There will not be a video today due to the Jewish holiday.
4:20pm
The S&P was up 58 points today, or 5.3%. The size of today’s rally should be respected, but also kept in perspective. Today’s move occurred in a reduced liquidity environment due to the holiday. The SPY has retraced 33% of the move from the Sept. 19 high to yesterday’s low.
4:00pm
Some very strange prints in GOOG near the close on massive volume. Probably a “fat finger” error.
~ NASDAQ investigating.
3:54pm
Keep this rally in perspective. We have retraced 33% of the move from the high on Sept. 19 to yesterday’s low:
3:50pm
ES continues to rally. Dow up 500 points, NASDAQ up 110 points. VIX falling under 39 (still very high).
3:46pm
FASB guidance reportedly to be consistent with mark-to-market rule.
3:31pm
Today’s volume is going to end up much lighter than yesterday’s.
FDIC’s Bair: FDIC looking to increase deposit insurance limits on temporary basis.
3:24pm
ES pushing out to fresh session highs.
3:15pm
SEC reportedly proposing that a company’s estimates should be used for fair value accounting when a market is nonexistent.
2:40pm
A close above 1156 on the SPX may be significant, or would just create false hope? I lean towards the latter, but I’m keeping an open mind in this market environment.
2:14pm
Watch out for these possible levels of resistance on the SPY:
2:10pm
Gold selling off to session lows. The dollar rallying back toward session highs. ES looks to be in a bull flag formation.
2:01pm
ES looks to be consolidating, not reversing. Charts are saying the S&P can move higher from here. Be careful if this consolidation turns into a selloff. I’m on the sidelines. I do not like this trading environment with news and gov’t intervention rumors circulating.
1:57pm
Check out a day trade idea by The StockJock (just posted).
1:40pm
ES has rallied to 1160. The SPX is up more than 4%. The volume has picked up somewhat on thisrally. But be cautious on the long side as we approach the 2:00 reversal time.
1:34pm
VIX falling under 40.
1:33pm
Representative Frank: Reportedly notes that FDIC is seeking to increase deposit insurance limit - unconfirmed report.
1:31pm
SEC is reportedly cooperating with FASB with regards to fair value accounting and will announce plans towards week’s end.
1:25pm
ES rallying above its 200MA. The market’s rally is on light volume and is vulnerable occurring during the lunch hour with the 2pm reversal time approaching.
1:24pm
ECB’s Trichet: The market crisis represents a unique situation for markets, which are facing the greatest turmoil since World War II.
1:15pm
Crude oil at session highs, above $100.
TED spread improving, back around 300 bps.
1:12pm
Watch out for possible Head and Shoulders pattern on ES 2-minute chart. H&S patterns on short time frames are much less reliable than longer-term patterns.
1:00pm
Fed’s Lockhart: Hiring has pulled back, markets potentially an economic threat, consumer “tightening belt”. ~ Sees withdrawal of counterparty confidence. Markets not recovering yet.
~ Sees outlook for inflation improving. Expects “very weak” economic growth in the 2nd half of 2008 with export outlook “dampened”.
~ Remarks that more market difficulties will require a response from the gov’t.
12:18pm
ES pulling back to its 50MA on light volume.
12:04pm
Natural gas climbing to session highs, UNG just cracked 33.
11:49am
ES rallying into its 200MA (1153.10). This level should serve as resistance. Usually, consolidation is needed before rallying through the 200MA.
11:42am
White House: Very hopeful the bailout package can be passed this week.
~ I expect a package will be passed. The next question it… will is work?
11:27am
ES looks to be consolidating and may move higher this afternoon.
European markets closing at session highs.
11:13am
US dollar coming off best levels. May be topping out.
10:52am
Dollar rallying to session highs. Gold falling to session lows. Treasuries pointed lower. ES consolidating above its 50MA (1145.25).
10:44am
Descending 200MA now at 1155 and should serve as resistance. Overnight high was 1154.50
10:25am
Crude oil breaking out to session highs, approaching the $100 mark.
10:22am
ES 10-minute with moving averages and retracement levels:
10:07am
Volume very light today. ES attempting to rally here. 50MA (1144) may serve as resistance. Should the market rally above that level, the descending 200MA lies above at 1156.
10:00am
September Consumer Confidence: 59.8% v 55.0e
9:48am
Homebuilders are weak this morning after disappointing Case Schiller Home Price data.
9:45am
September Chicago Purchasing Manager’s Index: 56.7 v 53.0e
9:31pm
VIX opens under 44. Most financial stocks are recovering some of yesterday’s losses. SOV is higher by 95%. NCC up 40%, FITB up 23%, STT up 13%.
