Friday, December 30, 2011

Looking Backward

The end of the year is a time for big thoughts. It doesn't get much bigger than the 20-year monthly chart. How did we get to where we are today?

At this level of resolution, 2011 was a year a no drama, a mere blip, an after-thought to a failled attempt to put the Crash of 2008 to rest.

The trading day still has three hours plus change to go as I write this, and I suppose something dramatic could happen between now and then, especially when I consider that the major financial houses this week are being run by frisbee-throwing barbarian interns whose senior managers and mentors are all on holiday vacation.

But, assuming that nascent adult impulses win out in the halls of moneyed power, here is a look at the broad sweep of market history.

Saturday morning's newspapers will make much of whether the market ended the year up a bit or down a sliver, none of which really holds significance.

What counts is that the market recovery failed, and in failing created potential for a significant decline in 2012.

To get technical for a minute...

The S&P 500 index fell from its high of 1576 in October 2007 down to 667 in March 2009, had recovered by 78.8% (a Fibonacci retracement level) by May 2011, and then fell again, by a Fobonacci 38.2% of the failed recovery, before bouncing ot its present level, near the 23.6% retracement level.

Put more simply, the S&P 500 fell sharply in 2008, recovered 3/4ths of that loss in 2009 and 2010, and then in 2011 lost more than a third of what it had recovered, before gaining a bit of that back for a loss this year of about a fifth or so from the previous swing high.

By setting a lower high, the index is potentially setting up for a lower low, and if that happens, it will be in a long-term downtrend.

That's the pessimistic view, but there is another, more optimistic way to look at it:

When the S&P 500 rose in 2009, it failed to make a highest high, but the rise did come in a zig-zag -- high, higher low, higher high -- and that's the definition of an uptrend.

Following the higher high, the price has indeed dropped in 2011, but it recovered from the decline without breaking past the previous low, sealing the uptrend with a higher low.

Looked at that way, what's not to like?

Even optimists need to be cautious. Looking at the last three months, the chart shows a series of lower highs and higher lows. That by definition is a symmetrical triangle, a pause in the trend.

And symmetrical triangles are agnostic. They say nothing about the direction of the next trend once the pause is over.

The box score for the year:

-- Five rising months.
-- Seven falling months
-- Two of the falling months nearly closed where they began.
-- High 1370.58 in May
-- Low 1074.77 in October.

I never like to leave a chart without thinking about how I would trade it.

The base of the symmetrical triangle, set in October, is 217.89. The the sharp movement following the triangle ought to be that number of points from the apex.

This month the S&P 500 has moved 67 points, so the mid-point of the month is about 1236 (give or take).

That gives targets of 1453.89 if the price rises from the apex, or 1018.11 if the price falls. Either way, it is a trade with enough potential to be worth taking.

So if I were trading the monthly chart, I would open my position after the price had moved decisively off the apex, beyond the month's high or low, and then enter the trade.

As broad as that sort of movement would be, it is still insufficient to change the trend. The high target is below the pre-crash high of October 2007, and the low target is above the crash low of March 2009.

Of course, talk of such a trade is all very theoretical, since I don't trade the monthly chart. I lack the patience to wait for a two-year trend to complete before I collect my paycheck.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Wednesday, December 28, 2011

Volume Speaks Volumes

The volume on SPY, the exchange-traded fund that tracks the S&P 500, speaks volumes about today's Eurozone-inspired drop in the markets.

The question is, how seriously should I take this air pocket? I've spilled a bit of coffee on the folding table and the pilot turned on the seat-belt sign. But how serious is it really? Am I heading for a crash?

Short story even shorter:

Today's volume, Dec. 28, on SPY was 115 million shares plus change.

Last Wednesday, Dec. 21, also a pre-holiday week, 194 million shares.

The Wednesday before that, Dec. 14, nearly 239 million shares.

And the first Wednesday of the month, Dec. 7, nearly 238 million shares.

Today's volume was 48% of the month's peak Wednesday volume.

Based on volume alone, I don't take the decline that seriously. It represents the trading opinion of a far smaller portion of the market than is usually the case. (And probably a higher proportion of them are trading robots, since algorithms don't take lengthy holiday vacations.)

So I don't think my metaphorical flight is heading for a crash. I fasten my seat belt, grab a napkin to mop up the coffee spill, and return to the deep treatise on economics that I'm reading on my Kindle.

No big deal.

But do I ignore today's air pocket?

Absolutely not, no more than I would ignore the coffee spill or the seat-belt sign on my flight to the beaches of Bali.

I've bought some out-of-the-money put options, with deltas under 20, as insurance for my bull positions: Covered calls and bond exchange-traded funds.

They don't cost much, and they will provide a parachute for at least some of my holdings should the Eurozone air pocket indeed prove to be the start of a crash.

Saturday, December 24, 2011

A Week of Sad Ennui

Ah, that last sad week of the year.

Trading slows to a crawl.

Wall Street interns, left in charge while their bosses spend time in family pursuits, pass the idle hours throwing frisbees the length of the vast corridors of finance.

Charts show strange leaps and tumbles as novice traders, freed from adult supervision, play costly jokes on their trading screens.

It is a week when the markets would do better to close entirely rather than keeping up the pretense of conducting useful business.

And yet they don't, and as always, The Government is to blame.

Of all the silly bureaucratic decisions, the government is actually releasing real economic reports that have the potential of motivating markets. And so of course, trading must go on, even during this week of soul-destroying ennui.

The line-up (all times Eastern):

Monday, all markets are closed. Even the interns get to stay home.

Tuesday, consumer confidence (10 a.m.) and metro-area home prices (9 a.m.).

Wednesday, nothing of significance.

Thursday, weekly jobless claims (8:30 a.m.) the index of pending home sales (10 a.m.), and petroleum (11 a.m.)  and natural gas (10:30 a.m.), both big deals for the energy sector if there is a surprise.. Plus the Federal Reserve's weeklies: The Fed balance sheet and the money supply.

And Friday...

Well, on Friday, the bond market closes early, and there is only one sad report, farm prices, which not even farmers care that much about, since they get their price information from more timely sources.

And also, Treasury will continue its schedule of bill, note and bond auctions throughout the week.

Currencies will trade, albeit slowly, I would think. Nearly all the world in this week will either be in languid recovery from Christmas  or slowing in anticipation of New Year's Day.

Which does nothing to halt the senseless efficiency of officialdom.

If everyone would only agree to withhold all economic reports during this week, the markets could shut down.

