I charted the S&P 500 (SPX) after the markets closed on Friday, February 5, 2010 with the SPX at 1,066.19.
A couple of weeks ago when I charted the S&P 500 I claimed the technicals were weighing heavy. My call proved accurate including my warning that the following Monday could be no more than a dead cat bounce. Since then we’ve seen the SPX trade down and sideways and down again. Two weeks ago in reference to Williams %R I said “Watch for a move out of the oversold area and then after two days confirmation I’ll consider it more of a rally worthy bounce to chase.” You can see in the chart below that Williams %R did come out of oversold, but faltered before the second confirmation day. Watching that indicator could have kept you from over-committing too soon.
Thursday and Friday of this past week gave a good view into how fast the markets can still fall. It almost seemed that once there were no more road blocks on the path towards the 10% correction I’ve been calling for it was almost a race to get there. That mindset stopped working at 2:00 pm on Friday afternoon when …
I hated to do it, but I think it was the smart move to take my loss on AXA and move on. It broke support a couple of weeks ago and fell below my strike. That’s when I should’ve gotten out, but I thought it was going to be a long term hold for me. Then they came out and announced they were voluntarily delisting themselves from the NYSE. Perhaps there was some knowledge of out there in advance or some insiders took advantage of it. Either way, the stock fell, but then it recovered and I thought it might work out for me. I still like the fundamentals and figured I could risk a few down months because it’ll be back up before long. With AXA’s delisting planned for as early as the end of this quarter it can no longer be a long term hold. It’s been getting beaten up bad the last couple of days and instead of waiting for a bounce off its lows, I chose to cut and run. While AXA was trading at 19.35 I bought to close four AXA February 22.50 naked puts at $3.30 each and paid $1,322.86 with commissions.
A couple days ago I posted my trade details about selling CSCO naked puts at the money. I was psyched when I saw CSCO beat earnings last night. I checked this morning to see if I should consider closing my position for a quick profit or not, but noticed I was actually losing money on it. It took me a second to realize my error. Instead of selling puts, I sold calls. I don’t know if I’ve ever made that mistake, but I have now and the timing wasn’t so great.
My first thought was to just buy back the calls and take the loss. Then I thought of turning the naked calls into covered calls by buying 300 shares of CSCO. I’d still be able to turn a profit by doing this. With the idea of leaving the short calls in place I decided I could sell in the money puts to accomplish basically a similar result. By the time I figured out this was an option for me CSCO came off its highs of the morning. I watched it drop for more than a few minutes while I still debated if I should take the loss or just add to the position. I was …
(2/4/10 EDIT) The copy below is what I originally wrote two days ago, but I just realized today that I screwed up on my order and sold calls instead of puts. I’ve changed the above post title and scratched through my original description to edit it to say “calls” instead of “puts” now. I wrote a new post for my CSCO adjustment today.
I was planning to wait another day before making another trade, but while I was doing some planning I came across CSCO and decided I didn’t need to wait. I was actually starting to research CTXS and in my stock list CSCO is next to it. I clicked CSCO by mistake and even though I realized it fairly soon, I kept reading about CSCO. CSCO has a forward P/E ratio of only 13.92 and tons of cash on hand. I charted it next. CSCO fell 10% over the past two weeks and has started to recover.
My first impulse was to sell six out of the money naked puts at the $22 strike. It seemed like a fairly safe trade to make and the premium was OK. I considered it for a few …
January turned out to be an interesting month. After six months in a row of gains we finally saw the Dow Jones drop. The S&P 500 fell for the second time in 11 months. It makes me feel a little vindicated for staying so heavily in cash over the past few months after seeing the DJIA fall back to its levels from October. At the same time it never feels good to have my account balance drop in value, but that’s just how investing works. I can stomach more than the couple of percentage points I dropped if it means I’ll have better buying opportunities soon. It’s especially easier to swallow when I see that I lost less than all of the major indices this month. It’s about time being conservative with my investments paid off. Due to my conservative approach in 2009 I’m trailing all of the indices returns for the past 12 months. If January is truly a barometer of how the year should unfold then a goal of making a profit this year might not be shooting too low as a goal. I still think there’s a lot of money to be made by selling options and this …
I charted the Dow Jones Industrial Average ($DJI, DJIA) after the markets closed on Friday leaving the DJIA to finish the week back down at 10,067.33. //
The DJIA’s path has been very similar to the S&P 500 chart I posted last week when I warned that any positive day on Monday could be nothing more than a dead cat bounce. After we saw the cat bounce and as they do, the SPX fell deeper as expected.
That’s the trick with trend lines, they work until they don’t. I know, I have a keen sense of the obvious, but somehow people don’t like to believe this when their precious trend lines finally stop holding true. Once the trend line of higher lows that’s been holding support for months gave way, the only way the DJIA could really move was lower unless some other technical indicator came to its rescue. I thought the 100 day moving average might make a better attempt than it did, but the rush to the exits was too strong …
Viacom (VIA) is another one of the stock picks I grabbed from Barron’s Round Table issues. Mario Gabelli picked this one. His reasoning, among other things, includes the cash VIA generates from advertising and subscriptions. It’s had a huge run over the past year and I’m banking on this huge cash flow to at least keep VIA above $30 through March options expiration. I tried a limit order on VIA yesterday, but it was set too high apparently. Originally I had my limit order in for three naked puts for $1.00 each, just good for yesterday. I watched it today to see if the market was going to roll over and after seeing it hold on I reduced my limit price and size of my order and it hit. While VIA was trading at $31.20 I sold two VIA March 30 naked puts at $0.90 each and received $178.60 after commissions.
(If you missed the announcement the naming format for options has changed from a 5-character symbol format (i.e., the OPRA code) to a more descriptive 21-character format. I won’t be including the new 21-character format in my posts since I write out the option description anyway.)
I charted the past six and a half months for the S&P 500 ($SPX) after the markets closed on Friday, January 22, 2010 when it finished the week at $1,091.76.//
A couple of weeks ago in my S&P 500 chart post I said I thought the trend line of higher highs was worth watching after it broke to the higher side one day before I posted. It ended up being a very telling line to watch. Although the SPX continued to move above the trend line, it couldn’t stay above it for more than one full day at a time before falling back down below it. The intraday prices straddled this trend line for nearly two weeks until the lower trend line of higher lows I’ve been talking about for a while converged with it and that’s when the SPX broke. It held on until the final day possible before the trend line of lower highs broke. And when it broke there was no looking back.
I mentioned this morning that I’d probably start easing into some trades starting this afternoon. FDML was one of those I thought about. It found support yet again in the $17.45-17.50 range that has worked for it over the past month. I was tempted, but then found an article on Forbes.com touting it as one of the 10 stocks with a danger sign around its neck. I knew it was risky already based on what else I had read and knew that was a common thought based on the high premiums, so I decided to give it another day of watching. I rotated through some other charts and came across the $SPX chart. The S&P 500 touched its 50 day moving average (1,114) just after noon today and moved back up slightly. Instead of going big into SPY, I opted to risk less money for higher volatility and moved over to SSO. SSO is trading close at close to 1/3 the price of SPY, but is a “double” ETF which means it can still give me a beating, but I only have $3,525 at risk instead of over the $10,000+ I’d have had on the table if I used SPY.