~ FXI up 7%, EEM up 4%
9:26am
TED spread around 350 bps showing no relief in the credit markets. In case you missed it, check out yesterday’s post on Downside Targets for the S&P.
9:10am
Gold is trading lower to $890 this morning as the dollar tests yesterday’s highs. I think the dollar’s strength will be short-lived. The dollar index is approaching a 61.8% retracement:
8:45am
S&P Futures up 25 points. They have retraced 38.2% of yesterday’s drop.
Good morning.
I’m expecting a “small” bounce or a pause day after yesterday’s massive selloff. Today is a Jewish holiday and is usually a light volume day.
September 30th, 2008 at 6:13 am
What is a “small” bounce in your view? I understand that everything is relative, but for example what % of fibb retracement do you expect?
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September 30th, 2008 at 6:18 am
I’m not looking for exact numbers, just trying to figure out proportions
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September 30th, 2008 at 8:52 am
A 38.2% or even a 50% retracement is possible. In points, that’s hardly small, but it is relative to yesterday’s drop.
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September 30th, 2008 at 6:32 am
This market has been moving down in 5 wave moves (you can see the waves using 5 or 10 minute charts such as you use in your videos) and correcting in quick 3 wave bursts.
Craig, try using Elliott waves on the the daily moves with the SPX. It is very effective. For instance, taking 19 Sep high of SPX 1265 as the start point of a 5 wave down move.
The first wave down from that point took us to 1179 low (this is the 61.8% area you talk about) . The wave 2 retrace back up took us 1220 high (47% retrace back up).
It was inevitable that we had a big wave 3 coming. The wave 3 took us down to 1106 for a fib expansion ratio of 1.33 (almost 1.382).
So today we are likely retracing back up for wave 4. Our elliott wave rules STATES that wave 4 cannot retrace anywhere into wave 1 price range. So therefore wave 4 peak SHOULD NOT top out past 1279 SPX (the end of wave 1 down). That would be any near term limit on a rally
Indeed I suspect we will be short of this target.
I also expect that the Elliott guidelines of alternation is in play. Since wave 2 (the wave that continually traded on the 61.8% retrace area you mentined in your video) was a “flat type” wave structure, I expect wave 4 to be a zig zag. Indeed a gap up today would be the likely first half of the zig zag, then a dip back, then calculating a new push toward rally day high with A = C. Perhaps end of day we get our high. Remember SPX 1278 will not be breached.
So therefore once this wave 4 plays out, we are in for another rough ride to a new low for wave 5.
I suspect that will happen Thursday/Friday time area.
Now lets see if this all pans out. I am betting it will.
And another thing Craig: Waves don’t really play on “news”. The news is created from the waves. We were likely headed down regardless if the bill got passed or not. Because wave 1 was actionary.
You should read The Elliott wave Principle by Robert Precter. Required reading. Remember, waves play out at all degrees including intraday.
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September 30th, 2008 at 6:34 am
GAHHHHH Mistake! I meant wave 4 shoudl not retrace past 1179 NOT 1279…
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September 30th, 2008 at 6:42 am
OK, NOW your post start to make sense
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September 30th, 2008 at 8:56 am
Wierd how this works out. Hard to believe that we have farther to go. My mind wants to believe different, but charts and reality say different. Earnings will be the final blow that lead to the bottom which will lead to the trough then recovery. We won’t really know till the test of wave 5 bottom.
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September 30th, 2008 at 8:54 am
Great post, thanks.
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September 30th, 2008 at 3:09 pm
SPX looks like it will head to 1175-1178 area. Then will start heading down to new lows.
My next target low for the SPX is 1089.
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September 30th, 2008 at 6:40 am
Hi Craig, I am a physician and have enjoyed your videos and blogs and everything you offer on Stocktock. As a loyal follower, you have helped me stay well ahead of my colleagues, especially over the last several months. However, I have become somewhat disenchanted over the happenings of the last several weeks, especially with the rule changes such as the ban on short selling. Day trading and swing trading has become less appealing and more time consuming. Sorry for rambling, but essentially, I’d like to let traders on this board know, that yesterday I was 100% cash in my IRA and my 2 sons college accounts (age 13 and 6). I loaded the boat in those funds near the end of the trading yesterday with things like SSO/SPY. I know no one can pick the bottom, but when the VIX hits 48 and there is so much fear, I got to like my odds on buying now for a long time hold (3-5 years). I will continue to watch and learn from you in the months ahead, but probably will not trade as much as I have become a bit apathetic recently.
