Deep End Options

Crunch Time Or New Paradigm?

2010-12-30T13:32:00.000-08:00

It appears that everyone is now a confirmed bull. Nobody is selling despite the markets being progressively overbought and over-loved. So, if there are no sellers, then the markets will never fall and everyone will become filthy rich. While the economy still continues to chug along, I doubt that it will catch up to the market anytime soon. Perhaps we are in a new paradigm in which sanity no longer rules and the moon is the limit.

There is much conflicting news and views concerning the economy and the markets. There is little in the way of leadership in the market and yet it is grinding higher. I am shyly long but looking toward a possible bloodbath sometime in January 2011. Nothing so earth shattering as having the wheels fall off; but enough of a correction to rid the markets of the over-bullishness and buoyant complacency.

Employment trends are quite uncertain
The price of oil is being manipulated
The dollar will resume being decimated
Europe is a mess as governments scramble to lie through their teeth
Energy production in the US is being throttled by stupid environmental extremists
We are under a socialist regime
Government handouts are increasing daily
More handouts are proposed daily
Deficits are still climbing
The tax system is a disaster which few seem able to admit
Housing looks shaky as prices could fall again
The consumer is very much in hock to the debt man
Credit is in fact shrinking in that future credit will be unavailable to sustain the economy
The FED is gumming up the works by pretending to play god
Employment quality is falling...fewer higher paying jobs to be had
The manufacturing base continues to erode
Unions are of no help in holding/creating longer term jobs
More and more un-citizens are sucking on Auntie Samantha's teet (Uncle Sam's wife)
Our military is being dismantled by the slime controlling the White House
And on and on.....

Not that I like to be negative, but the current administration and Congress for certain have not done anything to help this situation. The socialists are leading us to fatal destruction and upheaval.

No use buying since the odds are so tilted in favor of a major correction that it would be a waste of capital. Wait to buy. My hit list on the downside:

OIH WLT CMI AMZN FCX NFLX BIDU AGU APA WHR CLF FLS CRM

Some of these will move higher in the next few weeks, but when the crunch arrives, most will be vulnerable to sell-offs. Target draw-downs in the 10-20% range. However, unless there is some major stumbling blocks that appear in the road, the overall path will be up for many of these stocks. The probabilities favor a rising market during the third year of the presidential cycle. Beware that this could prove false with so many pitfalls and bogeymen waiting to squelch investor bullishness.

Debt Is The Devil

2010-07-11T14:17:00.000-07:00

After the S&P 500 broke through 1040, it looked like we were setting up for a real bloodbath. That is a move down 100 points from there with the possibility of even breaking 900. It didn't quite happen that way, at least not yet.

The market has politely bounced and looks to be able to tag the 1090-1100 area. We have earnings starting this coming week and there should be some major fireworks over the next month. The charts are spelling sell as this rather weak bounce is completed.

We could see a protracted rally into late August if guidance going forward is respectable. Otherwise, there are few reasons to buy with uncertainties about the economy piling up almost as quick as Obama-made lies.

It is going to take a lot more than global warming to heat up this market. There will not be a double-dip recession since we never came out of the down swoon. This perpetrated recovery is totally false as it has been a debt driven bump-up. Nothing of lasting value is being created and this is most evident from the lack of any constructive job creation.

There is not enough free debt in the system available to tip the scale towards small-business and consumer spending growth. Debt reduction is mostly coming from write-downs by the credit companies and banks.

The future is not totally bleak, but we need to let free markets work themselves into normalcy.
We need the financial system to be free to find a bottom. You know what happens to false bottoms; they generally seek their true level over time. Nothing sturdy can be built on a false bottom.

Thanks to the socialist government, the true dispersion of bloated debt has not been accomplished. Therefore, any progress will not be lasting. There is still an enormous amount of de-leveraging that needs to occur. And that means gargantuan pains for millions of Americans. Also, coming higher taxes will send the economy into a massive downturn. If not in reality, then in the minds of an Obama-snookered consumer. Parachutes anyone?

Trades: APPL Buy below 260 for a move to 270. On strong momentum, a retest of 280
ICE & CME Buy on a breakout above recent bases for a $5-10 move
CLF Buy at 51...sell at 55
PCLN Buy on a pullback for a $5-15 move
GOOG Buy on pullback for a move to $500 if earnings are good
NFLX Look to buy below 117 and sell at 125
POT Look to make a longer term put buy on any further strength

These trades could work out over the next week or two. Expect to reverse course and buy puts if trend lines are violated and price bars show strong downside tendencies.

For me, I have been struggling with trend reversals. Profits are vanishing and turning into losses. My problem is that I don't want to get stopped out since I believe I have the main price direction figured into trades. The counter-trend rallies are dissolving my profits. I need to make quicker decisions and take smaller profits. My problem=my fix.

Buy, Buy, Buy...All The Way To The Bottom

2010-06-05T13:24:00.000-07:00

The markets have been jitterbugging for several months. The big bear market rally since March of 2009, has lost its fizzle. Don't worry dear trader, it is about to get frazzled as it tracts toward the downside. The false rally of the last 14 months has been supported by less volume and less longer-term commitment. Thus, the downward swoon is about to unfold and you can expect at least a drop in the S&P to 900.

Will new lows be made? Perhaps. That is certainly a substantial possibility; no probability would be more appropriate. The economy is only recovering in that it cannot stay on the floor for extended periods. After all, there are still some capitalists and wealth creators among us. Obama hasn't jailed or derailed them all just yet. But he is working triple time to get the job done. That is the complete destruction of our life style as dictated by the communist Marxist manifesto.

In regards to trading, I am still working on trading deep-in-the-money options. I was doing quite well late last year, but fumbled the ball (trade) by over-indulging in laziness. I simply forgot to keep all parts of my trading plan in focus. Thus, losses took a dastardly toll on my account.

This, of course, was mostly preventable if I had been paying more attention to my trading. Despite the recent blow-up, I have not giving up trying to perfect my methods. I don't mean to be a perfect trader, only a trader who trades with a certain flare that is tempered with an extreme dose of humble cake.

The chasm between the "what I would like to do" and what I actually happen to do is vast. In the trading of actual money and the accompanying decision making, so many obstructions get in the way. It is I who is in the way; therefore it is I who is the biggest detriment to my success.

I think that making trades with a target of 2 points is most fathomable. It can be done on a regular basis. With booking only 2 points a week, times 4 weeks per month, times 25 contracts per trade....well that is a neat income of 20K/month. Highly doable and obtainable.

I have puts on BIDU and GOOG. I am looking for some gap filling to the downside in these trades. Both have been strong as of late. Both are over-valued by my accounting. However, there are dozens of prospects to buy puts on, as long as you buy during an upswing in price when the volatility is coming down. Take your pick: WLT, CMG, NFLX, POT, AMZN, CAT, etc...in the coming trade scramble, few prisoners will be spared.

The vast majority of traders/investors will lose money in BIDU. They will buy on the way up, buy on the way down, buy the dips, buy the tops/bottoms, and keep buying no matter what. They will lose because as with all stocks, they will eventually have a falling out and this leads to a drastic fall in price. And most of the traders/investors have no clue as to when they will sell.
As a result, they will hold through thick and thin, then usually sell near the bottom for a humongous loss.

Wheneth you buyeth, or selleth short, always knoweth at what price you will selleth, such as a stop loss point or a profit target. Without this valuable information created and decided upon by you, the trader, you will not be able to secure profits over the longer term.

Finally, I am still reading the book PRICE ACTION, BAR BY BAR, an involved trading tome which is beyond most traders, I think. However, it is unique and filled with gems of trading wisdom and well worth the price and time. By the way, while on vacation, I stopped to eat at FREDS, where the burgers were good and so was the custard. This was somewhere in Kansas.

The Obama Style Economic Crash

2010-01-22T11:50:00.000-08:00

Well, well, well...here we have God's greatest gift to the world, President Obama, now obsessed with further destruction of free markets, capitalism and personnel freedom. Here is a man who believes that every one's life in America should rise with the government and set with the government.

After last Tuesday's butt-kicking by Massachusetts voters toward the socialists, we see our most humble leader going on the attack. Banks...you are toast, Wall Street...get ready to tumble, mister rich person...cough it up...etc. And today he comes out with the government backed (taxpayers who still have jobs) plan to create more of them with silly gov't work projects. And don't forget adding insulation to your home; soon to create millions of caulking jobs and the like. But hey, winter is half over for much of the country.

Thank God with this latest defeat for the left, we can quietly torpedo government run health care and send it to the bottom with cap and trade and every other socialist bent program. Wake up Dumbo, you have had a year to get the economy stabilized and turned around. But it is looking more and more like you have failed magnificently. You silly bird...you focused on forcing your hard left Marxist agenda up our wazoos and not taking care of the slobs who you enticed to vote for your brand of Communism.

You managed to hoodwink the majority, but now your butt is in the fire and you don't like it. Working on midnight deals behind closed doors, promising certain groups that they will be exempt from your stupid taxes and all the rest of your slimy doings over the last year have graciously come back to haunt you and your Kommie Komrades. I have never witnessed such a bunch of deranged government leaders all collected in one place. You and your ilk are a disgrace to this great FREEDOM loving nation...so my advice to you is to take that slimy Pelosi and book fare to Cuba...where they will bow down and lick you bootprints.

AARG!!! Anyway, when trading/investing or fumbling around in any market, always remember to protect capital. Loss of capital means no trading. Or, get the book..."What I Learned Losing A Million Dollars" by Jim Paul and Brendan Moynihan and learn the most valuable lesson you ever can learn for increasing your wealth.

I have failed to fully learn this lesson as 3 of my option trades resulted in massive losses. This is because I failed to protect capital and limit my losses. I am still trading, but with limited resources. And with the third day of the Obama CRASH taking place, it looks like several of you are joining me. Currently I have a call option on PCLN (Priceline) which is the FEB 220 call. It is nearing the bailout phase as I write.

Markets hate uncertainty and with all the liberal word-sloshing this week, they have convinced me that they know not what they do. Since the current regime of sleazeballs in much of Washington is ANTI-Capitalist, it seems natural for them to destroy the markets and wealth in the process. Then they will expect all of us poorer people to come begging to them for a delicious handout and thus pledge our vote to support the hand that feeds us. What a crock of horse-manure, Mr Obama, you and your goofy hard-left pukewads. I will never, never, never bow down to your socialist crapple. Onward and upward FREEDOM and CAPITALISM!

An Update, 2010, And Beyond

2009-12-28T16:42:00.000-08:00

Hey, this option trading using deep-in-the-money contracts really works well. There is little loss of option value due to time passing by and price movements reflect stock price movements with a high correlation. Of course, there is always the need to dump positions that are failing according to the direction you are trading.

The MOS (Mosaic) trade ended with a loss (about $350) as the option was nearing expiration. Then with two days remaining, the options I had purchased broke from losses into gains and my price target was hit exactly. But, again, I had sold the position due to non-action in the direction of my trade. This will happen to anyone who trades; as some positions will seem to take forever to move as expected. It is a good idea to set a limit for how long you want to hold a position before it starts to move in your favor, if ever.

As an example, while I had funds tied up in MOS, I had scouted out 2 very good trades in AAPL
(Apple) and AMZN (Amazon) that would have worked quite well. Today I exited the POT (Potash) call option trade with a small loss ($76) as it was too slow to evolve. I had been down over $500 on this position but according to my crystal ball it looked like it could reverse.

Meanwhile, with the funds from the MOS trade, I was able to buy a call on BIDU (Baidu, inc) and make a cool $960 overnight. Then, BIDU continued to trade higher and I missed out on another $700-800 in profits. Is that painful? No, because I cannot know how far any position will ultimately move. An 80% gain on a trade overnight is hard to ignore and not book profits. Since I only had 1 contract, it was either sell or risk losing good profits.

Now I am holding 2 X (US Steel) Jan 2010 $65 puts which today have become profitable. I may add to this position tomorrow if conditions look good to do so. I am expecting this stock to retreat from today's high of just over $58 to about $54-55, or with a strong market sell-off, to $49-50. Trading over the holidays can become skewed as volume and price movements lack fullness and authenticity. But trading is fun when things make sense using a prescribed method to place trades and take losses or profits. In about 3 months, my account has moved ahead about 250%. That is mainly a result of the fluctuations of a small account.

For 2010, I expect reality to come tumbling in and plow the bulls under at some point. I do not believe this is a new bull market because the Communists running the country from Washington will eventually over tax and spend us into financial depression. Just wait you Obama lovers, it will affect you numb-skulls too.

Beyond 2010, look out below. This time it is different. Capitalism and free markets are on the run as Marxists seek to destroy all evidence that the United States ever existed as a freedom loving country. And thus the markets will be deeply affected and not in a positive way. Forget listening to the mainstream pundits and economists as they are robotic and stagnant. The current market fluff parade will end in another bubble-popping episode courtesy of the gov and the fed.

As always, it is YOU and only YOU that can make it or break it in the trading game. Go your own way using accumulated knowledge and experience to guide you to greener pastures. Never give up. Forget CNBC, Bloomberg, Crammer, Barrons and all the rest. They do not know you, for only you can know you, inside and out; therefore you have all the power you need to become a multi-millionaire trader. The feast is yours to claim and enjoy.

Trading Strategies

2009-12-06T07:43:00.000-08:00

In this economic environment, it is difficult to know which end is up. The mainstream economists are virtually hailing the recovery and the advent of a new growth economy. In other words, we are heading back towards normal. Hardly, in my view. The trouble with most economists is that they all come from the same dithering school of nonsense. Their models are static and conventional and non-elastic. They view the present in terms of the past by using data that is averaged and non-adaptable...A+B=C, so that when they see A they automatically predict B and then assume C.

I think things ARE different this time, finally. Over the last 50-60 years, we have had several booms and busts but we have always recovered from the busts. However, the new variable is that debt has now become a major factor in the emergence of any recovery. All levels of debt have been skyrocketing over the last few decades. And increasing debt has the propensity to demand higher levels of income to service it. With the interest payments demanding more income, there is less available to use for saving, investing and spending.

You eventually get to the point where income does not cover the debt payments. The answer is not to borrow more, but to pay down more debt. Our economy, in the years ahead will be burdened by higher payments to service debt, higher taxes, and more regulations making it difficult to increase levels of business creation. And you tell me MR economist that we are heading toward a new sustainable growth economy? Hmmmm.

Anyway, the last OIH trade was sold for a $2.70 gain. Since then, the OIH has trended toward the downside. The newest trade has been to buy the DEC 70 put option on MOS (Mosaic). This trade has been a wild ride. The average cost is now $11.70, and the option over the last week ranged between $7.70 and $12.90. True, I possibly should have closed this trade for a loss, however, several of the indicators I watch were signaling a downside correction. At this point, I am at break even and expecting further downside which will increase the value of my position. Perhaps, my evaluation is faulty and I will sell for a loss which must be considered.

The bottom line is that short term trading is the way to go in this market. And to be successful requires using deep-in-the-money options if you are not trading stock. At least you can take advantage of any quick bursts in either direction as prices have been eager to stop and reverse in both directions. The upside momentum is waning as volume has been noticeably light for a rally of all mothers, so to say. And he silly bulls are always telling us that volume matters.

I think the next major direction will be to the downside because with an improving economy, MR Barnacle Ben will have to raise interest rates, thus making the service of outstanding debt even more costly. And if we fail to get a substantial recovery, the market will sink like a stone.
This is because high expectations are currently baked into the markets, and I think the political landscape will eventually preclude the formation of any robust recovery.

This means, do not blindly go into the markets expecting bullish action. Forces may squelch any significant upside from here. This country has gotten itself into a pickle of cucumberous (sic) proportions. This is the result of reckless unabated spending and money creation. Somewhere down the line, reality will catch up to the current dream world the government is stranded in.

This Is A Great Trading Market

2009-11-21T11:03:00.000-08:00

In my last post, the OIH trade was stopped out for a slight gain. During the last week, I have traded puts on US steel, X, bought at $7.50 and sold for $9.65. And also calls on Mastercard, MA, bought for $9.90 and sold an hour later for $15.10. This was truly a fortunate trade.

I have now bought a call on the OIH, trading near $117, the DEC 105 Call, for $13.00. I think oil is forming a bull flag and as long as it holds $76, it has the possibility of breaking through resistance and moving to above $88. But with the dollar finding a footing in the market, it could rebound enough to send oil back toward $68-70.

By targeting short term gains of $2-4 per trade, it is possible to earn 10 points or more in a month. The goal is to earn approximately $1,000 per contract. Trade 10 contracts, and you have a real plan to earn over $100,000 a year.

This is not the time to be expecting the market to continue to move up to infinity. Quick, targeted and nimble trading is perfect in this environment. The economy is too flimsy to expect great GDP expansion going forward. The Wall Street crowd is pricing in 4-6% next year and that simply will not happen, other than perhaps for one quarter.

This country is very fragile economically right now, and yet we have the current socialist government doing everything opposite of what is needs to do. YES, Virginia, it is part of the master leftist devised plan to destroy America, its freedoms, liberty, capital and free markets.

Today will be a sad day if health care passes because it will start the government on its path to reshaping America into 1950-60 Russia. More on this later....

Market May Rally Into 2010

2009-11-09T10:44:00.000-08:00

The markets are surging today and nearing taking out the previous highs of a few weeks ago. Specifically, I am long the OIH with the DEC09 110 call option purchased on 11/9 for $12.25. Based on the real possibility of oil trading above $90 a barrel relatively soon, this position should move smartly higher. The next hurdle is taking out the previous high of $132. Then the next target is $142, which is the 50% re-tracement level between the high of 222 and the low of 61. If oil can surpass $90, then a move to this level is warranted.

Buy a deep-in-the-money DEC or JAN call options on the OIH on any pullback below $123. Still, time will tell, but I believe this is a false rally and that in early 2010 we will have a significant sell-off to reflect reality of a recovery going bad.

False Recovery = False Markets 10/30/09

2009-09-26T14:21:00.000-07:00

The S&P 500 tested 1100 a few weeks ago. The low this year was about 667, which means it has advanced about 64%. If you caught a good chunk of that move, it means you have earned, on paper anyway, about 3 to 4 years worth of average returns in about 7 months. Is it time to think about selling or at least scaling out of your positions? YES!!

I know, there are too many of you who are glued to the media speak about the new recovery and subsequent bull market to even think about jumping ship just as the "move" is gaining strength. It is only natural for most investors/traders to be virtually permanently bullish, but the new normal economy is anything like the old.

Witness the current industrial capacity usage of under 70%; which means there will be little expansion any time soon. Also note that the current socialist administration is intent upon destroying jobs by creating new taxes on small businesses, the very engine of consistent job growth in the past. Will green jobs take up the slack? Not unless you can get a job mowing Al Gore's estate or cleaning his multi-thousand square foot energy guzzling mansion.

Consider that we will need to create about 15 million new jobs in the next 5 years just to get back to 5-6% unemployment which means about 250,000 new jobs must be created every month, on average. It ain't gonna happen. At least not with this dummy administration that would likely have a hard time making profits peeling potatoes for McDonalds.

