of Friday's bearish trading range, a 1.4 percent decline from high to low, and then began to retrace the decline.

The price of Treasury long-term bonds gapped down by about a third of a percent. Crude oil opened down by nearly a percent from Friday's close, and then began to rise.

It was the sort of morning where the seas were calm but the sun rose into a red sky that faded to pale pink. Sailor take warning?

Let's run the numbers . . .

Monday, January 18, 2010

Private Trader Reader's Guide

The Private Trader market letter at tracks trades on my own accounts, in real time, as I make them, with explanations of why I chose to make each trade.

My goal is to share with readers the trading approaches and techniques, and mental attitudes, that I have found to be useful, through book reviews, long-term studies and trading techniques and theory.

Theory without practice is of little use in the real world of the markets. I have often, during decades in the markets, wished that I could trade alongside someone, so we could both learn from each others successes and mistakes.

So every day I'm hands on in the markets, focusing the day with the Morningline,  scanning for and analyzing possible trades during the market day, positioning for the crucial last half hour of trading with the Watchlist, posts telling about my trades -- what I did and why did it -- moments after they happen, analyses of trades gone bad (and good!), the Almanac setup for the next trading day, specialized scans for covered calls, and subtle jabs at Jim Cramer on every possible occasion.

It's the difference between hiking alone or with a friend. I'll take the friend on any trail. . . .

Sunday, January 17, 2010

February Covered Call Options Candidates

We're entering prime time for February covered call options. Wednesday is 30 days out from the last day of trading for expiration on Feb. 19. Jan. 30 will be 20 days out. So that defines my window for trading this strategy.

Before I show my list of prospects, here is how I did the scan. . . .

Friday, January 15, 2010

1/19 Lookahead

The markets are closed Monday in memory of Dr. Martin Luther King.

Tuesday's economic reports include one on international capital that tracks foreign money going into and out of the American economy, and another that rates housing market conditions.

The big reports come on Wednesday: Housing starts and the Producer Price Index, and the Index of Leading Economic Indicators is on Thursday. . . .

Closed MRVL -8.0%

I've closed my stock options position on MRVL with the stock priced at 19.67, down 8 percent from where I entered. The option position, a bull put spread, closed for a 60.9% loss.

I opened the position on Jan. 5. I bought February puts with a strike price of 20, and sold puts with a strike of 22.5, with a stop loss of 20. The shares showed a bear singal on Jan. 12, and moved decisively below 20 about two hours into today's trading.

MRVL met my technical requirements for the trade. It showed a bull signal amid an uptrend. Problem is, the uptrend ended. It is the nature of trends they are trends until they quit being trends. Simple as that. The stall came at a congestion level that had been set in October 2000.

There is among traders a traditional mantra that is uttered fervently in times of loss, for its mixture of calmness and hope. . . .

1/15 Watchlist: The Blue Chip Bears

Blue chip stocks (SPY) are showing a bear signal and have dropped 1.3 percent from the opening price. The price has stalled at very near term resistance. This comes amid falling interest rates on 20- and 30-year Treasury bonds, and falling prices for gold and oil.

In terms of other technical analysis on the blue chips, the stochastic has crossed below the 80-line, a bearish signal. The macd remains in bullish territory. The price was approaching the upper Bollinger band, and the bands were widening, which can be taken as signaling continuation of the upward trend.

The blue chips have been in a strong upward trend since March. This signal is countertrend, and not a trade for me. Especially with so many mixed signals.

Here's what's interesting among high-volume . . .

Covered Call Options: Show Me the Money

Covered calls some days leave me cold. They take a lot of money to implement, compared to other strategies. They limit me to low priced stocks, which often are priced low for a reason. And they lack sex appeal. No one can ever pretend to be a Power Trader dealing in covered calls.

What a pleasure it is, then, to crack open Ron Groenke's new book, Show Me the Money: Covered Calls and Naked Puts for a Monthly Cash Income, and have him remind me of why covered calls are such a neat way to trade. They make money month after month. And they aren't hard to do. Consistent earnings without lot of work? What's not to like about such easy money.

Mr. Groenke gets to the heart of what covered calls are all about on page 14:  "Think of it as picking money from a money tree like you would pick fruit from an orchard."  And in 200 pages he tells you how it's done. . . .

1/15 Morningline: The Inflation Puppeteer at Play

The price of the longest-term Treasury bonds, issued for periods of 20 and 30 years, gapped up by 3/4 of a percent this morning. Since trading opened yesterday, the bonds have risen 1.6 percent.

The Consumer Price Index, released today before the start of trading, showed very low inflation. Interest rates on bonds are typically a premium over and above the inflation rate. With expectations of lower inflation, the market prices in lower rates when selling bonds by lower the bond price.

The CPI is a like a gigantic global puppeteer. It pulls one string, and all of the world's economic arms and legs and heads spring into motion. . . .

Thursday, January 14, 2010

Haiti Relief: Ways to Give

Links to places that take contributions for Haiti earthquake relief, courtesy of the BUDDHA-L Buddhist academic email list:

Médecins Sans Frontières Doctors Without Borders)

American Friends Service Committee

Humanist Charities

American Jewish World Service

American Red Cross

1/15 Lookahead: January options expiring, inflation, production, consumer sentiment due

Friday, the Ides of January, will be such an easy day.

