Posts Tagged ‘dollar’

Rollercoasters Are For Kids

May 31, 2010

There was a time that I loved the anticipation, maybe the pure adrenaline, while sitting in the first car of the rollercoaster climbing that initial hill just before the big drop… click…click…click…click… The old wooden ones always had the soundtrack of clicks all the way to the top, then in an instant, we would be falling at what seemed like the speed of sound, with our arms in the air, screaming at the top of our lungs, winding around turns, climbing shorter hills and dropping again and again and it never lasted long enough. Come to think of it, I still love rollercoasters when I’m at an amusement park. I bet many of you feel the same way and may have even experienced it this past Memorial Day weekend. Those modern coasters are quite a different experience, much wilder than when I was a kid.

The stock market felt a lot like one of those new rollercoasters for the entire month of May. And what a ride it was. We had a “Flash Crash”, followed by a 400-point rally, more than a few highly volatile days, followed by another 300-point rally. Worries from the Euro-zone, sabre rattling by the Koreas, and the biggest oil spill in history each provided major curves in the track, making for one wild ride. We went an entire month without two straight up days. By the close of market on Friday the Dow was down another 122 points , had lost over 1000 points during the month and had turned in its worst May performance since 1940.  I’m sure many traders found the volatility exciting and profitable, while others felt that queezy feeling in their stomachs like they just got off the Big Dipper after eating half a pizza. When all was said and done, the Dow lost 7.9% for the month.

Though market technicals have lost some ground, there is some solace in that the Dow held above the emotional 10,000 level and some analysts see the potential for a bounce. The fact that the major indices held their February lows may be setting up a traditional double bottom. additionally, sentiment readings show the number of bears has risen to levels not seen since last November, just before the Dow climbed 1000 points. Though there are some encouraging signs, the fact remains that the S&P broke below its 160-Day Moving Average in May, which is a bearish signal. It would be wise hedge long positions and keep your eye on the VIX and the dollar for clues as to the what’s next for equities.

Our hedged account has outperformed, as is to be expected, closing May at $1,612,877 vs. $1,539,496 for the unhedged account.

Go to http://optionsprofitzone.com for your FREE report entitled “7 Secrets to Making Money in Bull or Bear Markets”.

Michael

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Rolling Stones Predict Market Crash

May 9, 2010

It was 1968 when Mick Jagger first sang the words, boldly predicting the Jumpin’ Flash Crash of 2010. Thursday’s 1000 point Dow Jones plunge, referred to by some as the “flash crash”, had many traders feeling as though they had been “crowned with a spike right through their head”, a reference to the lyrical prediction by Jagger and Richards. Oh, wait, they wrote Jumpin Jack Flash, not Jumpin’ Flash Crash, but I bet traders were feeling as if they had drowned, washed up and left for dead. (another reference to the lyrics of Jumpin’ Jack Flash) But it’s alright now, though it wasn’t a gas. (I guess you had to be there)

Black Thursday’s action did come in a flash. After the market seemed to be having an average down day of 250 points or so, suddenly it was down 1000 and minutes later was back up and eventually closed down 348. It had dropped 283 points in the previous two days and by Fridays close, the Dow Jones had erased its entire gain for 2010, a 7.3% correction from the peak of 11,205 on April 26th. Over $1 trillion in U.S. stock market value has been lost in the downturn. Though there has been rampant speculation and numerous rumors of a computer glitch or other missteps causing the wild ride, federal investigations have not proven that a single culprit was to blame. A Congressional hearing is scheduled for Tuesday to continue the hunt for errant activity. Citigroup analyst, Tsutomu Fujita, justified the move stating that it would be “only natural to go through a correction of around 10% or 20% over two or three months.” Many others have felt a correction of this nature was overdue and was inevitable, at some point.