Other factors include rising energy prices, less credit, fewer consumers using credit, no mortgage equity loans, less overall demand for end products, big questions on the future of taxes and government interventions, global demand sluggish at best, massive government debts which will suck up credit to pay interest upon, an overheated market, baby boomers needing to save more and spend less over the next decade, and the list goes on....

I am short BIDU at $397, with the DEC 350 put (BPJXJ) at 8.70. I know this is a stock that the bulls love to love because it is going to $1,000....but with the recent downdraft from about $440 to $353, it has retraced 50% back to $400. I believe it will fall back to at least retest the $375 area. This will be a short term trade. Too many bulls make for juicy profits trading counter-trend, as most people in this stock have no clue about why they are. They are just following everyone else...which is a prescription for disaster.

Witness today's market action verses yesterday's false rally based on the government jacked-up GDP numbers. There is little sustained growth in the economy as more government stimulus will end up causing ever greater reductions in growth. A government dollar put into the capitalist free economy is really costing about $1.30 (including interest) and resulting in about a 40-50 cent return into the economy. The government has never and never will create lasting economic benefits since its purpose is to tax to the max and redistribute an ever-shrinking pie of over-stated wealth.

We still could test the March 2009 lows and go lower still...say to about 550-575 on the S&P 500; that is of course if we do not sink into a protracted depression based on and over-indebted economy (consumer, business and government). Sorry, but the current green-shoot nonsense is just that. We are still very much in a pickle of monstrous dillarity.

The way out into the new prosperity will be a long road of mish-and-mash or perhaps a super-quick avalanche which clears the decks. However we go, there will be prolonged pain and remorse in the financial system despite all the crackhead talk from Obama and his cast of a thousand czars. Debt built up over 5 or 6 decades must be reconciled and refined. Blessed are the cash rich citizens, even though the value of that cash sinks every day.

As an add on, the BIDU Dec 350 put was sold today at 14.00. After commissions, this resulted in a $504 profit. My first sell target was the $375 area, and indeed BIDU traded just below $377. It was difficult to pass up this type of hurried gain knowing that this stock can easily move 10-20 points in a day.

Thus far, just after 2PM, the markets have surrendered all of Thursday's fake gains. We may get a fairly strong swosh to the down side by the close, or perhaps a solid down-blast on Monday morning that may set up a nice counter-trend upside trade. I think we could get down to at least 950 on the S&P in a week or two or three.

OIH looks good to buy for call options if it gets down between $111-113, for a relatively quick reversal up into the $115-117 area. And there will be other options to be bought in both directions, keeping a weathered eye on price movement and a decisive trigger finger on the buy/sell button. Quick hits will work well in an undetermined market in which the bulls have been gored and the bears are looking to put a contract out on the upside momentum.

Is This Rally For Real?

2009-08-11T11:33:00.000-07:00

OK, the markets have rallied over 50% from the March lows. As usual, the market is somewhat ahead of the economy. For me to believe that we can go higher based on an economic turnaround that has either begun or will begin shortly, I want to see this happening:

The true jobless rate is likely between 13-15%. How will the economy grow in the future with housing still in the muck, businesses not expanding, taxes rising, energy costs ratcheting higher and health care sucking more earnings from households? And if the government gets hold of the health care system, expect to pay through the nose to support potential Obama voters in the form of immigrants that will get FREE care, anytime, anywhere. In other words, where do we see jobs being created that will lift the economy and cause people to spend more, even though they will have fewer dollars to spend?

It would be sweet to think that the downturn will or has reversed course and that all will be well next year. This time, I believe things are different. China is still struggling to make an economic revival. Europe is still falling and has not found bottom. Russia is reeling with energy issues and banking problems, more severe than most of ours. So, dear friend, the world economy will not be so accommodating as to bail the US out anytime soon.

There are too many factors working against a economic revival, sad to say, and perhaps this will lead to a doomed recovery that will materialize as a rather bumpy and inconsistent morass. The consumers of America have it right; get out of debt or pay it down, save more income and cut extra-ordinary and non critical spending. Unlike the government, the consumer is doing it right, even though It is the consumer who mainly propels the economic engine. Government on the other hand is pumping up the deficits and spending like there is no tomorrow. Somewhere, something has got to give.

As far as trading goes, I think we could be heading for a severe correction, as yet unforeseen by the mainstream pundits that will last for several months. Mid August to the end of November, to be specific. I think the news will not be to the liking of the markets, and as we drill down to what is really happening, the economy still stinks, like an unwashed commie liberal socialist Obama lover. Any way, this rally will lose steam as the news becomes less favorable to a recovery until well into next year, if at all. Take it a day at a time and enjoy your world.

Make It Or Break It

2009-05-23T16:28:00.000-07:00

We are at the go higher or trend lower point in the market. After a 35-40% move from the bottom, perhaps this bear market spike has run out of steam. There is little question that many stocks are well ahead of their next 6 month fundamentals. And since we have basically relied on the consumer to drive the economy and therefore the markets, many new roadblocks to returning to the good old days are about to make there presence felt.

Witness the new economy and the new consumer situation moving from 2009 into 2010 and beyond. These themes are going to hamper positive growth in the economy and thus stall the markets for quite a while.

Credit is not so prevalent.

Consumers are using less credit.

Consumers are geared toward saving and paying down debts.

The US is heading into deep debt and thus higher interest rates.

Which will it be, more deflation or strong inflation?

Jobs are scarce and layoffs are still occurring.

Investors are still stung with massive losses.

The Dems are bent on raising every tax known to man.

Cap and trade will put enormous pressure on consumer utility bills.

The world economy is still falling as far as output goes.

Real Estate will not suddenly become more valuable.

Massive amounts of new capital will be needed to shore up banks and financials.

The stress test was equivalent to taking a pulse while sleeping.

States will need massive tax hikes to even stay afloat.

Many are declaring bankruptcy which will mean fewer new credit accounts created.

Many buildings will go empty as business closes and consolidates.

New construction with so much unused space now?

And the list goes on and on.....

Buy deep in the money put options on RIMM, OIH, BG, CME, AGU, AMZN, APA and MA. Use stops and be quick to exit if some of these head back toward their recent highs. We could see a move back down to S&P 500 in the 750-800 area over the next few months. The markets look rather exhausted for now as all the hoopla about a sudden reversal in the economy dies down.

Look at oil. Where is the demand? Go short above $60 and look for move back toward $50 and maybe to the $45 area. The fundamentals do not support current prices. Recall the quick drop from $147 last year. Oil will creep up to $75-85, but not for a while or until demand levels out.

The true bull will not be charging this year. Perhaps sometime early next year. Most pundits think this is a normal economic pullback. They can't wait for the markets to come roaring back. That is because they know not how to make profits when markets fall, thus they are only half traders/investors who struggle to make their silly 5-10% yearly returns. It is up to you to make your own way in the markets and create your own trading program based on your beliefs. And, truth be known, you are an unlimited being. It is only society and governments and schools and religions that tell you that you cannot do this or that. Most of what you have been told and learned is BALDERDASH and HORSE-S..T.

Full Steam Ahead Or?

2009-04-10T17:07:00.000-07:00

The markets have been rallying rather strongly and fairly consistently. Nothing like the usual bullish-pop that often comes during a bear market. I would expect this rally to hit a wall after about a 35-40% move. So, there is still a ways to move up here. However, the BIG question being bandied about is whether of not we have seen the last of the big bad bear market. I have my suspicions. You can see the bullish tone wanting to explode to the upside as traders and investors are licking their chops at the market moving to new highs in the next several months. Really, the greedy are already spending those huge profits that will be coming over the next year or so.

Yes, it is tempting to say that the bull is back. A look at history tells us that this just may be the first of several bear market rallies that sucker the heck out of the always-bullish bulls. My bets are not so certain. I think there is still a lot of unknowns in the market as companies have less visibility toward earnings in the coming quarters. And, as we have seen over the last year and a half, there seems to always be another shoe to drop or some bad news lurking around the corner just when some company says the decks are clear.

I estimate that the GOV will be all but forced to ante up another $2 to 5 trillion to right the ship; i.e. keep it afloat. And that figure could be much higher over the next 2 or 3 years. And God only knows how much Obama will raise taxes to pay for all this government help. If the gov had been doing its job in the first place, much of this over usage of credit and the derivative catastrophe could have been avoided or at least tempered. Oh well, the best thing to do is to go your own way. Make your plans and plow ahead regardless of what the economy or the politicians say or do. They know nothing; or at least they know nothing that will make any difference to me and my wealth creation.

Areas to look at for trading include deep-in-the-money options on energy related stocks as well as some tech and maybe a few retail. Things like RIG, APA, UPL, AZO, RIMM, APPLE, and AMZN. Do not chase any of these. Wait for them to come to you in price. That is wait for a pullback to enter a trade. There are any number of stocks that can be traded in both directions. You don't have to be perfect in buying, but you do have to know when you are going to sell. And that goes for those stocks you have held for a decade or two. Why buy a stock, hold it for years and watch it go up and down? How can a sweet dividend save you when you stock has lost 20-60% in underlying value?

One thing that I think could happen is that we form a reverse head-and-shoulders pattern in the S&P 500. All we need is a correction back down to the November 2008 lows after we complete the current up-move. That would form the right hand shoulder and possibly confirm a bottom in this bear cycle. But who knows? This is still a time to be nimble as well as place a few longer term bets of selected stocks that will not fold. You can bet that companies like CAT, DE, CMI, AGU, POT, BTU, X and CLF will all eventually be much higher than today. The question is how soon? By the end of this year or the end of the 2010's (2020) or somewhere in between.

Any way, go your own way and make things work for yourself. The universe gives you all that you need and as you know, you are a creation of that universe. You have the power to create tremendous amounts of wealth if you so desire. Whatever you do, have fun and always look on the lighter side of things because after all it is only life.

A New Bull Market?

2009-03-14T16:15:00.000-07:00

Is the action in the markets over the past week the start of a new bull market? I don't believe so. There are still too many unknowns in the economy and even the world backdrop is unsettling. This is likely going to be a somewhat strong short-covering fueled rally that will eventually run out of steam. The result will be a retest of the lows in some form and some more sideways action until the economic picture becomes a bit less foggier.

Look to make a few upside trades on pullbacks with the idea that the S&P 500 could get back to the 900 area. As always, do not hesitate to bail out of positions if the markets do an 180. We still could see much downside pressure if earnings revisions start to come in well below expectations. It is interesting to note that the NYSE composite retested its 40 year uptrend line and has bounced well off of it this week. We are not out of the woods yet, as Obama and his socialistic nonsense is surely to put a damper on any sustained economic improvements. Raising taxes is downright stupid and it goes to show you communism is alive and well in the Democratic party. Just look at what they have done to California. Take care.

The Obama Wealth Destruction Parade

2009-03-02T14:57:00.001-08:00

Courtesy of Obama, the destruction of most wealth in the United States has commenced. This train wreck is traveling at full speed ahead as the Libs are determined to redistribute wealth in this country like never before. The only problem is is that with their outrageously dumb ideas and tactics, the wealth they hope to redistribute is quickly vanishing. Thus, these economic criminals are on track to create a massive welfare state compromised of all 57 states (according to the great one.) This fits with the ultimate Marxist policy of total support by the government for it citizens in the form of squalidly lower standards of living.

By the year 2015, you can expect to have your living standards cut by at least 2/3 and to be tied to the government teet (as it were) for well over 50% of your support. Laugh now, but sooner than you think, the joke will be on you. There has not been one solid, truthful, creative idea to come out of the Obama think tank. In fact, it is the sharks feeding in that tank that will ultimately come looking for you. I know, you think and believe that Obama has come to save the world. I just hope you have picked out your cave or at least can go buy a hammer and chisel to begin honing out your new meager existence.

The market, as in the S&P 500, is now at the doomsday line of 700. We may temporarily rally from some point nearby, but it is appearing to look like a steep slant to the bottom; as in S&P 450-500. Laugh again if you like. But this is the Obama mandate; that is to punish wealth. However, he forgot to check the stats to see that many middle-class Americans are losing their wealth on a daily basis. Either it will be stolen by the government under Obama, or stolen by wealth confiscation in the form of lower asset prices. The proof is in the pudding and right now that pudding is tasting awfully muddy.

For now, prepare to play the rallies as they will likely be rather short as they will be sparked by short covering and not supported by much enthusiastic buying. Then as the rallies fizzle, get out and short the market when it breaks to new lows. Hold positions until you see a rebound forming and maybe get back in on the long side. These moves have to be shorter term, for the markets are likely to remain unsettled for perhaps the next year or two.

As we keep throwing good money after bad in the form of bailouts from A to Z, the government is setting us up for continued wealth destruction with massive amounts of new debt that will NEVER be paid back. When AIG creates 30-40 times assets in leveraged monstrosities (mortgage thing-a-ma-bobbies) to the tune of $500 billion, you can figure that the resulting derivative crash has left a huge hole in the finances at AIG. Perhaps it will take some $5-10 TRILLION to finally get this pig oinking again. Yikes. Not even Obama can count that high.

This is where we are. We as a nation cannot bail out every thing and every one. But, the Libs will try. Without capitalism, we are doomed. The dark night of the Obamanitwits has arrived and they have come for your pocketbook and your soul. It is time to run for the hills and hunker down for the next 20 years. And don't worry about heating your new cave since ol' Al Gore has promised global warming to save us from freezing. If you have recently bought a Snuggie, well you can sell it in a garage sale and at least make back the shipping costs. See, all is not so bleak and desolate after all. But the Libs are working on it for sure!!

Here We Are In The Throat Of The Lion

2009-03-01T14:00:00.000-08:00

As March is about to roar in like a lion, the markets look to be poised for a severe thrashing. Or, one might say that investors and traders are about to get eaten alive by that lion. The S&P 500 index is now at 735 or there about and this level is most critical. Failure to hold here during the coming week may signal a definite downturn as the S&P index plummets toward 600 or even 500.

Talk about losing confidence, this will be the catapult of a major exit of players in the markets, both short and long term traders. I still feel that we will somehow hold the line here, but I have to admit that it is looking rather distressful. Perhaps a swift crash to below 700 will be enough to get a deeply oversold reversal that could possibly pick up a little steam to the upside. I don't think we need a huge thunderstorm of fear and discontent to hit a bottom. We could just trail a bit sideways for a while and form some kind of a base in the 700-750 area.

In any event, it will prove most interesting and more so challenging to trade and invest during this time. But that is life and this period we find ourselves in is most invigorating from the standpoint of not having experienced this type of economy or market in such a long time. Life is meant to be this way in that obstacles are always present and it is within ourselves to overcame these digressions of the norm. Take heart that at some point we will be able to look back and congratulate ourselves for not losing our collective heads and jumping off a cliff. Now if the government will only stand fast and let the market do its work. Free enterprise will always work itself to the most constructive and profitable level if left alone to work as it should.

Some good buys are appearing in the markets. I think oil and related companies are at a good entry point. Even if we get down below $30 a barrel, those prices will not last for long. Going back 10 or even 20 years with oil at $15 or $20 a barrel, the cost should be $25-30 adjusted for inflation and demand/supply metrics. Some of the stocks I like (and deep-in-the-money-options) are US Steel, symbol X, Cliffs Natural Resources, symbol CLF, Apache Corp, APA, Agrium, AGU, Mosaic, MOS, Potash, POT, Flowserve FLS, and Sohu, SOHU. Some of these are still in downtrends, but based on their depressed prices, they look to be ready to at least reverse course for a short term trade. And some others are in some sort of uptrend and can be bought on pullbacks. As always, look at a price chart to see the trend. Do not chase the upside and do not load the boat. Don't rush to make heavy long term bets just yet, but it is certainly OK to nibble at companies that are well run, in good financial shape and where prices are severely smashed down. No banks or home builders or retailers should be bought yet. Or, at the very least, plan to make short trades with your finger on the eject button.

Again, do some work on your own by studying price charts to get a feel for how the market is trading. Prices can move higher in some stocks while moving lower in others. Still, keep a weathered eye on the S&P 500 index and if it trades below 700, hold back on buying and exit some of your trades to minimize risk. We may look back and see that this was a great time to buy. Hopefully, that is where we are or at least getting closer toward that place in time. If we get a humongous up day of at least 400 points or more, this may signal a good time to buy as we may get a relatively strong rally lasting several weeks or months. Stay tuned and stay alert.

At The Crossroads

2009-02-26T16:03:00.000-08:00

With the new Obama spend-and-tax-a-thon now well under way, the stock markets, as well as most other markets, face a tough road ahead. Most critical is the S&P 500 range of 735-755, where we closed today. Looking at a 20 year chart of this index, one will see this extremely critical level in true perspective and what it means for the markets if it breaks seriously to the downside. Like an elevator with no breaks on a downward cycle, the next major support level is about 500.

Obama's crusade to turn the poor into the rich will fail miserably as asset classes of all kinds continue to go crunch in the night. Asset levels are melting faster than an Algorian ice berg floating in the once-upon-a-time polar ice caps. The Libs are well on the way to completing the total destruction of the rich and the hopes and dreams of just about all the rest of us. If the markets fail to hold these current levels, not only will prices escalate downward, but confidence will be all but totally destroyed.

Can you say MAXIMUM DEPRESSION? Forget the 1930's. What will evolve over the next 2 or 3 years will be a violent and complete wasting away of 80% of the wealth of this country. And to think, as Obamanazis do, that all this lost wealth will suddenly appear in the coffers of the poor is strictly utter nonsense and economic-voodooism on an unprecedented scale. Doubt this future? We are teetering on the brink of oblivion (financial Armageddon) and the return to the stone age, where Libs feel most at ease. That is because 98% of the population will all have and be and live the same while a select few of the "chosen socialists" will enjoy superior living standards.

Think it can't happen? Gee, you only have to see what has transpired in the last 2-3 years and take a deep, hard look at the proposed fixes. Can you see any wealth distribution in the cards? It is easily spelled out in the Obama budget, which by the way, is only the beginning of a massive tax hike meant to destroy not the rich, but the middle class. Scared yet? Don't fret booby, the Libs will have a "save-everyone-at-all-costs-plan" that will be certain to make all of you ex-middle classer's just a nickle or two better off than the newly created class of not-so-poor-people. What a joke!!!!!

So, all this might not transpire as the markets could hold the line and begin to rally a bit and then back and fill to create a base to propel upward from. Then again.....All this might not matter since the world is supposed to end on December 21, 2012. See, it does not pay to fret and worry and have spastic attacks of stress just because the financial system is sinking toward Atlantis. In the next 3 years and some odd months remaining, it will do a soul good to party like its 1999. No fears here my friends. Let the bubbly flow and the dancing girls enter the scene.

Traders Are Not Convinced

2009-02-23T12:06:00.000-08:00

The market action has again become truly ugly and a bit panicky. Well maybe not so much as last October-November when the VIX hit 80. It is currently still hovering in the 50's which is very much above any sane levels. The government, headed by Obama and his harem of cronies, has done little to convince the markets that they know what the solutions are for what ails the financial system in the US. I, for one, am not at all ready to jump on the "save the economy at all costs" bandwagon. The further we go down this road, the deeper the trench we dig and the chances of ever escaping are becoming relatively slimmer and slimmer.

