9/23 Almanac

On Friday, Sept. 23: No econ reports.

There are 29 trading days before the October options expire, 57 the November, 85 the December and 120 the January.

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

AAPL Watch

My email queue is a tribute to the fear-mongering that often marks market commentary:

"Boohah! Judging How Big This Crisis Will Get", says Friend Cramer.

"Fear Grips the Globe", say his colleagues at The Street.

When everyone around you is losing their head, the fun thing to do is to lose yours, too. But usually, it's best to take a deep breath and gain some perspective.

Take Apple Inc (AAPL), for example.

sym	phase	trend	adx		200/50	40/10
AAPL			21

Yes, the price gapped down 2.7% at the open. Yes, an upward push of more than $8 failed to sustain itself, and the price dropped back to near the open.

But the gap was only a dollar or so greater than the 10-day average true range, the amount the stock moves on average each day. The decline has brought the price only back down to where it was on Monday.

A Fibonacci retracement grid from the base of the summer's rise, at $310.50 on July 20, to the peak, $422.86 on Sept. 20, shows the retracement of the last few days is still short of the 23.6% Fibonacci retracement level. A healthy retracement reaches at the least the 38.2% level, which is around $380.

And many stocks are exhibiting the same pattern as AAPL's. Good company. Lots of fundamental strength. But it's not an outlier in today's move.

In so many ways, this is not yet a panic chart. Could it be? Absolutely yes. Absent a crystal ball and prophetic powers, the future of the market is always a huge unknown.

As a fact-based trader, I base my positions on what I know now, not on guesses or fears about the future.

In the case AAPL, the facts are:

The price has dropped back into a sideways range that began in early August, as it was with much of the market.

A decline below the range's low point -- $353 -- would suggest that indeed a downtrend was in force. (As is it an accident that $353 is at the 61.8% Fibonacci retracement?)

A decisive rise above top of the range -- $405 -- would suggest that the uptrend is back.

EWZ, FXI, RSX, EPI Watch

The BRICs -- Brazil, Russia, India and China -- fell as one below the 20-day Donchian price channel into bear phase, and each broke free of a sideways trend that began in early August.

sym	phase	trend	adx		200/50	40/10
EWZ			35
RSX/a>			37
EPI			27
FXI			35

All have strong average directional indexes, meaning the trend seems to have some power. And all are following the pattern of the U.S. market, which suggests that continuation of the fall or its reversal will depend upon factors exogenous to these giant, industrializing countries.

The lockstep decline is, I think, a teachable moment. Some stock-market gurus say, to diversify, a portfolio should have overseas stocks. Hate to tell ya gang, but it's all one, giant, global market. You might be able to find diversification on Mars. But here on Planet Earth, a trader's sole hope lies in being rational and nimble.

SPY Watch

The S&P 500 exchange-traded fund, SPY, gapped down sharply this morning, moving below the 20-day Donchian price channel into bear phase, yada yada yada.

Bored now.*

Point being, almost all stocks with serious liquidity and market cap participated in that move. What counts, in my book, is Monday.

sym	phase	trend	adx		200/50	40/10
SPY			17

And SPY, like many issues that I've looked at, broke beyond the price channel but stayed within the sidways trading range that began Aug. 9. SPY is toying with the lower boundary of that range, but it hasn't broken through decisively.

The Aug. 9 open on SPY was $114.07, and the low was $110.27. Either one can serve as a reasonable benchmark for the lower end of the range. Whichever level a trader uses, SPY won't decisively count as a downtrending stock until it breaks below the Aug. 9 low. If a decisive break happens, then hang on to your hat if you're holding bear positions. If not, then be prepared for further ambiguity -- with luck, in the form of a nice retracement.

The way I deal with ambiguity, often, is using iron condors, an options construct that profits within a range, and loses once the stock has broken out of that range. I hold an iron condor position in SPY. My profit points are bounded by 111 and 125, with stop/losses set slightly within those levels.

-----
* With a nod to Alyson Hannigan in the role of Evil Willow in Buffy the Vampire Slayer, season 3 episode 9.

9/22 Covered Calls

This daily posting tracks my covered call plays for October.

CAR broke below the 20-day Donchian price channel, switching to bear phase, and also below a sideways trend in force since Aug. 23.

NOV broke below the price channel into bear phase, and also below a sideways range that began Aug. 9.

SPRD turned to neutral phase in its Donchian price channel, but the decline isn’t enough to negate the upward trend. Far from it: After opening with a downward gap, the price has risen intraday.