We private traders could enjoy a week of long walks with friends and family, working off the excesses of our holiday feasts amid convivial conversations, without fear of a frisbee-tossing Wall Street intern pressing a few keys and turning our nice 2011 net profit into a net loss.

Friday, December 23, 2011

Junk Bonds Looking Less Junky

Junk bonds get no respect. By their very name, these high-yield corporate bonds are the victims of slander every time they are mentioned.

The exchange-traded fund JNK, which tracks high-yield corporates, trades in bonds that are rated below investment grade: At or below what Moody's calls Ba1 and both and Standard & Poor's call BB+.

Which sounded a bit scary when I first looked at JNK, until I realized that those rating levels are far from the bottom of the barrel.

And many of the specific companies in the JNK portfolio (as of last December) are either household names or make products that people regularly use in their lives.

Such as: Short-hop aircraft made by the Canadian company Bombadier, auto navigation systems by Navistar, airlines such as Continental and Delta, hard drives by Seagate, tires by Goodyear, chickens by Tyson, and rental cars by Avis.

So if those companies be junk, then junk is very much in the eye of the beholder.

The attraction of junk bonds, of course, is the higher dividends than are available from government paper. JNK's annual yield is presently 7.8%, and the fund pays out monthly, giving the trader lots of flexibility to trade in and out to avoid capital losses.

And capital losses there can be, since JNK tends to mirror business expecations more than the hopes and fears of finance.

Fortunately, JNK carries with it a good selection of options with fair liquidity, allowing the trader to hold on to JNK shares to collect the dividend while hedging against price declines by buying puts.

While the 30-year Treasury bond fund, TLT, has been falling sharply for four days, JNK has been rising steadily for eight trading days.

Why the divergence?

Well, there have been some good results from the economic indicators of late, suggesting  that business is picking up. Increased business activity eventually leads to inflation, which prompts the Federal Reserve allow interest rates to rise a bit, but that same activity increases the degree of certainty that companies will be able to pay off their debts.

JNK in its eight-day rise has been trading in an hourly-chart uptrending channel, within a broader daily-chart uptrend that began  Oct. 4. Both are within a downtrending weekly-chart channel that began last May.

A break above around $39.15 would be an escape from the weekly-chart downtrending channel, and trading above $39.70 would set a higher high. A trade above $40.93 would break above the high set in May.

The dividends are good, and wherever dividends are part of the mix, there's a tendency on the part of many traders to call it "long-term money" and to be reluctant to trade out in the event of a decline.

It helps me focus better when I realize that the average daily price range of JNK works out to about 0.9% of the price, so a decline of that magnitude can wipe out the annual dividend entirely in under nine days.

JNK might pay dividends, but it must be watched as closely as any other position, with appropriate stop/losses in place or with a defined plan to hedge with puts at stop/loss points.

I've added JNK to my portfolio in anticipation of the end of December payout.

Thursday, December 22, 2011

Econ Report: Virtue is Bad

Friday is fulsome with interesting econ reports.

Two to kick off the day,

First, durable goods at 8:30 a.m. Eastern. This is a national confidence report of sorts. If people and corporations (who not people) are willing to shell out for costly goods that can be amortized over a period of years, that means they are confident that things will be better going forward. The opposite response is to keep funds in liquid assets and cash, producing a decline in durable goods sales.

Second, the awkwardly named personal income and outlays report, also at 8:30 a.m. I would call it the official Getting and Spending Report. It's a measure of future consumption, in a way. Subtract the spending from the getting, and the result is the saving.

A negative savings rate, which the arbiters of morality decry, means people are spending more, which can only be good for businesses, which will rush around and create new jobs to meet the demand for products.

A positive savings rate, considered to be a sign of virtue by the moral arbiters of our society, means people are spending less -- perhaps they are worried about the future -- and businesses will start handing out pink slips. (Merry Christmas, workforce!)

So this report, above all, proves that virtue is bad for us, and the less virtuous we are, the better it is for us and our neighbors.

Later in the day, at 10 a.m., new home sales. This is the smaller part of the market. Old homes (or least homes that have been previously owned) are the greater portion. Rising new home sales could mean increasing prosperity and hope in America's households. Or it could mean that developers are taking a haircut by lowering the price sufficiently to sell some of those newly built homes that have languished unsold through this recession.

The bond markets close early on Friday, at 2 p.m. Eastern. The stock markets will trade until their regular closing time, at 4 p.m. Eastern. But typically on such a day stock trading slows to a crawl.

Orderly Chaos: The S&P 500 Chart

The chart of S&P 500, as tracked by the exchange-traded fund SPY, has begun to resolve itself from ambiguity to orderly chaos.

The sharp upward reversal of Dec. 20 broke SPY's daily-chart downtrending channel, and the subsequent day plus change of trading has clarified where chart trends now stand.

As with all charts, this one can be analyzed in several ways.

In my opinion, SPY is best analyzed as an upward day-chart trend that began Oct. 4 intersecting a downward weekly-chart trend that began in early July.

Put those two together and what you get is a symmetrical triangle pattern, a series of lower highs and higher lows beginning with the Oct. 4 bottom. (The link is to, which has a wonderful series on chart patterns.)

Draw the lower trend line from Oct. 4 through Nov. 25 and Dec. 19, and the upper trend line from Oct. 27 through Dec. 6, and that's the triangle.

A symmetrical triangle is considered to be a continuation pattern, a pause before the price continues doing what it was doing before the triangle began.

In the case of SPY, the price was declining so this triangle would be interpreted as a bearish sign.

A rise above $126.25 or so would break the upper trendline, and above $127.26 would decisively break the triangle pattern.

A decline below around $120.75 would be a break through the lower trendline, signalling the conclusion of the triangle with a price move in the expected direction.

The hourly chart shows prices tracing an upward leg within the triangle which, by the book, ought to reverse before piercing the upper trendline. The hourly upchannel begins with the low on Dec. 19.

So the chart is orderly again, in that it can be analyzed. But I consider symmetrical triangles to be chaotic in terms of trend analysis. They're composed of two simultaneous opposite trends, and if that's not chaos, then the word has no meaning.

In terms of practical trading, this moves my market opinion from unknown to mid-term neutral with a bear bias, combined with near-term bullish on the hour chart.

The most recent completed leg of this triangle lasted a few days short of a month, but as the legs get shorter near the apex of the triangle,  the pace ought to pick up. So I suspect the pattern will resolve into an actual trend during the next two or three weeks.

Triangle lore says that when the trend resumes, it will move, from the apex breakout, a distance equal to the width of the base.

