Monday June 15, 2015 – Weekly Market Update

Today’s the markets are taking a hit because of
the news out of Europe that the negotiations
with Greece have fallen apart.

Seems like old times again, doesn’t it?

The fragility of this market does not need a big
new story to help it sell off.

But, really is this that big of a story?

If Greece defaults, does that really put the euro
in jeopardy?

I don’t know. But it seems like such a small
country compared to the whole EU.

But, once again it does remind that you have to
be careful in these markets.

It will be interesting to see where the S & P 500
closes today. With the news out of Europe,
the S & P was down almost 22 points and
has now pared half those losses.

For me, I am looking at the VIX. More specifically,
I am looking at the 15.63 level on the VIX.

You see, last week the VIX made two attempts to
get above that level.

On Tuesday, it failed and headed lower.

At that point, the S & P 500 proceed to rally 43 points.

Today, the VIX is back to retesting the 15.63 level.
As I write this, the VIX is trading at 15.48, just under
the 15.63 level.

If the VIX continues above 15.63, the markets should
continue down.

If it cannot get through it, then the markets should find
support and head up.

This week there is the FOMC meeting that concludes
on Wendesday, with a statement at 2:00 EST.

Will the Fed raise rates during this meeting?

That is what everyone wants to know.

I tend to doubt they will. But, the rates have been jumping
and trading as if the Fed will do just that.

And the damage to the high yielding stocks has been
significant.

I actually welcome this pullback because it gives you an
opportunity to buy a higher yield at a better price.

Take HTGC for example. HTGC peaked out at $15.61
back in the summer of last year.

Today, it trades for $11.79.

It pays a $.31 per share quarterly dividend. At $15.61, the
return is 7.9%.

Trading at $11.79, the return is now 10.5%.

Because of the price drop, the yield has increased over 30%.

I hope it drops more.

Just my thoughts for today.

Posted in Weekly Market Updates | Leave a comment

Monday June 8, 2015 – Weekly Market Update

Last week I was discussing how to trade in an
environment like this. You need to have an
understanding of where support should be.

When the market topped at 2,134.72 on
May 20th where you thinking the S & P 500
should pullback from there?

The price level I was looking at that should act
as resistance just happened to be 2,132.82.

So, the logic dictated that a reversal off that
high would be warranted.

In other words, you did not want to consider initiating
any long positions.

Wait for the pullback to end.

The question is where should the market stall and
find support?

2,085.98 is the level where support should exist.

And as I write this, the S & P 500 is trading at
2,085.12. In other words, it is very close to
the support line.

So, do you just buy the market here?

My answer to that is no.

Personally, I want to see VIX start to move down.
The resistance level on the VIX is 15.63 and Friday’s
high was 15.65. Today, the VIX has made a high of
15.50.

And it is still up for the day.

If the 2,085.98 level in the S & P 500 is going to hold,
then most likely tomorrow we will see the VIX move down.

That would help to confirm the support line in the market.

If the VIX continues up, then the S & P 500 will continue
to move down.

If that is the case, the next support line is 2,062.50.

If the S & P does move back to 2,062.50, that would still
be considerd a normal correction in a bull market.

Another way to say this, is that the market could drop
to 2,062.50 and the bull market would still be intact.

I want to mention another market and that is the interest
rates.

The Non Farm Payroll was mixed last Friday. And in
two weeks there is the FOMC meeting.

All eyes are on the Fed and if they are going to raise rates
this month, or will they defer to down the road.

During 2014, the TLT ran 40 points, from a low of
97.24 to a high of 137.09.

Since then, it has pulled back and now trades around
117.40.

Support on the TLT should be around 115 and it not
far from it.

If 115 does not hold, I suspect 112.50 will.

Keep on eye on how the TLT reacts around those
price levels.

If the TLT reverses to the upside, then interest rates
will drop.

At that point, you want to consider buying high
yield as you will benefit from appreciation, along
with high dividends.