TKR move to price channel bear phase, and it’s flirting with the lower limit of a sideways range that began on Aug. 9.

Other price channel breakouts to bear phase, unaccompanied by sideways range breakouts: COG, CVI, JNJ.

I wrote yesterday about possibly buying protective puts as insurance, but that will need to wait upon some clarity: Will there be a retracement (my guess is yes) or a wholesale rush to the exits?

Friday has no economics releases, so I really want to see what happens on Monday, after new home sales are released.

sym	phase	trend	adx		200/50	40/10
CAR			24
CNX			27
COG			16
CVI			20
GMCR			14
HAL			36
JNJ			24
KEG			38
MCO			18
NOV			19
SPRD			54
TKR			17

9/22 Indicators

The S&P 500 (SPY) gapped below the 20-day Donchian price channel into bear phase, although it remains within the sideways channel that began Aug. 10.

The Nasdaq 100 (QQQ) has returned to neutral phase within a rising trend.

Crude oil (USO) dropped below the 20-day price channel into bear phase. The trend is a bit muddy; the price can be analyzed as opening at the bottom of a sideways trend that began Aug. 19, or one that began Aug. 9, or below a sidewinder that began Sept. 6. I’ve chosen to code it as sideways rather than bear, for now at least. A drop below $30.31 would be unambiguously bearish.

The U.S. dollar (UUP) went flying above the 20-day price channel into bull phase, and the trend turned bullish as well.

Stocks

sym	phase	trend	adx		200/50	40/10
SPY
QQQ
VIX

Bonds

sym	phase	trend	adx		200/50	40/10
TLT
JNK

Tangibles

sym	phase	trend	adx		200/50	40/10
USO
GLD

Global

sym	phase	trend	adx		200/50	40/10
UUP
EEM

9/22 Forex

EUR/USD has broken below the 20-day Donchian price-channel. The decline began Aug. 30, and the price, with one major retracement, has fallen nearly 8%.

sym	phase	trend	adx		200/50	40/10
EUR/USD			30

EUR also fell sharply against JPY, breaking below the price channel, and rose sharply against AUD, CAD and the Scandinavians, breaking above the price channel against NOK and SEK.

AUD accelerated its decline against USD, which began July 28 and, whith one large retracement, has covered nearly 12%.

sym	phase	trend	adx		200/50	40/10
AUD/USD			41

The breakouts would be playable under my rules, but given the strength of the price change, I intend to wait for a retracement before opening any position.

9/22 Almanac

On Thursday, Sept. 22: Weekly jobless claims.

There are 30 trading days before the October options expire, 58 the November, 86 the December and 121 the January.

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

9/21 Covered Calls

This daily posting tracks my covered call plays for October.

CNX is an addition -- a legacy stock that I sold a call against.

I’ve opened or will soon open these directional insurance plays against my holdings:

Bullish: SPRD

Bearish: CNX, HAL, KEG

NOV may soon be a candidate for bearish insurance, but despite breaking below the 20-day Donchian price channel, it remains within a sidways trend range that began Aug. 9.

(For insurance, I buy low-delta calls or puts -- they’re cheap, and they help mitigate moves that might work against me when the covered calls expire. By "low delta" I mean between 15 and 25.)

sym	phase	trend	adx		200/50	40/10
CAR			21
CNX			23
COG			16
CVI			16
GMCR			13
HAL			32
JNJ			22
KEG			34
MCO			18
NOV			19
SPRD			59
TKR			15

9/21 Indicators (After the Fed)

Treasury long-term bonds (TLT) rose sharply into bull phase on the 20-day Donchian price channel after the Federal Open Market Committee announced it would move to reduce long-term interest rates.

The other mover among the indicators is EEM, which dropped below the price channel into bear phase. Of the BRICs -- the largest emerging markets -- Brazil (EWZ), China (FXI) and Russia (RSX) have all declined today into bear phase.

See my new trading rules, posted over the weekend.

A key to the new tables appears at the end of this post.

Stocks

sym	phase	trend	adx		200/50	40/10
SPY
QQQ
VIX

Bonds

sym	phase	trend	adx		200/50	40/10
TLT
JNK

Tangibles

sym	phase	trend	adx		200/50	40/10
USO
GLD

Global

sym	phase	trend	adx		200/50	40/10
UUP
EEM

9/21 Indicators

Treasury long-term bonds (TLT) return to neutrality on the 20-day Donchian price channel.

I’ll take a secod look at the indicators after the Federal Open Market Committee announcement at 2:15 p.m. Eastern.

See my new trading rules, posted over the weekend.