You can create a well functioning financial system like we have experienced for over a hundred years, but that does not mean it does not have limits that even a corrupt government cannot exploit. Ladies and gentlemen, the current government is destroying our financial system by throwing tons of debt at the problems which, by the way, we mostly created by a complete over-use of our debt system. And I am not letting the previous administrations of the hook. Especially Congress over the last decade has much to answer for. Of course they never will when the likes of Teddy K continuously get re-elected without so much as a second thought, you can see that things will never change.

You can compare this current mess with the current IRS abomination. Go ahead and be fearless and get yourself a copy of the tax code and waddle through it for a few hours. You will see a morass of misconstrued conundrums and illogical misconceptions beyond human belief. Our economy and the banking mess, complete with mis-trusted derivatives and the total mis-guidence of those million $$ CEO'S and the rest, have helped to create this blob of nincompoopiness beyond any rationality. What ever happened to KISS in this country? Certainly such systems as created by the punch-drunk Congress can be made to be simple and understandable as well as guarded against false Madoffathons intent on stealing every dollar in sight.

It is really funny that those who have made millions and billions over the last few decades by shystering the rest of us will hardly suffer more than the sting of a bee. It is the followers and believers who have and will continue to be fleeced and taken to the cleaners as well as flogged and beaten senseless. I am not saying that those who have earned their riches are not entitled to them, on the contrary. But it is those who take and take and then proceed to want to steal more that ruffle my feathers. And Obama, who wishes to save the world as well as save ourselves from ourselves, will be no great shakes in the end. Steering by the current course, we are headed toward a monstrous disaster of unmitigated proportions. Over the next few years we may go where no man has gone before and never return for many decades, if at all.

I hate to sound bleak and negative, but take a look a what has and is happening. There is simply little confidence in government to save anything at this point. In fact, the more we rely and expect the government to do the more will never be done. Simply, this economy is born of great business creation, large and small, and that is the only lasting salvation...let the markets take care of themselves, as they have for hundreds of years. Sure, there will be blood in the streets, but the quicker the better; for when the dust settles, we will have the makin's for a substantial period of growth and propriety. Let the gov interfere by putting bandages on the cuts and we will experience a slow, excruciating and extremely painful death with nothing but socialism and fascism to replace our proven capitalistic system.

As far as trading goes, it is probably too late to use puts to trade since a turn-around may be close at hand. Or at least a reflex rally of significant proportions. So, be looking to initiate positions with call options when we get some upside momentum going. We should get a decent rally of some sort in the coming weeks or in the next month or two. And, use some sort of stop-loss to limit your losses. As an example, say the S&P 500 falls to 700 then starts to rebound and you get into your option positions when the S&P is at 720. Then if the average was to trade below 700, you would exit your positions to protect your capital. Perhaps we get a rally back to 800-810 on the S&P's and then go down to 650 or 600 or Heaven forbid even lower. I think we could get a sharp rally of 100+ points (S&P) and then go back to test the lows. Or, we could get a monumental rally back up to 900 or even a 1,000 before retesting the lows. I do not think we will do a turnaround and directly head into a new bull market.

Remember to use a stop loss and be prepared for a reversal of some kind as the averages get into a deeper oversold condition. And keep the faith that you will be able to survive and thrive under these current conditions by having confidence in yourself first and not rely on Washington to bail you out.

A Great Market To Trade

2009-01-25T14:30:00.000-08:00

Is the next bull market upon us now? Naw, not hardly. However, this is really a great market to trade in and make fantastic profits. That is because you can go either way to trade for fun and profits. Those of you who need a bull market to make profits might have to wait a while. A long
while. Then again, the markets may surprise us. But don't expect the government to get the economy right. The majority of any stimulus will be wasted outright, sent to the wrong place, saved or invested instead of spent, spent on useless projects, or simply won't make a difference no matter what.

By trading options, you can use less capital to make great trades. Using less capital means less risk. So, you can accomplish quite a bit. The thing to do is to scale in and out of positions and not take a full position right off the bat. Also, being able to anticipate changes in trends is useful. When using options, you can make simple directional trades with buying calls and puts. Nothing exotic or complicated is needed to make a profit. By using options the have a delta of 70 (-70 for puts), much of the time value is eliminated. Remember, the passage of time is the chief enemy of holding options that have been bought. We are in a quick strike environment for now, but if the markets make a sustained turn around, things will change as we will benefit by holding options for a bit longer.

Right now, I have positions in OIH (Feb 75 call) and ICE (Feb 65 call). The charts on both of these look bullish for the short term (a few days or a week or two). I am looking for the OIH to retrace up to $82 at least and maybe the recent highs of around $88. ICE could rebound back to the $60-62 area and perhaps a bit higher. I think we could move somewhat higher over the next three to five weeks after most of the bad news is out about current earnings. Then we could see a sharp sell off going into the March-April period that may test or even briefly exceed the lows of November.

I have heard guesstimates of S&P earnings for 2009 of about $40 to 60. Take the midpoint of $50 and apply a PE of 10 (common for bear market lows) and you get an S&P of about 500. That is quite a bit lower than current prices. Go Figure! So, you can make your own calculations and predictions and trade from there. I know you can do it and be successful. That is WILDLY Successful.

A Look At 2009

2009-01-06T11:24:00.000-08:00

Without a doubt, 2008 was quite a turbulent year in the financial markets. If you learned nothing else, as you have seen, it pays to set stop losses for even the longer term investments. Years ago, I heard many say that real estate never goes down in value. Hmmm, looks like that turned out to be a myth. But hey, it was a fun year and you have to learn to roll with the punches and take a shot now and then. Remember, there is great money to be made when things head south.

Every day I look at the markets as being one big open door or money tree, if you will, that can be shaken and stirred. As long as prices are moving up and/or down, that tree can provide you with vast riches in the form of profits. All you have to do is be brave enough to shake the tree and stand under it with your bucket. And you do not need to listen to all the experts for as we have seen in times like these, "They Know Nothing" as some famous person has said over and over. Even the experts are at a loss as to how to proceed because most of them can only make it when the markets and values are rising. You, on the other hand, have a deep sense of self worth and while keeping your fears from turning into full blown panic attacks, you have the advantage of being able to create and follow your own investing road.

Now is the time to be an individual because it is the heard that is seeking a savior (no, not Obama) and someone to lead them to the promised land of milk and money. Go your own way and be secure from within yourself. You, and I mean all of you, have the power to become truly great and prosper in the financial markets. It is true that money is not everything or even most things. But it is a part of our created life here in this world and it is fun to have some, or even a lot of it. Just ask some rich person.

I still believe that much can be accomplished using deep-in-the-money options as a vehicle for trading. And it is a trader you have to be in this type of market. Look at the markets today compared to several months ago. We have been in somewhat of a rally mode and it seems all is forgotten as far as the severity of the economic crisis. Soon that will change. Ask yourself if you think this is really the start of a new bull market. No way, Jose. There will be another sharp sell-off and it might even take out the previous lows. Things seem cheap from where they were a year or two ago. That is normal, since we can't compare the present to unknown future prices. However, if you look at the possible fall in earnings that will certainly occur in the coming quarters, then things don't look so cheap.

Anyway, everything goes in cycles and it is about time we had a monstrous market plunge. I think it is possible we have not seen anything yet, compared to what is to come. Yes, I know it is negative to make scary market predictions. I refuse to totally predict the market's future. All I am saying is that the chances of a far more severe crash than is expected looms large. Be prepared, for this is not the time to make long term commitments. That time may come later this year or maybe in 2010 0r even 2011. There are many forces at work here and they are deeply entwined. Not even the Obama economic miracle will save us.

It just happens to be a time in our history that calls for deep retrenchment of the economic sins of the last 20, 30 or even 50 years. We have as a nation and world been living on borrowed time and the piper has made a call. Even after we get through this mess, another even larger monster looms in the background ready to totally decimate our economy. That is the twin evils of social security and medicare. Not even our government and Uncle Benny will be able to stave off the massive hemorrhaging that our economy will go through. But, first things first.

Here is the big problem right now. The US consumer accounts for about 20% of the world economy in the form of spending and consumption. One can hardly go on consuming and spending so freely if the threat of losing your source of income becomes real. So as much as you want to help the economy and spend your earnings, it would be prudent to cut back and many of you will be forced to curb your habit. As a result, an American consumer who is cutting back on consumption means that businesses will see less income coming in the door. They will be forced to trim their spending and expansion and on and on it goes. Even if the "gov" steps in, the stimulus will be like placing a bandage on a deep laceration that may require stitches or surgery. On the other hand, consumers will be limited in how much more debt they can chalk up on their household balance sheets. This is a critical point for our economy. Fewer jobs, less expansion, less security, less confidence, less credit and fewer assets makes for dire economic conditions. We can not spend our way out of this one. Not this time.

You as an individual have control over your financial destiny. You might not believe it so and therein lies the difficulty. Change your beliefs and prosper. Creating a comprehensive plan will help you get there. A little of this and a little of that, without the use of credit, may be the right prescription. As long as you blame it on others ( your financial status) or blame some outside force, you will remain subject to the tides of worldly economic affairs. And the tidal wave is about to hit in the form of a tsunami. That is my opinion, and I could be wrong and I could be terribly wrong and by the end of this year we are growing by leaps and bounds again.

Nimble trading is called for and taking a risk is needed to prosper. Nothing wrong with rolling the dice. Just know what you can afford to give up to the markets and quietly back away if you reach that limit. There are always other plays to make. Take care and stay well.

Interesting Times In The Fianacial World

2008-10-01T12:30:00.000-07:00

Wow!! The world is coming to an end, or so say many market watchers. Whatever problems that are now occurring in the markets will eventually resolve themselves. That is if we let the markets do what it is they do best and that is function rather efficiently. The problems that we are having now in the financial sectors are mainly caused by government intervention in the market processes. You know, free mortgages for those that want them, and free everything else for all. That is the way the socialists buy up lifetime votes from those who deem it far too much of a hassle to actually do something on their own to get whatever prosperity they desire. Nooooooooooooo, let the government provide all that free stuff. Yuck!

If the Obaminator is elected, mark these words well. The new Russia will fully emerge right here in the US with dictator/Marxist Obama leading the way down the cloudy slopes to financial mediocrity and depression unlike any the world has known. Yes, dear friends, Socialism will be alive and well in America and those of you who voted for the DEMS will have little to complain about. I, for one, will NEVER accept Obama as my President and leader. No Way, No How!!! This is about the defeat of Socialism and that is a battle I will fight to the death. I do not care if the big "O" is elected, as I will cease to acknowledge his presence. And that is final. I will avoid the government at all costs and fight in the underground revolution to tack back our country and restore the Constitution and our Rights. No, I will not heed the terms of the Obama Manifesto.

Anyway, as many of you might have heard, scientists (NASA) are now finding some solid proof that the sun and thus the solar system are beginning to cool down. Yes, rather than base our weather on the actions of man, which has never been proven, the sun actually does have a significant input into the weather we experience here on earth. There is no disputing this fact. Thus, in the months and years to come, Gorebal warmth extremists will be rendered totally brain dead as temps swing to the downside. An ice age perhaps? Stay tuned.

As far as the markets go, the big, bad save the housing market bill will pass in some form and cause a decent rally on Wall Street. However, I still think we could fall further after the glow wears off. The economy is kind of in trouble as the consumer is quickly becoming credit starved. Thus, the housing ATM machine is all but unplugged. Can the consumer continue to keep the economy going? This is the $64,000 question. For now, the best thing to do is to trade in the markets on a limited basis and avoid making any serious longer term bets until the dust settles some more in this economy. We could be heading into a longer term struggle that stagnates our growth or even halts it is its tracks. And....if the Dems get full control of the government, look out. You likely will not have much left over to invest or trade with anyway after the TAXman has taken his ever increasing share of YOUR wealth.

It is totally unlawful to take from one and give to another without the one's full consent. That is becoming the mantra of the socialist government more and more. It stinks. Long live free capitalism and free markets and free people. All three are quickly vanishing in America, courtesy of the Marxist Dems and their wealth redistribution plans. Take note that these Dems purporting to fleece the "haves" and give to the "have-nots" will never stoop so low as to participate in this rubbish themselves. No government health care or social stupidity for these chumpanaros. No, they will continue to steal from most of us and live a life carefree and wasteful. Idjits, those damn socialist leftist Dems. I will fight them till the day I die.

Trade with care and adroitness and boldness with a weathered eye open to be alert as to preserving capital. Whatever you do, have fun in all that you do.

The Markets Today

2008-09-03T09:39:00.000-07:00

Hi again. It has been about 3 months since my last confession (posting). This is mainly because I have been working away from home and mostly without computer access. As far as the economy goes, I believe it is still in a contraction mode and will be so well into 2009. How much it will contract is any body's guess. However, we will continue to see the various sectors of the economy trip, stumble and fall (the title of an old song from the Mama's and Papa's) as the banking/housing torturing continues to unfold. The markets will probably head south and maybe even test the lows of 2002 before all is said and done.

I expect that somewhere along the line energy prices will sharply rebound, but fail to make new highs. The trend appears to be down and perhaps the $70-80 level is a good place to find balance. Most notable is the fact of sharp rallies in the area of $200-300 in the markets and many suspect that the downturn may be ending. Do not be fooled. Rallies of this magnitude are far more common in bear markets and hardly ever signal bottoms. They are mostly propelled by short covering and this type of rally is short lived.

Stocks I like for the long run are coal, food and natural gas related, such as {UPL, CHK, APA, AGU, CF, MOS, BTU, CNX, to name a few}. Believe it or not and contrary to Goreovian thinking, evidence is piling up that we may be entering some sort of mini ice age. We are well overdue for the next one looking at the cycles over the last many hundreds of thousands of years. If global heating was in fact the truth, we would continue to see ever warmer summers and milder winters year after year. Nada, honey. It hasn't happened. Man is no more responsible for the earth's climate than some Martian seeding the clouds while roving around in his/her spaceship.

So in this respect, with the possible ice-age-a-cometh, those aforementioned sectors should do well provided that all the Wall Street computers don't freeze up during winter. The new trading mecca will have to be moved to Texas as the Northern glaciers stream down from Canada and devour North American cities. It could happen, cupcake. Now, let the environmental wackos explain that one.

You know, it always pays to think for yourself, even if you sometimes get it wrong. Take a long look around you and discover how many "things" or events move in cycles. One could make a case that everything on this earth is cycle-oriented in some kind of fashion. You know this to be true when you see the Chicago Cubs with the best record in baseball and it is September. This may be the year for them to take it all and complete their 80 or 90 year cycle, or whatever the number of years since their last World Series Championship. Oh, by the way, the Detroit football Lions went 4-0 in the pre-season. Will they be in the Super Bowl of 2009? Hint, hint!

I am not a baseball fan, but you name the thing (for lack of a better word) and try to see some kind of cycle going on. Perhaps this is true of the entire Universe. Nevertheless, time is relatively short for each of our lives and to live without individual truth is a downright shame. By this I mean that for each of us we have our own truth, that is the thing we know that we came here to experience. The main reasons so many of us fail to live fully is because of unrealized fears and mistrusts. These enter into our minds and thoughts over time and constantly interupt our ability to think fully for ourselves.

What does any of this have to do with trading or investing in the markets? Trading in a market is just something, among many things that one can chose to do. And like all other endeavors you may follow the script or previous methodologies (the consensus way of doing things) or strike out on your own adventure and create the "way" or path that is truly YOU. That is accomplished when you decide to go your own way. You can still watch out for known or expected troubles, but you always have the chance to make your adventure your own. There is no right way or wrong way; only YOUR way. There is no one on this planet that can absolutely judge "your way" of doing things. We will reserve that right to the Creator.

And if life is not an adventure for you, somewhere along your travels you have become "droned" which is to become filled with mush between the ears. Listening to the Democrats and many Republicans will do that quicker than anything...lol. But hey, it is your life and only you know what is true for you and the sooner you live that truth, the quicker you see that most things don't matter and that to live in constant pain and sorrow achieves little. I, as like all others, can not tell anyone how to think or even what to think. Many will try. It is strictly up to the individual to find their own way and live their own lives. Part of our difficulties arise when we are living someone elses' way or truth. The Creator(s) have given us freedom to be us. Nothing can destroy that idea.

And one more thing, I am not voting for Obama.

Markets Doing Battle At Their 200 Day Moving Averages

2008-05-29T11:04:00.000-07:00

The markets are now deciding their next major move. Having retraced part of their downtrends, the markets are now upping and downing (zigging and zagging) across the 200 day M/A. This is pretty much the situation in the major markets. If the markets can somehow bounce positively off of their 200 ema's, then a new bull could be declared. However, I feel that this test will ultimately fail and we will not see much more upside from here. I believe we will test the lows of March and fall to newer lows. How low will we go? Ask Chubby Checker. Ever since he recorded "The Limbo Rock" in the early 1960's, this has been a question for the ages.

For now, I would wait to do any nibbling if you are a long term holder. If you are a trader, it is OK to play for rebounds from deeply oversold prices, just don't overstay your position in the hopes a new bull market is suddenly upon us. Look with a weathered eye to play the downside. Again, do not overstay your position since there will be countless short-covering mini-rallies. In other words, Jack Be Nimble, Jack Be Quick, less he be beaten with a bullish stick. Don't ask where that came from.

Watch the oil and energy related stocks for a major break in the near future. NO commodity market, including oil, will ever stay at lofty levels for long. Oil is going parabolic (if it hasn't already), which means super-quick thrusts to the downside. Never fear, the longer term price is headed for well over $200 in the next year or two. If you have a chance, dig back over the last 30 years or so and check out the charts of the 30 or so major commodities. You will see that in every case, moonshots eventually came crashing down to earth. Oil will not escape gravity, at least not this time. P.S....check back in 10 or 15 years on this one.

Despite what the Gov and the CNBC pundits spew on a daily basis, there will be no quick fix for the troubles we now face in housing and the credit markets. Yes, Matilda, eventually these markets will work themselves out and all will be well; that is just about the time the food riots start up around the world in force. Where are you now Jackie Richards? There is something about you that is so divine. You are young, though intriguing.

We are facing some major changes in the world ahead. That is OK. Just feast your eyeballs on some Martha Beck books and live and prosper and be at peace. The world will be just fine, Al Gore be damned. Global Warming is the biggest farce since, well, all the stock markets nonsense from the late 1990's-2000.

A last note. When Obama becomes Prez, get ready to chip in your life savings and more of your current earnings for the good of the country. Never mind that everyone DOES have an equal chance to make their lives worth living with whatever riches they so choose. Free GOV subs for all and may the great bald eagle drop a golden egg upon your lawn; or at least through your roof. The new "Demo-socialist Republic" will destroy this country faster than any Al-Gorian forecasted ice-cap melting ever will. Don't forget to get your ticket ahead of time for a trip to the South Pole. That is where the new in-crowd will be residing in the near future. No fear here, friends.

It Isn't Over Yet

2008-04-13T10:37:00.000-07:00

I have been gone for a while from my computer and the markets. I think at this juncture, it will be more profitable to be a trader rather than an investor. This market is going lower despite the cheer leading from the experts. We simply have not hit bottom in the housing crisis nor in the credit markets. And the economy is poised to slow to a crawl, if it isn't already there. There are still too many unknowns on the earnings front and in the credit crunch arena. The Fed is now awake and willing to intervene to keep the financial community from a total meltdown. But going back to 2000 and the end of the massive explosion in the markets, there are still excesses that need to be worked through. This process could take a long time as long as the fed is in bail-out mode. How long? Two to three years at least, quite possibly five or even 7 to 10 if we really want to clean the slate.