January options have their last day of trading, but without much of a market for them. I'll watch my final two January positions turn into a puff of profit as the market closes.

February options, which I'm working for the complex spreads, calendars, diagonals and iron condors, and also for covered calls, have 35 days left to live. Single calls and puts, which I would buy for March expiration or later, although I rarely trade singles, have 63 days.

Stock market investors who worry about inflation, which will surely include forex traders as well, will be watching the consumer price index at 8:30 a.m. EST (5:30 a.m. Pacific).

Industrial production will be released at 9:15 a.m. Eastern (6:15 a.m. Pacific), and consumer sentiment at 9:55 a.m. E (6:55 a.m. P).

Have you noticed how early west coast traders like me have to get up? The upside is, it's 1:30 in the afternoon and I'm off to take a hike in the Tualatin Mountains. Ciao!

Opened ORCL bull position

I've opened a bull position on Oracle (ORCL). The stock price has moved into blue-sky territory on some good technical signals.

My vehicle is a bull put spread that expires on Feb. 19, 36 days from today. The structure of the spread is that I buy a put with a lower price, 25 in this case, and sell a put with a higher strike price, 27 in this case.  The lower strike is below the current trading price, and the higher strike is above it.

The stock was trading at 25.39 when the trade cleared. The bull put spread gave me a credit of 1.20. . . .

1/14 Watchlist: Some techs on the move INTC MSFT CSCO ORCL RIMM

The blue chip stocks continue to trade around the top of their recent range. Treasury long bond prices today are rising through most of their recent range (that is, interest rates are falling).

Corporate, high-interest-rate junk bonds are barely moving, despite yesterday's bear signal.

Gold is glistening in place like a necklace on display in a high-end jewelry store window, and oil is standing still like scum on a stagnant pond, gently brushed by flitting dragonflies, after cascading for three days like Multnomah Falls on a rainy Oregon day.

Above all, similes are flying wildly as bored traders seek amusement on the Thursday before January options expire. It's a tough business, but someone has to do it.

The major foreign exchange currencies -- the dollar, yen and euro -- stayed within their recent ranges in forex trading.

Looking at stocks: The techs are on the move. Intel, Cisco, Oracle, Research-in-Motion. Household names all.

Let's see what's interesting among the . . .

The Haitian Earthquake Market Impact: Close to Zero

Haiti, one of the poorest countries on the planet even before the recent devastating earthquake, is no powerhouse in the global economy.

Most people in the country are subsistence farmers. Haiti exports coffee, cocoa, and clothes. Also mangoes. . . .

1/14 Morningline: A Nietzschean Moment: Awake!!

The stock market, gold, oil, bonds -- long-term Treasuries and corporate junk bonds alike -- all are trading within a very, very narrow range this morning. It's as though someone put a magic sleeping potion in investors' breakfast cereal.

Even the Big 3 foreign exchange currencies -- the dollar, yen and euro -- are relatively quiet at the open.

Things are so quiet, and dull, and risk-free for the moment, even the  financial crisis inquiry commission would approve.

It's a Nietzschean moment: Sleeper Awake!

This morning's numbers . . .

Wednesday, January 13, 2010

1/14 Lookahead: Crossed fingers for January options

My two remaining January positions move into cross-your-fingers territory on Thursday, with two more trading days left.

I expect LVS, the covered call (-c16) to be exercised after expiry, unless it drops 12.7% to below 16. Not likely.

With 36 trading days left for February options, it's time to look for another covered call or two. That would be a good task for a gloomy winter weekend. . . .

1/13 Watchlist: Junk bears; Showdown at the Baidu gap

Corporate junk bonds (JNK) are showing a pps bear flag; the macd and stochastic remain in bull territory.

Otherwise, little movement in the indicators, currencies or holdings.

Here's who's going where among the indicators since this morning: Blue chips up, volatility (fear) down, Treasury long bonds down, gold up, oil down.

And here's what's interesting among the high-volume . . .

Thinking About the KO Iron Condor

I think an iron condor is one of the most interesting complex constructions that you can do with options. It's more fun than Legos or Tinker Toys! . . .

1/13 Morningline: Blue Chips pause; fear, loathing and bullishness

Oil (USO) gaps down to 0.8% below the prior close. The other indicators and the currencies do little at the opening, as though exhausted by yesterday's drama.

Yesterday's potential bear signal on the blue chips (SPY) disappeared at the close of the day. So they remain in bull mode, and given the lack of follow through to yesterday's declines, my bias on blue chips remains bullish, but with a lot of caution, fear and loathing. . . .

Tuesday, January 12, 2010

1/13 Lookahead: Bearish bias switch? Brain-dead market stories.

I have two tasks on Wednesday.

First, in the light of the broad bear signaling on Tuesday, do I change my bias to bearish? What does this mean for my one remaining February position, MRVL, a bull in a china shop filled with bears?