A key to the new tables appears at the end of this post.

Stocks

sym	phase	trend	adx		200/50	40/10
SPY
QQQ
VIX

Bonds

sym	phase	trend	adx		200/50	40/10
TLT
JNK

Tangibles

sym	phase	trend	adx		200/50	40/10
USO
GLD

Global

sym	phase	trend	adx		200/50	40/10
UUP
EEM

9/21 Forex

See my new trading rules, posted over the weekend.

AUD/CAD has bounced off the lower end of its range for the second time since Aug. 9 and is now rising. The low point is somewhere between C$1.0047 and C$1.0029, with an upper boundary, touched twice already, of $1.0517-$1.0531.

sym	phase	trend	adx		200/50	40/10
AUD/CAD			30

Also starting new legs within a broad sideways trend: CAD/DKK, CAD/SEK, EUR/CAD, GBP/CAD.

EUR/CAD, as the most liquid pair, would seem to be the logical play. But it would require going long the euro, which -- given the politics of the eurozone these days -- makes me nervous, And EUR/CAD has a level of resistance in the middle of the range that has paused the price twice in the past six days.

sym	phase	trend	adx		200/50	40/10
EUR/CAD			34

The EUR/CAD range runs from C$1.4312-C$1.4378 down to C$1.3397-C$1.3408, with the near resistance at C$1.3679-$C$1.3647, or in that neighborhood.

USD/CAD has a much narrower range that is less well defined. It is also legging, sort of, and began the most recent leg on Sept. 16. It's too muddy for me to consider playing.

9/21 Almanac

On Wednesday, Sept. 21: FOMC announcement, existing home sales.

There are 31 trading days before the October options expire, 59 the November, 87 the December and 122 the January.

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

XLU Watch

Who knew your grandparents' boring old utility stocks could be such a hot play?

XLU, the exchange-traded fund that tracks utilities, broke decisively above the 20-day Donchian price channel as a continuation of a wild roller coaster ride that kicked in last April.

Volatility plus a 3.9% dividend parcelled out monthly -- what's not to like?

sym	phase	trend	adx		200/50	40/10
XLU			14

XLU opened above the price channel this morning after testing that level twice in three days.

The move comes on a bounce from a 14% drop beginning July 22 and is being accompanied by volume pushing double that of Monday.

That's after a rise of 12% that occurred from March 16 to May 20.

One explanation that's making the rounds is that money is getting nervous about stocks, and flowing out into more defensive areas, such as utilities.

Although, in my book, defensive means gold, or Treasuries, or short sales and puts, or under my futon. It certainly isn't an exchange-traded fund whose annual return is about equal to twice the average daily price movement of the last 10 days.

Accepting a 3.9% return over a year on an equity that recently lost 14% of its value over a dozen trading days doesn't seem like safety to me.

XLK Watch

The technology sector exchange traded fund XLK has pushed decisively above the 20-day Donchian price channel and also broken out of a sideways trend that has held sway since Aug. 9.

sym	phase	trend	adx		200/50	40/10
XLK			17

The price began a slight pullback around noon Eastern today.

The Donchian channel breakout level was $24.80, and the sideways trend hit its second peak at that level on its second. So, third time was the charm, prompting the breakout.

Today's high (so far) of $25.29 remains short of the recent high, $26.88, set on July 26. And in fact the breakout, which first peeked beyond the price channel on Sept. 15, has been a wishy-washy affair. Today is the first of four bars to have an open and close (so far) above the price channel.

Breakouts come in two flavors.

Some fall precipitously and then bounce from a low point and begin a relentless rise that covers a lot of ground prior to the breakout. They have a lot of strength, but there's the danger that by the time breakout comes, there's little money still off the table to push the price up further.

Other move sideways for a period before shyly poking their heads above breakout line, like a prairie dog checking out the neighborhood. This sort of breakout allows the trader to catch a move early, but like a groundhog, the price is just as likely to pop back into the price channel rather than soaring up to big profits. Not to mix prairie dog and eagle metaphors, of course.

XLK is clearly a prairie dog breakout. The only way to see if it turns into an eagle it to either get in with a tight stop or wait and see.

TJX Watch

When a 20-day Donchian price channel breakout is combined with a long-running range breakout, it's reasonable to assume that there's some real push behind the price movement.

TJX Companies Inc. (TJX) -- that's T.J. Maxx and Marshall's to the bargain-hunting crowd -- fits that model, with an 8.6% rise in two days culminating an uptrend from Sept. 12 that carried the price up 17%.

sym	phase	trend	adx		200/50	40/10
TJX			21

The breakout blew past the Donchian channel boundary at $56.56, and also broke past the $56.56-$56.78 that had formed the upper boundary of price movement since Aug. 1.