The base runs from $107.43 to $129.42, so its width is $22 (rounding off the penny). The apex arguably will be around $123.45 which is the midpoint between the current sides of the triangle.

That gives a downside target of $101.45.

I call it "triangle lore" because it seems like a bit of magical thinking to me. So I'll be watching it with great interest, and I'll hold on to some money-losing SPY puts that I have in my grab-bag. But I don't plan to bet the farm on a 20% price drop coming soon.

It's a possibility, one well worth watching and preparing for. But no triangle is a sure thing, except in retrospect. When the breakout comes, if it comes, then I'll trade it based on the signals of the day, as I always do, rather than trying to anticipate an unknowable future.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Wednesday, December 21, 2011

Final Grade

Gross domestic product results for the 3rd quarter will be released at 8:30 a.m. Eastern on Thursday. The GDP is always issued three times, each with increasing accuracy. Tomorrow's is the final and best set of figures.

I'm a fan of the GDP because it is sort of like a report card on the economy, one that rises above sectors and individual elements to provide a bottom line. And it is sort of a happy report of late, when you consider that the GDP dropped by 8.9% in the 4th quarter of 2008, and current GDP is running around a gain of 2% each quarter.

Despite the GDP's extreme backward looking posture -- I mean, we're getting the 3rd quarter finals a week before the 4th quarter ends -- it is considered to be a major motivator of trading on the markets.

Also out, the most forward looking of reports: The Conference Board's index of leading economic indicators, at 10 a.m.

The leading indicators report isn't considered to be very good at predicting turning points, so the market pays little attention to it.

But hey, the index has been trending up since mid-2009. The S&P 500 bottomed in March 2009 and began trending up. If both the index and the market are showing are showing uptrends, then that's a pretty good sign that the uptrend has legs, that it is, in the somewhat old-fashioned terminology sometimes used in trading, a secular bull market.

So I pay attention to it, as a data point to keep the trading lobe of my brain tuned to the big trends, while never using it as a direct indicator to inform my trading. And while always keeping in mind that the markets themselves are the best predictors of the future course of the economy.

Besides, traders use hundreds of chart indicators that predict turning points after the fact. So they've got a gripe with an econ report that does the same?

Anyhow, I'll also be looking out for weekly jobless claims at 8:30 a.m. Eastern. It's a bit of a butterfly of a report, but it gives some intra-month news about how things are going until the next monthly jobs report is released.

Nasdaq: Marching to Its Own Drummer

Like many, I have a tendency to think of the S&P 500 and the Nasdaq indexes as marching more or less in lockstep. Sure, sometimes one or the other will miss the beat, but generally they keep pace and rank with the skill of, at the least, a big city high school marching band.

As the markets march up to the year-end holidays, the ranks have grown a bit ragged, and some marchers are tripping over their own feet. For the charts of the S&P 500 (as tracked by the exchanged-traded fund SPY) and the Nasdaq 100 (tracked by QQQ) stand far from each other.

From the long term to the near term, QQQ is marching to the beat of its own drummer.

I  took a detailed look at SPY on Tuesday, concluding that it had broken out of its hourly-chart downtrend and remained within two larger downtrends, on the daily and weekly charts.

QQQ, despite its sharp rise on Tuesday and equally sharp decline on Wednesday, remains within the hour-chart downtrending channel that began Dec. 5. And the tech-heavy index is trading within two broader channels, an uptrending daily-chart trend and a very slightly uptrending weekly chart trend.

In terms of practical trading, QQQ would break below its day-chart uptrending channel at $54.85, and below its hour-chart channel at around $54.

The price would set a near-term lower low at $54.16, and a mid-term lower low at $52.86.

The week-chart channel is so far away as to not be in play at this point, presently running from around $50.25 to $60.40. If the price breaks either of those levels, then the MSNBC crew will be seriously excited.

At this point I'm not trading QQQ. I want to see a breakout, a near-term lower low, before I put money in the game.

Also, we are quickly approaching the point where I drop out of trading for the holidays. Clearly, everyone will be knocking off early on Friday so they can go pick up their turkeys and hams, and the week between Christmas and New Years will be staffed entirely by interns dining on holiday left-overs pressed on them by their loving parents.

So, I'll be watching closely closely tomorrow -- Thursday -- and will scan if SPY establishes a new up channel, but otherwise, not.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Tuesday, December 20, 2011

An Existentialist Report

The existing home sales release has always struck me as being the most enigmatically titled of economic reports. Don't all homes exist?

I keep waiting eagerly for the companion report, non-existing home sales. So far I've been disappointed. Existing home sales is a report Jean Paul Sartre would have loved.

Sales for homes that have a claim on reality will be released at 8:30 a.m. Eastern on Wednesday by the National Association of Realtors. It tracks homes that have had a previous owner -- pre-owned homes, to use the old promotional terminology of the used-car lot.

Tuesday's housing report, tracking how many homes had begun construction, was credited as contributing to the sharp rise in the stock markets that day. If that was indeed a cause, then Wednesday's report will either confirm the bump or will provide a reason to give up some of the gains.

Weekly petroleum inventories will also come out, at 10:30 a.m. A big deal for the energy sector if there's a surprise. Otherwise, not much a market motivator.

A Change in Direction

The near-term market direction has changed from bearish to bullish, as measured by SPY, the S&P 500 exchange-traded fund.

SPY has been trading in an hourly-chart downtrending channel beginning Dec. 7. Today the price reversed sharply, opening above the channel and pushing decisively higher.

On the daily chart, SPY continues to trade within a downtrending channel that began Oct. 27, and on the weekly chart, within a downtrending channel that began April 25.

As always, a change in the near-term trend doesn't necessarily presage a change in the longer-term trends. Or preclude such a change, for that matter.

As it turns out, the daily-chart and weekly-chart trends are aligned. A decisive break above $126.50 would suggest that a mid- and long-term trend reversal was beginning.

A break above $129. 42 would mark a higher high, strengthening the bullish case and switching the daily-chart trend to bullish from the Nov 25 low. A break above $135.70 would switch the weekly-chart trend to bullish from the Sept. 30 low.

My strategy since early December has been to concentrate on bearish plays. In cases where a bullish position is unavoidable -- existing covered calls, for example  -- I've insured the position by buying puts during this near-term bear phase.

Today's near-term phase change alters my strategy in several ways.

First, I narrow the stop/losses on my existing hedges and bear positions. (Three were stopped out this morning.) I prefer to be stopped out rather than simply placing an immediate sell order because if the market should reverse before my stop is taken out, then I avoid the cost of a whipsaw.