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September 30th, 2008 at 6:43 am
By the way, I am an ER physician and work mostly night shifts and week-ends, so this allows me to trade most days or keep a close eye on the markets. I do not trade during my shifts.
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September 30th, 2008 at 7:54 am
Hello Tahi,
I almost did the same thing about 3:50 pm yesterday but couldn’t get myself to pull the trigger. I guess I still have this overwelming feeling that more is to come. I hope I am wrong. Printing more $ to fix problems has not worked many times in the past and I’m left with a feeling of doom. My 401-k is still in CASH at the moment.
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September 30th, 2008 at 9:05 am
I would have to say that there is still serious downside risk in the market. You may have to stomach some near term losses, but in the long run you have entered the market at a good spot. What am I doing with my clients? (I am a financial advisor) Rather than loading the boat we’re starting a diciplined dollar cost averaging approach to getting back into the market. We’ll nibble soon, but just not yet. No one can time the bottom. This bailout will help, but won’t be the elixer to fix everything. The election will also determine which way funds will go which will determine sector specific plays, so ther is another reason to hold off. Earnings will be rough this qtr. I would begin to look at some international ETF’s and others like PWC which should significantly outperform SPY.
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September 30th, 2008 at 9:09 am
Hey Thai,
For long-term investors with a 3-5 yr horizon, I think its OK to start building long positions, but try to keep some powder dry. S&P could fall another 200 points.
A recovery may take a very long time and there will be a basing period that will present ample time to build long positions. There is no rush.
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September 30th, 2008 at 6:49 am
I was a bit shocked at the failed vote, but I watched several post-mortem speeches, both by Democrats and Republicans, that perhaps indicates that this was the right vote based on balance of power. Although Paulson (Executive branch) believes in this plan, and labels it an emergency, it is up to congress to agree, or modify it, perhaps significanty, before passage. I am now pleased it didn’t pass and that other ideas that do not involve the governement conviscating our property and using our own money, will be pursued!
This makes America great.
Enjoy:
http://www.youtube.com/watch?v=jqqFxfj1SEk
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September 30th, 2008 at 8:07 am
Paulson, I have to wonder what motivates that man.
http://www.youtube.com/watch?v=Vhf9KwSUQYw
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September 30th, 2008 at 8:13 am
This is a week old and somewhat predictive.
http://www.youtube.com/watch?v=Vhf9KwSUQYw
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September 30th, 2008 at 8:59 am
The SSO is actually lower in gains then the SPY in premarket..
The moves from yesterday must have screwed the SSO up again.. And we’re probably going to see less gains there then we should..
The funny thing is that on the move down it’s very accurate…
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September 30th, 2008 at 10:07 am
I noticed that. I’d be well in the money on my SSO otherwise. Grumble….
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September 30th, 2008 at 9:21 am
Craig,
Are you planning to fade opening gap ? It is very tempting as it has worked almost every time in the last few months. However, in light of yesterday’s selloff, I am hesitating.
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September 30th, 2008 at 9:24 am
Hey Bob,
I’m not. But it’s probably worth a shot with a tight stop.
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September 30th, 2008 at 9:31 am
So craig…Is this (wave 3 of 3) the last wave down before bull market starts. I do not understand Elliot wave yet. Shall we start buying slowly here. Or there are more downward waves coming?
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September 30th, 2008 at 9:37 am
Krazy,
Bear markets go through 5 waves. I’m not doing any buying yet, even for my retirement account.
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September 30th, 2008 at 9:33 am
Craig,
I think I lost all confidence in AUY right now..
It’s being outperformed by all gold stocks.. even on the downside it’s currently the worst performer.. Can’t see why..
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September 30th, 2008 at 9:36 am
Agreed, I like AEM better from the long side.
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September 30th, 2008 at 9:41 am
Anyone seeing this rally last throughout the day?
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September 30th, 2008 at 10:34 am
I’ll let you know around 4:00.
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September 30th, 2008 at 9:44 am
ok new here looks like I am posting all over
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September 30th, 2008 at 9:48 am
That’s it.. I’m not playing the SSO anymore..
Rather put my money in something more reliable.
Yesterday it was down 18%, but today it’s up less then 1%.
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September 30th, 2008 at 10:02 am
I’m pissed. SSO appears not to be working right at all.
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September 30th, 2008 at 10:05 am
There is nothing more frustrating than making the correct call and not getting paid for it. I’d would stop using any leveraged ETFs.
