Posts Tagged ‘NASDAQ’

Traders Celebrate Christmas in July

August 1, 2010

The Dow Jones Industrial Average brought good tidings to traders by gaining over 7% for the month, marking its largest monthly advance in a year. The S&P 500 and NASDAQ gave traders a present of their own, each adding 6.9% for the month and closing above their 10-month trend lines. The earnings parade brought mostly positive surprises for traders to celebrate overshadowing lackluster economic data suggesting a slow recovery. After three straight days of triple-digit gains the bulls took a breather on Tuesday failing to break through well-established resistance near the June highs.

The S&P 500 (SPX) will begin the week just below stiff resistance between 1115 and 1120, a technically significant level that proved difficult to break for several weeks in late 2009. Moreover, 1,117 is the site of the SPX’s June closing high, and 1,115.10 is the site of 2009’s close. Research indicates that the index’s level at the beginning of the year can act as support or resistance for the market. Statistics reveal an average loss of 1% in the month following the respect of such resistance levels. However, a penetration of the 1117 could propel the market higher, catching bears off guard. A failure of last week’s low of 1064 could result in the testing of the July low of 1022.

Though July was a good month for the markets, it wasn’t so kind to our model portfolio which closed at $1,558,075. Our newer account fared much better closing at $2,029,720.

Best Wishes for the second half of the year,

Michael

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Gold Soars to Record High

June 20, 2010

For the second consecutive session, gold futures skyrocketed to a record, closing at a price of $1,258.30 an ounce after touching an all-time intraday high of $1263.70. For the week, gold advanced 2.3%, marking the commodity’s fourth straight week-over-week advance. Great timing for the issuance of Canada’s new one million dollar gold coin, the world’s biggest, purest and highest denomination coin (pictured above).”Gold is looking for any and every opportunity to go higher, and we all know the reasons why — the safe-haven factor, sovereign debt risks and so on,” said Peter Hillyard, head of metals sales at ANZ Investment Bank. Analysts are predicting gold prices between $2500 and $3000 over the next 18 months. “People are tired of their zero percent T-bills, afraid of the stock market, and afraid of the double-dip recession,” said James Cordier, a portfolio manager at OptionSellers.com. Reuters reports weaker U.S. economic data and a rise in unemployment benefits last week also drove anxious investors to return to gold as a safety play.

Equites have proven their resilience, however, as the Dow Jones Industrial Average pushing back above 10,400 to close Friday with its second consecutive weekly gain. Additionally, the S&P 500 closed above 1,100 for the first time since mid-May. The tech-rich NASDAQ index fared the best of the three, adding 3% for the week. All this, despite a downgrade of Greece’s debt to junk status, the steepest monthly drop in home construction in decades, another disappointing jobs report, sluggish manufacturing data, and another week excuses from BP plc (BP). The government reported single-family home construction fell 17% in May while applications for building permits dropped 5.9%. AP reported that the number of people filing new claims for jobless benefits jumped last week after three straight declines, another sign that the pace of layoffs has not slowed. Initial claims for jobless benefits rose by 12,000 to a seasonally adjusted 472,000. Meanwhile, consumer prices fell for the second straight month. Meanwhile, BP suspended its dividend and Government-sponsored mortgage purchasers Fannie Mae and Freddie Mac plan to delist their shares from the New York Stock Exchange.

Analyst Todd Salamone wrote “With the SPX coming into the week at 1,117.51 and above its 200-day trendline, the 1,120-1,125 area could be the next challenge from a technical perspective. For example, the 160-day moving average is sitting at 1,126.10 – note on the chart below that this moving average marked the February 2010 low. Therefore, the risk to the bulls is that this trendline becomes resistance on the rally. Moreover, the 1,120 area marked resistance in November and December 2009 during a narrow trading range.”

The CBOE Volatility Index (VIX) declined during the past week, from 28.79 to 23.95 by Friday’s close. With SPX 20-day historical volatility at 26.96, this would suggest volatility is still headed lower, a bullish sign for stocks. The risk is that if volatility is trending higher from a longer-term perspective, the current “pullback” in volatility could end here. If the VIX rises back above 25, the market rally could fizzle.

Wednesday’s Federal Open Market Committee’s interest rate decision will be the first big news in the coming week until Friday’s third-quarter GDP is released. The ongoing concern about the euro zone debt crisis will continue to be at issue. The low-expectation investing environment may reduce “headline risk” and give the bulls the edge over the next few sessions.

We taken the hedge off of our model portfolio which closed Friday at $1,694,454, while portfolio#2 finished at $1,747,721.