Second, I stop entering new bear positions, but I don't yet begin opening new bull positions until the new weekly chart uptrending channel is established. An uptrending channel requires three points: A starting point, a higher high and a higher low. I draw a line connecting the start and higher low, and then a parallel line passing through the higher high.

Once that channel is established on the hourly chart, I can start laying on positions.

The 20-year Treasury bond exchange-traded fund -- TLT -- presented a mirror image of SPY. It broke below an hourly-chart uptrending channel and is trading within a downtrending daily-chart channel and an uptrending weekly-chart channel (which can also be analyzed as a three-year-old sideways trend).

For TLT, the breakout is a signal to buy puts as insurance while still holding on to my shares.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Monday, December 19, 2011

Sci Fi and the Kraken

Here's what's on my mind for Tuesday...

 Economist Paul Krugman, in his New York Times column on Sunday, said this: "All economic statistics are best seen as a peculiarly boring form of science fiction..."

Well, OK! Let's see what's on the Sci Fi shelf.

The government releases its housing starts statistics at 8:30 a.m. Eastern. Fiction or not, the report takes its significance from housing's ripple effect through the economy -- if housing construction picks up, then it will motivate other sectors to pick up as well.

At least that has been the impact historically. From from where we are now, I would argue, our economic pond has become so becalmed that any ripples will soon be swallowed up by the giant kraken floating beneath the surface, waiting to pounce at an unexpected moment and drag us all into the watery depths of recession once again.

The kraken's name is Euro. Or perhaps Un. Depending upon whether it is the Eurozone's  politicians and financial bureaucrats or North Korea's Great Successor Kim Jong Un who first screws it up for the rest of us.

Speaking of economics, I dropped by my favorite Portland, Oregon coffee house, Aliviar, Sunday afternoon, a time when there is certain to be a small group quietly discussing Marxist theory, flaws in Occupy's tactics of revolution, or the collapse of capitalist finance in 2008.

This Sunday's topic was a fascinating online documentary that has been posted on YouTube, called "Quants: The Alchemists of Wall Street", about the really smart math dudes who, some argue, brought down the markets, the financial system and then the economy through their complex maneuvers.

Math was the only subject where I "earned" a D in high school, proving even then what a dangerous subject it is.

AVGO: Analog in a Digital World

Avago Technologies Ltd. (AVGO) is a Singapore-based maker of analog semi-conductor products.

Analog? The very word seems so 1960s. Like popping a 45 on your record player. Good gracious, great balls of fire!

It is, of course, still an analog world, at least at the macro level. And AVGO's products provide interfaces between analog reality and our digital servants.

So AVGO isn't really so retro, and it has a mildly interesting story. But it also has a mildly bearish chart, despite having been added to the Nasdaq 100 on Dec. 12, and in this case, the chart will be my guide.

AVGO hit an all-time high of $39.45 in early July, and has since done a single zag-zig-zag in decline. It's now on the second zag, and the question is whether it will break through to a lower low -- something below $26.42. down 4% from present prices.

There is, however, an important point on the chart that argues against the bearish case: Volume.

The past five weeks, ending last Friday, the price has declined in three of them and risen in two, analyzing the intra-week price movement rather than comparing close to close.

Volume during the two up weeks was more than double the highest-volume down week, which carried the price down 13%.

There's not a lot of conviction behind the selling waves, making the bear case thoroughly ambiguous.

Given AVGO's fundamentals, the nervous bearishness comes as no surprise. Return on equity is an astounding 36%, and the company has no debt to speak of. Instituional ownership stands at 87%, alongside the bluest of blue chips.

On the other hand, the price is three times sales, a very expensive level that suggests, to me, that the money that's going to flood in has already done so.

Analyst consensus is center on the second rank, which isn't exactly bearish but not strongly bullish. And earnings forecasts suggest it would be a stock to sell.

So here as well, there is some ambiguity. Given the 4% drop before the price hits near-term support, I would call AVGO a reasonable near-term play, but I wouldn't consider it a candidate for a longer-term bearish positions.

Bottom Line: I opened a bear position on AVGO today.

EWY: Buy on the Cannons

The Napoleonic-era financier Nathan Rothschild, whose wealth and power were sufficient to make Warren Buffet look like a homeless waif, said this in 1810: "Buy to the sound of cannons, sell to the sound of trumpets". 

The death of Dear Leader Kim Jung Il in North Korea certainly provides the cannons, or at least the South Korean market is trading it that way.

The price of EWY, the exchange-traded fund that tracks the Seoul exchange, gapped down 3% at Monday's open, and has set a lower low in each of the four hours of trading so far, for a 4.5% decline.

So, hearing cannons, I added EWY to my covered call portfolio for January, one of the very few story plays that I've done in recent years.

A foolish play? I think not. Here's my argument:

If I thought South Korea were in danger of immediate and overwhelming attack from the north, then it would be a too much risk to embrace. But I don't think an attack is likely, because the Americans have reaffirmed their support for South Korea, and the south has the power to inflict overwhelming damage on the north in the event of an attack.

The fact is that a general attack on South Korea and the United States would destroy the North Korean regime, and the Kim Family has above all been protective of its governing legacy. It's sort of a basic family value for those guys.

So, mid-term, I think EWY prices will recover, as it becomes clear that no general war is in the picture.

Short term, perhaps the decline will continue. If that happens, then I have a readily available hedge available. EWY carries very liquid options, with open interest on at-the-money puts of more than 10,000 contracts. Even at-the-money calls -- not favored at this point -- have open interest of more than 1,000 contracts.

If prices continue to decline in Asian trading, then I'll hedge my covered call position by buying puts. 

And if I hear trumpets, if significant upside momentum develops, then I'll buy some calls to turbo-charge my profits.


In line with my bearish opinion of the markets,  I've concluded that this is not a good time for buying covered calls. The stocks in my December holdings all fell, leaving the calls to expire unexercised.

So I'm retaining those stocks -- DDS, GDX, LVS and RIMM -- in order to sell new calls against them, and with EWY added to the portfolio, that's five covered call positions altogether. But I don't plan to add any more, and have put a significant portion of my conservative money (as opposed to my speculative money) into long-term U.S. Treasuries (the exchange-traded fund TLT).

Bottom Line: I opened a covered call position on EWY today.

Friday, December 16, 2011

'Twas the Week Before Christmas...

A busy week ahead that will no doubt totally destroy the last minute shopping plans of dedicated traders. Only Monday is free of major reports, so it is get it done Monday or join the truly desperate crowds on the weekend before Christmas.