Just my thoughts for today.

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Monday June 1, 2015 – Weekly Market Update

With the markets flirting with all time highs, the question
is how do you trade in this environment?

Or should you even trade in this environment?

The markets have made quite the run since the major
bottom back in 2009.

In fact, this is the seventh year of the bull market.

Does this make me nervous? Absolutely and you should
be too.

The average bull market lasts for five years.

Does this mean you should pull out of the markets? Not
necesarily, but it does means you should throw caution to
the wind.

I do think you need an edge to trade now. I will
address what I mean by that in a few moments.

But, another thought comes to mind. That is this.
What will be the signal or the cue that this bull
market is ending?

Could it be when the Fed starts to raise interest rates?

Traditionally, that type of activity has the potential
to be the killjoy.

That is why so many investors and traders will be
watching the release of the Non Farm Payroll
this Friday. They want to see if the numbers give
a clue as to what the Fed may do this month. Or
will they put off a rate hike until September?

Personally, I don’t see them hiking rates this month,
but I could be wrong.

But you need to be aware of what the market participants
are looking at.

Back to the edge.

I always like to have an edge when I am trading.

Let me define what an edge is. An edge could be
a company initiating a buyback program. Or it
could be insider buying.

Others edges I like are when companies up their
guidance.

Or it could be an anylist upgrade.

Any of these types of activities are usually positive
for a company.

As you know from prior issues of this newsletter,
I especially like buybacks.

And why not?

Here are a few recent examples.

CTB announced a buyback of $200 million on
February 23rd of this year. At that time, CTB
traded for $35.62.

By April 7th, it was up to a high of $43.82.

That was a 23% move in just over a month.

The next day, DY announced a buyback of $40 million.
DY closed at $43.65 the day they made the announcement.

Last week, DY hit a high of $60.39.

That was a $16.74 gain in about three months.
Almost a 40% return in three months after they
announced their buyback.

I could show many more examples of positive
stock price movement after a buyback is
announced, but it is not necessary.

The point I am trying to make here is that it is
helpful to have a compelling reason to trade
a stock … and buybacks are one of those
compelling reasons.

Another compelling reason is insider buying.

I have mentioned AKS before and the fact that
back in January, there were a few insiders
picking up shares in the open market.
One insider was the Chief Financial Officer.

They were buying around $3.80 per share.

Just recently, AKS hit a high of $5.93.

So, if you followed their lead and picked up
shares under $4, you would be up around
50% since the end of January.

Do you just go in and buy these stocks when
thee types of announcements are made?

No, I don’t. I still want to enter off of a
technical set up.

There are a number of good tools to help
time the entry. Pick your favorite one.

But, with the markets are all time highs, stay
with an edge.

Best of success in the markets.

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Monday May 11, 2015 – Weekly Market Update

I took the week off last week and am now back.

Hope you didn’t miss me too much.

Did I do anything exciting?  Not really, just
trying to refine my approach to trading earnings.

You see, I have been working with one of my members
for quite sometime now when it comes to earnings.

We have diagnosed and tracked everything we could
to try and determine a directional bias off earnings.

Everything from insider activity to option activity.

And quite frankly, there really is nothing that can give
you a decent clue as to what side of the market you
want to be on BEFORE an earnings annoucement.

I know what you are thinking.  Why not just buy
a straddle or strangle before earnings?

There is s simple reason why this not work.

It’s called implied volatility.  You see the market makers
increase the implied volaility before an earnings
announcement.

Implied volatility is one of the major factors when
it comes to option pricing.

So, if the implied volatility increases, the cost for the
options also increase.

If you add up the cost of the at the money put and call
the total will give you the estimated move that the
market is expecting.

If you bought a straddle and it exceeded that move, you
made money.

But if it does not move that amount, you will no doubt
lose money.

This is because just after the earnings are announced,
the impied volatility will drop.  It will come back to
the norm.  Call it the volatility crush.