After spending time researching my own trading thoughts, ideas and practices, I am convinced that most important is that the trading system and plans you are working with match completely with your true life path. In other words, trading the wrong system or market or method will be detrimental to your success in the long run. You simply have to find the methods and ideas that gel with your inner being. This is not some false diatribe, but a must for long-term trading and investing success. You have to discover the markets and systems that you will fall in love with concerning the art of trading. Trying to work a market or system that does not relate to your essential self will lead to eventual self-destruction in the trading arena.

Finding what will work best for you is a process that must be undertaken and continued over a period of time. There are few shortcuts. This filtering process can only bring the proposed trader closer to true trading compatibility; that is matching talents, desires and inner qualities with specific markets and methods. Not everyone is suited to trade commodities or currencies. Yet these same people may be able to get a significant handle on trading options or bonds. It just depends on the critter. The person desiring to become a trader and the various markets available to trade in. You might hate options and stocks, but feel comfortable in the fast paced currency markets. One system or plan of action might seem totally inoperative or nonsensical to you, while some supposedly far-out idea rings your bell.

First and foremost is to get yourself into the market, method and systems that are workable for you. These are the areas that you can thrive in and become to total success. Like anything else worthwhile, it will take time, effort, patience and determination to see where you fit in. To trade or invest without any true desire to do so is committing financial suicide. Put your money in some high paying interest vehicle and go about your business in other areas. Quite frankly, you have to have "something" that comes from within in order for you to become successful in the financial markets as a trader or otherwise. Lacking this specific attraction, you likely have that "something" within you for other areas of work or occupation or business. That is your goal; to discover what you can do so well that you cannot fail with constant, persistent and certain attitude and energy. Oh, how marvelous to be in your true field of endeavor and become a monstrous success.

As far as the markets go, the downside is still the preferred side to be looking to trade from. Sure, there will be significant rallies and moves to splatter the short sellers, but right now downside risk is still prevalent. There has been no final bottom reached as of yet. The US and global economics have not been fully intertwined into the fabric of the economy and the tide of expectations. Again, there are many unknowns and surprises yet to be learned. Eventually, the seeds of a new bull market will be sown and up, up and away we will go. But for now, throw away your blinders and shortsightedness and enjoy the gains from trading the downside action. A market is always created from both ups and DOWNS. It can never be any other way. And by all rights and ideals of the universe, the downside is just as precious as the upside. Perma-bulls be damned. And perma-bears are stuck in there own worldly pool of pessimism.

Until we get a solid bottom and much of the bad news out and disseminated, it would be unwise to go bottom fishing at this juncture. You will be able to buy most stocks at lower prices in the coming year or years. The economy may be able to weather all the bad news and swiftly turn around, but it is highly unlikely. Something has to give as excesses cannot and never do remain excesses without some kind of swing to the opposite side. The pendulum is well overdue for a decisive move into super-bear territory, if only for a relatively brief period. Ask yourself what lies on the horizon that will propel this market higher? Where are the underpinnings that will support higher prices? We are not in that neighborhood in the slightest. We are still in the discovery and resolution stage. Patience and fortitude is required as all will not be lost and the next great market upturn will eventually be rolling onto the horizon.

By the way, a great book can be read called "The Worst Hard Time" by Timothy Egan. It is essentially about the 1930's and the dust bowl era. It is simply fascinating and eyeopening. If a person could survive this decade, they could survive anything.

Jingle Down A Hillside

2008-01-08T16:06:00.000-08:00

The possible crash has not materialized, yet. This market is extremely tipsy. The Bulls are trying to pretend everything is OK and that 6 months from now, we will be back to normal. Yeah, right. The economic problems we now face will not fix themselves overnight. The FED cannot fix them either. What is required is a good old fashioned enema for this market. A thorough flushing of the Bullish bowels.

Support levels were caved in like dominoes falling. Expect much more bloodshed before this thing settles down. With three 200+ point down days so far this year, that is as blunt of a sign as there can be, save an all out crash (still not out of the realm of probability), to say the least. Face it once and for all, there are some serious economic problems winding their way through our wretched economy. No amount of hoping and praying will save the Bulls; not this time.

The title is from a song of long ago, 1968, and it proclaims the perfect sentiment for this market. The Bulls are all jinglely while the market slides down a hill. The sooner you come to grips with this downturn, the sooner it can escalate and get over with. The probability of a total market washout of extreme proportions over the next few months is growing higher by the day. This 55 month old long term bear-market-bull is extremely tired and lame. There is nothing that can be done to save it and why would you want to?

The economy is flat out backing up and is poised for a drag-down, knock-out battle to stay afloat. All the expectations and over-worked systems have come together to Bear witness to the coming retraction of a most brutal nature. The time of the great reckoning is upon Wall Street. And as always, the pros will make out just fine, racking up big returns and it is the sheep who will provide the fodder. It can be no other way. Sorry, you find yourself sheared of profits, but best to dump some positions before you end up standing naked at the alter of the Bear. He is growling and ready to strike, full force.

Crash Alert

2008-01-04T10:33:00.000-08:00

Due to the markets trading this week and the reaction to today's job(less) report, I am giving you an alert to look for a possible mini-crash on Monday. The recent market action going back to last Friday, has not be very constructive. Many of the willy-nilly Bulls are moving into the pain threshold. Get ready to test the November lows, break through them decisively and continue to head south.

The rumble-leers are in full rumble mode. The false assessments of the jaybird cheerleaders on Wall Street are crumbling as this is being written. I know, right now on CNBC, the hosts are begging for a turnaround rally and an end to reality. The cheerleaders are using every last speck of propaganda to make this sell off look like the coming of nirvana. It won't work. The Bulls are toast, baked to a searing black.

Let the party begin for the shorts and put holders. This market is in crash mode. It might not happen, but it is getting weaker by the hour and this time it will test and fail to hold the lows. Sorry, but this is long overdue. The Bulls and their bandwagon have lost at least one wheel and another is spiraling off at this moment. This is exactly what has to happen to cleanse the wickedness from the markets. The deeper the cut, the more pain and misery and the better the future after the mess has run its course. This is exactly what needs to happen in the federal government too.

For far too long, reality has been evaded and the political and financial mess has been allowed to precipitate and grow massively ugly. Hang on to your hats, folks. It could be a rough ride, especially if you are a staunch, head-in-the-sand Bull. Not to cause a panic, but the selling has overtaken the fluffiness spouted by the greedy Bulls. Greed equals need. And soon, the Bulls are gonna need an oxygen tank to resuscitate themselves. You heard it here first. Just don't go unknowingly into the market expecting the Bullish B.S. to save you this time. Beware, for this time, comes the Bear.

Get Ready To Rumble

2008-01-01T16:33:00.000-08:00

The new trading year begins tomorrow and it is time to prepare for a rumble. The sad-sack Bulls will be trying desperately to keep the market from sagging into oblivion. They will be buying every cotton-pickin' dip and pull back attempting to buoy the market. Notice how the bulls keep buying on the way up, and after a top, keep buying on the way down. That is how we get so many rallies instead of the much needed flush out where prices just simply collapse.

The Bulls, by their very nature, hope to keep the pressure on and fuel an all-out short covering rally. This works for a time, as long as the markets are still positively skewed or headed north with an upside bias. When things start to flatten out and trend lower, these short covering forays last for a short time. Then, the Bulls simply keep buying into the downturn hoping to catch a bottom. A few eventually do, but they have leveraged their positions to the downside. If the ensuing rally fizzles out, whamo, the Bulls get clobbered and justice is served.

You might think I am anti-bullish or against trading to the upside. The thing that ruffles my feathers is the insistence, by the Bulls, that their position can only gain in value. The pure, nonsensical idea that markets can only go up. Since the vast majority only trade one side of the market, the buy side, as prices rise, these Bulls get ever more greedier and complacent. I dislike the fact that most traders and investors refuse to acknowledge that there are two sides to every market. It is quite healthy to have downside, or selling action occur in a market. The simpletonish idea that markets have to rise for one to make money is truly asinine.

We all know that the greedy Bulls often, at least in the long run, get their heads handed to them for being so complacent. Take the stock of Amazon (AMZN) and its trading action the last 2 or 3 months. Since the last earnings report in late October, the Bulls have steadily made attempt after attempt to push prices to new highs. Looking on a daily chart, you will see a spike bar that seems to sit in mid air, with no supporting bars on either side of it. This is a most unusual chart formation. The Bulls have spouted off one after another about the fantastic earnings and sales of AMZN. They are expecting the moon when the next earnings report comes out on January 31st, 2008. With a PE of over 100, this stock is priced for perfection and then some.

Some analysts recently voiced concern over margins going forward. This is a legitimate concern. Checking back over the history of this company, margins have been razor thin at the margin. The slightest hiccup and this stock will tumble avalanche style and surrender at least 25 points over night. The growth rate of this company is well under 50% and yet the stock sells at twice that rate, PE wise. Even if these guys meet expectations, so much of those expectations have been cooked into the stock already. This is the perfect example of the Bulls, turning into blind bats, for they can see nothing to destroy there prima-donna outlook. They just expect the stock to keep moving ever so higher. Now around $93, some are calling for $120. This is absurd. We are in the clutches of a recession, despite the counter-cheer leading on Wall Street. This recession could and by all right should be a monster. A deep, cleansing type of retreat is needed to bring American consumers back down to earth. Credit is not eternal and the banking system is not infallible.

Crash, bing, bang, boom. Splat! Let the rumble begin and may the best Bear win. We are headed to the downside, and in a major way at some point in 2008. I think it will be sooner rather than later. So, all you Bulls, be for warned and I will not feel one ounce of sadness as you get slaughtered by your greedy ignorance.

Sell All Rallies

2007-12-12T17:39:00.000-08:00

Here is the deal. The market is upset (poor baby) that the Fed did not lower interest rates by a half point on Tuesday. If the market is calling for a 1/2 point move in rates, doesn't that mean that it is concerned about a serious downturn in the economy or a recession? Then, if that is the case, how can we explain the market rallying and nearing all-time highs? The market is not acting anywhere near as bad as it would if a recession was on the horizon in the next 3-6 months.

This leads me to believe that there is little chance of a recession or there is one huge disconnect in the markets from reality. Another factor, as I see it, is how can we continue to build economic prosperity based on credit and cheap money? Apparently, this can go on forever and these debts will never come due or ever have to be paid off. So go ahead Fed and lower rates so that we can borrow into infinity at ever cheaper rates. Then the socialist government, lead by the Hillary Dems, can create mountains of inflation and raise taxes so that all can be rectified. Laugh if you will. Some predictions actually turn out to be dead on.

It is interesting how so many are always so bullish about the markets. You could see this today as the market blasted off at the open and was up about 270 points in the Dow. I am sure the market makers had a field day over-exploiting little Billy-The-Bull, who will buy anything at any time, with little regard as to cost. Because as we all know, markets go nowhere but up. Thus, Wall-Street has continued to create an army of investors and traders who will buy stocks no matter what. That was evident today as the market kept rallying into every little dip. The Bulls were trying to find a bottom all day long as the market gave up its gains and then some. There was a small rally into the close as short covering ensued. That was all that this snap back was to begin with.

So if the market continues to sell off in earnest (a big if), Mister and Misses Bull will be buying every step of the way down; all in an attempt to buy at the bottom. Good Lord, who teaches this nonsense? After all, we both know that markets never go down and that any perceived sell-off is only a short-term illusion. The markets are incredible in that they behave so one-sided.

It is obvious that we are headed to new highs into the New Year. The Bulls will never give up buying and this will propel us into the stratosphere. For most of you, go ahead and buy your fool heads off. Buy until you drop and cannot stand to buy anymore for fear of making a killing and taking all of Wall Street's money. For me, I am a seller because someone has to be different and take the other side of the trade. For those who want to take a chance, sell into any strength and buy puts at a reasonable price. And above all, get ready for a Battle Royale as the Bulls beg for mercy from the selling pressure inflicted by the Bears. It is no fun always buying and being so one sided. The object of this game is to have fun, as money comes to those who do.

Rally To New Highs Or Major Downturn?

2007-11-28T16:34:00.000-08:00

Once again we are on the brink of disaster in the markets. Despite today's 331 point rally in the Dow, I am skeptical of a move that will last long enough to test the old highs, some 900 points away. With so many difficulties appearing on the economic horizon, it would seem that a recession is in the making for 2008. The housing market is no where near a bottom and the global picture could stall or retreat at any time. Is China really going to go full tilt forever? I highly doubt it.

I think the recent rally was pretty much fueled by short covering. Too many traders were expecting a sharp spike to the downside that would take out the previous lows and commence to turn the markets into rubble. That sharp spike to the downside may yet still be on the horizon. The economy seems to be slowly slipping to the downside. Or at least slowing significantly to cause major headaches for many consumers.

The conundrum of oil falling from recent highs near $100 to about $91 a barrel, which is signaling a slowing demand, is further confused with the rally of the last two days in the Dow of almost 550 points. If the economy is to survive a major drubbing, then oil demand should stay rather steady. Beats me as to what to expect.

Trades: Short RIG or buy puts at $140 with a tight stop. Short or buy puts in AG at about $66-67 or near the double top. Short or buy puts in TGT at $61-62. Use tight stops in case this rally has legs. I just don't think we are out of the woods this time as it appeared was the case after the last two big sell-offs. Buy puts on BSC at about $103 also. Buy puts on DE if it fails in the $170-175 area. If the rally looks to continue, but calls on TSO, VLO, PCU and FCX. These might be good for some short term gains.

As always, have a great time trading. If you are not having fun or enjoying yourself, find something to do that brings you true joy. Is there any other way to live? The old saying applies to all and to everything: Life is too short to be wasting it in misery and wheel spinning.

Waiting for the Storm

2007-10-12T16:14:00.000-07:00

It has been about 7 weeks since the last posting. And, the markets have rebounded smartly and gone on to hit new highs. The expected "mini-crash" has not evolved. With all the so-called bad news, the markets continue to roar ahead. It appears as if the Bulls have decided to just take control and look at things from the bright side. In other words, even if there is a recession, the market will overlook it and classify it a temporary and continue to blast ahead. After all, we are now in a new paradigm known as the "world economy".

If the market is going to tumble, it will be a rather large surprise to many. If we hold up here at these levels for another 2 or 3 weeks, then we will likely see another strong push higher as the year comes to a close. Apparently nothing matters anymore to the markets, just as long as there are still buyers to buy. There seems to be no end of them since we are still in a humongous liquidity flow, that is sloshing through to Wall Street from all over the world. Still, many of the foreign markets have dwarfed ours in returns over the last several years.

I maintain that the best way to make money is in the shorter term by taking advantage of pullbacks and over-runs in price. Being a trader is the way to go. Buy and hold only serves the professionals on the Street as a means to keep prices higher or going higher as they sell off and take massive gains. I think it is best to take it one trade or stock at a time.

Calm Before The Storm

2007-08-25T14:43:00.000-07:00

The markets continue to recover some lost ground. Tensions concerning the evolving credit crunch seem to be easing. But what may be brewing beneath the surface is any body's guess. I expect to retest and then make new lows in September-October. The worst of the housing crises is about to unfold over the next 6 to 8 months.

With derivatives stacked to the moon, there is much to be concerned about going forward. There are now some $500 TRILLION in derivatives verses about $60 trillion in value including all the worldwide stock markets. How this plays out is for speculative players. But it could get entirely ugly very quickly. The resulting unwinding of this magnitude of leverage would be mind boggling. I think a world-wide economic depression would be the easiest outcome. Something even worse could evolve and I hazard to think of what it might be.

I think it is safe to play a little bit of this upside with a foot in the exit. We could get some further strength before the markets head south big time. Short term (in the extreme) calls are ok. Longer term, for the months ahead, puts are the way to go. Energies could continue to bounce back over the next week or so. Unless there is some kind of hurricane to disrupt gas and oil prices, I think energy (oil prices) will fall below $68 before they surpass $ 80.

No doubt, we are in for a fun time over the next several months. Volatility should settle down a bit more before exploding upward again. Some spectacular trades should be in the offing, especially to the downside. From now into the first quarter of next year will be the time to take $5,000 or $10,000 and trade it into a million dollars. No bull! There will be that kind of opportunity for the alert trader. If you are a solid bull only, forget it. However, if you are willing to trade both sides of the market, you can expect to make a bundle with some exacting trades.

Take it one trade at a time. Be willing to take a quick loss if you are wrong and look to the next trade. Be willing to concentrate on today's trade only and not look too far ahead. So much is possible if you have a plan and believe it can be executed. Follow your plan and ideals and reap great rewards. The trades will be there, for sure.

Experts Will Be Dead Wrong Again

2007-08-12T07:38:00.000-07:00

Remember this when in a year or two the markets are much lower. Right now, many so-called experts are telling people to buy the dips, maintain the course and hold on for dear life. Wrong advice from where I sit. I am NOT an expert and do not make that claim. However, with the recent volatility and movement in the stock markets, things are in the process of changing. This is no longer a straight ahead, no limits, bull market. If it were, we would not be having 387 point sell-offs as a matter of normal trading.

Face the facts. This bull market has lasted nearly 5 years. Longer than most in our history. Also, there is perfect reason to be concerned about the housing/mortgage debacle. With all the excess derivatives compounded upon each other, it is impossible to know the extent of how valuable or not something is. Companies are buying back shares furiously in an attempt to buoy earnings in the coming quarters. If things were so great, they would be plowing most of this money into new equipment, upgrades and expansion. Buying back shares does nothing to create new business or new jobs.

Consider that energy prices and inflation are still high. Forget skewed government statistics to the contrary. What matters is how much you are actually paying for goods and services in your own personal life. What the government proclaims is of no value to the average consumer. The government and the FED are out of touch with reality. And they usually are when things begin to change. Do we need a rate cut? NO. A few rate cuts will not stave off the coming turn down in the economy. And several rate cuts will force inflation even higher as well as re-liquefy the markets. Part of this problem is that there is a worldwide liquidity bubble. It is in the early stages of bursting. What kind of destruction this causes is relatively unknown. You can only guess as to how far the damage will spread.

I think the markets are headed lower after this recent rally. They might temporarily hold as a retest of the recent lows and try to rally again. The Bulls are a stubborn lot and will only give up at major bottoms. This is an established fact. Face it folks. We are headed much lower despite what the feel-good experts say. They don't want to sell when prices are falling. They do want to exit when the unsuspecting trader/investor is buying the dips and hoping for a renewed rally to new highs. Fat chance. The pros will always hype up a falling market so that they can get better prices for their sales. Who ends up holding the bag? The players who refuse to believe they are being taken to the cleaners. Look at the charts over the last 130 years. You see this happen all the time.

