Archive for the ‘Uncategorized’ Category

Have We Seen This Movie Before?

May 23, 2010

My friends at Schaeffer Research always do a good job explaining the technical aspect of stock market performance and this week’s Monday Morning Outlook does an exceptional job, so I decided to use excerpts for this week’s blog. Please enjoy!

“The S&P 500 Index (SPX) closed at 1,072 last Thursday, translating to a drop of 12% from its closing high on April 23. Many commentators are making a big deal of this, because this is the market’s first 10% correction since the March 2009 bottom.”

“Last week brought about further deterioration in the technical backdrop of the market. The knee-jerk reaction might be, “Since the 1,100 level has been breached, should I sell everything?” Before doing so, it might be helpful to consider what may have inspired Thursday’s disastrous price action, which violently pushed the S&P 500 Index (SPX) below its 200-day moving average. Was it really worries about Europe that generated this selling activity? Perhaps, but one might cry “nonsense!” since the decline occurred within the context of a euro rally.”

“Another explanation could be directed toward options expiration. After the broad indexes fell below strikes with heavy put open interest, put sellers at these strikes may have been actively shorting futures to hedge their positions, a concept known as delta hedging. Without getting into the complex details of delta hedging, be assured that this activity can create a snowball effect, much like we saw in Thursday’s trading. In fact, it might be more than just coincidence that the intraday lows on Friday were similar to the “flash crash” lows of May 6. As long-time readers of Monday Morning Outlook know, while expiration week tends to be bullish, when we do have a decline, it is typically quite painful.”

“In another interesting development in Friday’s trading, the VIX finally hit a level that matched its highs during the 1997 “Asian Contagion” and the 1998 “Russian Ruble Crisis.” In addition, Friday’s peak matched the two VIX crests during the first bear market of the new millennium. If the “European Contagion” does not have the negative systemic risk brought on by the Lehman Brothers bankruptcy and our own credit crisis in late 2008 and early 2009, the bulls may find the VIX high on Friday as an extremely encouraging development.”

“Moreover, on Friday, the VIX’s peak was above the high of the previous day, and both its intraday low and weekly close were below Thursday’s low. To market technicians, this chart formation is known as a bearish “outside” day, which usually signals lower prices ahead. Or, in this instance, it could signal lower volatility in the days ahead, which would likely coincide with a rally in stocks.”

“Above being said, proceed with some caution, as the SPX did close below the key 1,100 level. Another concern is that the most recent American Association of Individual Investors’ survey, released on Thursday, showed increasing optimism among those surveyed. This is somewhat disturbing, since those polled have proven to be an outstanding contrarian indicator during the past several months. Throw in the fact that this increasing optimism is within the context of a pullback and it becomes even more disturbing.”

“Potential support for the SPX is Friday’s low around 1,055. If this level breaks, another important level would be 1,045, site of the lows in February. Resistance is in the 1,100-1,120 area. You already know the importance of 1,100, as described above. The 1,115 level, which marked the SPX’s level at the end of 2009, could also be significant. Finally, 1,120 is yet another potential resistance area, as it’s the site of the 160-day moving average and chart resistance in November and December 2009.”

I always find Schaeffer’s report enlightening and I hope this week’s analysis helped you. I’ll see you again next week.

Michael

 

 

 

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Bulls Take a Breather as Momentum Slows

April 26, 2010

Friday’s 70 point advance pushed the Dow Jones Industrial Average above 11,200 for the first time since September 2008, marking the eighth straight weekly gain, an achievement not executed since 2004. Momentum was slowed today by Citigroup (C), who declined as the U.S. Treasury began to unwind its stake in the bailed-out bank, and Goldman Sachs (GS) which slipped ahead of its testimony before a Senate subcommittee. The Dow was still able to eek out a gain that translated into a new 52-week high, but the weak close left a feeling of lack luster performance.

Only 13 of the 30 Dow stocks closed higher with Caterpillar (CAT) leading the way, while financial  shares including JP Morgan, Citi, and Bank of America (BAC) were among the decliners. The S&P 500 and the NASDAQ both closed slightly lower after setting new 52-week highs on an intra-day basis.

Traders may be on the cautious side due to this week’s Federal Open Market Committee (FOMC) policy announcement. Though the Fed is not expected to raise interest rates, the recent strength of economic data has some committee members calling for a tightening of monetary policy. Changes to the language of its statement may be key in determining the timing of future increases in interest rates.

In other news, ongoing concerns about the Greek debt crisis sent the dollar higher resulting in lower oil prices. Additionally, crude supplies, which are anticipated to increase in this weeks inventory numbers, are pushing prices down to the $80 per barrel level, signaled by OPEC to be desirable. Gold, however, was able to increase by 30 cents, to $1154 per ounce, despite the rise in the dollar.