So, even if the stock moved the projected amount, you
will lose money.

You really need a move above the expect move to
make money on a straddle before earnings.

Don’t get me wrong.  If you had a decent way to
‘predict’ how a stock would trade before their
earnings, the profits could be oustanding.

For example, on LNKD’s last earnings report on
April 30th, the stock dropped $46.83.  This caused
the $252.50 put to go from $11.10 before the
announcement to $47.10 after it.

That is a 324% profit overnight.

Or how about BIDU, which reported the day before
LNKD, on April 29th.

When BIDU dropped $18.42 off their earnings, the
$217.50 put went from $5.55 to $17.25.

That is a 210% gain overnight.

Now you can see why we have searched for the
elusive directional bias.  The profits can be massive.
And it is a one day trade.

Instead of focusing on placing a trade before the
earnings announcement, trading after the earnings
can be just as profitable.  Or even more profitable.

You see there seems to be a few set ups that occur
after earnings that become routinely predictable.

And you are not buying inflated options.

How profitable you ask?

Let’s take a company that reported last Thursday,
MNST.

MNST gapped down off their earnings Friday morning.

There were two shortside swings.  On the first swing,
the $133 put went from $.50 to $5.00.  That is a 10 bagger.

On the second swing, the same $133 put went from
$1 to $4.40.  Still a return of over 300%.

These returns are possible because the options I mentioned
expired that afternoon.  In other words, you were not
paying a lot for time premium.  And the implied volatility
that existed before the announcement now dissapeared.

Now here is the thing.

Today, MNST jumped up and had a swing of almost $10
this morning.  The affect was that this week’s $130 call
went from a low of $1.25 to a high of $8.70 today.

That was a return of almost 600%.  And it hit the high for
day by 11:00 EST.  In other words, you would have booked
your profits in an hour and half after the open.

The question is was there anything to suggest you should
have owned calls?

And yes, there was a set up based on Friday’s price action
that suggested it was the thing to do.

This is what I mean about these moves being somewhat
predictable.

I am thinking about holding a webinar to share this information.

Best of success in the markets.

Posted in Weekly Market Updates | Leave a comment

Monday April 27, 2015 – Weekly Market Update

I haven’t discussed the overall market in a while
and have instead focused on some specific
trade set ups.

For example, last week I mentioned GE and
the idea that you should wait for it to pull back
if you were inclined to buy the stock.

I suggested that support on GE should be around
the $26.70 area.

What is interesting about that is that last Tuesday,
GE dropped to $26.55 and has been mostly trading
above that level since then.

We will see if it rallies to the prior high at $28.68.

Another stock that I have mentioned is S. I went
back in last week and bought S, after my calls
from the previous week were assigned.

I was able to buy the stock again for just under $5 and
sell the $5 call that expired last Friday for 7 cents.

S closed at $5.27 last Friday, so once again my calls
were assigned.

The position ending up earning me 1.4% for four days.

Would you take that return? I would every week.

When a money market account pays .5% per YEAR …
I will gladly accept 1.4% for four days.

Of course, I like to earn a bit more selling weekly covered
calls, but the premiums are low now. I usually try and
earn about 3% per week selling weekly covered calls.

You maybe thinking why not trade weeklies? And I
do trade them. Usually on a Friday when there is
very little time value remaining in the options.

As an example, last Friday I bought the $570 call on Google
and paid $3.80.

If you think about, for $380 I controlled $57,000 worth of
Google stock. That is less than 1% at risk. Or another
way to look at it is your leverage is almost 99 to 1.

This is why I like to trade weeklies on a Friday.

As for the markets, today, the S & P 500 hit the objective
I have been calling for. That price was 2,125.

Today’s high is 2,125.92. The 2,125 price target is a price
my members have known about for sometime now.

Now the question is where does the market go from here?

I can tell you that 2,093 should be support now. And I
can also tell you the VIX is right at a key level.