We are heading into September-October and the fireworks should be explosive. Last year, we plowed ahead during these months. This time, they will return to form and leave many a trader/investor exasperated and confused; to say nothing of being upset and angry. The investment rate, Gann analysis and the year ending in 07 all weigh heavily against the market. My bet is on a possible crash in the near future where we see the Dow down some 600-700 points in a day. Not to be negative or a super bear, but as you have seen over the last month or so, reality is catching up to the sleepy Bulls who have been lulled to sleep once again. You have to go where the easiest money is to be made. And right now and for the foreseeable future, that is to the downside. Buy call options for quick reversal rallies, and buy puts for super quick downside sell-offs that take your heart away. Let the games begin and may the last Bull not loose everything.

It's All An Illusion

2007-08-05T10:54:00.001-07:00

The fireworks continue on Wall Street. Bullish complacency has been replaced by near panic swings of greed. Of course, we all know that there is really no such thing as a market sell-off because everyone is taught to be a constant buyer and holder of stocks. So, in retrospect, the selling you see on your screen (i.e. the flashing red numbers) is really only temporary. Soon, there will be massive amounts of "dip buying' as bulls know that there will not be any more selling after a certain point. The market simply cannot be sent spiraling down for any length of time. Whew, that is a relief.

With the housing and credit markets imploding and headed toward even more dire conditions, it is full speed ahead for the reviving economy. The government stats tell us that all is well. Inflation is, well ah, non-existent and the GDP is humming along at a nice pace of about 3% growth. All is well and more jobs are being created. And even though the stockbroker firm of Bear Stearns came out and said that credit conditions are the worse in 22 years, there is still much to cheer about. Heck, what is 22 years? Nothing really. The Feds are about to come to the rescue and lower rates. Yahoo! That means that we can re-inflate the ever expanding credit bubble and put off the probable meltdown for as long as we want. Heck, this is the kind of stuff we have seen on Star Trek for the last 40 years. Spock (meaning the Fed chairman Mr Barnacle or whatever his name is) will cross circuit to "B" and the planet will be saved once again. Love it!

I think we could see some feeble attempt at a rally in the coming week or so. Whether or not it gains any steam will be determined by how much short covering is to be done. But make no mistake. So far, this sell-off looks like any other we have experienced in the last 4 1/2 years. That is what the Bulls contend. They are correct in that assessment. No serious damage has yet been done. But after this next rally attempt, we will be entering September and conditions will be ripe for a massive downturn. The Bulls will get trampled this time as they fall prey to the whims of the bullies on Wall Street. Can you spell crash? Be on the lookout for this distinct possibility. The warning shots have been fired. Look at the sell-off on Friday in the last hour--hour and a half. SCARY! The bears pulled the lever and all bullish support melted like and ice cream cone in the Sahara.

You do not get these kind of serious sell-offs time and time again without it leading to something much more decisive. Really, the props in this market have been the following: easy credit, foreign money, buyout fever, share repurchase (which by the way only makes earnings look better and adds nothing to the growth of a company), the China syndrome, energy stocks going bonkers, and people borrowing money against home equity. Are all of these or most of them going to continue to fuel the rising market into eternity? If you are a Bull, they certainly will. Good luck.

As I recall, back in the late 70's and early 80's, we saw energy stocks rise furiously. It was like many cheap energy stocks (penny type stocks) were going up 10, 20 or 30 times in value or even 50 times. Charter Oil was an example of a stock that went from $1 to $50 in a rather short time. There was massive speculation in oil companies. Everything tied to oil was blasting higher, much more so than the rally in energy over the last 5 years. There have been a few stellar performers, but it simply isn't the same as it once was. Perhaps the best is yet to come over the next 5, 10 or 15 years. Food for thought.

I have made a few trades since the last posting. But I have not been able to keep full attention on the markets to initiate many entries. And of course, I have missed some tremendous sell-offs in many of the stocks I watch. This is the prime example of when you are not looking, the best opportunities will come and go. You have to have the time and energy to concentrate on what is transpiring. This is especially true in a market that can move up or down by hundreds of points in a matter of hours. Still, there is always opportunities to make a buck. I will be looking for a bottom in some stocks like MA and some of the energies. Buy puts on BSC should it rally and even a lower priced stock like LEND is extremely vulnerable to another sharp leg down, perhaps below $1.00.

Sorry Bulls, but without the full support of the brokers, banks and financial companies, this market is TOAST and I mean the black and burnt kind. Incineration is more like it. There is not enough strength in the technology stocks to turn this baby around. And I expect the oils and energy related stocks to rally and then come back to retest recent lows. Then again, I could be totally wrong and we could still be involved in the mother of all bull markets as we head to the moon over the next five or ten years. Do I hear DOW 36,000?

More Volatility

2007-07-20T11:56:00.000-07:00

The markets are trading to the downside today. Do I think this is the beginning of some serious downside action? No, not really. Not yet anyway. There is probably too much sort action to get a good downside sell-off going. Too many are expecting it to happen. But, one of these times it will happen and catch many Bulls with their tails between their legs. I still think a good sell-off is in the making at some point this year. Maybe in September.

I made a trade in RTI International Metal (RTI) recently. I bought the July 70 calls on 7-13 for $12.60. RTI was trading at 82.40 at the time. I used a rather loose 2 point stop because this stock has been rebounding nicely. Today I closed the position at $16.20 for a week long gain of $3.60 per contract ($360). Today the stock went right up to the target area just above $86 even with the market selling down quite strongly. I had to close the position because the option expires today. It turned out to be a good trade with limited downside pressure.

For the most part, I have been expecting the Bulls to cave in and the bears to have their way for a few months. Instead, I have been drastically wrong in this idea. Oh well, it doesn't matter as I am able to keep making individual trades and realize good profits. Guessing what the overall market might do is kind of a fools game. Their is too much to chance and any event can send the market moving in one direction or another. You have to remember that 90% of the players are just playing follow the leader and have little clue for themselves about what might happen. In other words, they have to listen to the "experts" before they can form their own opinions which of course are based on 90% of what the latest expert has said. Few traders actually think for themselves or go against the grain. No wonder why well over 80% fail in time. Do I think a 20% return is good for a trading year? NO WAY! Let's try for a 200% gain every year. When you think for yourself and follow your own plans, that is a very realistic goal.

UPDATE ON TRADING RESULTS SINCE MARCH

Thus far, in about 4 months of trading, I have realized a net gain of 69.30 points. That means a profit of just over $6,900 per contract traded. Or, an average of over 17 points per month. This is perfect for what my goal has been. Trading 20 contracts a month would result in gains of about $34,000 per month thereabouts. I suppose I can live with that. Of course, every month will not be so good. Considering some of the mistakes I have made and sometimes trading against the prevailing winds, I have done extremely well. It is not so important as to how many trades have been winners and how many have been losers or even what the percentage of gains as it is to sticking to the trading plan and limiting losses. That is the prerequisite for true success.

Full Speed Ahead

2007-07-12T11:36:00.000-07:00

To make money in the markets, you only need to be on the right side of the money flow. Apparently, that direction is up, as demonstrated by today's huge gains. It looks like 1999 all over again where everything is great and not a care in the world for anxious Bulls. What I can't figure out is that on average markets go up over long periods of time and since the vast majority buy stocks, why aren't more investors/traders rich? If all you have to do is buy stocks and hold on for magnificent profits, there should be many more millionaires. Instead of the majority consistently losing money, the majority should be filthy rich by now. Hmmm. Something doesn't jive here.

I closed the Potash (POT) position on July 11th for a loss of $1.70 ($170) per contract. The July 65 call option (PVZGM) was sold for $14.50. POT failed to regain momentum and dipped lower. Better to be safe and even today it is struggling to move higher by more than a point. Then I purchased a call option on Mastercard Inc. (MA) for $13.20. It was the July 145 call, symbol MALGI. MA was trading at $157.50 and near support after a pullback from its recent highs around $169. Today, I sold the position for $17.40 ($1,740) which resulted in a gain of $4.20 per option. The stock has traded higher, well above $165, which was my original target. I sold this one a bit too soon when MA was trading at $162.40. Again, it would be prudent to sell half or 2/3 of your position to lock in a gain and let the remainder ride the rapids. Over these last two trades, I have netted $2.50 points of profit. By doing that four or five times a month, you can make $100,000 trading 10-12 contracts over the course of a year. It is key to keep losses small.

A miracle has occurred in the ICE trade. I have held this one for 3 weeks and despite losing a good chuck of it's value, the July 145 call option (ICEGY) has smartly rebounded in lock-step with the stock. I sold the position earlier for $25.80. ICE was trading at $170.90 at the time. It is trading in new all time high territory. I gained $10.50 per contract on this trade and that after the option traded as low as $6.00. I previously discussed this trade and how this was not the way to make a good trade. I got lucky because there were circumstances surrounding ICE related to the buyout of BOT. Next time, I might not be so lucky and the stock continues to move against my position. That is exactly how so many lose their shirts and trading capital. Over time, these kinds of trades will catch up to every trader. That is why a stop-loss point needs to be determined before entering the trade. And it does no good unless you honor that point of risk control.

I have no open positions. I am not going to chase the market higher. At least not yet. I am looking at buying a call option on Air Products (APD ) and maybe Cummins (CMI). With the S&P 500 nearing its all time highs, I will wait to see what happens. Forget the Dow. This is only made up of 30 stocks and is easily manipulated by the big boys to paint a better picture that entices the public to get giddy about buying stocks. The Dow is the most meaningless index in the world. And of course, most non-professional traders/investors hang on its every point move. The S & P is far more meaningful as a measure of market action. The NASDAQ is the trading heaven for the non-professional; look back to the 1990's and 2000. I rest my case.

Grinding Higher...Be Prepared

2007-07-09T07:18:00.000-07:00

The S & P 500 is now only about 20 points from setting an all time high above 1550. This will be a key benchmark going forward. Especially with second quarter earnings now coming into focus, starting this week. I am still favoring the downside verses a blast off to new continuous highs. But, this of course, can not be ruled out. The Bulls just might be crazy enough to keep buying and let the market professionals suck in their hard earned dollars. Greed will lead to the downfall. It always does. This will never change.

Can I believe it? Intercontinental exchange (ICE) has rallied all the way back up to near break even. With the vote today concerning the takeover of The Board Of Trade (BOT), anything could happen with CME and ICE. Of course, this is not the way to trade yourself to financial freedom. The loss on this trade should have been cut short and then possibly re-entered at lower levels. I would now have a great gain to show for my efforts. This is exactly why you need to have a specific plan and follow it directly, one day at a time. All the while being open to doing things you are not accustomed to regularly doing. That is; reversing positions when wrong. Such as taking a small loss and then re-entering at a lower price when it appears the odds of a smart turnaround at very great.

The NYX position was sold on July 6th at $15.80 ($1,580). This resulted in a nice $2.00 ($200) profit on this trade per contract. NYX had rallied up to resistance at around $76.00. Today, it is trading near that price and could break lose to move higher. But it is still in a confirmed downtrend, so I will wait for some confirmation of a major reversal. Also on Friday, I bough the July 125 put option on Foster Wheeler (FWLT) thinking that it might be ready for a quick reversal that would be good for a few points. Wrong! It did trade down a bit, but quickly reversed to make new all-time highs. I had entered the position (UFBSW) at $13.00 and set a stop of $114 on the stock price. I raised my stop as FWLT began to move in my direction and had to sell when it reversed hard to the upside. I sold it for $12.00 and this resulted in a $1.00 loss. This also resulted in being a day trade, as well as a trade against the prevailing trend. If this stock was to break out to the upside further, without a close stop, it could result in runaway losses. That is what can happen when stops are not used and you trade against the major trend.

I entered another new trade this morning. This one is a trade with the trend. I have purchased some call options on Potash Co. (POT) for $16.20 ($1,620) per contract. POT was trading at $81.00 and near all-time highs. If the market continues to move higher, this one should make newer highs. I have set a stop of $79.50 (approx) to keep losses small. The upside target will be in the $83-85 area. The symbol for the July 65 call is PVZGM and it expires in two weeks. So far, the market has reversed and I am under water on this one.

Why is is important to trade with the trend in the majority of cases? Look at two recent strong stocks. Research in Motion (RIMM) and First Solar (FSLR). Both of these stocks have exploded to the upside and would have been great stocks to be trading. Going against the trend, despite meteoric rises already, would have been suicide. You cannot reasonably predict with any constant certainty how far a stock may go up or when its upward swing will definitely end. Chasing highs with more buying or trying to call tops is a high risk game. The same with calling bottoms, because it is so hard to tell how low is lowest.

As far as getting ready for the S & P 500 to challenge its all time highs, I am saying be prepared for the possibility of a major reversal and some truly serious downside action. The move to new highs in the S & P will certainly get the juices flowing for a major bull market into the forever as Bulls will be doing the happy dance with no thought of anything but more gains to come. GREED to the max. It will be the perfect time for Mister Market to deflate those bullish expectations and lay waste to the Bull's greedy plans. Just be aware of this possibility. Nothing is certain but uncertainty.

New Highs Coming?

2007-07-05T08:37:00.001-07:00

It appears as if the market is not ready to capitulate and sell off. It is very possible we will see new highs in the S & P 500 before long. That would mean prices trading above the 1550 area. This is at the trading highs way back from 2000. This could present a spectacular opportunity since a major double top could be forming or a huge upside breakout could erupt. I think the downside case is more plausible. But Bulls can be very stubborn before giving in; as they seem to like to chase new highs without a second thought of a reversal or major sell-off and the resulting loss of capital. It will be interesting. The current support area is around 1490.

I am still holding onto the position in ICE. And it is very much under water. A little over two weeks remain until expiration. I will give this one another few days to regain some upside momentum. The mistake has already been made and the position held much too long. This is the perfect example of how stops or risk limits need to be adhered to at all times. You can break your rules once in a while and you never know when that one time will break your account and shake up your otherwise sane psychology.

Two new positions were bought and sold during the last week. I bought the July 155 put option on Bear Stearns Co. (BSC) for $13.00 on June 28th. It was sold the next day for $16.50 ($1,650) which resulted in a nice gain of 3.50 points or $350 per contract. Also on June 28th, I bought a put option on Transocean Inc. (RIG) thinking it might be making a double top. The July 120 put was bought at $13.80 and sold on July 3rd at $12.20 ($1,220) and this resulted in a loss of 1.60 or $160 per contract. RIG has been trying to trade higher and is meeting resistance around the $108-109 level. No use risking a breakout with the stock still in an uptrend.

Today, I bought a call option on NYSE Euronext Inc (NYX) for $13.80. This was the July 60 call. NYX was trading at $73.50. The stop will be $72.00 and the profit target in the $76-77 area. This stock has been in a ferocious downtrend and this is a counter-trend trade. It currently is trading with a profit and appears to have some more upside.

Listening To Others

2007-06-27T08:30:00.000-07:00

It is often said that trading is a lonely business. That successful traders trade their ideas and do not trade other's. The truth is that most investors/traders do not want to do their own work. They want someone to tell them what to buy and when to sell. Look at all the services that cost money for advice and also the forums and chat sites (free advice). Actually, this blog is free advice in a way.

I believe to be a truly successful trader, one has to develop their own systems and trade for themselves creating their own trades. Witness this current trade I an still holding. Recently I purchased call options on Intercontinental Exchange (ICE). This is a stock that I have thought could do well over the next few months as it fights to buy the Board of Trade (BOT) with The Chicago Mercantile Exchange (CME) , with each company making counter bids.

When I entered this position, I was trading mostly based on some information I had heard from a well known and successful trader. I had not really investigated the charts or made any determinations based on the charts as I normally would do. The idea sounded reasonable and I ran with it. It wasn't a trade I had considered like I have done with the other trades I have discussed in this site. And sure enough, the markets have been roiling with fear and ICE has come crashing down. My position is heavily underwater by some 8.00 points or so. This is far from my normal stop loss procedure and risk consideration.

I simply have let this position run and forsaken all stop loss points. This position is still valuable from the standpoint of time remaining until expiration as the at-the-money options are priced at some $6.00 or thereabouts. This is not the first time I have been burned by listening to others. I have let myself become convinced that they knew better what was good for my money than I. That is a major sin in the world of investing and trading. You have to learn to fly with your OWN convictions and ideas. Depending on others for advice is setting yourself up for disaster. Letting others make your choices is so convenient because if things go wrong, you can always blame somebody else. The results in the end will most likely be failure.

I have decided that this position has been way over sold. I am expecting a fairly strong bounce in ICE before options expiration on July 20th. That gives me a good 3 weeks to let this position get back into profitable territory. However, this is not the way to become a successful trader. I am tempted to add to my position to lower my cost basis. But that is akin to betting good money on an already bad trade. That is another huge mistake that sinks to many traders. Yes, I have a major loss and it is my trade, and my responsibility. I made the mistake of blindly following some one's advice and it has thus far cost me dearly.

I plan to overcome this habit of listening to others. This is just another fault that I know I have to get past in order to continue to improve my trading. And that is why you always have the choice to be the trader you want to be. It takes realizing your mistakes and taking responsibility for the results. This is how a truly successful and prosperous trader is created. It does not happen overnight, but it can happen in time with persistence and the desire to learn from one's mishaps and errors.

Oh, by the way, where oh where have the Bulls gone? Yoohoo...are you there bully-bully? Just a few weeks ago, things were oh so rosy. What has happened? Maybe this time, the bargain hunting tactics just ain't gonna work so well. And just as I say that, no doubt there will be a blast off to new all time highs. Love it, really I do.

The Volatility Is Rising

2007-06-21T08:58:00.000-07:00

For option traders and traders over all, volatility is always welcomed. It gives us a chance to play the up and down moves. And lately, the market volatility has been rising. Today's earlier sell-off has reversed completely. The only question is will these gains hold into the close? And will they hold through tomorrow's trading?

This morning, I closed out the position in ATI for a good gain. With ATI trading at $106.55, I sold the July 125 puts for $18.30 ($1,830). This traded resulted in a gain of 2.50 points or $250 per contract. This type of profit is right in my zone. Like yesterday's trade in FWLT, I could have held somewhat longer and made better gains. However, it is unclear if the Bull run is nearing an end and a bearish cycle may be starting. So, it is best to take targeted gains when they come. There is too much up and down price reaction to sit around and wait. Gains could easily be cut in half or erased on a quick rebound or sell-off. I am happy with the way I am trading this market. I am making steady profits. That is what matters.

I have entered a longer term trade. At least that is my objective. I have purchased the July 145 call option for Intercontinental Exchange Inc. (ICE). I have traded options on this stock before. ICE is about $10 away from its all time high of $167 per share. ICE was trading at $157.10 when the trade was executed for $15.30 ($1,530) per contract. I think that ICE has a good chance of challenging its high and quite possibly breaking through. I had mentioned this stock a while back as an upside play after it had made a decent bottom. I think this stock could get to $180 in a strong upward thrust. It has zig-zagged its way higher by about $25 over the last month or so. I am willing to risk 3-4 points on this trade per option. That is about twice my normal risk parameter. The preliminary upside target is a retest of $167. If this happens I will make further allowances for capturing more upside. I will leave a specific upside target open for now. I have about a month until this option would expire. If the market has a strong downside move, I will sell out this position.

It Can't Happen Here!