1/12 Watchlist: SPY, many etfs show bear signals; Fear flies;

Blue chips (SPY) show a pps bear signal on a decline of 1.1% from Monday's close. The mfi and stochastic are falling toward their respective 80-lines. The macd remains in bull territory. The price remains above the 20-day moving average.

The decline is consistent with a minor pullback within an uptrend that began in early March 2008. A decline below the ma20 would suggest a larger decline, such as that seen in June and July last year, as well as in September, October and November.

The blue chips' bear signal coincides with a gap up and sharp rise in volatility (VIX, the fear index). It is trading 9.2% above Monday's close.

Gold (GLD) also shows a bear signal and a 2.2% drop from yesterday's close, with the 20-day moving average below the 50-day moving average but the price above the 50-day. Oil (USO) shows a similar pattern with a pps bear signal.

Bear signals all over the major exchange-traded funds. See below

Otherwise, the signals on indicators and currencies remain as described in the Morningline.

Here's what's interesting among high-volume . . .

Closed VALE -2.1%

I've closed my bull positions on VALE with the stock down 2.1% and for a 17.6% loss on the options. The price gapped down this morning past support.

The position, a February bull put spread (p30/-p32), was open for six calendar days.

Topics: Vale S.A., mining, iron ore

Closed SBUX -3.6%

I've closed my SBUX bull put spread (p22.5/-p24) with the stock down 3.6% from my entry point and for a loss of 61.3% on the vertical spread.

The loss would have been 1.6% on the stock had I sold on the Dec. 30 pps bear signal, which lacked confirmation at the time from the stochastic and macd.

I held the position for 25 calendar days.

Topics: Starbucks, coffee

1/12 Morningline: Volatility gaps up, bear signs on oil and dollar/yen

Volatility (VIX), the fear index, gaps up by 6% after seven days of decline.

Blue chips (SPY) gap down a bit and bounce off of the day-before-yesterday's opening. The macd, stochastic, money flow index remain bullish. The price withdraws from the upper Bollinger band.

Treasury long bonds (TLT) gaps up by 1.5% and shows a potential pps bull signal, unconfirmed by the macd, stochastic, trend, mfi. The third pps signal in six days.

Oil (USO) shows a potential pps bear signal, as the stochastic dips below the 80-line. The 20-day moving average bumps up toward a cross of the ma50 -- a bullish sign -- and the macd and mfi remain in bull territory.

The yen-per-dollar currency pair (USD/JPY) whipsaws, with a pps bear signal on a decline of about 1%, after the second test of a top. The macd crosses below the zero-line, and the stochastic is plunging headlong toward the 20-line. This morning's decline pierces the Bollinger band middle line. All bearish for the U.S. dollar. See Bloomberg's trade deficit report. This is the third pps signal in six days with mainly sideways price movement.

The dollars-per-euro pair (EUR/USD) opens at the top of yesterday's range and stays put.

Among holdings: A pps bear signal on MRVL and VALE, both bull positions. MRVL remains above support, and VALE gapped down past very near term support.

Monday, January 11, 2010

1/12 Lookahead: Ciao, January options! International trade

My main task on Tuesday will be to finish closing out my options positions that expire at the end of the week. I attempted to close my KO iron condor, but it's deep enough in profitable territory that there is no market for it.

One major economic report: International Trade, at 8:30 a.m. EST (5:30 a.m. PST). It's a big deal for forex traders and stocks of companies that depend heavily on exports.

Three more trading days for the January options; 38 for the Februaries; and 66 for the Marches.

1/11 Watchlist: SBUX losing it's bite

  • EUR/USD keeps its bull signal
  • Indicators little changed from the Morningline
  • January holdings, possible closes:
    • KO jumps up toward top of profit range
    • SBUX falls toward no-caf, no profit
 All holdings that expire in January must be sold, except for those that I intend to allow to expire worthless or whose exercise would be profitable. My LVS covered call (-c16), for example, will be exercised, so no action is needed.

The KO jump  brings it up to 56.13. The iron condor (p50/-p52.5/-c57.5/c60) has max profit up to 57.5.

SBUX is trading at 23.02, about 2% below the profit point. It's a tough decision. There is no pps bear signal, although the macd is in bear territory and the stochastic is moving that way. But, the price bounced a bit off of resistance at 22.87, so maybe there's hope.

Here's what's interesting among the high-volume . . .

1/11 Morningline: Euro Breaks Out; Fear Takes a Holiday

The euro per dollar currency pair, EUR/USD, shows a potential pps bull signal as it breaks out of an 11-day trading range. It will become the current signal if it still exists at the close of the U.S. markets. The dollars per yen, USD/JPY, pair shows no corresponding signal or movement.

The fear index, measuring volatility, gaps down by 6.5% and then falls further. Blue chips open higher and then, counter intuitively in light of the VIX, fall back into yersteday's trading range.

Gold gaps up by 1.8%.

No new signals on the indicators or holdings.

The numbers . . .

Saturday, January 9, 2010

Private Trader Reader's Guide

The Private Trader market letter at tracks trades on my own accounts, in real time, as I make them, with explanations of why I chose to make each trade.