If it moves up from here, the market will pullback.

Until next week, trade safely.

Posted in Weekly Market Updates | Leave a comment

Monday April 20, 2015 – Weekly Market Update

Last week I mentioned how GE made a big move.
An uncharacteristic move you might say.

Two weeks ago, GE was up over 14% for the week.

I also suggested you should not chase the price
and wait for it to pullback if you were inclined
to pick up shares of GE.

Since peaking at $28.68 two weeks ago, GE is now
trading just over $27.

The question now is where would be a good place to
initiate a buy on the stock?

There are a couple of areas I would be looking at
as decent opportunity.

The $26.70 area should be an area of support and
and at this point, it is not far from that price.

If that does not hold as support, it could drop to
around $26.

By looking at support levels based on the weekly price
bar, you can get a feel for where support should be.

And then look to initiate your purchases when you
see it reverse.

Another stock I mentioned in a weekly issue
was AKS. I brought it up on February 2nd and
mentioned how it appeared to be bottoming.

I mentioned that you could enter with a tight stop
and if your stop is hit, then take a loss and look to
reenter.

If you did in fact get back in the stock, you could
have entered around $4 per share. From there, AKS
ran up to a high of $5.29 and currently trades for
$4.97.

You could have picked up about 25% on the second
trade, which would have more than covered the
small loss on the first purchase.

Here is another way to trade a position that looks
to be forming a bottom.

What I like to do is covered calls on stocks like this.

The nice thing about AKS is that is has weekly options.

Stocks that are bottoming tend to move back and forth
as they go through the process.

On weakness you can buy the stock and on a spike up,
sell call options.

Even if you are assigned, you can always buy the stock
back and do it again.

Right now, AKS is trading for $4.95. The $5 call
that expires this Friday can be sold for about 13 cents.

If the calls are assigned this Friday, the return will be
3.6% for a week.

Of course if your commissions are high, you most
likely cannot do this trade. But with my broker, I can.

Especially considering that I do not pay a commission
on the sale of the stock when the calls are assigned.

On fact I did the same type of trade on Sprint (S).

I bought Sprint at $4.99 and sold the $5 call that expired
last Friday for 12 cents.

Sprint closed Friday at $5.11 and my calls where assigned.
Now that maynot seem like a lot of profit, but I look at
as if it is a weekly dividend of 12 cents per share.

And now I have sold the stock and can look for an
opportunity to do it again.

Why did I do it on S?

At the end of February I noticed that the President bought
just over 5 million shares of stock. And he paid $4.92
for them.

It seemed to me if the President was investing over $25 million
into his companies shares, that it was a good idea to
trade along side him.

You may want to follow this activity and see how it does.

Posted in Weekly Market Updates | Leave a comment

Monday April 13, 2015 – Weekly Market Update

Last week, the venerable old main line industrial,
General Motors popped 14.3%.

For a company like GE, that was a huge move.

You see, GE typically has a weekly average true
range of under $1. So, a move of $3.57 for the week
is almost 4 times the average weekly move.

So, what caused this move?

Well, for one, they announced a deal to sell their
real estate division, GE Capital for $26.5 Billion.

And if that wasn’t enough to make the stock move, they
announced a buy back of $50 Billion.

No wonder the stock popped over 14%!

But, is now the time to buy GE stock?

I don’t think so. Could it pop higher? Yes, but it is
definitely overbought.

I would wait for it to pullback before I did anything with it.

How can I tell if it is overbought? I use a simple indicator
that lets me know. It could run up more from this level,
but the odds don’t favor that.

In fact, I just finished a book on how to read this particular
indicator and plan to put it on Amazon. I will let you
know when it is up there.

As you know from prior issues of this newsletter, I
track corporate buybacks. You only have to see
how stocks have performed after they announce one,
to realize that tracking them can be a good thing.

In addition to buybacks, I follow insider buying.

I like it when corporate officers are committing their
money to buying their own shares.