On Tuesday, housing starts; Wednesday, existing home sales; Thursday, gross domestic product (the 3rd quarter final numbers) and jobless claims; and Friday, durable goods, personal income and spending, and new home sales.

And, the week after Christmas, the markets will be closed on Monday, Dec. 26.

Bearish on BDX, sort of

Becton, Dickinson and Co. (BDX) makes a broad array of medical technology, from catheters to molecular diagnostic tools. It has been on the aquisition track the past few years, buying a high-end rival in 2009 and a pharmaceutical company this year. And it sold a unit in 2010.

BDX has also been on the bear  track since July 7, in a move that carried the price from nearly $90 down to the present $70.50.

With a return on equity of 25%, BDX is in growth-stock territory by my standards. So my current bearish opinion is mainly a momentum play, buttressed by a debt-to-equity ration of 0.51 and a price-to-sales ratio of 1.95.

The company is carrying a fair load of debt, although not crushing, and it is priced on the high side, with a 95% premium. Both are reasonable arguments for the price to decline a bit further.

Analyst opinion is also tilted toward the bearish side, at 61% negative.

Today's decline dropped below the nearest resistance at $70.61, and the next step down is at $69.59. So altogether there is 1.2% of easy pickings to the downside.

However, the company in November raised its quarterly dividend to 9.8%, which creates an updraft, especially in this era where dividends are held in high esteem by investors. Institutional ownership stands at 79%, meaning there a lot of long time horizon shares that won't be sold on  a whim.

Those bullish facts aren't deal killers by any means. However, they do counsel that a trader's bearishness be tempered by caution.

When I'm very bearish, I buy straight puts. When I'm cautiously bearish, I tend to go for vertical spreads -- a bear call spread in this case. That way, my losses are limited (and so are my gains), and I still profit if the stock goes into a sideways swing.

The downtrend at this point is pronounced enough that I wouldn't consider a pure sideways play, such as a four-legged iron condor.

Bottom line: I opened a BDX bear call spread today, short the $70 call and long the $75 call.

Thursday, December 15, 2011


All eyes will be on the consumer price index, out at 8:30 a.m. Eastern on Friday. 

If it goes up, that's inflation and people will start thinking that the Federal Reserve will tighten money by eventually raising interest rates. 

If it goes down, that's deflation and everyone gets very, very scared, since there's no way rates can go below zero, and Republicans in Congress get snarky if the Fed stimulates the economy in other ways.

Appropriately, Chicago Fed Pres. Charles Evans gives a speech at 11:15 a.m. He is the Lone Accommodationist (like the Lone Ranger but without the mask), who dissented in a November Federal Open Market Committee vote to maintain current policies, arguing that the Fed should do more to encourage growth.

A deflationary price index number would buttress his position.

TLT: Tender Loving Tranquility

I'm getting nervous again about the euro-zone, not to mention the possibility of a trade war over cars with China, a resumption of hostilities in Iraq should Iran turn feisty, last-minute Christmas shopping and the likelihood of rain in my home town of Portland, Oregon, where it always rains in December.

Time for a dose of Tender Loving Tranquility -- TLT -- the exchange-traded fund that tracks U.S. Treasury bonds having a term of 20 years or greater.

TLT pays a monthly dividend, currently at 28.98¢, which works out to about to about 3.3% annualized at the current price.

U.S. bonds are traditionally treated as a safe haven in times of danger, and certainly a collapse of the European banking system would count as such, along with major wars -- both trade and hot. Rain in Portland and Christmas shopping? Probably not so much.

The virtue of TLT is not only that it pays a monthly dividend and has a high-degree of safety. It is also highly liquid, with an average daily volume of more than 8 million shares. And it has a very liquid suite of options that can be used to hedge movements in the price.

In other words, if I'm holding shares and the price starts to decline, I can buy puts and profit from the fall while still holding the shares for the dividend.

The price has been meandering sideways since hitting a peak of $125.03 on Oct. 4, as the Eurozone governments have worked hard to at least give the illusion that they're doing something about the euro's near-fatal design flaws.

Longer-term, the weekly chart shows the price churning near the top of a rise that began Feb. 7 at $89.66.

Also, TLT is a good cash parking place for people like me who do covered calls. I'm fairly bearish the market these days, and won't be opening new covered call positions for January expiration (although I do have some short calls that will expire expire unexercised this weekend, and I will sell new calls on the underlying shares). TLT is where I'll put that cash.

Disclosure: I hold a long shares position in TLT.

EJ: Bear or Buffett?

Shanghai-based E-House (China) Holdings Inc (EJ) provide brokerage services, data and consultation to real-estate developers in China.

Although China's real-estate market has been soaring like a BRIC compared to the U.S., there have been recent signs that the market is softening, and analysts rate EJ negatively by a very large margin.

So EJ is a bear play for me. Yet, there is reason to think that EJ is a company that value players like Warren Buffett would favor (although Buffett, I'm sure, would never buy into an overseas company like EJ whose business details he wouldn't clearly understand).

The price action certainly confirms that. EJ's profile, in fact, is like that of any recession-beaten U.S. company, except more so.

It peaked at $36.45 in October 2007, declined to $4.00 in November 2008, rose again to $19.15 in August. 2009, and has declined every since, down to $4.43.

That gives a good 9.7% of free play before the price faces the challenge of bursting through support to a lower low.

The most recent higher high on the daily chart was Oct. 28, at $8.94, and the course of the price ever since has been relentlessly downward.

EJ's return on equity is 0.7%, so it is positive, at least, but still very much in the doldrums. Debt figures aren't available, which isn't unusual for companies beyond American shores.

The price is cheap -- 86¢ for each dollar in sales. That's a negative, of course, for a bear play. But a big plus for value investors.

Because, I think, a bullish case can be made for EJ. The low price/sales ratio makes it a reasonable candidate for a longer-term reversal strategy, once the price shows signs of turning up on the daily chart.

The company is said to have a great reputation for service and has won many awards for the quality of its product. I haven't gone into the financials in Buffett-like detail, but a superficial glance suggests that EJ may be a fundamentally sound company that has run into a rough patch and as a consequence is under-priced.

However, I'm a trend player, and the trend now is decisively down, including a sharp volume spike to mark Wednesday's  decline.

Average volume is 438,000 shares, which creates some logistical problems for traders. The stock is optionable, with a fine selection of strike prices at $1 intervals.

However, open interest is on the small side, and the price is under $5, which means it will take a lot of contracts to amass a decently large position. A $1,000 trade of the May $7 puts, with a delta of 74, would require 222 contracts. Open interest on that option: 32.