My goal is to help educate readers on trading approaches and techniques, and mental attitudes, that I have found useful, through book reviews, long-term studies and trading techniques and theory.

Theory without practice is of little use in the real world of the markets. I have often, during decades in the markets, wished that I could trade alongside someone, so we could both learn from each others successes and mistakes.

So every day I'm hands on in the markets, focusing the day with the Morningline,  scanning for possible trades for the crucial last half hour of trading with the Watchlist, posts on trades moment after they happen, analyses of trades gone bad (and good!), the Lookahead setup for the next trading day, specialized scans for covered calls, and subtle jabs at Jim Cramer on every possible occasion.

It's the difference between hiking alone or with a friend. I'll take the friend on any trail. . . .

Friday, January 8, 2010

1/11 Lookahead: January options expiration week, economic reports

Monday, Jan. 11, marks the start of expiration week for the January options. They go away at the end of trading on Friday. I'll be looking in a serious way to begin closing out my January options positions beginning Monday, with an absolute deadline of end-of-trading Wednesday.

Expiration tends to put a slight bit of upside spin on share prices (except, of course, when it doesn't).

The February options will have 39 days before the last day of trading, and March options, 67 days.

By my calendar, Monday will be suitable for February calendars, diagonals, butterflies, verticals and covered calls, and for March long calls or puts. Any day is a good day for shares, of course.

1/8 Watchlist: Volatility's Decline; DTV, PEP, SMH, SPLS, UNG on the scan

Volatility (VIX) among blue chips has declined by 4.6% from the open today. Since the decline began on Jan. 4, the first trading day of the year, the index has declined by 15.2%. Fear, where is thy sting?

The VIX, also called the "fear index", measures volatility of the S&P 500 stocks. When the VIX is down, the theory goes, traders are less fearful of losing their money. Risk premiums shrink.

What that means for us is that it gets hard to make money in some respects. Option premiums are lower. Bid-ask spreads are narrower. I find fewer directional trades.

Risk is the trader's friend. Without risk there is no profit. Risk is the mother of success.

So, with less volatility, indicators across  the board are fairly quiet. No new signals. No big moves.

Does Skynet rule the markets?

The blue chips (SPY) this morning are trading barely changed from their close yesterday after a much anticipated employment report that showed 10 times the number of job losses expected in the pre-release surveys.

Big yawn, right? Yes and no. Trading in SPY before the opening bell shows significant price swings coinciding with the release.

At the minute of the release, SPY's price dropped by 0.6%. Then the market opened to a stable price, which within two hours was trading at about the point where things left off at yesterday's close.

1/8 Morningline: Employment Numbers Savage Markets -- Not!

I woke up this morning to National Public Radio reporting a loss of 85,000 jobs in November, in the usual doomday tones that accompany such stories.

Blue chips (SPY) opened this morning -- well, unchanged, in the middle of yesterday's trading range. Illustrating once again that the monthly employment figures are a trailing indicator, showing where we were, and the markets are a leading indicator, showing where we think we'll be.

The dollar  retraced nearly all of yesterday's gains again the yen (USD/JPY), pulling back from resistance set in December and in recent weeks. The decline came the day after a pps bull signal.

Thursday, January 7, 2010

1/8 Lookahead: Prepping for expiry, dollar/yen

My task on Friday will be to continue figuring out how best to extricate myself from the options that expire at the end of next week.

I'll also be looking at the yen-per-dollar (USD/JPY) currency pair for a breakout and a paper trade.

Economic releases:

  • The Dept. of Labor's employment/unemployment report at 830ae (530ap).
  • Consumer credit at noon ae (9ap).

Opened CVS iron condor

I've opened a February iron condor (p29/-p31/-c34/c36) on CVS, with the underlying at 33.80 for a 0.90 credit.

The position's max profit at expiry runs from about 31 to 34 on the underlying, and less profit from about 30 to 34.95. This covers the downward gap of Nov. 4 and basically runs from near-term support to very near the top of the gap. Earnings is Feb. 18, the last trading day before February options expire, so there will be some volatility.

The shares have broken past near-term resistance three days after a pps bull signal. Macd is in bull mode; stochastic not. Today's rise put the price past the upper Bollinger band, which is trending upward.

Topic: CVS Pharmacies

1/7 Watchlist: Yen signal; AAPL, CVS, ITUB on the scan

  • Blue chips, Treasury long bonds stagnate. 
  • USD/JPY signals. 
  • Junk bonds up a bit.
  • AAPL, CVS, ITUB on the scan.
    No new signals on any indicator, and prices are quite stable, except for corporate junk bonds (JNK) which, as noted in the Morningline, continues to rise for the fourth day.

    The yen per dollar currency pair (USD/JPY) continues to show the pps bull signal that appeared this morning. The chart is uptrending, with the steep pullbacks, from early December. For me, it's not a trade at this point. The yen peaked above the top set on Dec. 31, and promptly pulled back to the resistance point. I would consider going long the yen if the price closed around 93.4 or higher. Also, the macd, while in bull territory, is declining toward the zero line, and the stochastic has moved below the 80 line.

    January Options Expiry

    Some of the options in my holdings expire next week, and Friday is the last day on which they can be traded.