I never tire of reporting that our model portfolios continue to climb with our hedged portfolio closing Friday at $1,854,360 on its one year anniversary, representing an annual return of 85.43%. More outstanding is our unhedged account which closed at $2,138,713, a gain of over 113% in less that 10 months.

To learn the strategy that has produced these stellar returns, go to http://optionsprofitzone.com and download our e-book “Winning the Race to Financial Independence” or purchase the “Options Profit Zone Home Study Course”. You may also follow the links on the right hand side of this page.

Michael

U.S. Equity Markets Go For Gold

February 18, 2010

After last weeks test of downside support, U.S. equity markets are keeping pace with our Olympic competitors in Vancouver with strong showings in the first sessions of a shortened holiday week. Stocks shot higher right out of the gate on Tuesday, with the Dow closing with a triple digit gain of 169 points. Wednesday, the S&P made a run at overhead resistance and today has broken through 1,100, its approximate 80-day moving average. Stronger than expected data  from the Philadelphia Fed regarding regional business conditions have overshadowed a weak first quarter outlook from Wal-Mart and the Labor Department’s pre-market report that initial jobless claims rose by 31,000, to 473,000 in the week ended Feb. 13. This was on top of an upwardly revised 442,000, in the prior week. Economists had expected claims to dip to 430,000.

Like Shaun White in the snowboarding half-pipe, the market’s continue to defy gravity, ignoring the reality of a slowing recovery. Though several economic indicators are making a positive showing, business leaders report that the numbers do not reflect what they are seeing on the ground. But, for now, the technical indicators point to gold medal performance for equities, with a target of 10,750 for the Dow. Another reversal below 10,000, however, would mean a test of the 9000 level.

Our managed portfolios continue to reach the podium with our hedged account gaining almost $50,000 with a Feb. 12 close of $1,465,264. The winner continues to be our unhedged account which gained over $112,000 with a close of $1,626,264.

We want to congratulate the U.S. Olympic team for its championship performance so far in the Vancouver games and wish them continued success in the days to come.

Michael
http://optionsprofitzone.com

Bulls Dominate Holiday Week

December 27, 2009

All three major market indexes closed the short holiday week at their highest levels of 2009. The Dow managed to crack the 10,500 level, though volume was on light, leaving the true conviction of the move in question. Nevertheless, the market finished the week in positive territory, delivering joy to investors ahead of the holiday weekend.

Healthcare stocks surged early in the week after the Senate made strides in passing the long-awaited health care reform bill which is seen as favorable to health care and drug companies. The strongest month-over-month existing home sales pushed the markets higher on Tuesday due to a surge in first-time buyers taking advantage of the federal tax credit, though momentum was tempered by a revised third quarter GDP which was cut to an annual rate of 2.2%. New home sales disappointed the markets on Wednesday but a rebound in commodities and earnings from Micron (MU) and Red Hat (RHAT) helped lift the NASDAQ and the DOW into the black by the close. Favorable unemployment reports helped the DOW and S&P break through resistence levels on Thursday, closing the week on a festive note on Christmas Eve.

Heading into the last week of trading in 2009, expect continued light volume. No major economic news or earnings announcements are scheduled. The markets will be closed on Friday for New Years Day.

Our hedged portfolio lost a little ground closing the week at $1,433,104. Our other portfolio fared better, closing at $1,568,441.

Happy New Year,
Michael

The Dollar Takes Center Stage

December 13, 2009

Recent strength in the dollar has proven to be the single biggest factor driving both equity and commodity markets and may hold the key to stock market performance for 2010 . An environment where the dollar continues to move higher will push commodity prices lower and will cause last week’s blog, “Stuck in the Middle With You”, to be a best case scenario for equity prices as long as monetary policy remains indusive. Stocks and commodities have traded in inverse directions for much of the last 10 months, however, strong retail sales and consumer sentiment pushed stocks and the dollar higher together on Friday. This correlation may be the first sign that the dollar is reversing to the upside after forming a double bottom in the last 3 weeks. Rising interest rates in response to a strong dollar would likely be negative for stocks, as investors would sell stocks in search of higher yield and lower risk.

Gold and oil lost ground last week as the dollar gained momentum. Friday marked the eighth straight day of declining oil futures, settling in at a two month low while gold futures searched for support at $1100. Failure of the 1100 support level would cause gold to look for secondary support at 1000. Respect of 1100 may signal an advance to 1300, but only if the dollar weakens.