So the right way to play a smaller stock is to bypass options and short the shares. But, one of my brokers -- E*Trade -- says I can't sell short because they can't borrow the shares.

As a trader with a bearish opinion, I'm left on the horns of a dilemma: Should I buy puts and risk overwhelming an illiquid market? Or should I pass on the trade entirely?

The next earnings are scheduled for March. The stock pays an annual dividend of  25¢ -- more than 5% at the current price -- in April.

Disclosure: I decided against opening a bear position on EJ, because of the low liquidity, and hold no position in the company.

Wednesday, December 14, 2011

Claims, Prices, Production and Philadelphia

I'll be keeping an eye out on Thursday for four early reports: Weekly jobless claims and the producer price index at 8:30 a.m. Eastern, industrial production at 9:15 a.m., and the Philadelphia Fed survey at 10 a.m.

All have a history of motivating trading (although with the steep decline in the price of the euro, they may well be overwhelmed by events abroad).

The Philadelphia Fed report surveys business conditions in the mid-Atlantic region, which is considered to be a fairly good surrogate for the nation as a whole.

Bearish on POT

Potash Corp./Saskatchewan (USA), whose ticker symbol is a slightly misleading POT, makes a good part of the stuff that nurtures the soils in which our food is grown.

It is the world's largest potash company, the third largest phosphate producer and the second largest nitrogen producer. If the product is something that fertilizes the crops, it's a fairly safe bet that POT has a hand in it.

Once favored by trend traders for its reliable tendency to rise,  from under $3 to more than $80, POT fell like rock along with everything else during the collapse of global finance in 2007/2008.

Once recovery began in 2009, POT proved to me more a run-of-the-mill big-cap play. No longer reliable, it largely moved in time to the ebbs and flows of the broader market. It rose, back into the $60s, but with significant stumbles along the way.

Prices generally are ebbing now, and so is POT, from a peak of nearly $64 in February down to the present $39.20.

What makes the chart interesting is that this week it moved to a lower low, suggesting that there is more downside to go.

A decline below $38.71 would continue the pattern of lower lows. A rise above $41 would break that pattern for the very near term, and above $44.50 would mark a more significant near-term reversal.

For the very long term, POT remains in the uptrend that began December 2008. The current mid-term downtrend started last February, and the near-term (hourly chart) decline kicked in on Oct. 27.

POT is a money-maker, with a return on equity of 40%. The debt-to-equity ration of 0.50 is on the high side, but not enough to send me fleeing in horror. Institutional ownership stands at 69%, provided a large degree of stability as these giant vessels of the investing world slowly turn their strategies to new headings.

Price to sales is 3.99 -- a 299% premium. This stock is grossly overpriced in terms of current sales, which is great for bear plays, such as the one I am contemplating.

I am profoundly ambivalent about good financials on stocks that I'm shorting.

On the one hand, if the financials are good, then the expectation is that the stock's natural inclination is to rise. On the other hand, a stock with great financials is quite unlikely to disappear into the maws of bankruptcy and failure.

Whichever seems most important, the fact is that POT's chart is stand-out bearish, buttressed by a nice volume spike on the most recent sharp decline that began Dec. 8.

Disclosure: I opened a bear position in POT today.

The Chart Mirage

In a recent essay I ripped away all the technical tools that decorate my charts, declaring them to be useless for practical trading and leaving myself pitifully clutching a bare price and volume chart.

Now, I’m going to double down with an even more radical statement.

What you see on that bare chart is an illusion.

At this point it is natural for any trader reading this essay to scratch her head sadly and say, “Well, old traders never die. They just fade away, and grow increasingly crazy the dimmer they get.”

But hear me out. I may in fact be crazy -- I don’t reject that theory out of hand -- but it may be that I’ve hit upon a truth that will help me be a better trader. If crazy has that result, then three cheers for crazy!

Lying behind any stock chart is an order book, such as Level II display for NASDAQ stocks.

Compared to the complexity of a one-year daily chart, Level II is simplicity itself. It shows bid prices, ask prices and the number of shares offered or sought for each.

Those elements -- a price and a quantity of goods -- are what constitutes a market.

That fact illustrates the harsh reality that confronts every trader: We have no control over or knowledge of the future or the past. The only thing we can control is our order, consisting of a quantity and a price.

A trade becomes history the moment it is made. When the chart says NFLX is trading at  $130.56, it means that the stock last traded at that price. It isn’t necessarily what’s on the Level II board now, and so has no current reality.

So that pretty one-year daily chart with the red and green candlesticks and mountain range of volume is a record of history, a mere mirage masquerading as an illusory “trend” that will push on into the future.

If that’s the case, then why should a trader spend even a moment looking at charts?

There is a school of thought -- classic tape-reading -- that says charts should have no role in trading. Rather, the trader makes decisions by looking at trades as they pass on the screen -- the modern equivalent of the old ticker tape -- and the current set of orders in order to judge market sentiment.

But I think that the charts -- the history -- do have an influence on the future prices.

We human beings are time-binders -- we link the past to the present and future through our normal ways of thinking and understanding the world. That’s how we learn from experience.

We create patterns out of chaos and base our actions on those patterns.

Moreover, all traders are human and have this human propensity. Even the robot traders that caused the <a href=>Flash Crash</a> in 2010 contain human assumptions.

So the record of prices may lack present reality, may be a mirage, but each time a trader looks at that record, scratches his head, and makes a decision, it influences the future course of the market.

The influence is there, but filtered through the minds of traders.

Having tossed my grab-bag of technical tools into the garbage, I must learn how to use the bare chart and the tape as my primary trading tools, and to figure out the limits of what I can do.

What must I look for to determine  if a chart is bullish, bearish or insipidly neutral? Am I allowed to draw trend lines, as a visual aid?  What about Fibonacci retracement levels?

Each time I draw on the chart, it is an abstraction that takes me a step away from the underlying reality of the markets.

Learning these skills is a daunting task, because it scratches a much deeper issue: How does a trader make decisions? What is happening in the trader’s brain, and how can that activity be harnessed to produce profits? That will be the subject of a later discussion.

Tuesday, December 13, 2011

The VALE Enigma

The Brazilian mining company Vale SA (VALE)  has been falling since last January, with the most recent legs down beginning in early September on the daily chart and early December on the hourly.

Among the charts I screened today, it has the most bearish feel to it. And on the chart, it is straightforward bearishness, with no ambiguity whatsoever.

Yet, it is far from being an awful company, with a 35% return on equity and a 0.36 debt/equity ratio. If the debt were a bit lower, it could almost be considered a growth stock.

