Welcome to November…

Usually the beginning of the Santa Clause rally.  We would actually like to see a low volume pull-back over this week without a close significantly below the 20-Day MA as a good test of the potential for more gains and a run at more resistance above.

Stay tuned, there may be good entry points in the near future.  We posted RMBS alternatives over the weekend and that is one of our primary trade interests right now due to the huge potential upside as these lawsuits begin resolving the uncertainty about how much royalties they will begin receiving.

Look at RMBS first.  We will begin posting more possible reversal candidates as they emerge.

Coach BD

Here is the most important point about the current market conditions…  This is no market to be making any significant commitments in either direction.  This current volatility is simply a runaway freight train and we need simply stay out of the way until it passes and some rationalism returns.

I was intrigued by one point made today on Fast Money by Carter Worth, in my opinion one of the best market technicians out there… ABT has been weathering the recent volatility very well and may be poised to break out of its range-bound price channel of more than 18 months, despite continuing upward growth in earnings.

We will begin evaluating a possible low risk entry into ABT over the next few days.  Other than that, this whipsaw action can crush you in a New York minute… so stay out for now.

Coach BD

Active Positions & New Trade Entries…

Today Joe sent me a note about whether or not any of our “active” trades may be at good entry points, after acknowleging that this is not a good time to be entering trades.

At first I thought, well Joe, you just answered your own question…  ;-)

However, it brought up a good issue that we haven’t touched on much which is a very important part of any professional trader’s strategy in markets like these.

Whenever we have ongoing LONG TERM Long positions, that we want to continue holding, that we must continue to hedge on a monthly basis due a crappy market like this one, or, if the stock is in a funk…

At some point, unless the story or fundamentals that caused us to enter the position originally change, the stock will turn around and head in the right direction.  That is why we have held several of our LT Long Positions in the face of this really crappy market.

We have continued to hedge our positions and have been very successful in reducing our risk in most of our positions through this hedging strategy to the point that many of our LT Long Positions have very little or, in a few cases, “no” risk at all.

That is one of the key reasons that we like to keep these LT positions and continue generating ST Income from them while we wait for the expected action to occur.  I believe you will witness, in several of our LT holdings, that when this market eventually does turn the corner, we will be sitting on some potential monster winners over the next year or more.

Obviously, most recently we made a decision to pare back the size of most of our positions due to the fact that we were experiencing a phenomena that all of you should learn to recognize, and one which we pointed out at the time we posted our decision to take these actions…

Whenever you feel that you are having to make too many adjustments, or are feeling like you need to evaluate your positions on a daily, or regular, basis…  That is a signal that you have too many positions, or that your positions are too large or complex… and it is time to take a step back, evaluate each position and reduce your management time.  That may result in reducing position sizes, simplifying the positions, or in some cases, exiting some positions all together.

We decided to take all of those actions over the course of the last two months, leaving us very comfortable with our remaining positions, their structures and their size.  The two exceptions are our overweight positions in RMBS and USNA, which we are now spending the majority of our time managing.  As we noted last week, we may also reduce the USNA position at SEP expiration if the stock doesn’t start heading back down as we believe it should, based on the story and the condition of USNA’s business.

Now…  That doesn’t really get the heart of Joe’s question… Are there any of our active positions that may be at or near good entry points…?  The short answer is YES, several of our active positions may be near good entry points, however, because of our very low risk in most of our positions now, we are less inclined to begin adding to them just yet.

But we will begin looking at them as “new” entries and post our thoughts about some that we think may be ready to rock & roll.

Thanks for raising that excellent question Joe.  If any of the above isn’t resonating with anyone, please send your questions along or post a comment.

Coach BD 

Below is the link and discussion I participated in regarding RMBS’s current stock price on the Investor’s Village RMBS Message Board. 

Coach BD

continue reading "RMBS Expiration Discussion"

There is till too much volatility to consider entering an Income Trade for expiration.  Our favorite, GOOG, had another $20 swing today which is not the kind of action we want to see so we can feel confident of the outcome.

It is starting to feel like we may be near a spike in the VIX and some very heavy selling.  All of the rallies are having trouble late in the day so we shall see how these last few minutes go…

Coach BD

There was absolutely nothing good about today’s market environment…

DOW made a new low for 2008 and ended at the bottom of the day’s range on increased volume.  And while the NAZ has quite a ways to go to match those lows and the S&P is still ~23 points from its 2008 lows, there was little to be positive about.