2007-06-20T12:42:00.001-07:00

The markets are free falling heading into the last half hour. Of course this is all an illusion created by the Bears in trying to trick the Bulls into selling. We all know that won't happen anytime soon. It is after all June and the summer rally is about to swing into full power. Full speed ahead, and may the Bears eat our dust. This market is going to soar and Nirvana will continue at least 'till the end of the decade. Buy those dips and I don't mean at the ice cream stand. Come on Bulls, it's time to fatten up those positions with a bit more buying.

I have exited the Foster Wheeler (FWLT) put option trade a short while ago. I got out with FWLT trading at $105.90. I was waiting for a break of $106 and so thought I would close the position for a nice gain of $2.60 ($260) per contract as I was able to sell for $14.50 or $1,450. I still have the open position in ATI puts that has turned profitable.

The markets are continuing to crack as the Bulls head for cover. It is now possible the we have a nice big bearish double top put in place in the Dow and the S & P 500. This would allow for some more selling. However, until something really happens, like 2 days in a row of solid selling, the Bullies are still king of the street.

Going Against The Grain

2007-06-18T13:02:00.000-07:00

The markets held in tough today with little overall movement. Some individual stocks did well and some not so well. I still think we are a little long in the tooth for this rally and that the market will not bust through to new highs just yet. I hear that many projects for oil refinery expansion will be put on hold or shelved for the time being. That means that we will continue to have a delicate balance between supply we are able to provide and demand that refuses to fall very much. Oil companies are a bit fearful that alternative fuels will, in the coming years, replace some gasoline usage. Therefore, why spend billions on updating refineries when demand cannot be assured. This effectively means that supplies will be tight and prices will not be allowed to fall anytime soon. So much for the reprise from the inflation boogie man. He is alive and well and the only one who doesn't know it is the government.

I have just entered another position. I have bought some put options on Foster Wheeler Ltd. (FWLT). I have bought the July 120 put options for $11.90 ($1,190) with FWLT trading at $109.65. These options are about $10.40 in the money and therefore have some time value of about $1.50. That is for generally two reasons. First, they are not that deep in the money and second, there is still five weeks until expiration. The stock is at a double topping situation with the all time high at $110.37, which was made earlier today. The previous high was $109.90 about two weeks ago. So, either this stock is going to bust through this resistance or it will stall and fall. I will give this a stop of $1.50 and a profit target in the $104-105 area.

I am still holding the put options on ATI. They are slightly profitable at this point. Should we get a downside break of some dimension, these options should do well. I often think in terms of two kinds of trades. One with fewer contracts that needs a larger move to be profitable or a trade with many contracts that needs only a small move to do well. In my estimation, the smaller move is more predictable and carries with it a higher probability of occurring. The trick in this situation is to quickly cut losses if you are wrong in the trade. Big moves over several weeks or months cannot be predicted with a great degree of certainty ahead of time. It is only after much of the move has taken place, that it become apparent. This is in contrast to smaller moves, which always occur on any given day, especially for higher priced stocks. This is something to deeply reflect upon.

A Perfect Example of How Traders Lose Money

2007-06-14T11:05:00.000-07:00

The markets are again moving higher. It would appear that an all clear signal has been given and the rally is on again. Stocks are again cheap and so buyers continue to scoop them up. The famous rally call from the 1990's is back in vogue; buy the dips. Works every time up until the first time it doesn't. Never mind, this Bull has legs and will not stop for many more years. Do I hear Dow 40,000 anyone?

Early this morning, I sold the open put position on Flour (FLR) for $8.50 ($850) and this resulted in a loss of $2.40 points or $240 per contract. FLR gapped up a bit at the open and that was a signal to bail ASAP. By early noon, this option was trading at about $7.00, as FLR has broken to new all-time highs. In this trade, we have the perfect example of how traders lose their capital and eventually their accounts and ability to trade. Let's look at this a bit more closely.

First off, I had a profit of $2.00 ($200) per contract and this is generally in the area of many of my profit targets. Still, I could have sold, but decided to wait for more gains. Instead, FLR reversed hard and soon my gains vanished. So secondly, at this point, I should have sold for at least a small profit or break even at worst. That would have saved me from incurring any losses. Thirdly, the option traded into to my stop-loss zone of $1.50-2.00. The put option could have been sold in that area with a rather controlled loss. Instead, I decided to wait another day and proceeded to have my head handed to me by the Bulls. The loss was not devastating, but if I had not sold early today, it might have caused me to freeze and not be able to take the loss at all. That leads to bigger trouble more often than not.

My biggest mistake was letting a decent profit turn into a loss. And that happened by not following my trading plans and getting a little too greedy. Fortunately, this loss is not that severe. But the idea of getting away from a preconceived trading plan is somewhat disconcerting. And this is the very idea that traders need to be prepared to face. There will always come a time when you are staring down the barrel of a six-gun in the current trade and you have to make a decision. Your plan calls for you to make a decision. And it is often the failure of making that decisive decision that can start you on the road to ruin. It has happened to the vast majority of traders, believe me. If you think this does not apply to you, then good luck when your wake-up call comes and you are blind to it.

I have entered another trade just recently. I have purchased the Allegheny Technologies (ATI) July 125 put option. The cost was $15.80 ($1,580). ATI was trading at 109.75 and appears to still be in a downtrend. This is a steelmaker and recently Nucor (NUE) has come out and said that it's next quarterly profits are going to be short of expectations. This may or may not be an industry wide event. I will use a stop-loss point of $111.80 for this position should prices reverse from their current direction. The target downside will be the $106-105 area. So this is a similar trade to the one just made with FLR in that I am targeting about 4 points or so of profit. Since this is a July contract, there is a minimal time value of about $40-50 associated with this option.

I am hesitant to play the long side at this juncture. So I will try and get a decent profit on a sell-off of some kind. Not all stocks are joining in the Bull upsurge. Another thing to consider, and I should have mentioned it earlier, was that in the previous trade, I could have taken partial profits when I had them and waited to sell the rest of the position. This is often a good strategy if you have multiple contracts. Say you have 5 contracts and you are showing a profit. You can scale out of the position by selling 3 contracts for a profit and let the remaining 2 go for the ride. Then if those last two positions give up their gains, you can sell at break even and still have a profit on the entire position. This is what I love about trading. Their is no certainty per se, but a trader always has the option to create a trading plan to his or her liking to navigate the uncertainties in the markets. It is the execution of that plan that will ultimately decide your trading fate. If you don't believe that, just let experience teach it to you then.

The Importance of Controlling Losses

2007-06-13T17:10:00.000-07:00

All of the sudden, the Bulls came back from hiding and put on quite a show. I was a bit surprised by the strength of today's market. I really don't think that this is the basis for a new rally. I think this was a move higher that was mainly fueled by short covering. The retail sales data didn't impress me that much. And, sometimes these rallies are hard to see through since you get a lot of over-anxious Bulls just playing follow the leader. But I have to give the markets credit and perhaps the Bears have made their last appearance for a while. I am not crazy about being bearish; it is that everyone seems so bullish and it is easier for me to be different or be a contrarian. I am not sure where that comes from.

My latest position is now deep under water. Yesterday, the option trade in Fluor (FLR) was up at one point by $2.00 points. That would normally signal a sell, but I had my sights set on more profit. Now, it is in the red by about $1.70 points. Why didn't I sell when it came down to break even? It kept holding near there and I felt that this rally would fizzle out by the end of the day. I became involved in some other things and sort of lost track of the markets in the last 30-40 minutes. But that is no excuse. The prudent thing to do would be to sell when it came back down close to break even. Now you can see what can happen when you do not follow your rules and start making exceptions. My stop should have at least come up to break even and that would keep me safely out of trouble.

This is one of the main reasons people lose in the markets. They might get going good and soon forget their rules (if they even have any established) and soon enough disaster strikes. I think I can get out of this position with a still reasonable loss. That is my hope, unless things don't look so rosy at the start of Thursday's market. We will see. Take note, this is a lesson that needs to be learned for a trader to have continued success. As you progress in your trading career, you will find that things can get out of control very quickly. That is when decisive action is often required.

Options Expiration Week

2007-06-11T09:45:00.000-07:00

This week is options expiration. So, it is likely there could be some manipulation in the markets. Instead of selling off, the markets might hang up until after this week. That would be typical Wall Street action. I am still thinking that prices could head lower in the coming weeks. According to some research I have come across, 2007 could be the last year of this bull run. The next decade could present a significant downside sell-off that rivals the major breakdowns of the last 100 years. Of course, the majority will not want to believe that their precious upside bull market is about to crumble. No prisoners will be taken if this prediction turns out to be even half true.

I entered a new position this morning. I purchased a put option on Fluor Corp. (FLR) for $10.90 ($1,090). The option is the July 115 put, symbol FLRSC. Fluor was trading at $104.40 when the put was bought. The stop loss target will be $106 or there abouts. The all-time trading high is $106.60, reached just a week ago. Since that high, FLR sold off to $99 before the current snap back. I am thinking it will be range bound at best and fall lower if we can get some downside action. For now, the $99-100 area will be the initial profit target, depending on the market action if it gets back down to those prices.

Bears About To Go On A Feeding Frenzy

2007-06-09T14:24:00.000-07:00

Well, it has been a while since my last post. Some unforeseen circumstances kept me from keeping up with this site. But, for the time being, I should be able to make regular entries. Has anything really changed in my absence? I think so. The Bears (not the team from Chicago) have made an unwelcome appearance. The Bulls were none to happy to see some of their inflated profits go up in smoke rather quickly. So that begs the question of the possibility of more selling and if it will become serious. Let's look at this for a minute.

Of course, opinions are a penny a gross on Wall Street and what I have to say means little to the direction of the markets. But if you are parked in the bullish camp with the idea that markets only can rise, then you are in good company. Many are hunkered down in this camp with no idea of the destruction that could befall the markets. I believe the markets can have a gory sell off at any time. We are well overdue for a massive scalping of over-enthusiastic Bulls whose greatest feat is keeping their heads stuck in the sand. I am not trying to be anti-market, anti-economy or anti-America. I just love to see a two-way market with ups and downs. Believe it or not, there is often more and faster money to be made on the downside. Many weeks or even months of profits can be wiped out in a few days or in a week.

I think earnings and the overly-massive liquidity bubble worldwide is what is keeping this market going. The bubble will eventually explode and the carnage will not be pretty. And earnings are suspect to any serious scrutiny. As I may have stated before, prices are determined from earnings and PE ratios. The earnings can be misrepresented in any number of methods. The biggest being shares outstanding; as this directly affects earnings per share. Creative accounting is running rampant in corporate America as well as in the government. This is similar to the creative financing that has done in the housing market.

As stock prices rise, it becomes so easy to think that they will always keep rising. When is it ever enough? Wall Street pros love to see the public bid up prices as they chase nirvana in the form of more and more profits. It is only on paper or in book keeping form mind you, but nonetheless, traders and investors are setting themselves up for major disappointments. That is because the majority will hang on far too long as they become mesmerized by the magic of higher and higher prices. It happens all the time and it will happen again. The "this time it's different" crowd will find out soon enough. The Bear is alive and well, lurking and prowling and ready to strike fiercely at any moment. So, learn to trade the downside action and be redeemed. But most of you will only be buyers and in that, you have no one to blame but yourself when the markets deliver your head to you on a silver platter. Pass the salt and pepper please.

The last trade I entered, on May 30, has turned out to be an almost perfect call. It happens sometimes. Cummins Inc. (CMI) did exactly (almost) what I said it would do. I was kind of surprised, but I feel I am entitled to make an excellent call once in a while. On Tuesday, June 5, CMI blasted higher and almost hit $102. My profit target was around $99 and so I sold the June 72.50 call option (CMIFV) for $27.40 ($2,740) with CMI trading at $100.15. This resulted in a profit of 11.00 ($1,100) per contract. RSI 5, at the time, was hitting above 95 on the scale (1-100) in the 60 minute charts, and I took my profit without thinking twice. The stock fell back, retested its high that same day, failed to take it out and proceeded to drop 10 points over the next 3 days. No new trades have been entered since then.

I have currently been re-reading a great book about trading called Reminiscences of a Stock Operator, by Edwin Lef'evre. This book dates back to 1923 and it considered to be the ultimate classic by many. It's fabled truisms bear wisdom as much today as it did 84 years ago. This book is a must read and a must re-read. There is much to gain by going through this book and paying attention to the story of trader Larry Livingstone, aka Jesse Livermore. This is proof deluxe that markets never change, and people's emotions never will either. If you get nothing else from this book, at least understand that survival in the markets is directly related to the amount of humility you possess. If you need further proof, then keep trading!

IRS Attacks China

2007-05-30T08:31:00.000-07:00

From what I have heard, the Chinese government is adopting IRS tactics in raising taxes on its prosperous citizens. I think they have enrolled an army of IRS agents to come over and show the government how to squeeze every last dollar out of the more prosperous. And, make it seem like the IRS knows what is best for all in the bargain. Welcome to the wonderful world of a wasteful government that has to raise taxes to cover up it's gross inefficiency.

This morning, I was stopped out of my position in Apple (AAPL) for a loss of $1.70 or $170 per contract. The June 130 put option (APVRF) was closed out at $14.80. AAPL was trading above $115 and making new highs. This trade definitely was higher risk because of betting against a strong trend. Even with the markets trading in the red today, AAPL is fairly strong.

I entered a more tranquil trade just a short while ago. I purchased a call option on Cummins Inc. (CMI) with the stock trading at $88.50. I bought the June 72.50 call (CMIFV) for $16.40 ($1,640). This option still has over 2 weeks before expiration. CMI has been trading in a tight range for the last 4 weeks, basically between $92 and $86. This, after spiking to new highs a month ago at about $107. Since this stock has not fallen lower, I think it could have a nice little pop to the upside relatively soon. This option is $16.00 in the money, and there is only about $40 of time premium in this trade. I plan to hold this one for more than a few days. I will use a fairly generous stop of $2.00 and might let this trade fall to the latest lows around $86, before closing the position. The upside target will be a test of the basing highs, around $92. If it can break above this level, it should move toward $100 fairly quickly. Happy trading.

New Position in Apple

2007-05-29T09:09:00.000-07:00

This morning, I have purchased a put option on Apple Inc. (AAPL) which was trading at $113.65. The option is the June 130 put (APVRF) and it cost $16.50 ($1,650). The stop will be above the recent highs of $115 at about $115.25. Apple tested its high of $115 this morning and has pulled back. The target will be a move back down to test support around $110-111. The markets have been up this morning, but I think it is just the usual number of over-the-holiday bulls that like to buy every time on the first day of the trading week. I am leaning toward some downside action over the next month or so.

On the market overall, it seems to me that takeover fever and buyout mania are about the only things keeping this market from a semi-serious sell-off. All the news has been mostly positive and earnings have come in relatively well. So, as I see it, most of the good news has been factored into prices.

Speaking of earnings, they are a function of the number of shares outstanding on the company books. And many companies have been buying back shares and thus creating a manipulation factor over the last few years. As far as understanding the true health of a company, earnings per share is not always accurate. And as far as valuations go, that is a function the PE (price-earnings) ratio. Whatever the market decides is the proper PE for a stock to trade at, is what we see in the markets. There is no set standard for most of PE pricing of stocks. Almost anything goes and anyone can make up some justification for a specific PE ratio for any one company.

Look at Amazon (AMZN). It is trading at about 65 times this years expected earnings. It is priced for perfection over the next several quarters. For a company that has struggled to increase performance over the last 6 or 7 years, this is silly. This is not a great growth stock and it's profit margins are only about 2%. A PE of 35-40 would be much more fitting for this kind of company. It is extremely overvalued, as far as its future prospects go. But then again, Wall Street knows best and who am I to argue with insanity. It is so common on the Street, that it is normal everyday behavior. May profits continue to line the pockets of all the crazies.

So Predictable

2007-05-25T07:44:00.000-07:00

You know we are in a strong market when you never get 2 or more down days in a row. Sure enough, all is forgotten from yesterday and the markets are rallying. I don't know if this rally will hold into the close, since there is another 5 hours of trading. These are the times when it is easier to go with the flow. It won't always be so nice for the bulls. That will separate the consistent profiteers from the soon to be broke losers.

This morning, I have sold the Potash Corp. (POT) options for a good gain. I am not going to look a gift horse in the mouth. I sold the call options (June 180 PVZFP) for $21.30 ($2,130) with POT trading just above $200. The stock had a nice rebound this morning as presented on the 60 minute charts using RSI set to 5 periods. A deep oversold condition has been partially relieved. This trade gained $4.50 or $450 per contract. The last three trades have worked very well for a total profit of 8.50 points per contract. I will take that all day long. Sure, the previous BSC trade is up another $2.00 from where I sold it yesterday. But, this is not an exact science, but one based on probabilities and sound account management. As long as my profit targets are being reached, it is prudent to follow this course of action. That is because this market will eventually change and many bulls will get their greedy horns handed to them. It happens every time. And I will still be playing the market because my strategy will work in any situation. That is the difference in targeting smaller gains. You don't need monster rallies to make a decent buck. The consistent dollars add up over time.

Repeat After Me...

2007-05-24T11:16:00.000-07:00

Repeat after me, the markets can't go down, the markets can't go down.... See, all better. It is only an illusion that many stocks are heading lower today. Just you wait, tomorrow it is back up to the moon and beyond. After all, we have a long way to catch up to the China market and its 50% gain over the last 5 months. Come on bulls, keep 'er going, higher and higher. So high that we can't see the bottom...Ok, I am being a bit sarcastic. It just drives me crazy how the markets work so well. I wish I could be as efficient.

A few minutes ago, I closed out the Bear Stearns (BSC) trade. The June 165 put option (BSCRM) was sold as BSC reached down toward recent support at $148.55. I sold the position for $16.30 ($1,630) and that was good for a $3.00 profit per contract. This trade worked out well even though the position was about $1.50 in the hole and near a stop out point. I had been watching it closely and with the big market reversal, I felt this position could work out. I did not enter any new positions.

One trade like this a week with trading 15 contracts and I just might get to liking this. I see many higher priced stocks looking like they have made their highs for a while. Looking at the charts, several have pulled back 5-10 or 15 points off of their recent highs. The thing to look for now is a retest of some of the highs. If many secondary tops are forming, it could get a little rocky for the stampeding bulls. Of course, many a trader will be happy to keep buying as prices slid. They always think they are getting a bargain based on recent price action. But at some point, you have to plan for profit taking to lock in those gains. Many of the pros might be ready to book some gains and use some of the proceeds for a nice long summer vacation.

I'm back. I just entered a new trade. I have purchased the Potash (POT) June 180 calls (PVZFP) for 16.80. POT was trading at $194.80 and is down about $8 today. The recent high was $209. On the 60 minute chart, this stock shows a rather steep decline. The RSI5 reading is at 10, which is very oversold. Usually when stocks get this oversold so quickly, they rebound sharply, especially when in a bull market. There is about $2 of time value in this deep-in-the-money option. So any upside will be eaten up somewhat by this over-value. The market makers jack up the prices on deeper in the money options to protect themselves. This is true when volatility rises, as it is now. I will use a $2.00 stop and try to hold the position for a
$2-4 gain if the stock rebounds.

Going To The Moon

2007-05-22T07:53:00.000-07:00

I does look like the markets are going to just keep rising. Hopefully we will hit 20,000 on the Dow by the end of the year. No problem, since the bears have all become bulls. That means there is no one left to sell. And that means the market will rise and rise and rise. Glad I got that figured out. I never knew it could be so easy.