There is a contradiction here. And it goes on.

Analysts aren't devastatingly down on the stock. In fact, its ratings suggest that it will perform in line with the market as a whole.

Its price hasn't been grossly punished in the marketplace. VALE's price is nearly double sales per share, with a 99% premium.

So this company is an enigma, with a huge mismatch between the fundamentals and the chart. Perhaps that helps explain why institutional ownership is only 15%.

Well, when in doubt, believe the chart. It is forward looking, distilling the hopes and fears of everyone who is trading VALE. The fundamentals, as always, look back to a static past.

In late July VALE reported some unhappy earnings and dropped in two weeks from more than $33 to around $24. Since then it has marched down in a calmer decline, bottoming at $21.14 on Oct. 4.

It bumped up to $26.68 in three uplegs separated by corrections, and has since dropped to today's low (so far) of $21.53 in two downlegs.

At the least, I would judge downside potential to be an additional 1.8%, down to the $21.14 level. But the price is in a classic downtrend, with clear lower highs and lower lows, and so $21.14 is not necessarily the end of the pattern.

The stock last traded at these levels in August 2009 on its way up to a recovery high early in 2011. Back then there was a four week area of congestion from $18.89 to $21.19 in August and also in late May/early June.

My opinion: That probably won't count as a support level. Bulls made money on the ensuing rise. Bears in the first area of congestion had a quick chance to redeem their decision on the next upleg. There's no reason that there would be a lot of money looking to get in at those levels.

Disclosure: I opened a bear postion in VALE today.

FOMC Statement

Interestingly, the Federal Open Market Committee's rather bland inaction in today's meeting drew a dissenter.

The FOMC kept it's policies and promises of low interest rates intact, but was a bit more optimistic than last time about the economy's prospects.

I would expect signs of renewed growth to trigger a dissent from the Gang of Three, the hardliners who oppose further stimulus of the economy.

Instead, the dissent came from Chicago Fed Pres. Charles Evans, who entered his present position under President George W. Bush a career within the Fed system.

The statement said that Evens, for a second time, voted against the policy position because he supports "additional policy accommodation at this time."

I wonder if CSPAN could persuade the Fed to let it televise the FOMC meetings? I'll bet the markets would go crazy.

Monday, December 12, 2011

Don't tax the jiùyè de chuàngzào zhě

I keep hearing the very rich called "job creators" as a reason for their having really great tax breaks.

Of course, they've sent most of the jobs to China. Perhaps they should be called, "jiùyè de chuàngzào zhě" (as "job creators" are called in Chinese). Then they would get no tax breaks.

Retail, FOMC

For my Tuesday trading, I'll be watching retail sales at 8;30 a.m. Eastern, and at the Federal Open Market Committee announcement at 2:15 p.m.

The retail sales report is for November, so while it will capture the Black Friday, it won't have bulk of the Christmas shopping season.

Bearish on RIG

Transocean Ltd. (RIG) operates oil wells drilling offshore. The company became globally famous -- in the bad way -- because they were operating the Deepwater Horizon platform owned by BP when it exploded in 2010, dumping nearly 5 million barrels of crude into the Gulf of Mexico.

Big oops.

So on the one hand, to be bearish on Transocean isn't a huge stretch. On the other hand, there are no secrets left about Deepwater Horizon. Everything that possibly could be known was priced into the market long ago.

The Swiss-based company continues to operate, with a return on equity of 3.1% and a debt-to-equity ratio of 0.44.

And the stock is still relatively expensive, costing $1.76 for every $1 in sales.

So based on the financials, RIG is no growth stock, but it wouldn't be an entirely shabby bull play.

The chart, however, tells a different story.

The stock has been tracing a downtrend on the weekly since January 2010, about three months before the Gulf spill. And within that has been tracing a daily chart downtrend since late July, and an hourly chart downtrend since late October by one reading, or since Dec. 6 by another.

So for whatever reason -- be it forecasts or a bad rep -- the market is down on RIG.

The stock is now trading at around $41.82. The most recent lowest low is $41.28, giving 1.3% of downward movement before the price reaches support.

Volume in recent days has shown high peaks on down days -- 20 million plus on Nov. 29, for example, and 18 million plus on Dec. 9. Average volume is about 13 million shares.

So price and volume both suggest there is significant downside momentum, and a break below $41.28 would confirm that.

The last time the stock was trading at this low a level was January 2005, and there is significant support below $35.

A move above $46 would suggest break the hourly-chart downtrend.

Institutional ownership is at 59%, a bit on the low side for a company this size, but still high enough to mean there are lots of share waiting to overwhelm demand in a portfolio "adjustment" should there be bad news about RIG.

The company badly missed its earnings estimates of 74&cent; last month, coming in with a loss of 2&cent;.

And with the 76% premium of price over sales and the lengthy history of declines, there is an incentive to move money to where it is more productive.

Next earnings are Feb. 23, 2012, and the dividend is 79&cent; per share, with the next ex-dividend date most likely coming sometime in February.

Disclosure: I hold a bear position on RIG.

Technical analysis doesn’t work

As a private trader, I’ve spent decades studying and using the tools of technical analysis in an attempt to improve my ability to anticipate the markets.

There have been times when my charts have looked like miniature Christmas trees set up by someone with an ornaments obsession.

10, 20-, 50- and 200-day exponential moving averages.

The parabolic sar and Person’s proprietary signal.

The MACD and the fast stochastic.

Fibonacci retracements, trend lines, price channels, the ichimoku cloud.

Not one of them is real. They’re all decorations that give the chart a look of professional wisdom and depth, but they are next to useless when it comes to understanding what will come next next.

Call me slow, but after all this time, I’ve finally concluded that the tools of technical analysis work just fine, except when they don’t. And when they stop working, it will be without advance notice, without a hint that something is about to go awry, and it will cost the trader money.

This is a radical statement, especially coming from someone like me who has lived and breathed the heady byzantine air of tech analysis.

So take your chart, and along with me, start removing technical tools. Strip them away, until you’re left with a chart showing each day’s open, high, low and close, and the volume.

It looks much cleaner, doesn’t it. Like a zen garden in Kyoto.

I’ve come to this conclusion through years of observation. Anyone who has read my analysis over the past two years knows that I’ve often used the word “whipsaw” -- 263 times. “Whipsaw” is just another way of saying that the technical indicator said one thing and the price said another. It is a synonym for “Oops!”

See enough whipsaws, and you can’t help but wonder what’s really going on. Since the market is, by definition, always right, then it must be the indicator that’s wrong.