Analyst sentiment is somewhat bullish, and the fundamentals back that up, with a debt/equity ratio of 0.25, return on equity of 43, and institutional ownership at 92%.

A caveat: After the breakout bar, daily volume declined each of the next two days as the price rose. And although the momentum shows on the half-hour chart, where a strong uptrend developed from Monday's open, the price has began to retrace from noon today Eastern.

All of which suggests TJX may no longer be such a bargain, if ever it was.

LVS Watch

Las Vegas Sands Corp. (LVS) is one of those stocks that seems to be the trade of your dreams, and somehow it never fails to disappoint. Sort of like a casino slot machine, come to think of.

sym	phase	trend	adx		200/50	40/10
LVS			13

The stock has pushed strongly above the 20-day Donchian price channel, and the half-hour chart also shows a strong rise beginning at today's Monday's open.

On the daily chart, the present uptrend began on Aug. 9 and has carried the price up 30.5%.

But check out the average direction index; it's only 13. How can a rock'em sock'em rising stock like LVS produce such a miserable adx reading?

That's where the disappointment comes in. LVS, from Aug. 1 through Aug. 8, collapsed by 26%. And before that, there was the May collapse. And the February collapse. And the December collapse.

The fundamentals tell the story: A debt/equity ratio of 1.27. That's huge. A return on equity of 16%. Not horrible, but not in growth stock territory by my book. And institutional ownership is a miserable 33%.

With mixed numbers like those, there's always a way for an analyst to find something not to like about the stock. Hence, the instability.

Plus, a good chunk of the company's income relies on gamblers in Macau on the China coast. Good people, I'm sure, but I don't want to trust my financial future to their willingness to lose at at the tables.

LVS can be a good ride for a short-term directional play, but expecting it to be a long-term companion in your trading portfolio is like thinking the blackjack dealer is your good buddy trying to help you win.

LULU Watch

lululemon athletica Inc. (LULU) has pushed strongly above the 20-day price channel on the daily chart. The 30-minute chart shows an intraday rise, buttressing the breakout.

sym	phase	trend	adx		200/50	40/10
LULU			16

Theup trend began on Aug. 23 at $46.14, so the stock has already seen 40% worth of rise. The question in playing this directional move is the one that plagues all price-channel breakouts: How much more bullish money remains on the sidelines after so much movement? LULU has long had a position on my bullish list. No debt to speak of, return on equity of 39%, huge institutional ownership: From a fundamental standpoint, what's not to like? And the stock has delivered, rising steadily with the occasional pullback since March 2009. A channel bracketing the rise since August suggests an initial upside target of around $66.20.

9/20 Indicators

Treasury long-term bond prices (TLT) broke above the 20-day price channel on Monday, moving to bull phase. It’s the fourth phase-change breakout since July 29. Yield move inversely to prices.

See my new trading rules, posted over the weekend.

A key to the new tables appears at the end of this post.

Stocks

sym	phase	trend	adx		200/50	40/10
SPY
QQQ
VIX

Bonds

sym	phase	trend	adx		200/50	40/10
TLT
JNK

Tangibles

sym	phase	trend	adx		200/50	40/10
USO
GLD

Global

sym	phase	trend	adx		200/50	40/10
UUP
EEM

9/20 Forex

GBP/DKK broke above its sideways range on Sept. 12 but quickly fell back, and today it has bounced strongly off of the 68.2% Fibonacci retracement level.

sym	phase	trend	adx		200/50	40/10
GBP/DKK			19

I'm not yet ready to declare it a directional play for my own trading, but the Fib picture, the strong bounce and the bullish 40/10 moving averages suggest that the pair is worth watching.

GBP/JPY has been pressing against a declining lower boundary of the 20-day price channel since Sept. 6. Today so far is a pullback into the channel, but I'm looking to climb aboard for a short ride with the next breakout.

sym	phase	trend	adx		200/50	40/10
GBP/JPY			29

The hour-chart has been in an uptrend since 10 a.m. Eastern on Monday.

(I do have huge misgivings about JPY -- I could see Tokyo doing what Geneva did to CHF: Massive and sudden intervention to protect against a further strengthening of the yen.

GBP/USD is showing a similar price-channel pattern. No intervention fears, though, which probably makes it the safer play.

sym	phase	trend	adx		200/50	40/10
GBP/USD			40