To be sure, the sovereign debt crisis in Greece, not to mention Spain and Portugal, has weighed heavily on the confidence in the Euro and has become an excuse for traders all over the world to reduce risk exposure. This has led to a sell off in every major equity index across the globe. In turn, the flight to quality has lifted the U.S. Dollar and U.S Treasuries to highs not seen in many months. Gold, too, saw its share of popularity, reaching a five-week peak of $1210 per ounce, ignoring the ascent of the dollar. The CBOE volatility Index (VIX) was another benefactor to last week’s events, climbing to an annual high of 42.  As a result of the strong dollar, crude oil tumbled to $75 per barrel, marking its largest weekly decline since December 2008.

Key support for the Dow lies at 10,000, with support for the S&P 500 and NASDAQ  at 950 and 1900, respectively. The good news is that a Eurozone bailout package was finally approved after the close on Friday, which should give strength to the Euro and bring a degree of confidence to equity markets. Expect a strong opening on Monday morning in response. The S&P will begin the week above its February low of 1050 and remains above its 200 day moving average, which has provided support in the past. But last week’ s event should be taken as a warning and investors should proceed with caution until the VIX begins to decline into more friendly territory, which lies beneath 25. A complete correction of 10% or better has not been completed and may be the end result of the current trend. If you decide to take advantage of potential buying opportunities, you may want to consider buying put options as insurance against a continued decline.

As to be expected, our managed portfolios lost ground last week with the hedged portfolio closing at $1,567,076 and the unhedged account coming in at $1,534,604.

It’s alright now, in fact, it’s a gas,

Michael

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

Dow Hits 15 Month High

January 13, 2010

Stocks recovered nicely from Tuesday’s negative response to lower than expected earnings from Alcoa and Chevron’s warning of expected shortfalls with a 53 point climb to a new 15 month high. After a mid-morning sell-off the blue chip index turned sharply after investors considered the testimony of several top banking executives on Capital Hill which included the CEO’s of Goldman Sachs and JP Morgan. The Dowe topped the 10,700 market since September 2008. Merk led the pack after an upgrade by Credit Suisse who moved its target price from $35 to $47 per share. The S&P followed with a gain of 9.5 points to close at 1145 within reach of its 1157 resistence while the NASDAQ broke above its 10-day moving average closing at  2307. All eyes are on Intel’s earnings report on Thursday for clues as to the strength of the economic recovery.  A positive Intel number may be just what the Bulls need to move this market through near term resistence.

Crude oil dropped for the third consecutive day reversing a month-long uptrend after stockpiles of crude and gasoline grew by more than analysts predicted suggesting that consumer demand remains weak. Gold moved higher in response to a weaker dollar to close at $1136.80 per ounce, a gain of $7.40.

As promised, I am posting Friday’s closing values for our managed portfolios which came in at $1,452,645 and $1,602,701 for our hedged and unhedged portfolios.  This represented a gain of $12,448 and 24,659, respectively.

For more info go to http://optionsprofitzone.com.

Michael

Santa Comes Early for Tech Investors

December 20, 2009

Thanks to positive earnings announcements from Oracle (ORCL) and Research in Motion (RIMM), tech stocks including Intel and Microsoft were broadly higher on Friday helping the Dow Jones Industrial Average to erase the red ink it had displayed for much of the day, closing with a gain of 20 points. Earlier news from Boeing (BA) regarding the loss of a 200 aircraft order form Irish airline Ryanair had led the Blue Chips to a 45 point deficit before Santa brought the good news to tech investors. With only a few days left before Christmas, investors may not find much more under the tree, however, most are celebrating a 22 percent gain for 2009, after facing one of the steepest first quarter market declines in many years. Markets often experience a Santa Claus rally in the final days of December, but the 63 percent gain from the March lows experienced by the S&P 500 may be considered by most the ultimate gift of the season. The Dow’s resistence at 10,500 has proven to be a difficult ceiling to break through, as does the 1120 level for the S&P.

The dollar, however, continued its rally bringing cheer to investors holding hope for a strong economic recovery.  This has been a key factor holding equities to a narrow trading range and below technical resistence levels. Despite the dollars strength, gold moved higher on Friday after a sharp pullback on Thursday ending the week with a 0.01 percent gain. Crude oil moved higher on Friday in response to geopolitical tension between Iraq and Iran, after Iranian forces crossed in to Iraq to seize control of a disputed oilfield. Though Iraq sent troops to the area, a diplomatic solution is the likely outcome. I get the sense that this will end peacefully next week.