I jumped ship this morning by closing out the First Solar (FSLR) put option trade. This stock kept holding above the previous upside gap. I sold the options for $17.20 ($1,720) as FSLR is beginning to rally. This gave me a $1.00 gain on the position. I thought it might dip into the gap and possibly close it before heading back up. Yesterday, the option traded above $18.00, so I missed my normal 2 point gain. With the market so strong to the upside, I was fighting this trade most of the time.

I admit that I am fighting the tide when I buy put options. It would be advantageous to just buy calls and take my chances. Everyone I listen to is saying the there is still enough fear in the market to keep it going higher. And that would be accomplished by continued short covering. So, I am wondering just when I need to be a bit skeptical so as to not get my head handed to me when and if the bulls decide to go to the beach and leave the bears in charge? Loftiness is a matter of opinion, I believe.

Markets do tend to keep moving higher. Most people would rather be buyers and continue to keep buying. So, this has me wondering why there were not more successful traders and investors in the period from 1982 to 2000? If it was so easy, all we would have to do is buy and wait for everything to hit the roof. Why did so many wash out and loose major gains? Look at the markets today. On a smaller scale, the same thing is happening. Just throw your cash into the market and watch it be swept to great gains by the prevailing winds of fortune. Everybody is buying and buying and everything is moving up (mostly). Piece of cake, as I see it. Another round of millionaires can't help but be born in the next few years...Right?

It is late in the day and I have purchased a put option on Bear Stearns Co. (BSC). With the stock trading at $152, I purchased the June 165 put option (BSCRM) for $13.30 ($1,330). This stock is well off of its highs of about 3 months ago. It has retraced from its recent low of $148, which is minor support. It is now up in a minor resistance area and looks to roll over. I will use a $1.50-2.00 stop. This is a good resistance area ($152-154). The stock has been acting weak for quite a while as worries about its sub-prime lending exposure continue to affect the stock. The target will be a trip back to the recent lows of $148. I think the market is looking a bit tipsy here. Of course, I am one of the few. With BSC in a downtrend over the last 4 weeks from $159, I like the probabilities that it will continue to slide south.

Update

2007-05-18T08:28:00.000-07:00

This morning, the First Solar trade (FSLR) has gone back into profit. FSLR is trading down over 2 points and the put option is up about $1.00. Yesterday, this position took a lot of heat as the option traded as low as $14.40, which gave me a loss of $1.70 at the time. This was right at my stop point. I decided to hold the position based on the resistance above $65.00 in FSLR. I would have dumped this position if FSLR had made another run at $66.00. I expect this stock to bounce back a little as it is short term oversold. Then, I would like to see it trade down another dollar or two. If it reverses from here, I will sell at break even.

A New Position

2007-05-17T07:44:00.000-07:00

Today I purchased put options on First Solar (FSLR). This stock recently hit a high of about $72. It has been trending downward and I am thinking it might pull back enough to fill the upside gap from two weeks ago in the $59-62 area. I bought the June 80 puts (QHBRP) for $16.20 ($1,620) as FSLR traded at $64.30. Although I usually don't look too much at fundamentals, this stock has a PE of over 200 and a market cap of almost $5 billion. That is about 25 times its sales. This stock is riding the solar energy wave which is due to cool off for a while. But it is a Chinese stock, so who knows where it might go. I will risk about $1.60 or so on this trade. If it continues its downward slide, the gap should get filled. This would result in about $4.00-5.00 profit.

Respectfully, the Dow is due for a pullback as it has ramped from 12,500 to almost 13,500 without gasping for air. The S&P (500) has been on a similar tear. The NASDAQ appears to have topped and is looking to roll over, The Russell 2000 has made a short term double top and is rolling over. A correction of some significance might be in the offing and would certainly shock the slumbering Bulls. As I recall, markets only go up; well at least most of the time. So, the probable correction will be put off for eternity. Things are just too perfect for the markets to go down for very long. Hmm, I don't mind being a bit sarcastic as it keeps a shred of realism ensconced in my reasoning. Bulls have a tendency to overstay their welcome and the many who have enjoyed lusty profits become the majority that give them right back. That is the tune of Wall Street.

It's A New Paradigm

2007-05-16T12:35:00.000-07:00

It's a new paradigm on Wall Street. The Bears have finally been eradicated once and for all. Well, that is a relief. Now we can enjoy towering upside moves with no worry about a sell-off. Everything looks to be perfect. The war doesn't matter, housing doesn't matter, energy prices don't matter and neither does growth in the economy. It is plainly up, up and away as the Bulls storm the ramparts and take no prisoners. The coming liquidity crisis has been put on hold. There is just to much money floating around in the world and it has to go somewhere.

On May 14th, I purchased a May 135 call option (RFYEG) on Research In Motion (RIMM). The cost was $13.70 ($1,370). Today, I sold them for $16.10 with RIMM trading at $151.15. This trade gained $2.40 points. Also, on May 14th, I bought the May 145 put option (BDQQI) on Baidu.Com (BIDU) for $11.70 ($1,170) with BIDU trading at $133.75. This price was close to the longer term double top formation BIDU has formed, for now. So I took the risk that the stock would not break through to new highs. I netted $2.50 ($250) per contract on this trade as I sold the options for $14.20 as BIDU traded down to $130.60.

The latest trade was entered on May 15th. The May 160 call option (KDUEL) was purchased on the stock of Sears Holding (SHLD). I paid $17.40 (1,740) as SHLD traded at $177.00. This stock was somewhat oversold short term. I closed the position early this morning by selling the options for $19.40 as SHLD popped up to $179.60. It continued to move slightly higher before collapsing in mid morning. This resulted in a nice gain of 2.00 points.

For most of these trades, I am risking $1.50-2.00 per contract. Since early April, I have executed a total of 13 trades. Eleven have been winners and two lost money. By easing in and then easing out for short gains, I have been able to accomplish my goals. The net gain has been $29.30 ($2,930) per option, not including commissions. I would have to subtract about $3.40 to include trading costs. I have averaged about two trades a week. My goal has been to net $15.00 points in a month. Trading 10 contracts would give me about $15,000 over a month. And I can trade for the same commissions as with trading only one contract.

I have been successful keeping my losses small, except for the ATI trade. That is key. I have traded with the trends and also made a few counter trend trades. You might wonder why not buy 2 or 3 positions and hold them for a longer period. I am not sure how long the trends are going to last. That only becomes apparent after the fact. Many of the higher priced stocks that I trade options for, have been making new highs. I am not totally convinced that they will just keep going higher indefinitely. Therefore, I am satisfied to take smaller, targeted gains. As you can see, they add up. In this case, trading 10 contracts would have netted about $26,000 in about 6 weeks. This could be accomplished with a $40,000-50,000 account so that multiple positions can be traded. If trading only one position at a time, a $15,000-20,000 account could do the trick with slightly less profits. Again, the key is keeping losses under control and targeting specific gains. You simply take what is given and don't give back too much.

Most professionals trade in this manner. They target smaller gains and keep losses to a minimum. This creates consistency which allows the smaller gains to really add up over time. Trading in this manner also reduces risk as you are not exposed as often to market action which may go against your position. You can create your own trading plan and with practice, learn to execute it virtually flawlessly. Sure, you can practice in a paper account, but the real learning comes by getting down and dirty in the trading trenches. You have to put your plan in the face of fire and see how you make out. Then keep adjusting your system, always keeping a loss strategy on the front burner.

Complacency Is Building

2007-05-13T18:29:00.000-07:00

It will be interesting to see if the bullish crowd can continue to get more investors to plow into the markets. Somewhere along the line, the profits will get too good to be ignored. When that time comes, the sell-off could be rather forceful. There should be some indications of the coming meltdown as stocks make secondary highs. That is; they fail to blast past their most recent high. Is that scenario actually possible? We are in trading Nirvana aren't we?

Take notice that when some of the high fliers sell down how quickly several days or weeks of built up profits disappear in a much shorter time. This is why you have to be quick and decisive when playing the downside. These moves can be so quick that the best profits are often made in the first few days.

If the secondary highs are challenged, it is usually a slower process. That is because few believe that the rally could actually be over. They wait in expectation for the market to continue to rally to new highs. Whatever the catalyst might be to cause a sell-off, it likely won't be enough to cause a major route. Eventually, to the horror of the bulls, many of their profits will be instantly erased in a short time. For those who have failed to secure profits, which will always be the majority, deep disappointment will set in as hard earned profits go up in smoke. And for those who have managed to take profits and then partake in the downside bashing, gains will be seen that might dwarf those taken from the upside action.

Prepare now for the impossible, for if you wait you will likely be caught in the downdraft without a clue as to what to do. Meanwhile, gains will be shrinking and doubt will be creeping in. Without a plan of operation, you will end up giving back your gains and then some. It happens every time as traders fail to expect the bears to make a show. And it is wise to consider that the bears take no prisoners.

myLot User Profile

Another Market Illusion

2007-05-10T17:38:00.000-07:00

No way the markets sold off today. It was all an illusion created by disgruntled bears. Watch and see if the bullsters come charging over the hill and get the ball rolling to the upside again. A sell off? Out of the question. We all know that markets do not sell down and stocks do not lose value. That is anti-American, to say the least. And it is also a forbidden practice on Wall Street, that is to hear the bulls tell it. And that is all there is on the Street; bull(s).

Today, I sold my Research In Motion (RIMM) May 170 put options at $18.20 ($1,820). They were purchased yesterday for $15.40. I waited until the end of the day to sell this position with RIMM making new daily lows as it fell below $152. The options in the last few minutes ticked up to $18.80 at the bid as RIMM cracked the $151 level. I decided to take my $2.80 in profits and run for the hills. I would not be surprised to see RIMM quickly gain back several points on Friday. I didn't add any new positions. But Potash has finally pushed into the mid 190's, so I missed some gains by selling too early. That is the life of a trader.

I talked yesterday about the CNBC stock picking contest. I managed to move to #7100 at yesterday's close. The only way to come close to winning one of these contests is to bet the farm on one or two new positions almost every day. And then hope you catch a few big movers or higher leveraged swings...that is buying a lot of shares of a low priced stock. It is fun to play in this kind of contest and test yourself a bit. I know it is only play money, but you can do a few things that you might want to do in the real world. Things like quickly jettisoning losers and taking the time to find a few good potential plays using your own stock picking prowess.

This strategy of buying deep-in-the-money-options is something I have just recently taken a liking to. This is my vision for the future. I feel that I could average 15 points ($1,500) of trading profit per option, per month. By trading 20 contracts at a time, This would equate to an average of $30,000 a month (20 contracts X $1,500). Some months I might only make 5 points. Then, I might have a great month and haul in 30 points. This would work out to about $300,000 a year with 10 months of trading. This might seem impossible, but I don't think it is.

If the markets slow down and trade sideways, it makes it harder to trade out-of-the-money options which have more time costs associated with them. Of course, many will argue that it is wiser to sell options under these conditions. So be it. The higher priced stocks typically make moves of 2, 3 or 4 points even if they are moving sideways. Therein lies great profit potential. Moves of $2-5 for higher priced stocks are very common. They say that markets only move about 25% of the time; that is, when they have a trend rally. So, I guess this would be putting the probabilities in my favor. I like to buy options and with proper money/risk management there are great profits to be had.

Last but not least is the idea of Spiritual Trading. You may be asking if there is such a thing. Little do you know the hidden secrets of Wall Street. Yes Matilda, the spiritual side of everything is viable. And you can bet your last dollar that their is a spiritual side to every equation in real life. That certainly includes the money equation. And since trading involves money, there just might be another reason why you fail to make millions in the markets. More on this at a later date. Right now, the Gods are watching you, and I don't mean the kind of Gods found in religions. Have you said your prayers of thanks today? Talk about secrets to the prosperity we all so richly deserve.... It will be fun for me to augment this idea to the max.

No End In Sight

2007-05-09T12:38:00.000-07:00

Uncle Benny (yawn) decided to do nothing today. All is well with the economy and the world. The markets are rallying as if it was the late 1920's all over again. Curious! I guess we just gotta ride that bull to the moon, 'cause he ain't letting any bears make a profitable trade.

I sold the May 120 calls on Intercontinental Exchange (ICE) today for a good gain. Suddenly, just after the Uncle Benny Show, the stock of ICE took off, climbing about 4 points in 15-20 minutes. I sold the options at $18.40 ($1,840) on the fly, as ICE traded past $138.60. The gain equated to $4.10 ($410) per contract. It happened so fast that I didn't think twice about taking a profit.

A while later, I spun the wheel of market fortune and grabbed some Research In Motion (RIMM) May 170 put options. As RIMM has been up about $8 today alone, I am reasoning that this stock could pull back about half that amount after the monstrous surge of the last week or so. I paid $15.40 for the puts (RFYQN) with RIMM trading at $154.90. This might be a suicide trade in that I am fighting strong momentum. RIMM has broken out to a new all-time high. The breakout point is at $149. I am kind of thinking that RIMM might come back to retest this point since I am one of the few who still believes that stocks retest those critical price points. We will see. I will risk about $1.50-2.00 to see if I will be handed my head or a decent payoff.

How about scaling out when selling? Let's see how this might work. I sell part of my position at a certain price, thus locking in some profit, and hold the remainder in the hope of realizing additional profit. If the price goes down, then I will sell to avoid giving up any more profit. When this happens, I might wonder why I just didn't sell the entire position and be satisfied with the profit. Then, if the price moves higher and I sell for a slightly higher profit than the first sale, I will be wondering why I didn't have the patience to hold for greater gains on the whole position. This is something that has to be addressed in your trading plans. You will seldom capture maximum profits and have to determine some point of profit that gives you a gain you can live with.

I have been trading in the CNBC stock picking contest since its inception. I have managed to climb into the top 10,000 traders (top 1%) after falling below the 100,000 level. As far as I know, there a about 1 million people in this contest now. This is the last week. Although I haven't won anything, I am happy with my results. In some respects, it has made me look at things a bit different. I have no doubts that in real trading I could take a million dollars and at least double it over a year. Even if the market goes down 20%, I know that by trading options I could do quite well.

The key to mine and your success will come the moment you decide on a lock-out-loss strategy. In other words, a permanent dedication to capital preservation by taking small losses and controlling risk. When you can gear your thoughts towards planning for the impossible (like a stock selling down) , you have created the possibility of long term survival by dealing with position risk. Trading is a marvelous way to learn about yourself and how to survive when your hard earned dollars are on the line. Contrary to popular belief, there is plenty of prosperity for all in the markets. You simply have to have the desire to claim it.

Managing Losses Is The Hallmark Of Success

2007-05-06T15:15:00.000-07:00

On Thursday, May 3, I sold my position in Potash (POT) for a nice gain. The May 165 calls (PVZEM) were closed out at $23.70 ($2,730). This resulted in a nice gain of $7.80 ($780) per contract. I had expected POT to explode higher on the news of a stock split. This didn't happen so I decided to close the position and book a good profit. In effect, the stock moved from $179.30 to $188.30 which is a $9.00 difference. The option gained $7.80. The difference of $1.20 was eaten up by a bid/ask spread of .40/.50 and the time value attached to the option. It eroded as the option gained in value and moved deeper into the money.

I have no positions open at this time. I will be looking to make a few trades this coming week. Can the markets keep blazing ahead to new highs? Will the S&P 500 finally challenge its all-time high, only some 20 or 30 points away? May is not usually a good month for the stock markets. And the June-August period is often a slower time for trading in the markets. That is because the successful traders are taking time off to get in some R&R while the getting is good. And why aren't you one of them? With the market blazing ahead in blissful-bull fashion, you would be hard pressed to find anyone that has not made a bundle over the last 10 months. Right?

So, with all this monstrous success the bullsters have enjoyed, it seems to me that 90% of the trading world will be on holiday for a month or two during the summer. I would be guessing the market might as well shut down for July and August. There will be no one left to trade. Except for you and I, perhaps.

I think the main reason that the professionals are so profitable is because they have mastered the one major stumbling block that keeps the majority from enjoying true trading success. And that is the management of risk through a formulated plan to control losses. It comes down to this; fail to keep losses under control, and you will fail as a trader, every time. Can you think of any other reasons why so many traders blow their accounts out of the water? You start trading because you have capital to work with. You stop trading because you were so generous and gave all your capital to the market wolves. How did that happen? No controls in place to limit losses. That is the main reason you have not joined the ranks of the prosperous traders. You can get a lot of parts about trading wrong, like entry or picking the wrong stocks, but irregardless, you always can exercise control over your losses. You cannot control price after entry, only the amount you surrender to the market predators.

This is a part of self-discipline. Learn to manage your losses and you can succeed beyond your wildest dreams. Think about this. Have you mastered this concept? You can't just do it in a paper account. You have to be in the trenches, forging your way into trading profitability. It takes time and self-assessment. It also takes much patience and persistence. These are attributes that many never master or create for themselves. Trading behavior can be learned; however without the discipline to apply that learning, you will suffer major losses sooner or later. That is the destiny of the majority of traders. And they meet that destiny simply because they do not prepare for the worse. I didn't say expect the worse. Most traders expect nothing but profit after profit. Do you have an open mind? Can you see that your trading career will eventually come to a screeching halt without executing risk control on EVERY trade? Or, you may be one who will never have any losses since you are a master stock picker. See you in the trenches.

When You Fail to Follow Your Plan

2007-05-02T16:59:00.000-07:00

Last Monday, April 30, I sold my position in ATI for $7.50. This resulted in a $5.00 loss on the position ($500 per contract). I had a small gain in this position and decided to hold the options into the earnings report. This was not a good decision. Then I decided to hold this option thinking that ATI would bounce back after the sell-off. Wrong! The prudent thing to do was to set my stop-loss at break even after the position had moved into profitable territory. Actually, this position today was trading in the $4.00 range. This magnifies the importance of having the discipline to stick to your guns. You might get lucky violating your rules once or twice, but the market will always trap you in the end. For that very reason, it explains why so many traders fail in their rather short-lived trading careers.

On May 1, I purchased a call option on Sears Holding (SHLD). The option was the May 175 call (KDUEO) and the price was $14.60. The stock was trading at $188.50 and had pulled back from its recent highs of $195. This resulted in a nice rebound trade as I closed the position the same day. I sold the calls for $16.70 with SHLD trading at $191.10. This is the type of trade I like to target. These smaller $1-3 gains add up. I also bought a deep-in-the-money call option on Potash Corp. (POT). This stock has been smoking (no pun intended) and had pulled back. I bought the May 165 calls (PVZEM) for $15.90 as POT was trading at $179.30. Today, this position moved into profitable territory with the options trading above $18 at one point. I am still holding this position for some more upside. And guess what? POT has announced a stock split and I see the after-hours trades hitting the bid at $187. I expect this stock to test its high near the $194 area tomorrow. My plan is to sell into the strength of frantic buyers, and those who are covering shorts. Hopefully, this option should easily trade above $25.00.

I have been thinking about what might happen if a trader were to trade without a system. By this I mean, enter trades randomly and use a strict stop-loss strategy. After all, many professional traders are happy to profit on half of their trades. So, by this analogy, stocks have about a 50% chance of moving in either direction anyway. Once a trade is entered into, it is the exit point that determines the profit or loss. As long as you don't chase highs with buying after a strong move or chase lows with selling after a strong sell-off, this method of trading can work. At least I believe it can.