As the U.S. Dollar Index tests resistence at 76.5, some technical analysts point out that the last time resistence was tested, the dollar reversed downward to hit new lows over the next month. A breakout above 76.5 would be a bullish signal for the dollar and may trigger weakness in stocks. The S&P and the Dow are both facing resistence levels, as well, at 1120 and 10,500 respectively, which can also spell trouble for equities. Portfolio managers continue to be cautious at these levels until a breakout in either direction is apparent. Keep your eye on the dollar for clues as to how this will play out.

The coming week’s most notable economic news will be on Wednesday when the Federal Open Market Comitte (FOMC) releases its decision on monetary policy. Also announced during the week will be December’s Empire State manufacturing index, November’s capacity utilization and industrial reports and November’s leading economic indicators. Earnings from Best Buy(BBY) and Adobe Systems (ADBE) a due on Tuesday with Fedex (FDX), Discover (DFS), Nike (NKE), Oracle (ORCL) and Research In Motion (RIMM) reporting on Thursday.

In the meantime, our managed portfolios continue to climb with our hedged account closing at $1,425,871 and our unhedged account finishing Friday at $1,536,333.

We’ve just posted a new video interview with Sam Newman, co-author of “Winning the Race to Financial Independence” and the Options Profit Zone Home Study Course on our website at http://optionsprofitzone.com. Just click on the box near the bottom left of the page to see it.

Happy Holidays,
Michael

Houston, We Have a Catalyst

October 11, 2009

sts-001-liftoff-desk1Monday’s ISM data wasn’t the only news for the week after all. The bulls found their catalyst with Australia’s 25 basis point interest rate hike, which helped to drive the U.S. dollar lower, in turn, lifting the Dow Jones into orbit with a new year-to-date high. The S&P 500 and the NASDAQ each posted 4.5% gains for the week. There was some concern early Friday as Fed Chairman Bernanke vowed to raise key interest rates and reduce stimulus efforts when the recovery in the U.S. economy becomes more pronounced. However, unexpected earnings  from Alcoa (AA) and the Commerce Departments report showing  narrowed trade defecit gave the market a late push adding to the weeks gains.

The week ahead brings another option expiration Friday. These weeks have had a positive bias in the past but often get started on a down beat. Be prepared for weakness on Monday but a rally during the week if we get better than expected earnings news. However, some are calling for the possibility of disappointing earnings when compared to the second quarter, which was buoyed by cost cutting efforts that may not be in place for the third quarter. Look for earnings from Johnson & Johnson, Intel and CSX on Tuesday, with J P Morgan, and Abbott Labs reporting on Wednesday. Citi, Goldman Sachs, Google and IBM will follow on Thursday with earnings from Bank of America, GE, and Halliburton due on Friday. Key economic reports including CPI and initial jobless claims will be released on Thursday followed by industrial production and capacity utilization on Friday.

Historically, good news from Alcoa, like we saw last week is followed up with more good news in the next few weeks. A break above the S&P resistence of 1080 could lead us to the 1120 range. Improving economic recovery has led to a rise in energy prices, in anticipation of rising demand. Still, I wouldn’t rest easy until after October is behind us.

Our model portfolios continue to soar with our hedged account closing at $1,311,790 and our newest portfolio coming at an astounding $1,361,408 a gain of almost $65,000.

OPZ Running Total copy

Good Luck and Happy Trading,

Michael

The Week Ahead

July 19, 2009

While I’m eating my crow I thought I would share someone else’s  market view for a change. The following is an excerpt from “The Growth Stock Wire”, a newsletter that I receive daily. It mirrors my opinion of the market, at the moment. You can find more info from them at http://www.growthstockwire.com.

“To expect anything more out of stocks overall, you must make a strong case for earnings growth. That’s hard to do with banks failing, unemployment pushing 10%, and the largest debt market in the world – the U.S. residential mortgage market – in the middle innings of a once-a-century meltdown. People who don’t have jobs and can’t pay mortgages spend less than people with jobs who can afford to live in their houses. With housing in charge of the economy now, more unemployment means a worse outlook for corporate earnings and stocks in general.”

“Stocks were cheap in March. But since then, they’ve risen nearly 40%. They’re no longer cheap, so you shouldn’t be too eager to follow the trend.”

“Standard & Poor’s 2009 earnings estimate for the S&P 500 is $55.61. At 882, the S&P 500 is trading around 15.9 times 2009 earnings. The index’s long-term average, a reasonable proxy for its fair value, is 16 times earnings.”

I couldn’t put it better myself.

This week  the market may take a breather after last weeks charge ahead. I’ll be  in Los Angeles for a few days, so you may not hear from me until Wednesday or Thursday. Until then, Happy Trading!

Michael