Happy Father’s Day,

Michael

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

Dow Penetrates Millennium Marker

April 11, 2010

A late session push by the Bulls nudged the Dow Jones Industrial Average just above the 11,000 level before settling in for a 10,997 close. This was the highest apex for the blue chip index since September 29, 2008. The S&P 500 and NASDAQ Composite followed suit achieving new annual highs to close the week at 1194 and 2454, respectively. Fed comments about an improving economy, bringing into question the possibility of interest rates, threatened to continue the previous week’s pattern of failed attempts to hold above 10,900, but upbeat news on Thursday and Friday brought renewed enthusiasm, leading to an upside penetration of resistence.

A record-setting 9.1% surge in retail sales and a possible merger between United Air and US Airways began the rally on Thursday. Friday’s wholesale sales report and a positive outlook from Chevron continued the pace that led to the Dow’s penetration of the millennium marker. (Note – The Dow first penetrated 11,000 in July 1999) Momentum is clearly on the side of the Bulls driven by institutional buying who can protect long positions with by purchasing put options. Individual investors remain on the sidelines, fearful of the resumption of the Bear market, sustaining a bullish contrarian viewpoint.

The Russell 2000 Index of small cap stocks has been on a tear, more than doubling since its March 2009 low. It closed the week above 700, a level that acted as support in 2007 and 2008. The next level of resistence is 750, a level last reached in 2008. Support for the S&P 500 remains at 1150 with resistence at 1200. If the Dow is able to sustain itself above 10,900, an advance to 11,500 would be expected.

The week ahead brings the official kickoff of first quarter earnings season. It is unclear whether expectations are dangerously high, which could potentially lead to disappointment, or warranted, given the steady stream of positive economic news. Alcoa (AA), traditionally a proxy for the quarter’s results, will report on Monday. CSX Corp. (CSX) and Intel (INTC) are scheduled to report on Tuesday, with JP Morgan (JPM), Bank of America (BAC), General Electric (GE), and Google (GOOG) scheduled for later in the week.

Don’t forget, Tax Day is Thursday, April 15. Data suggests no unusual deviation from current market trends can be attributed to tax day. The good news is, if you owe taxes, you must have had a job in 2009. That’s something to be thankful for in the current economic environment. So Happy Tax Day! (Still seems like an oxymoron?) Hopefully, the rising trend in employment will endure.

There’s more good news for our managed portfolios which continue to produce phenominal returns.The hedged account closed the week of April 9 at $1,725,284, with the un-hedged account ending the week at $2,0260148. 

 

Learn more about the strategy used to produce outstanding results by visiting our website at http://optionsprofitzone.com.

Michael

The Year of the Bull

March 14, 2010

Last week marked the one year anniversary of the cyclical bull market on Wall Street. It was March 9, 2009 that major stock market indices hit rock bottom, resulting in the destruction of capital not seen since the Great Depression of 1929.  The S&P 500 had dropped from its October of 2007 high of 1557 to a low of 676, a loss of 56 percent. The Dow Jones industrial Average fell from its high of 14,093 in October of 2007 to 6547, declining 53.5%. The NASDAQ peaked at 2810 in October of 2007, falling to 1268 by March 2009, a 54.8% decline.

With all of the well-followed indices having dropped in excess of 50%, the Bear Market appeared to be in full swing. Some say it began in 2000 and, based on historical data, a new bull market was not to be seen again until 2018. However, within these secular bearish periods, there are always cyclical Bull Markets that traders can take advantage of. Cyclical, in this case, means shorter trends within the longer secular periods.  Investors  can enjoy above average returns during these cyclical up-trends , which can last 1, 2 or more years in length, before the Bear raises its head again.

The question is… has the last year been the return of the secular Bull Market or just a cyclical bullish period within the secular Bear Market that began in 2000. There have been three secular Bear Markets and three secular Bull Markets since 1900. The shorter of the Bear Markets was 16 years, while the longest was 21 years. If history is our guide, it appears that we are in the midst of a secular Bear Market that may continue for several years, though the current cyclical Bull trend may still have some legs.

And what a cyclical bull it has been. The major U.S. indices have all gained over 70% in the last year, far more than even the most bullish analysts predicted.

Recent history, however, provides evidence that breakouts above strong resistence, though technically bullish, have been short-lived and corrections of 7% to 10% have followed. Friday’s close of 1149.99 is right at the 1150 level considered strong resistence for the S&P 500.  An upside breakout will likely be seen in the week ahead, driven by short covering by those who believe that 1150 will now form support, but new investors could be coming late to the party. In the days and weeks to come, it will be important to keep an eye on the CBOE Volatility Index (VIX) for signs of a reversal to the upside, a signal that the market may begin to correct. I’ll keep you posted on any apparent warning signs. All you have to do is watch for my new blog posts.

