Posts Tagged ‘Personal Finance’

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

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

 

 

 

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 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

Historic Moment Despite Lagging Economy

February 28, 2010

The U.S. Hockey team relinquished gold to Canada today but its silver medal, the 37th medal of the Vancouver Games for the United States, made history by breaking the record for total medals won by one nation at the winter games. This is also the first Winter Olympics in 78 years in which the United States earned more medals than any other participant.

The performance also boosted funding expectations for the U.S. Olympic Commitee who had been facing continued fallout from the lagging U.S. economy. With a minimum of 10 years until another U.S. hosted Olympics, the implications of this year’s surprising medal windfall are significant. The USOC announced the signing of a new sponsor deal during the Games with the global energy company BP, while current sponsors including Visa launched campaigns in response to various athletes’ successes.

The optimism seemed to spill over into the U.S. stock markets as, contrary to historical trends, January’s dismal performance was followed by gold medal execution in February. Considering the backdrop of unsettling economic news including European debt worries, interest rate concerns and discouraging growth indicators, the Dow Jones Industrial’s 307 point gain displayed the resilience of an Olympic champion.

With the Olympic fever behind us, the bulls could certainly use some favorable economic headlines to give traders reason to buy. Though there could be increased volatility in the days to come as the major markets bump against upward resistence levels, the technical indicators suggest more reward than risk at this point. Additionally, historical data reveals that the month of March favors the bulls, producing the third-highest returns in the past five years and the second-highest returns in the last ten years.

Our managed accounts continue to produce gold medal returns with our hedged portfolio closing Friday at $1,526,383 and the unhedged account closing at $1,702,821.

Again, we’d like to congratulate the entire U.S. Olympic team for a record-setting performance and a job well done.

Michael
http://optionsprofitzone.com

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