    Time to map out a strategy:

    Closed January SMH bull put spread +5.3%

    I've closed my January bull put spread (p27.5/-p29) on SMH with the underlying at 27.95, for a 5.3% gain on the underlying and a 5.6% gain on the vertical spread. The position was active for 18 calendar days.

    I closed eight days before the options expired because the chart showed a number of bear signals this morning on a 1.2% decline from the opening to the low point. The pps, macd and stochastic all agreed (with the stochastic having turned bearish four days earlier -- a nice lead).

    The price had pulled away from a gently rising upper Bollinger band three days earlier and was midway between the band and the midline. That pull-away would have been a sell signal if the stochastic was being used for confirmation. Otherwise, no cigar.

    Topics: semiconductors

    1/7 Morningline: New signals on dollar-yen, semiconductors

    A new potential pps bull signal on the yen per dollar (USD/JPY) currency pair, on the second day following a bear signal. A potential pps bear signal on SMH, the semiconductors etf, a bull holding.

    Blue chips (SPY) remain in bull mode and open barely changed from yesterday's narrow trading range.The price, trending sideways the last three days, is pulling away from the rising upper Bollinger band.

    Corporate junk bonds (JNK) continue their price rise (interest rate decline)for the fourth day, as the price marches along an uptrending upper Bollinger band.

    Wednesday, January 6, 2010

    1/7 Lookahead

    The January options expire next week, and it's time to start looking at how to unravel those positions. That's one task that I'm setting myself on Thursday.

    In expiration week, the final day of trading is on Friday, and practically speaking, things need to be closed out by Wednesday at the latest. It can be very hard to make a market in an option that's about to disappear in a puff of profit or loss.

    Economic reports on Thursday:
    • 830ae (530ap) Weekly jobless claims
    • 1030ae (730ap) Natural gas inventories

    Opened VALE bull position

    I've opened a February bull put spread on VALE, with the 30 strikes as the long leg and the 32s as the short (p30/-p32), for 0.89 credit with the underlying at 32.19.

    The stock clearly broke out of a three-month-long sideways pattern that was a pause in an uptrend that began nearly a year ago. The next real resistance is around 37, so there's around 15% worth of potential on this one.

    Support is at 30, where I'll set a stop loss that's 4% below my entry level.

    At expiration, the position will be profitable if the stock is above 31.32, and it hits max profit at 32.

    All of the indicators I follow are aligned in bull mode on this stock.

    Topic: Vale, Brazil, mining

    1/6 Watchlist

    Treasury long bonds (TLT) are declining in price, contrary to yesterday's pps bull signal. Otherwise, all indicators are in line with the signals noted in the Morningline.
    The dollar is rising against the yen (USD/JPY), contrary to yesterday's pps bear signal, but remains nearly contained within the prior day's range. The stochastic is in bear mode, and the macd is heading that way. The 20-day moving average is rising and is above its 50-day counterpart.

    The euro-dollar pair (EUR/USD) is in the ninth day of a sideways move.

    My holding are marking time, except for MRVL, which shows a small rise. My positions is a bull put spread (p20/-p22.5).

    Also interesting among the high-volume . . .

    1/6 Morningline

    The fear index (VIX) opens with little movement, but with a pps bear signal from very late yesterday. Bearish on fear is bullish on the blue chips. The VIX has been mainly downtrending since late October. The 200-50-20-day moving averages are all pointing downward and line up in descending order on the chart, a bearish sign. The macd is also crossing the zero-line back into bear territory.

    Treasury long bonds (TLT) shows a pps bull signal from yesterday's close, unconfirmed by the trend, downward since early October, and by the inversed moving averages (200-50-20). The stochastic and macd, however, are peeking through into bull mode.

    Neither the indicators nor the currencies nor the shares are showing movement this morning in the few minutes after the start of trading, prior to the 10ae (7ap) non-manufacturing index and the 2pe (11ap) FOMC minutes.

    Tuesday, January 5, 2010

    1/6 Lookahead

    On Wednesday, Jan. 6, the January options expire in nine days, and the Februaries in 44 days.

    These economic reports will be released:
    • 8:15ae (5:15ap) Employment numbers from ADP, a business services company
    • 10ae (7pe) Non-manufacturing index from the Institute of Supply Management
    • 1030ae (730pe) Petroleum inventories from the Energy Dept.
    • 2pe (11ap) Federal Open Market Committee minutes

    Opened MRVL bull put spread for February

    I've opened a February bull put spread (p20/-p22.5) in MRVL. The options are still 45 days out from expiry, a bit long, but given the constant upward trendline I think it's worth the risk.

    I sold the vertical spread for 1.15 net credit with the underlying at 21.38. The position is profitable anywhere above 21.35 at expiry.

    Stop/loss at 20, based on support.

    Topics: Marvell Technology Group, semiconductors

    1/5 Watchlist

    The Treasury long bonds (TLT) continue to show a potential pps bull signal on a rise from the open today of half a percent. Rising bond prices means falling interest rates (an amazing idea, given how low rates are already). I need to note that this etf fails the trend test. It has been trending mainly downward for a year. On the other hand, the macd and stochastic indicators are pointing in a bull direction.