After all, who know the company better than the
people working there.

Especially when they make big purchases.

Let me give you a few examples.

Take OPK for example. Back in April of 2014,
te CEO bought around 48,000 shares of stock
at around $8.

If you had invested alongside him, you would
have seen your investment rise to almost $15.

Not to bad. Almost a 90% return just following
the CEO.

Here is another one.

Back in May of 2104, the President of ARAY
bought 50,000 share at $8.15.

Your patience may have warn thin as the stock dropped
to a low of $6.27. From there, it rallied to a high of
$10.01.

Still not too bad, as it resulted in about a 25% return.

I find that the timing of insider buying tends not
to be perfect.

You are better off keeping a watch list of these
stocks and enter off a technical set up.

I especialy like it when the Chief Financial Officer
makes a purchase of their company share.

After all, who in the company has a better view of
the numbers than the CFO?

I usually take note of when they make a buy.

Back in February of 2014, the CFO of FGP bought
10,000 shares, paying $11.63.

Today, the stock trades for $23.51. Not too bad,
as it is over a 100% return.

But FGP traded as high as $27 last September.

By following the CFO you had over a 100% gain in
only seven months.

I like following the footprints.

As the markets grind ever higher, you need a compelling
reason to invest in a stock. And these types of activity
can give you that compelling reason.

You may want to follow this activity and see how it does.

Until next week, trade safely.

Posted in Weekly Market Updates | Leave a comment

Monday April 6, 2015 – Weekly Market Update

Friday the Non Farm payroll report was issued
when the markets were closed.

I feel like I was cheated.

That is because you usually get some really strong moves
on days when the Non Farm payroll are released.

Another day that has potential for movement is
a day like this coming Wednesday. That is when
the Fed releases the minutes from their last meeting.

With the dismal jobs report last Friday, will the
Fed couch a rate hike differently than they have?

They have made it clear that they will not begin to
increase rates until the economy starts to improve.

And their measurement for improvement is when
the unemployment rate drops to a level they are
feel comfortable.

The indication is when the unemployment rate
reaches 5.5%.

The market reacted today by heading up. In fact, as
I write this, the DOW is up over 150 points. And
the S & P 500 is up close to 18 points.

The result of the Fed bond buying has helped to
fuel the markets higher.

With rates low, the most attractive investment is
still the stock market.

I am starting to read articles saying that the Fed is
creating a massive bubble in the markets.

And that the next drop could be even larger than the
drop we saw back in 2008.

I tend not to listen to that.

Why?

Well first off, the Fed stopped buying bonds some
time ago. And the market has continued to make
new highs.

So, without the help of the Fed, the markets have moved
up on their own.

The second issue is rates of returns.

There is still no other alternative investment available that
can pay the rates that the market can.

How about real estate?

I think the recent mortgage crises drove alot of people
out of that market.

But, the drop in the stock market to the low in 2009 also
drove a lot of people out of the stock market.

So, then will this market see a big correction?

My feeling is we don’t start to see a major correction until
the corporations begin to taper their buyback programs.

As you know, I track the corporate buybacks.

One reason for the is you can find some decent companies to
invest in.

The other reason is to see if the activity is slowing down or
coming to a halt.

I am sure you want to know if companies are starting to
taper off their buybacks.

The answer to that question is no.

I thought perhaps that is would be the case because in
January 2015, there was only about $15 Billion of
buybacks announced.

Then in February, there was almost $75 Billion in
buybacks announced.

Granted, two companies accounted for almost 40%
of the total. But, that is still a huge amount of buying
activity.

And March followed with just over $65 Billion in
buybacks.

I have been saying for sometime now that this is one
of the reasons for the market being at such lofty
values.

Corporations, just like you and I, are not finding
any better investment alternatives than to buy their
own shares.

Another key activity I follow is office buybacks.

I like it when an officer buys their own shares in the
open market.