I am happy to report that our model portfolio’s continue to display powerful performance with our hedged portfolio closing Friday at $1,566,908 and our basic portfolio climbing to $1,801,968.

 

Learn how we do it at http://optionsprofitzone.com.

Good Trading,
Michael

Stocks Set to Test Resistance

March 7, 2010

U.S. stocks made significant strides last week with all major indices closing substantially above short-term support levels. Responding enthusiastically to increased consumer borrowing and better than expected unemployment numbers the Dow Jones Industrial Average added 122 points on Friday, pushing through 10,500 for the first time since January 20. The S&P 500 added 15 points to close at 1,138, solidly above its 1,100 resistance, and the NASDAQ gained 34 points ,ending just below its 52-week high of 2327.

Accordingly, the week saw the S&P 500 Volatility Index plunge. The VIX has dropped from 20.02 on February 20 to its current reading of 17.69, near its January low of 17. Analysts at Schaeffer Research state “The plunge in volatility has come, of course, on a rally in the SPX, setting up a potential retest of the January highs in the 1,150-1,160 region. The 1,150 level marked highs in early 2002 and 2004, while 1,160 is the site of the SPX’s 160-month moving average, which marked the bear market lows in 2002-2003. Should the SPX rally above 1,150-1,160, the 1,200 century mark would be the next major level for the SPX to overcome, as this is the site of the 80-month moving average and a major support level in July 2008. The 80-month moving average acted as a support after the terrorist attacks in September 2001, and a close below this trendline in May 2002 was a major sell signal.”

They go on to say that with “the VIX declining in 17 of the past 18 days, and SPX chart resistance overhead, there is good reason, from a mean-reversion perspective, for the market to take a breather. But, keep in mind that if you are playing the mean-reversion game, there are periods when the market’s momentum can run the shorts over. This can be powerful for the bulls, as a combination of short covering and investors eventually jumping off the sidelines can provide a powerful one-two punch in keeping the momentum intact.”

They conclude that the current environment continues to favor the bulls, noting that the current rally has come without an increase in bullish sentiment, which “represents potential future buying power, a necessary ingredient to push the market above the chart resistance that lingers just above.”

The performance of our managed portfolios reflects the enthusiasm of the market with our hedged account closing at $1,579,912 and the unhedged account continues to shine, ending at 1,797,588.

 

As usual, you can get more information about our trading strategy at http://optionsprofitzone.com.

Good Trading to All,
Michael

A Perfect Storm

January 25, 2010

“Earning reports failed to provide much lift, the Chinese are threatening to tighten lending policies, jobless and housing figures disappointed, and the banking sector is worried about President Obama’s financial reforms.” This quote from a Schaeffer’s Investment Research commentary sums up the conditions for last week’s perfect storm that left in its wake the worst week in nearly a year for the Dow Jones Industrial Average, effectively wiping out 2010’s gains.

After positive gains on Monday and Tuesday, the markets were slammed on Wednesday due to renewed economic concerns highlighted by China’s bank regulator, who repeatedly requested that several banks stop issuing loans. His actions suggested that the global credit markets are rapidly tightening which could be the first sign of a reversal of the recent economic optimism. IBM’s forecast for slower earnings growth in 2010 and bearish reports from American Express and Google added to the rising swell of concern. Capping off the wave of discontent was Obama’s announcement of his intent to limit investment activities permitted by banks in what some see as a return to Glass-Steagall style regulation. This caused investors to flee financial stocks, leading the markets into a deeper decline.

By the end of the week, the Dow was down 4.1%, the S&P had shed 3.9% and the NASDAQ had lost 3.6%. A correction should have been seen on the horizon due to the fact that the major indexes had approached major resistence levels in previous weeks. The Dow may be headed for a test of support at 10,000, with downside penetration suggesting a target of 9000. A recovery above 10,500 would indicate a resumption of the primary advance. Respecting support of 1080 on the S&P would be a bullish indicator for the short-term trend of the general market. Recent patterns would suggest positive gains on Monday but negative economic news combined with poor earnings reports could cause the markets to take on more water and sinking to lower levels.

Monday, traders will be looking to reports from Apple (AAPL) who is expected to report earnings of $2.08 per share, above last year’s profit of $1.78. Reports show that despite its solid fundamental history, option traders are betting heavily against Apple. However, it’s common shares were up over $5 at this writing. As corporate earnings take to the high seas this week, Texas Instruments (TXN), DuPont (DD), Verizon (VZ), Johnson & Johnson (JNJ), Yahoo (YHOO), 3M (MMM), Amazon (AMZN), and Microsoft (MSFT) are among the many companies expected to report.