    The yen per dollar currency pair (USD/JPY) continues to show a bear flag, meaning stronger yen/weaker dollar, on a decline from the open of 0.9%.

    Other movers today among my indicators and holdings:
    • Corporate junk bonds (JNK), up 1.2% (meaning falling rates)
    • LVS, a holding of mine in the form of a January covered call (-c16) is up 6.5% from the open after an overnight gap, a rise of similar magnitude, and another gap over the New Year's holiday. New reports are crediting gambling revenues in Macau, where Las Vegas Sands also operates. (What happens in Macau stays in Macau -- you betcha). I'll profit, but I would have profited more with a straight bull position without the covered call.
    • KO has fallen 2.4% the last three trading days and sits nicely in profitable territory on my iron condor (p50/-p52.5/-c57.5/c60)
    • SBUX, a bull holding,  jumped 4.5% from the open, although it has pulled back a bit. This is on the third day since a pps bear signal, with no new bull sig. Earnings is Jan. 20.
    • SMH, a bull holding, is down a percent from the open.
    Here's what else is interesting among high-volume . . .

    . . . exchange-traded funds (etf):

    • XLE, the energy etf, is up 2.2% in two days, with the pps, macd and stochastic all in bull mode. The 20-day moving average is slightly below the ma50, and poised for a crossover, restoring the standard 20-50-200 bullish order.
    • FXI, the etf that tracks London's FTSE index, gapped up this morning and is trading 2.6% above yesterday's open. The issue fails the trend test -- it is a sideways meanderer -- but the macd and stochastic are in bull mode. The ma20, however, is trading below the ma50 and is trending downward, giving a bearish cast to the chart.
    • KBE, which tracks a banking index, is up 2.7% from yesterday's open, the day after a pps bull signal. The trend is sideways, but the macd and stochastic are in bull mode.
    • EWM, the Malaysian market etf, showing rise-gap-rise-gap-rise (the infamous rgrgr -- or roger-roger -- pattern, known as the inverse Asian Tiger roar). The trend is rangebound between about 10.40 and 11.20; pps, macd and stochastic all in bull mode.
    . . . corporate stocks:
    • JPM continues its rise after yesterday's pps bull signal
    • KFT gaps up, and signals, on news.
    • T drops below the point where it gave a pps bull signal yesterday. The chart shows a nice uptrend, though.
    • CHK breaks past previous upside resistance with bull signals all around (but a sideways trend).
    • QCOM gaps up with good trend, macd and stochastic in what appears to be an inverted head and shoulders pattern, which is bullish. Nice uptrend since mid-December and the all indicators are in bull mode. My problem is, when everyone sees the pattern, it kills the uncertainty and therefore the potential for profit.
    • DOW with a nice rise through resistance after a pps bull flag yesterday, preceded by macd and stochastic bull signals
    • CAL, large rise and a new pps bull flag, confirmed with the macd and stochastic, on a move through resistance and rising trend, and on news about revenue data. So the good news for the bottom line is no doubt already in the price.
    • WMT, with a sideways trend, is showing the famous double whiplash pps signal, a bear, a bull and a bear within three days. The macd is heading toward bull territory, and the stochastic toward bear. Confused puppy mode, for sure.
    • No new signals on MRVL, but it has a picture-perfect upward trend since late November and is blue sky (no resistance).


    Treasury bonds, Coca-Cola, Las Vegas Sands, gambling, resort, Starbucks, coffee, semiconductors, dollar yen forex, petroleum oil energy crude, London United Kingdom U.K., banks financial KBW banking index, Malaysia, J.P. Morgan, AT&T telecommunications, Chesapeake Energy, Qualcom, Dow Chemical, Continental Airlines, Wal-Mart retail, Marvell Technology semiconductors.

    The Year of Active Investing

    Jim Cramer of CNBC's "Mad Money" yesterday proclaimed 2010 to be the year when we should all become active investors.

    Like, we should all start managing our portfolios? Trading in and out to capture profit? Turn a 23% loss into a 73% gain on blue chips?

    What a concept!! Where was Mr. Cramer in late 2008 and early 2009 when we needed him??

    Topics: active trading, S&P 500, Spiders, SPDR

    1/5 Morningline

    On the charts,

    Blue chips, the 20-, 50- and 200-day moving averages continue to point upward in ascending time order (ma20, ma50, ma200, top to bottom). Prices are making slightly higher highs and lows, qualifying as an uptrend. The macd and the slow stochastic are both in bull mode.

    Long-term federal interest rates are a mirror image: Declining moving averages, the longest on top and then descending. Prices continue to make lower highs and lower lows. However, the macd is approaching the zero-line on an upward move, and the slow stochastic is peeking above the lower 20-line. The surrogate TLT shows  potential pps bull signal.

    Both show a steady opening at the 1600-tick granularity.

    The U.S. dollar is showing a potential bear signal against the Japanese yen, and the price has dropped nearly a percent from the open.

    LVS, a holding, gapped up this morning by 2.3% above yesterday's trading range. My position is a covered call (-c16), so no joy in this rise. (Also, no profit.)