Usually it is a good sign.

A recent example is Sprint (S). In the middle of
February, there were over 5 million shares acquired
by various insiders.

You may want to follow the stock and see how it does.

Until next week, trade safely.

Posted in Weekly Market Updates | Leave a comment

Monday March 30, 2015 – Weekly Market Update

A week ago, I mentioned that the key for the markets
would be to watch the VIX.

The VIX is the volatility index and is oftened called
the fear index.

As I have mentioned before, the VIX will run opposite
the markets.

So, as the VIX drops, the markets should head up.
And as the VIX moves up, the markets will drop.

What I mentioned last week was that you want to
watch the 12.50 level on the VIX.

As it turns out, the VIX stopped at 12.54 on the 20th.

From there it rallied up to a high of 17.19 on the
26th.

That was a move of 37% in 5 days.

At the same time, the S & P 500 hit a high of 2,114.86
and dropped to a low of 2,045.50 on the 26th.

The S & P 500 dropped 69.36 points in 4 days off the
signal from the VIX.

This is why it pays to keep an eye on the VIX. And
know where the key levels of support and resistance
should be for it.

How could you have traded this?

Certainly you could have bought puts on the SPY.
Or the DIA for that matter.

Another way to trade the move is buy calls on
the VXX.

The VXX moved up $2.48 off the signal.

That was enough to see the April 2nd-$27 call on the
VXX move from a low of under 31 cents to a high
of 91 cents.

Not too bad of a return.

As I write this, the VIX is heading down and is trading
around 14.15.

The question now is this. Will the VIX get under the
12.50 level on this drop?

If the VIX bounces up off the 12.50 level, you can expect
this rally to stall.

Should the VIX continue down, I suspect we will see
new highs in the markets. The obejective for the S & P 500
is 2,125.

Watch the VIX and plan accordingly. But don’t say you
have not been warned.

I hope this has been helpful.

And remember that this week is a short trading week with
the markets closed on Friday for Good Friday.

Until next week, trade safely.

Posted in Weekly Market Updates | Leave a comment

Monday March 23, 2015 – Weekly Market Update

Last week I mentioned how all eyes would be on
the FOMC meeting and the press conference
that followed it.

As it turned out, I was accurate when I said that
the Fed will not raise rates anytime soon.

And that is what happened.

However, the price action last Wednesday was
anything but boring.

Going into the meeting, the S & P 500 was down about
13 points. After the announcement, the market rallied
about 45 points on the news.

This type of move was typical back in the day.
As of late, these days have been rather tepid.

But it shows you what type of potential there is on
Fed days.

The question is how do you take advantage of it.

Of course, you could have bought ATM calls on the SPY.
The ATM calls were about $1 and ran up to over $4 in
the span of 2 hours.

If you did not want to trade it directionally, a straddle
would have worked out well.

With the straddle, you would buy both the call and the put.
As long as one side moved further than your total cost,
you make money.

Last week, I also proposed the question of who can
beat Kentucky in the NCAA tournament.

Actually, they had a tough game against Cincinnati.
They gave them fits for most of the game, until
Kentucky pulled away.

Personally, I think that game showed that Kentucky
can be beat.

Wonder who can do it?

Back to the markets.

Now that the Fed announcement is behind us, what is
next for the markets?

Well for one, I do think the S & P 500 hits 2,125.
Actually, as I write this, it is within 10 points of it.

But, there is one thing that concerns me at the moment.

That is the VIX. The VIX hit a low Friday of 12.54.

There is VERY strong support at the 12.50 level.
In fact, if you go back to a daily chart of the VIX,
you can see how many times the VIX spiked up
in the last two years when it got down to that level.

Will this time be any different?

I don’t know, but maybe.

But maybe not. But, it is something or you to be
aware of.

Watch the VIX and you can trade based on what it does.

I hope this has been helpful.

Until next week, trade safely.

Posted in Weekly Market Updates | Leave a comment