The VIX did rise ~2.75 points, but it didn’t come close to any kind of a spike upward which would signal any possibility of a reversal.

It looks more and more like an ugly summer is ahead and we are continuing to hedge tightly ST to take advantage of high volatility and downside hedges.

Coach BD 

Things are looking pretty ugly…

Today was the biggest volume day since 3/20, and that was an UP day.  The DOW is now within ~100 points of the MAR low, and ~200 points of the JAN low.  The NAZ is still holding up pretty well considering the action in the larger market.

It wouldn’t surprise us if we were to get a bit of a rebound rally next week.  We ended the week by tightening our hedges Selling closer to the money Calls, and by purchasing more downside protection with additional Put and/or Put Spreads.

We will update the Position Grids over the weekend and are now going to start concentrating on evaluating oversold, solid, dividend paying stocks that may be getting hammered in this current environment.  This is exactly the time that we look to add to our Long Stock holdings…  That is, when everything regardless of performance is selling off.

Everyone have a great weekend.  I will be working a bit this weekend so if anyone would like to chat or has questions please give me a call or drop me a note.

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We are also near the end of our patience with our current Membership engine and their inability to fix the login issue with our Members, though they have assured us that it will be fixed very soon.  Until it is, we will continue publishing all of our posts to the Public area for all to view.

Coach BD   

FLIR

6/16 Close…

Though we could have opened a new position today in FLIR, we decided that the action into the close wasn’t what we wanted to see after that big lot surge around 2 PM.  In this market we’ll remain cautious and wait for the good confirmations and/or consolidations.

We like consolidations into support with bounces off significant support levels much better in this kind of market than confirmation breakouts.  BO’s in a bear market usually fail, and although the recent consolidation in FLIR is what we look for, there is usually a period of churning along the tested support line before new strength is revealed.  We’re looking for that here.

Coach BD

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Weekend Watchlist Note…

One positive note. We like the recent price action on FLIR and will be looking for a confirmation of Friday’s big volume move back above its 20-Day MA and a continuation of the stock’s steady upward movement in this otherwise weak market.

This may be a good new opportunity when there aren’t many out there in this environment.

Coach BD

If you have been listening to any market veterans these last many weeks, you have almost certainly heard many say that they have never seen anything like this market, especially with regard to the huge swings in prices and volatility.

Today was just another example of that sentiment.  The only thing we know, at least for now, is that the trend in place is still down…  until it isn’t.

Also, we haven’t seen these kind of wild swings in price since 2000 - early 2003, and we all know how those years turned out.   3+ years…  This current bear, based on all of this continuing bad news, has been showing these big volatility signs to the downside for only about 5 months…

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With expiration tomorrow, we have been spending much of our time yesterday and today, and will spend much of it tomorrow, making adjustments to our ongoing and carryover positions.

If anyone is holding any of the trades we have entered over the past couple of weeks…   

GOOG - Exiting tomorrow with possible adjustments 

DELL - The long side of this trade will expire worthless tomorrow unless there is a huge BO above $32.50 and the position will experience a small loss after we exited the Short side of the trade for a small profit.

YHOO - We will be rolling this trade out as we believe the trade is still live though it is currently negative.

JOYG - We thought we may have the position nailed for a near Max Gain after yesterday but when today started deteriorating we decided to buy 1 MAR 65 Put for $.70 to reduce our risk even further if the price continues to fall.  Our BE to the downside is ~$62 and will now profit below that price.  The BE to the upside is now ~$68.50 with the Max Gain at $70 at ~$1.00/Contract profit.

TMA - The Net Short position was closed at near the Max Gain and the Net Long position risk is significantly reduced by our actions last week.  We will update tomorrow on the status of this position but it appears that the remaining portion of the Short side of the net Long will close for near Max Gain ($2.45/Contract), and we may hold onto the remaining Long JAN 10 - 5 Calls.

Please send us a note tonight so we can make sure you are updated in real-time as we either exit or adjust these positions tomorrow.

Coach BD 

Thanks to m37 for the comment and question regarding our strategy in finding new trade opportunities and about using the 52-week high list.

Coach BD

continue reading "Trade Evaluation Dialogue"