Perhaps the biggest eye-opener was the Turtle Trading method, which uses Donchian channels -- the highest high and lowest low for the past 55 trading days.

Breakouts beyond the Donchian channel was said to show that there’s enough momentum to indicate a good push to the upside or the downside. But more often than not, I found that the Donchian channel was in fact a reversal point.

If a breakout brings with it the possibility of both momentum and reversal, it’s obviously a useless tool. If a technical analysis regime cannot be correct at least 90% of the time, then it a mere distraction.

The biggest problem with unreliable tools is that they paralyze the trader. “I see the signal, but is it a whipsaw? Maybe I should wait one more day...”

Imagine if you stepped on the gas in your car, and half the time the car moved forward, and the other if moved back, with no way to tell which it would be. I suspect you would get rid of that car in no time at all.

It is easy to conclude that indicators don’t work, but harder to say why. My theory is that most indicators are based on aggregating the past -- it’s all they have to work with -- and so they are continually out of date. New influences come into the market and the price turns on a dime; the indicator, working with averages and cumulative sums, takes awhile to catch up.

Having reached this point, I’m standing in the smoking ruins of my trading assumptions, grasping my last support, my lifeline: A simple price and volume chart.

My challenge is to figure out the best way to use this bare chart in trading, without the artificial technical analysis overlays.

Private Trader: Changes

As long-time readers will know (18,407 unique visitors so far), Private Trader has above all been a venue for experimentation and learning. As a result, it has been a place a change.

So in that spirit, beginning today, you'll see some major changes to Private Trader.

The biggest change will be elimination, beginning Monday, of the scheduled reports that have punctuated this discussion for the past two years. I'm referring to Forex, Indicators, the positions report now called Covered Calls, and the Almanac.

They worked well when oscillators and indicators were the mainstays of my trading. That's not the case anymore, and the scheduled reports have become less a set of useful tools than a distraction.

Beginning today, I'll write about trading strategies as well as individual stocks, options and currency pairs as they become interesting, and whatever else in our world of risk that catches my eye.

Also, I'll continue to provide alerts when I've posted something via Facebook and Twitter.

Friday, December 9, 2011

12/12 Almanac

On Monday, Dec. 12: Federal deficit.

There are five days before the December options expire, 40 the January, 68 the February and 96 the March.

On the jump, market stats, econ reports, and the trading calendar . . .

12/9 Covered Calls

This daily posting tracks my covered call plays and other base positions.

Covered Calls

sym phase trend adx   200/50 40/10

12/9 Indicators

The markets this morning...


sym phase trend adx   200/50 40/10

SPY (S&P 500) is trading within a downtrending channel that began May 2.

QQQ (Nasdaq 100) is within a sideways channel that began Aug. 8.

VIX (fear index) is trading below a sideways channel that began Aug. 9. The breakdown can be analyzed as either a widening of the sideways channel, or a downtrending channel beginning Oct. 4.


sym phase trend adx   200/50 40/10

TLT (Treasury long-term debt) is trading within a downtrending channel that began Oct. 4.

JNK (corporate high-yield debt) is trading within a downtrending channel that began July 18.


sym phase trend adx   200/50 40/10

USO (crude oil) is trading within a downtrending channel that began May 2.

GLD (gold) is trading above a downtrending channel that began Sept. 5.

JJC (copper) is trading slightly above a declining channel beginning Aug. 1. It can also be seen as forming an uptrending channel from Oct. 20, but it would take a higher high beyond $48.21 to confirm the latter interpretation.


sym phase trend adx   200/50 40/10

UUP (U.S. dollar) is trading at the ceiling of a downtrending channel that began June 7.

EEM (emerging markets) is trading within a downtrending channel from May 2.

12/9 Forex

Notes on this morning’s forex...

On the weekly charts...

Weekly Channels

pair chan from
AUD/CAD   Oct. 28
AUD/JPY   April 11
AUD/NZD   March 7
AUD/USD   Aug. 1
EUR/AUD   Dec 15, 2010
EUR/CAD   May 2
EUR/CHF   Aug. 8
EUR/GBP   June 27
EUR/USD   May 2
GBP/AUD   March 14
GBP/CAD   July 12, 2010
GBP/JPY   Aug. 3, 2009
GBP/USD   April 25
NZD/USD   Oct. 28
USD/CAD   July 25, 2011
USD/JPY   June 1, 2009
Green means uptrending channel; red means downtrending channel; yellow is a sideways move.


NZD/USD is in a complex move: A downtrending channel from Aug. 1 within an uptrending channel that began May 11, 2009 or earlier. For this ongoing study, I’ll track the more recent trend in the table above and note changes in the longer uptrending channel here in the notes.

I’ve excluded high-volume pairs including CHF because of the Swiss government’s active intervention in the markets to keep the currency from rising. I’ll pick the CHF pairs up again if the policy changes.

I’ve retained the JPY pairs as Japan’s interventions appear to be less consistent than those of the Swiss.

Thursday, December 8, 2011

12/9 Almanac

On Friday, Dec. 9: International trade.

There are eight days before the December options expire, 43 the January, 71 the February and 99 the March.

On the jump, market stats, econ reports, and the trading calendar . . .

12/8 Covered Calls

This daily posting tracks my covered call plays and other base positions.

Covered Calls

sym phase trend adx   200/50 40/10

Changes Ahead

As long-time readers will know (18,401 unique visitors so far), Private Trader has above all been a venue for experimentation and learning. As a result, it has been a place a change.

So in that spirit, I'll be making major changes to Private Trader over the weekend.

The biggest change will be elimination, beginning Monday, of the scheduled reports that have punctuated this discussion for the past two years. I'm referring to Forex, Indicators, the positions report now called Covered Calls, and the Almanac.

They worked well when oscillators and indicators were the mainstays of my trading. That's not the case anymore, and the scheduled reports have become less a set of useful tools than a distraction.

Beginning Monday, I'll write about individual stocks, options and currency pairs as they become interesting, and also about trading strategies and whatever else in our world of risk that catches my eye.

The postings will be quite irregular, no doubt. Some weeks are filled with opportunities and events. Others -- like this week -- are like sitting through five back-to-back performances of Samuel Beckett's "Waiting for Godot", the most boring play of all time.

In truth, I've seen nothing so far this week that's worth writing about, and under the new structure of this blog I doubt that I would have filed anything, beyond a big yawn and a shout-out.

But most weeks, the markets are endlessly fascinating, and I foresee no difficulty in finding things to write about.

Also, I'll continue to provide alerts when I've posted something via Facebook and Twitter.