If you trade in higher priced stocks, and therefore the related options, you can get good sized moves in either direction. Timing the perfect entry is a waste of effort. How often does that moment arrive? It is always fully visible after the fact. If you use a small portion of your capital, you just enter the trade and see what happens. Of course, you have to be disciplined and honor your stop-loss. Is this really any different that using a system? So many systems fail over time or never realize any kind of profitability. Random entry is very possible to profit from and is directly related to the exit point. For all the energy put into attempting to get the entry just right, many traders forget to target the exit and keep their losses small and controllable. That is if you have losses while trading (see next paragraph).

Time and time again I run into sales pitches for this system and that advisory. It is always disconcerting to see the profitable trades highlighted. It is as if these traders never have any losses and their returns exceed 200-300% a year. Again, since we are deeply into the new super-bull market, we all know that stocks will never sell-off again. I mean, come on, the Dow 30 is making new highs almost daily. And if 30 of the biggest and baddest stocks in the universe are making new highs, it has to follow that all the other 20,000 stocks are moving in lock step. So I guess the drivel these services are spouting has to be true and accurate. Then how come I am the only one experiencing losses while trading? I always knew I was an oddball and different from the masses. I guess this proves it without a sha(DOW) of a doubt. Well, it will be a little sad as I become the only trader who doesn't own half the planet by the end of the year.

Is Everybody Bullish Now?

2007-04-29T14:43:00.000-07:00

The markets keep going up and up. I guess this means that everybody is pretty much in the bullish camp. Thankfully, we won't have to ever sell again because stocks will keep rising into forever. So this means we can just keep buying and all will be well. Whew, I am glad I got that figured out.

On April 26, I sold an option I had bought on the stock of Advanced Magnetics, Inc. (AMAG) for a profit of $1.10. I had bought the May 50 call (AMVEJ) for $17.30 ($1,730) and sold it for $18.40. AMAG failed to break above $70 after reporting earnings. This appears to be a secondary high.

On April 27, I sold half of my position on NOV for a nice profit of $5.30. This option, the May 65 call, had been purchased for $14.30. This trade was made early after the morning open. I sold it at $19.60. Later in the day, National Oilwell Varco continued to move higher. It's earnings report was very good and prices moved to new highs. I decided to not be greedy and sold the other half of the position at $21.30, for a gain of $7.00.

I am still holding the position on ATI. Despite not moving to a new high after reporting earnings, I feel like this stock could eventually regain its momentum. I have been holding with a loss of $2.00-3.00. So in effect, I violated my stop-loss point. I did this because I thought that much of the selling was simply profit taking on the good earnings news. Also, with the gains in other positions, I could afford to hold this stock a while longer. Yes, I made an exception to my trading rules and yes I could have been burned at the stake. I will give the position a few more days to come around.

Lastly, I was holding BIDU for a while expecting it to continue its downtrend. I finally closed the position for a slight gain (previously detailed). If I had held the put position into the earnings report, I would have been devastated on this trade. BIDU rocketed up some 20 or so points in one session. This also exhibits the skill of being able to reverse a position. Had I been really awake, I would have noticed that this stock stubbornly refused to go any lower. That is usually a sign that it has only one direction to go...and that is up. But in my thinking, I was stuck with the thought of more downside. This is like trading with blinders on. Of course, this come to light after the fact, but I only wish to point out that it can be a highly profitable skill to be able to think in both directional probabilities. This is flexibility at its best. I hope to be able to allow myself to see the other side more often. It is only the mental stickiness that keeps the trader glued to one side or the other. As you will learn and contrary to the current bullish parade, stocks do occasionally sell down.

Markets Breaking Out

2007-04-22T15:18:00.000-07:00

Late last week, the markets staged a fairly energetic upside breakout. Propelled by earnings, the bulls overwhelmed all sellers to stampede prices higher. Can the markets continue to plow higher? Maybe. With the Dow moving up toward the 13,000 level, the S&P index is still below its all time high reached in 2000. But not by much. I expect that the S&P's will at least test this area above 1,500. Perhaps the key might be how the NASDAQ performs while the major indexes smash higher. The NASDAQ is nowhere near its all time high, which is above 5,000. That might not matter. The large cap stocks continue to outperform the smaller cap stocks. I don't think this will change in the short term.

The put option on BIDU was sold last Thursday at $17.70. This resulted in a gain of $2.30. This stock has traded in a fairly tight range over the last few weeks. The serious downside move from the $130's has been arrested for the time being.

The next trade taken was to buy a deep-in-the-money call option on the stock of National Oilwell Varco, Inc. (NOV). The May 65 call (NOVEM) was purchased for $14.30 ($1,430). NOV will present earnings at the end of next week. I expect a possible trip back up in price to test the recent highs of $84. I will use a $2.00 stop-loss with this trade.

Also, a deep-in-the-money option was purchased on Allegheny Technologies (ATI). I bought the May 105 call option (ATIEA) for $12.50. I expect this stock to continue to move higher as the market continues to rally. Earnings for ATI will be divulged on April 25th, which is next Wednesday. I will use a generous stop of about $2.50 for this trade.

For now, the momentum rests in the bulls camp. However, I am keeping an eye on the exits as we head into May. I believe the bulls will get way to complacent in the coming weeks. I am thinking there is a possibility of a sharp correction that will catch many over-bulls napping.

Somewhere down the line, the humongous worldwide liquidity bubble will come calling as its bursts. This event might be akin to a pair of galaxies colliding head on. Of course, most investors and traders will ignore this probability until the whirlwind is in full force. Then, of course, the amateurs will blame everything under the sun for their mounting losses. In no way will they accept personal accountability.

I am always amazed that traders only look in one direction when trading. It is either buy, buy, buy or nothing. I love to be a counter-trend trader when the probabilities increase in my favor. Trading put options (or selling stock short) is for the most part un-American, or so that is what I hear. Bull-feathers! There is always two sides to every story. And I admit I am slanted toward the downside. Perhaps this is because I have difficulty going with the majority. One thing in my favor, I have acknowledged this fact and know it can be dangerous to my success to always trade against the prevailing trends. Self-knowledge is important to any trader.

On Hold

2007-04-17T15:03:00.000-07:00

I am continuing to hold the BIDU option. It is still profitable as BIDU has traded mostly sideways. However, hanging onto this trade has caused me to let other trades pass by. That is not always a good decision. I could have taken a rather quick $3.00 profit. I decided to let this trade work further to the downside. That, unfortunately has not happened.

This is always a choice faced by traders. Do I hold onto a position in the hope of a greater gain? Or, do I exit with a small gain and move on to what could be a more profitable trade? Defining your trade parameters ahead of time will help make this decision easier. Normally, I would have been satisfied to take a 2-3 point profit. Then again, taking such quick profits takes you out of the game. Looking back at two previous trades, I was barely stopped out of the TSO trade below $97. Now, two weeks later, it has traded above $111.

Another trade was the Potash option. I had bought a put option and was stopped out. When POT gapped up to $172, it went on to make new all time highs. I believe it has traded as high as $187. Two specific capabilities that could benefit a trader is the ability to quickly reverse a position. And also to be able to re-enter a stopped out trade. Moves such as these do not come often. Being able to take advantage of them can certainly help the bottom line.

By keeping a journal, the trader will have a record of such trades. The trader can then go back and make adjustments to their strategy. Knowing where you have been can offer clues to figuring out where you want to go. Of course, in this case, a trader could trade in and out for a quick 1-3 points and also hold a few positions for the longer term of maybe 1-3 weeks.

Again, the key is to not get burned at the stake when you are wrong. The only way to do that is to either have cast iron rules for stopping a loss (that are always followed) or use options to hedge your position. That can get very expensive, especially if a stock trades sideways for a period. Discipline and consistent action can keep your account above board. If is often the failure to act decisively at the first warning bell that freezes a trader into block of stone. Those stone blocks that you see littering the trading roadways are traders who have crapped out due to inaction and a lack of serious planning. You may think this doesn't apply to you. Give it some time and it definitely will.

Stopped Out

2007-04-11T11:03:00.001-07:00

Today, April 11, I was stopped out of the POT trade at $13.40. This resulted in a loss of $2.00. Potash has been strong in recent weeks and gapped up to a new all-time high this morning. This trade could be considered as one of those "trying to pick the top" kind of trades. Is there a lesson here? Yes, there is, Virginia. Trying to pick tops is difficult even when conditions look good for a reversal. The markets are getting crunched today and POT is up over $3.00. Topping action usually spreads over a longer period due to the disbelief by bulls that a stock could ever trade down in price. In this country, that is akin to a mortal sin.

However, the time will come when stocks like POT will make excellent put buys. So, in the long term, it will pay to keep an eye on it. And one good thing did happen with the trade. A stop-out price was predetermined at $172. So by selling the option position, I saved a few bucks in losses. The option has traded below $12.00. Watching the markets after 2 pm, it appears that the bulls are headed toward the confessional as they ask the Almighty for forgiveness, that is since they are getting hammered at the moment.

I entered a new trade a bit earlier today. With BIDU trading at $99.75, I purchased the April 115 put option (BDQPC) for $15.40 ($1,540). This stock has been weak for months and I believe it has some more downside. After recently forming a double bottom at about $93-94, it has rebounded to some minor resistance. For this trade, I will use a stop-loss on the option of about $1.50 and a target price back down near the recent lows at about $94. This is a trade with the trend, for the most part, even though the stock has flattened and may have formed a temporary bottom. These facts will not be proven until the stock trades in one direction or the other for a period of time. But with a plan to control risk, this trade might work out. Anyway, if I am stopped-out, the damage will be minimal. That is one key to longer term survival. It does appear to me that the markets in general might be ready to quit this bullish stalling and head down to test the recent lows in February. The bulls could be in for a toasty time, after all, a market is made with ups and downs, something that many bulls refuse to accept.

New Position Entered

2007-04-09T11:12:00.000-07:00

Today I purchased a put option on Potash Corp. (POT). The option is the April 185 put which expires in two weeks. The price was $15.40 ($1,540) and POT was trading at 170.10 per share. This stock set an all-time high of $172 last Thursday. And today it failed to take out the high. This stock is up from $154 over the last 6-7 days and is due for a pullback. There is a recent upside gap that could be filled. There is also good support at the twin secondary peaks at about $164.50. This will be the main target for profit-taking. The stop-loss will be above the recent high of $172. The risk in the option price is about $1.50-2.00. This is a counter-trend trade. POT can easily move 3-6 points in a day. It may experience a swift spike to the downside before recovering and possibly making new highs. This stock is too extended for me to be a buyer.

Critical Thinking

2007-04-06T08:54:00.000-07:00

Think about becoming the trader you would want others to emulate. There is no limit to the kind of system or plan you can develop. Detach yourself from your results. In essence, you are not the results of your trading. See yourself as worthy and deserving of financial success. Intend to do great things for yourself and others as you become the successful trader you desire to be. Give thanks for the opportunity to trade. Express heartfelt appreciation for all the resources and systems in place that create the trading environment. The only limit to your success is always YOU. All other barriers and difficulties can be overcome with persistence. Use your imagination to create whatever it is you desire. The possibilities are endless. See money as energy, for that is exactly what it is. Dismiss all thoughts that create feelings that are not in favor of your goals. Decide to take the time and make a complete effort to learn about markets and trading. And learn about yourself too! Always be open to learning something new. Whenever you make a mistake, accept it as a positive event; for it will give you clues about changing your actions in the future. Keep your trading and thoughts about it positive and optimistic. Determine to succeed by being persistent and creating the steadfast attitude of never giving up. If you do not like trading and only think about making huge profits, you will not survive. Have the confidence to go your own way and make trading a great endeavor. Trading is as easy as you want it to be. It does not take hard work. What it does take is critical thought, planning, persistence, and staying calm as you purposely follow your own self-created path.

Holding on Pays Off

2007-04-05T10:54:00.000-07:00

Last time, the ICE trade was heading for the stop point and a quick exit. Early Wednesday, the stock spiked just below the $123 level. My finger was on the trigger, but knowing how quickly this stock can bounce in the first half hour of trading, I waited for the next few bars on the 13 minute chart. Over the next half hour, ICE regained the $124 level. The deep-in-the-money call option was still under water.

The stock broke back above the $125 level and continued to rally. It came back again and retested that original breakout level and closed the day higher at about $126. I decided to give this position another day since Thursday is the last trading day this week. Thursday morning, the stock started to move higher right from the get-go. I thought ICE could test the recent high of just under $128. Watching this stock move strongly higher, I reset my target price to the 200 day EMA on the 60 minute chart. That made the $130.40 level as the new price target.

ICE did manage to trade above the $130 level before stalling. Knowing the propensity for this stock to zig-zag at light speed, I decided that the $129.85 price was good for a sell. The option trade was closed out for $15.30. The position had been entered at $11.40 and had been about $2.oo in the hole. After having my hand on the ejection handle, I can't argue with a $3.90 gain, before including commissions.

Book it Dano! If you average this kind of gain every week, over a month it equates to about 15 points ($1,500). Trading 10 contracts per month would give you about $15,000 a month. I am only citing this as an example of what a good trading system with good planning and risk control can do. You can plug in all kinds of numbers and possibilities. Over time, anything is achievable when you are willing to learn and take things one step at a time.

As a side bar, I bought the option when ICE was at $124.90. The position was closed when ICE was trading at $129.85. This is a $4.95 difference. I sold the option for a $3.90 gain. So what happened to the other$1.05 (4.95-3.90)? Basically, .40 was absorbed as the difference between the bid and ask quotes, which is the spread. The other .65 was lost as the time value was sucked out by the option moving deeper in the money. When the position was entered, there was a time value of about $1.00. At the closing of the trade, the time value was about .40. Because of the high volatility, the spreads are wider. I could have traded an even deeper in-the-money option and eliminated more of the time value (intrinsic value).

Iced

2007-04-03T13:37:00.000-07:00

Well, ICE did indeed come back to test the $125 breakout level. This occurred rather early this morning just as the market in general was gathering a head of steam to the upside. As the bullish run was melting ICE, I did make the trade, buying the April 115c (ICEDC) for $11.40 ($1140). ICE at the time was trading at about $124.85. It proceeded to bounce around the $125 level, eventually closing at $123.66, its low for the day. The option closed at $10.00 at the bid. Needless to say, this position is in trouble as the stop-loss is about $2 for the option. Trying to catch lightening in a bottle, ICE returned to its sub-par performance as the markets raced forward.

I am not convinced that today's rally is the beginning of a new bullish phase. I think it was pumped up by short covering more than anything. With the major indices at or near the Fibonacci retracement level of 78%, the bulls still have to bust through the secondary peaks in convincing manner. If that happens in the next few days, a retest of the major highs is in the forecast. With the markets opening rather strong today, I did not want to chase prices in the event this was a fake out rally. For now, I will hold ICE to see if it can reverse tomorrow. I am still leaning toward buying puts in this market, for the most part. However, there are several stocks still treading water and this includes the brokerage stocks. They are usually market leaders. Until they begin to act reasonably well, I don't believe this rally is anything to bet the farm on. According to typical Wall Street fake and bake, the bulls may still end up in the fire, roasted to a crisp.

Trade Setup

2007-04-02T14:18:00.000-07:00

On Monday, April 2, Intercontinental-Exchange (ICE) broke out above its recent trading range of $120-125. It closed the day at about $127.80. Rather than chase this stock higher, I will wait for a pullback to the $125 area. If ICE does pullback and holds this area, I will but the April 115 call option (ICEDC) and use about a $2 stop loss. This is a volatile stock, for sure. It is due to retrace part of the downswing from its high of $167 to its recent low of about $120. A 50% retracement in price would mean a swing back up to about $142-143. That price area is only an estimated target. If the market as a whole continues to flounder, this stock will likely reverse. Then the price target becomes the 200 EMA at about $103.

This current move might not have much strength. Considering the high of $167 and a possible low of $103, the midpoint would be about $135. There is resistance at that point. If I can buy the option on a pullback in price, there is the possibility for a nice 10 point swing, at the minimum. If ICE continues to blast higher, there may be some good put buying opportunities in the weeks ahead.

Overall, I think this market is in trouble. The bulls are staunchly hanging on by their tails. I believe playing both sides of the market is advantageous. Being a contrarian has its advantages, once in a while. The bullishness that consistently rules the markets, eventually turns into complacency. The bulls get hammered and emotions explode. Meanwhile, the calm and cool professional trader is scooping up a tidal wave of profits. The lesson continues and the many fail to grasp the knowledge.

Why trade deep-in-the-money options

2007-03-31T08:07:00.000-07:00

Options come in all sizes and colors. They can be traded in any number of combinations. The vast majority of traders use out-of-the-money or at-the-money options to construct trades. Deep-in-the-money options are most often ignored. Many traders figure they cost to much. They do cost more, but you are actually purchasing more value.

Trading deep-in-the-money options with a delta of 85 or more, gives the trader near equal performance in price move as with trading the underlying security. Isn't the trick in trading to get the direction correct? It doesn't matter if you trade stocks, commodities, futures, currencies or options. How many times have you gotten the direction correct only to see your option barely move or even loss value? I know there are option strategies designed to make money with little stock movement. But, you still have to be consistent over time to be successful.

If you can get the direction correct, why not take advantage of it? D-I-T-M options are one way to do that. If you only trade stocks, you are a directional trader anyway. If you trade 500 shares of a $60 stock, you need $30,000 in capital ($15,000 if trading on margin), plus margin if you are short. You can accomplish much the same results using a high value option for about 20% of the cost, on average. And with no margin risk, assuming you are only buying calls and puts.

All the glitz and glamour go the the big percentage moves (leverage) in lower priced options. But what about the probabilities for consistent success? It is true that most options expire worthless. There are numerous reasons for this occurrence. With D-I-T-M options, much of the decay in time value can be eliminated, especially with closer to expiration options. If you are a short term trader, this is advantageous.

I always read or hear that stocks only trend about 25% of the time. For the average higher priced stock, a move of $2 to $5 on any given day is common. You don't need major trends to be successful and capture consistent profits. Trading D-I-T-M options gives the trader a way to buy an interest in higher priced stocks where the price ranges are accommodating to shorter term or day trading. It is so easy to use a call or a put for directional trading.

I really like this area of options trading. It reduces overall risk by using less capital, it eliminates much of the time value risk and the options mostly move in lock-step with stock or index prices. There are some disadvantages at times, such as the bid and ask spreads and the lack of liquidity. Still, some of this inconvenience can be overcome with the higher deltas which capture more price movement verses other options.

Finally, you have to like trading and you have to have a plan. And, you have to use your plan without fail. Focusing on the trade is the key to success. Detach yourself from the need to be right or to make money. If you have a decent plan of action, strictly adhere to it, and continuously update it as needed, eventually the money will come into your account. Many traders go into the markets ill prepared. That explains the success rate in this business. You have to come to terms with the idea that to become one of the successful 10-15%, you have to act like those who are top traders. This means, surviving by implementing a solid plan and sticking to your rules. Do that, and you will get to where you want to be.