    The energy etfs USO and XLE opened at the top of yesterday's trading ranges; USO gpped up yesterday, and XLE showed a smart rise. (USO tracks crude, and XLE tracks energy companies -- a real distinction.)

    None of the indicators are going much of anywhere from the open:
    • Blue chips (SPY) open at 113.26, entered bull mode at close on Jan. 4 (at 113.33)
    • Fear index (VIX) 20.05, bull (bearish for stocks), Dec. 31 (22.68)
    • Treasury long bonds (TLT) 90.05, bear, Dec. 21 (91.14)
    • Corporate junk bonds (JNK) 39.36, bull, Jan. 4 (39.32)
    • Gold (GLD) 109.88, bull, Jan. 4 (109.08)
    • Oil (USO) 40.25, bull, Dec. 16, (36.74)
    Currency pairs:
    • Dollars per euro (EUR/USD) 1.4412, bear, Dec. 4 (1.49)
    • Yen per dollar (USD/JPY) 92.49, bull, Dec. 15 (89.60)
    Holdings, January expiry, no new signals:
    • KO, iron condor (p50/-p52.5/-c57.5/c60) 56.85, bear, Dec. 29 (57.74)
    • LVS, covered call (-c16) 17.01, bull, Jan. 4 (16.62)
    • SBUX, bull put spread (p22.5/-p24) 22.96, bear, Dec. 30 (23.31)
    • SMH, bull put spread (p27.5/-p29) 28.45, bull, Dec. 21 (27.62)

      Topics:, S&P 500, SPDR, Spiders, Treasury bonds, gold, precious metals, oil, petroleum, Coca-Cola, Las Vegas Sands, gambling, resort, Starbucks, coffee, semiconductors, energy companies.

      Monday, January 4, 2010

      1/5 Lookahead

      On Tuesday I'll be watching the general etfs, SPY and QQQQ, and the energy sector, such as USO and XLE, to see how they follow through from Monday's bull signals.

      Most of the price movement in those etfs happened at the outset of trading, and the rest of the day they just marked time.

      Economic releases: motor vehicle sales, and at 10ae (7pe) factory orders and pending home sales.

      January options will expire in 10 calendar days, February's in 45 days.

      Topics: S&P 500, SPDR, Spiders, Nasdaq, energy, oil.

      1/4 Watchlist

      Problem-child SBUX, which I entered as a January bull put spread (p22.5/-p24), continues to trade down. It's about 6 cents above support. If it breaks through, I'll close the position.

      The pps bull signal on LVS, which I hold as a January covered call, continues to exist. No impact on the position.

      Otherwise, my holdings are where I want them to be.

      Among the indicators, SPY shows a pps bull signal, after showing a bear signal on Dec. 31, the last trading day. It is trading slightly high than the previous trading day's high.

      JNK continues to show a pps bull signal on an increase, as does GLD.

      USO, the oil etf, remains at the level it gapped up to this morning, but shows to signal. The closely related energy sector etf, XLE, shows the gap and a pps signal, but a pretty sorry trend profile. Any bullish position on XLE would be a counter-trend strategy.

      Among the currencies, EUR/USD continues to show a pps bull signal, but it is unsupported by the trend.

      Scanning the high-volume etfs for those showing signals and a supporting trend

      • QQQQ, pps bull signal one trading day after a bear signal
      • EEM, gap up on the 5th day after a pps bull signal; stochastic bull
      • IWM, pps bull one trading day after a bear
      • VWO, gap up and bull signals on the macd and stochastic while crossing above the 20-day moving average. No pps signal, and the trend is sideways. 
      Of these, I find QQQQ to be the most interesting. But, first day of trading, sort of an unusual day by definition. I shall wait and see (while watching the Qs and the oils closely).

      I didn't find a lot to like on the stocks. Mainly, there were a lot of gaps up and signals whipsawing bear signals last week, and not supported by the trend. So, no trades. I'll wait and see.
      • T, pps bull, also existing bull signals on macd and stochastic
      • MS, pps bull and an existing macd bull and ma20 breakthrough; its a counter-trend trade at  this point, but the power of the gap up suggests a new trend forming.
      • NVS, significant gap down after a pps bear signal the prior trading day, amid a sideways trend.

        Topics:, S&P 500, SPDR, Spiders, gold, oil, petroleum, Las Vegas Sands, gambling, resort, Starbucks, coffee, iShares emerging markets, Russell 2000, Vanguard emerging markets, AT&T telecommunications telcon, Morgan Stanley banking, Novartis Switzerland health care.

        How to Become a Private Trader

        No one will hand you a certificate that proclaims you to be a private trader.

        No one will give you a nameplate for your office door and a key to the official Private Trader Executive Elevator in order to mark your bona fides.

        There's no Master of Private Trading degree from Harvard. There's no Private Trading Standards Board enforcing good practices.

        You lack the support systems that lawyers and doctors and MBAs and plumbers and electricians enjoy. As a private trader, you set the rules, you enforce the standards and your certification lies between your eyes.