As holiday shopping draws to a close, light volume and year-end window dressing will probably cause volatility to rise through the end of the year. Portfolio managers will be selling weak holdings in favor of its stronger positions, in order to close out the year on a joyous note. This could lift stocks that have done well this year to even higher levels at the expense of the year’s under-performers.

Reuter’s reports that this week’s major economic indicators will include consumer sentiment, personal spending and the latest weekly claims. On Tuesday, the gross domestic product report is expected to show the U.S. economy expanded at an annual rate of 2.8 percent in the third quarter, in line with the previous reading. Existing home sales for November also will be released on Tuesday, with economists forecasting sales will rise to a seasonally adjusted annual pace of 6.25 million units from 6.10 million in October. On Wednesday, new home sales for November are expected to edge up to a seasonally adjusted annual rate of 440,000 units from 430,000 in October.On Thursday, the New York Stock Exchange trading floor will close early in observance of Christmas Eve.

The gifts continue to pile up under the tree for our managed portfolios with the hedged account closing Friday at $1,445,260 and the newer unhedged account coming in at $1,572,460.

For your free gift video, go to http://optionsprofitzone.com.

Happy Holidays to all, and to all a good-night,
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

Stuck in the Middle With You

December 6, 2009

After digesting the news from Dubai and the weekend sales figures the Dow Jones Industrial Average moved into the month of December with a positive bias. But after spending most of the day on Thursday to the upside, due to news that Bank of America would pay back it’s TARP money, the index took a dive and closed down almost 100 points. Employment jitters were soon settled on Friday as the Labor Department reported that non-farm payrolls fell by just 11,000 last month, down dramatically from October and far less than the expected 100,000 number. It was the best showing since December 2007 and caused unemployment to edge down to 10% from the 10.2% reported previously. The Dow reacted by hitting a new yearly high of 10,516 before settling at 10,388 with a solid gain for the week. The S&P 500 also briefly touched a 14- month high and the NASDAQ rallied with an impressive 2.6% gain for the week.

The bad news is that resistance for the S&P lies at about 1120 and could be a challenge to higher movement in the coming weeks. This level also represents a 50% retracement from the March lows, a technical measure that has proven to be trouble from a historical perspective. According to Todd Salamone of Schaffer Investment Research, the 50% retracement level acted as major resistance for months in 2004. Moreover, he states, “the behavior of the iShares Russell 2000 Index Fund (IWM) in recent months may be indicative of the significance of the SPX’s 50% retracement. Since the IWM first touched 60.00 in September, it has gone into a three-month sideways pattern around this level.”

It also appears that portfolio managers are weary of accumulating positions at this level, which could cause the markets to become stuck in a small trading range for several weeks, thus my thesis, “Stuck in the Middle With You” (borrowed from the 1973 Stealers Wheel release, which doesn’t show my age at all).  Any sharp pull backs, however, could bring portfolio managers back into the spirit, as bargain hunters prepare for gift giving. The dollar may also get into the action, as an improving economy brings talk of rising interest rates and gives strength to the dollar. A stronger dollar has recently brought weakness to stocks and commodities. We witnessed the stronger dollar’s effect as gold pulled back last week.

Earnings reported in the week ahead will include reports from Pep Boys, AutoZone, Kroger, Costco, Dollar General Stores and National Semi Conductor. Economic reports will include consumer credit and U.S trade deficit for October, wholesale and business inventories, November retail Sales and the University of Michigan Consumer Sentiment Index for December.

Now, back to my thesis: I don’t think Gerry Rafferty (lead singer for Stealers Wheel) was singing about portfolio managers when he sang “Clowns to the left of me, Jokers to the right, here I am, Stuck in the middle with you.” But the guys on Capitol Hill could easily be the subject (read in- Healthcare Legislation and unreasonable taxation). But I digress.