Monday and Tuesday, December’s existing home sales and January’s consumer confidence index will be released. The Fed’s decision on U.S. monetary policy will be announced on Wednesday, along with December’s new home sales and weekly petroleum supplies. Friday ends the week with advance fourth-quarter gross domestic product (GDP), the January Chicago purchasing managers’ index (PMI), and the January University of Michigan consumer sentiment index.

Our managed portfolios have lost some ground due to the market declines, but are still showing tremendous returns on an annual basis. We ended the week at $1,420,209 and $1,548,488, respectively.

Happy Trading,
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

The Bulls Have It

January 10, 2010

Stocks celebrated the New Year by posting a 1.5% gain on its first day of trading before settling in for the rest of the week, ending Friday only 35 points higher than the Monday close. The Dow Jones Industrial Average finished the week at 10,618, well over the 10,500 resistence level which was penetrated on December 14 with the S&P settling above its resistence of around 1120 with a close of 1144. Encouraging words from the Fed and Treasury regarding keeping interest rates low offered traders reason to remain optimistic which led to Monday’s impressive move which broke through muti-month highs. Even Friday’s disappointing December unemployment number couldn’t hold back the charging bulls. Potential resistance for the S&P 500 is at 1,157.80 with major resistance at 1300. The first sign of resistence for the Dow Jones Industrials is at 11,000.

The Financial sector looks to improve in 2010 after rallying 6% for the week pushing through stiff resistance. Technology stocks continue to dominate Wall Street evidenced by the Nasdaq soaring 2.1% for the week. The Internet sector remains one of the strongest with the Internet HOLDRS Trust (HHH) gaining more than 69% during the past 52 weeks.

Fourth quarter earnings will take the stage in the coming week with Alcoa (AA) reporting on Monday. Additional earnings from KB Home (KBH), Intel (INTC), and J P Morgan will be reported throughout the week. Economic news will include December retail sales on Thursday with Friday reporting the December CPI, capacity utilization and industrial production, the Empire State manufacturing index and Michigan’s consumer sentiment index.

The data from our managed portfolios was not available when I penned this commentary. I will post it when I get it.

In the meantime, Happy trading.

Michael

Optimists, (Sub)Prime, and the Lost Decade

January 3, 2010

Optimism about the economy’s recovery propelled U.S. stocks to close the year with their best annual gain since 2003. For 2009, the Dow Jones industrial average climbed 18.8 percent, the S&P 500 gained 23.5 percent and the Nasdaq surged 43.9 percent. It was the market’s first annual advance in two years. In 2008, the S&P 500 slid 38.5 percent when the economic crisis led to Wall Street’s worst year since the Great Depression.

According to Reuter’s, “Major factors in the stock market’s 2009 rally have been ultra-low interest rates and the Federal Reserve’s purchases of securities. Most of the year’s advance is the result of a nine-month rally, led by gains in technology and materials shares on expectations the economic recovery will spur capital spending and increase demand for energy, metals and other natural resources.”

The S&P 500’s best-performing stock for the year was XL Capital (XL), up a whopping 395.4 percent in 2009. IBM rose 55.5 percent for the year, Microsoft gained 56.8 percent in 2009 and American Express jumped 118.4 percent.

Remarkably, however, Reuter’s went on to report that “despite a 65 percent gain in the S&P 500 from its 12-year closing low in early March, stock investors have lost money this decade when total returns are taken into account. Even with dividends reinvested, it was the first negative decade ever recorded on a total return basis. The Dow is down 26 percent from its record closing high on October 9, 2007, while the S&P 500 is down 29 percent from its record close on that same date. The Nasdaq is down 55 percent from its March 10, 2000, closing high. A drop of 20 percent or more technically signifies a bear market.”

“Nevertheless, investors will remember 2009 as the year that the U.S. stock market made a substantial turnaround from its plunge in 2008 when fallout from the implosion of subprime mortgages and the credit crisis forced Lehman Brothers into bankruptcy — changing the landscape of Wall Street forever. Analysts see further upside in stocks in 2010 if the recovery proves sustainable.”

Our hedged account closed the year at $1,440,197 (a 63.50% annualized return) and our superstar un-hedged account came in at $1,578,042 for an unbelievable annualized return of over 120%.

I trust your 2009 trading portfolio was as profitable as ours and wish you an even better 2010. For more info about the trading strategy used in our managed accounts go to http://optionsprofitzone.com.

Happy New Year,
Michael