        Private trading is very much an Ayn Rand sort of activity. Or perhaps in a more romantic vein, it's like Kwai Chang Caine, the Shao Lin priest, wandering alone through the American Old West.

        To be a private trader is to be one of the freest people on Earth, and one of the most self-responsible.

        You're on your own.

        1/4 Morningline

        The 2010 trading year has begun.

        GLD shows a potential bull signal on a 2.4% gap up. It won't become real unless it lasts to the close today, since I'm trading off of a daily chart.

        I've added a new indicator, JNK, an etf tracking corporate bonds that are less than investment grade. JNK shows a potential bull signal this morning.

        Potential bull signal on the EUR/USD currency pair (but no companion signal on the USD/JPY).

        Potential bull signal on LVS (which is a bullish position -- yay!).

        • Blue chips (SPY) open at 112.37 and then rose a bit, entered bear mode at close on Dec. 31 (at 111.44); that drop before New Year's in the last minutes of trading in a very thin market wasn't all that serious.
        • Fear index (VIX) 21.68 and dropping slightly, bull (bearish for stocks), Dec. 31 (21.68)
        • Treasury long bonds (TLT) 89.84 and dropping, bear, Dec. 21 (91.14)
        • Corporate junk bonds (JNK) 39.15, bear, Dec. 29 (38.31)
        • Gold (GLD) 109.82 on a 2.4% gap up from the Dec. 31 close, bull, Dec. 17 (108.00)
        • Oil (USO) 40.04 on a 1.9% gap up, bull, Dec. 16, (36.74)
        Currency pairs:
        • Dollars per euro (EUR/USD) 1.4302 and then a rapid 1% run-up, bear, Dec. 4 (1.49)
        • Yen per dollar (USD/JPY) 92.98 and declining, bull, Dec. 15 (89.60)
        Holdings, January expiry, no new signals:
        • KO, iron condor (p50/-p52.5/-c57.5/c60) 57.16 near the bottom of the prior day's trading range, bear, Dec. 29 (57.74)
        • LVS, covered call (-c16) 15.60 and rising on a 3.4% gap up, bear, Dec. 18 (15.29)
        • SBUX, bull put spread (p22.5/-p24) 23.28 within the prior day's range, bear, Dec. 30 (23.31)
        • SMH, bull put spread (p27.5/-p29) 28.35 on a 1.5% gap up from the prior close, bull, Dec. 21 (27.62)

        Topics: S&P 500, SPDR, Spiders, Treasury bonds, high-yield corporate junk bonds, gold, precious metals, oil, petroleum, Coca-Cola, Las Vegas Sands, gambling, resort, Starbucks, coffee, semiconductors

          Sunday, January 3, 2010

          1/4 Lookahead

          Monday, Jan. 4, is the first trading day of 2010.

          Major economic releases:

          • 10aes (7aps) ISM manufacturing index
          • 10aes (7aps) Construction spending
          Treasury bond announcements: 11aes (8aps) 4-week

          Later in the week, FOMC minutes on Wednesday, (un)employment on Friday.

          Saturday, January 2, 2010

          Monthly Breakouts

          I'm following up my discussion on Dec. 31 on long-term trading.

          In my year-end review, I showed the blue chips (SPY) on a chart showing prices by month and analyzed them using a 12-month simple moving average.

          The result showed that four trades based on that method would have turned what was a 23% loss for the decade of the 20-zeroes into a 78% gain.

          The rules are:
          • If  the bar (or candlestick) during a month crosses the 12-month moving average, then 
            • Open a bull position if the closing price on the last day of the month is above the moving average.
            • Open a bear position if the closing price on the last day of the month is below the 12-month moving average.
          • Close the position under one or more of these circumstances:
            • The price closes on the opposite side of the moving average from the price at which the position was opened.
            • The price crosses a stop/loss set at a distance from the opening price of twice the average trading range over the last three months.
          I scanned the high-volume etfs and company shares for new signals:
          I also scanned for etfs and shares that, having given signals within the last nine months, were trading around the entry price:
          I haven't done a rigorous back-testing of this method. It looked like a pretty good match on SPY, but any moving-average crossover method will give whipsaws on occasion, and of course entering months after any signal is a riskier proposition.

          Still, I think it's an interesting approach, and one worth looking at if you have some money that you're wanting to park for the longer term.

          One ideal use would be to enter and exit a high-dividend fund, like JNK, which tracks junk bonds and is presently yielding 11.18% in dividends, or AOD, which also seeks dividend income and is yielding 16.14%.

          You would profit from the dividends during bull periods, as well as, in theory, from capital gains, and also avoid the capital losses that wipe out dividend profits.

          (I own both AOD and JNK for the longer-term money that I don't use for trading. My entry was after the bull signals, with little price gain between signal and entry for AOD and an 11% gain for JNK.)

          Topics: Exxon-Mobil, Kroger, Research in Motion, Wells Fargo, Morgan Stanley, U.S. Bancorp, Kraft, oil, petroleum, groceries, Blackberry, bank, bonds, Ultrashort Treasuries, SPDR, Spiders, S&P 500, 401(k), IRA, Individual Retirement Account.