The good news is that our managed portfolios are stuck in the middle of tremendous performance. The hedged account closed Friday at $1,405,841, over $40,000 higher than last week. But our newest, and unhedged, account continues to reign with a gain of almost $100,000 this week, closing at $1,510,351. Is that stuck, really? I think not.

 

 

Happy Holidays,
Michael
http://optionsprofitzone.com

A Bear Ate My Turkey

November 29, 2009

I was just getting settled in for the Thanksgiving holiday, after being on the road for a couple of weeks promoting our e-book “Winning the Race to Financial Independence”, when without warning, my door was knocked off its hinges by a  sloth of Bears. By the close of the market on Friday, they had eaten all of my turkey, the Dow Jones Industrial Average was down 154 points, the S&P had shed 19 points, and the NASDAQ lost 34. Not much thanks was left in the Bull camp.

One of my sources was quoted as saying “Black Friday quickly turned to red Friday on Wall Street, as traders reacted to news that Dubai World asked creditors for a six-month stay on repayment of $60 billion in debt.” This created a flight to quality, lifting the dollar and treasuries, which led the markets lower. Many analysts felt this was not surprizing due to the highly leveraged Dubai real estate driven economy while others wondered if this was the first domino of many to fall in a new wave of financial turmoil. If this turns out to be an isolated event, the markets may resume its upward bias into the end of the month, a pattern that has been predominate in the last several periods.

The Dow was initially down over 200 points on Friday but bargain hunting by the Bulls was able to recapture some of the lost ground.  Bargain hunters of the human variety also showed a big appetite as spending in stores was slightly higher than last years figures, but online sales rose by 35%. Door buster deals seemed to bring out the crowds and the best online deals were sold out within minutes. Lower inventory levels left many bargain hunters disappointed, as they were asked to pay more than they anticipated or were forced to leave empty-handed. The high-end retailers, and stores without deep discounts, were not seeing the traffic that was hoped for. The data seems to point to a pent-up consumer who wants to buy, but has little to spend.

Nonetheless, aside from Friday’s action, the market seems to be holding up well, giving the Bulls some food for fodder. We are bumping into resistence levels of 1121 on the S&P and 2200 for the NASDAQ theat could be trouble, but as long as the S&P stays above its 80-day moving average and it continues to point higher, the Bulls should remain in control. Additionally, as one analyst put it, “we continue to see too much skepticism for this bull run to be over. As long as we continue to see that, my money says we keep on going higher.”

The final Black Friday data analysis may help predict how the markets will perform through the end of the year. Data seems to indicate that positive Black Friday results lead the markets higher through December. Barring more negative financial news  the likes of Dubai, the holiday season should bring good cheer to the markets. Keep your eye on the value of the dollar as another indicator of market direction.

Slated for the week ahead is economic data including Chicago purchasing managers’ index, October’s construction spending, ISM’s manufacturing index, pending home sales and November auto sales. Later in the week, we’ll get employment data, Fed Beige Book figures for November and the revised third-quarter productivity report. Earnings from several retailers including Guess, Staples and Big Lots will be released throughout  the week. Earnings from construction bellweather Toll Brothers, who reports on Thursday, will be key to determining the strength in the housing recovery.

Our hedged portfolio continued to rise, closing on Friday at $1,364,978. Our unhedged account is still ahead of the value I last reported two weeks ago but lost some ground last week, closing at $1,416,681.

I’ll keep you updated during the week if there is more market turbulence resulting from economic events. Until then, be thankful for all of the abundance received so far in 2009.

Good Trading,
Michael

Dow Revisits 10,000

November 8, 2009

Bull ImageThe bulls reclaimed territory last week amid a flurry of corporate earnings and economic data propelling the Dow to the first weekly close above 10,000 since October 2008. The week began with positive forecast from Ford and a better-than-expected manufacturing index. The mood continued on Wednesday with the Fed reporting “economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” But Thursday’s 200 point rally was the kicker after an upbeat report from Cisco and a jobless number that was encouraging to some.

The S&P 500 closed higher for five consecutive days as the dollar resumed its weakness and the volatility index began to decline after peaking around 31. The VIX found resistence just below its 200-day average and moved back below its 80-day and 160-day moving averages, confirming a resumption of its downtrend. Assuming the patterns in the dollar and the VIX continue, the markets should resume its climb. The S&P could see a rally above 1100 by the end of the month. A break above 10,100 on the Dow would indicate that the correction has ended and another run at the 10,500 resistence level would be likely. A breakthrough of 10,500 would probably lead the Dow to 12,000 before encountering another level of resistence. The NASDAQ may be the weaker of the primary indices as buyers of technology shares seem to be waning. Failure of support at 1650 would confirm a correction, while a breakout above 1780 would indicate an advance toward 1900.

Historically, the November-December period has been bullish for stocks, and has sometimes been called a Santa Claus rally. It is also well-known that a World Series win by the Yankees generally precedes a market advance. Between Santa and the Yankees, the outlook appears to be good for the market, in general. Keep your eye on the VIX and the dollar for more technical indications of continued strength.

Last week was also beneficial for our managed portfolios, both seeing tremendous gains in the weak of the rising markets. Our hedged portfolio closed Friday at $1,336,272 while our newer account is still the reigning champion with a close at $1,353,343.

OPZ Running Total copy

Don’t forget to visit http://optionsprofitzone.com for your free video and DVD.

Good Trading,
Michael

“V” is for Volatility

November 1, 2009

V ImageJust as next Tuesday will bring the return of the television series “V”, a remake of the original that aired in the 1980’s, last week saw the return of “V” for volatility that left the Dow Jones Industrial Average 260 points lower for the week. Last weeks blog noted that volatility had picked up amid the strength of the dollar and that a break below 9900 could lead to a test of the 9500 support level. Friday’s close at 9712 was a large step in that direction, erasing the previous day’s gain which was the best one-day move in a strong three-month period. Thursday’s 200 point gain was the result of the GDP report stating that the economy had grown at a 3.5% annual pace in the third quarter marking the end of the recession.

However, concerns that the recovery was unsustainable after government stimulus recedes, weak consumer demand and a stronger dollar lead to Friday’s decline and an increase in volatility. The Chicago Board of Options Volatility index, known as the VIX, closed above 30 for the first time since July. A VIX above 30 has historically been a signal of bearishness in the markets, indicating that Monday will probably see a continuation of weakness. All of the major indexes closed October below their 50-day moving averages, another indicator of more weakness to come. A break below 9500 would signal a secondary correction. The initial target for a correction would be  9000 with primary support at 8100.

Adding to the decline was the expectation that CIT Group, was expected to declare bankruptcy as early as Sunday or Monday. Sunday, the rumors were proven true as they did indeed file after a debt-exchange offer to its bond holders failed. A restructuring plan, however, was approved allowing CIT to continue operations. Under the reorg plan, creditors will own the company and bond holders will end up with new CIT debt worth about 70% of the face value of the old debt. The government will lose the $2.33 billion it invested in CIT shares in December 2008 through the Troubled Asset Relief Program (Tarp). It declined to give more aid earlier this year.

Monday will bring earnings announcements from Ford and Chesapeake Energy, as well as, more economic news in the form of construction spending, the ISM manufacturing index and pending home sales. Later in the week we’ll see earnings from Cisco, Time Warner and Pulte Homes. More importantly,  the FOMC will announce it’s monetary policy on Wednesday and we’ll end the week with reports on wholesale inventories, non-farm payrolls and unemployment numbers on Friday.

As expected October ended up being a rough month and November may get off to a volatile start. Keep your eye on the VIX for clues as to the direction of the markets and don’t be afraid to take your profits early on Monday. You’ll want to raise cash in order to have buying power when the market resumes its march forward.

It’s not a suprise that our managed portfolio took a bit of a hit this week, closing at $1,242,126.

OPZ Running Total copy

 

Michael