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September 30th, 2008 at 10:11 am
Could it be that the close of 46ish was too high for SSO and real value was 44 when S&P was under 1110. I am upset as well as I bought a large amount of SSO and am still barely breaking even with this pop.
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September 30th, 2008 at 10:19 am
That appears to be the case. NAV at close was 44.65 according to proshares:
http://www.proshares.com/funds/sso.html
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September 30th, 2008 at 3:14 pm
I don’t think it NAV. Look at IYM and UYM. IYM is +2. UYM should be 2x of IYM, but it’s only up .45
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September 30th, 2008 at 9:58 am
I wanted to offer a long term investor perspective on the market. Yesterday’s sell off was a +90% decline/advance day. The volume was high, but less than the volume during any of the days from 9/15-9/19. Yesterday’s chart, though lower than 9/18, and with a higher VIX was not a bottom. There will continue to be many volatile trading sessions ahead, as the impact of any government plan and its effects on the credit market still remain to be seen. Yesterday I scaled back many of my long term core holds. There are many stocks whose values are compelling. We don’t know however, what the impact or extent of tightening credit may be on future earnings, nor how long it will last. If the credit market’s tightening begins to adversely affect non-financial companies, there is still room for more contraction in equity prices in sectors what haven’t been affected yet.
In Ireland yesterday, the government stepped in and guaranteed all bank deposits in Irish Banks for the next two years expiring Sept 28, 2010. This should give an idea of how long this process and this risk *may* take to resolve itself. We are a global economy, and the rest of the world may be behind the U.S. in their recovery. Both Europe and China cut rates for the first time in this cycle the past month. U.S. companies that are globally diversified may see their overseas revenue streams slow.
In the short term, sell offs like yesterday provide good opportunities for short term trading profits. As a value investor, I’m taking an even longer term view and widening the time and splits for future purchases.
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September 30th, 2008 at 10:32 am
I agree. I eliminated all intl client exposure over the past three weeks and have been halving positions on the way down getting most to a stable diversified port that had solid core holdings and lots of cash. I will be buying more cons staples (GIS, MON, JNJ and the like) and some utilities (like SO) for yield and some other sector focused ETF’s for clients at these levels. There still may be a value trap, but as discussed in post above this is not a bad entry point for long term to begin DCAing if you are willing to take some pain. I would not go balls deep here.
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September 30th, 2008 at 10:40 am
Craig (or community) - do I dare buy leading individual financials here to hold a week or so? This is purely roll of the dice.
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September 30th, 2008 at 10:42 am
Well, I try to minimize counter-trend trades unless I get great entries. The time to go long was at yesterday’s lows. There could be more upside, but its very risky.
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September 30th, 2008 at 10:46 am
200ma 1255? rather 1155
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September 30th, 2008 at 10:48 am
My bad. Thanks!
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September 30th, 2008 at 10:50 am
action today shows it’s just a break. SMN and UYM do not have inverse correlation.
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September 30th, 2008 at 11:02 am
Craig - You still keep DGP? If so, do you have any stop price on it?
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September 30th, 2008 at 11:05 am
With this 2 day rally on the $, I think the DGP would be a great buy today..
ofcourse keep your stops tight..
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September 30th, 2008 at 11:05 am
Yes, I discussed this position is yesterday’s video. This is a longer term trade that I am scaling into. It is a small position and I will add to it on weakness. My time horizon is about 3 months. I will only cover if gold takes out long-term support levels.
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September 30th, 2008 at 11:13 am
hmm… For me it is too risky play. DGP was almost 30% below current price just 2-3 weeks ago. If you assume you stop-sell after it drops back there again, for me it is too much. I guess I try not to take such risks. But again: no risk, no gain.
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September 30th, 2008 at 11:12 am
Financials may be extra risky tis week, as the ban on short selling is to expire Thursday, I believe. And frankly, chances are it will be extended, but either way, not sure how the market will react.
If lifted, they may short the hell out of them, or if extended, a bad sign the market is weakening and they sell the broad market, anything that can be shorted.
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September 30th, 2008 at 11:16 am
Looks we are not going higher from here.
Just waiting for the sell off here.
What do you guys think?
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September 30th, 2008 at 11:17 am
The DOW traced exactly 38% of the move from yesterdays high to it’s low at 10,676. The 50% fib is 10,767.
But there is also a tendline going down on the 5 minute that looks to be lining up with the 38% fib at 10,676. That would appear to be a key point as resistance for at least today.
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September 30th, 2008 at 11:21 am
Market is driven by fear and greed. Fear is the more powerful force.
Studies have found that people are more fearful of missing out on the next bull run, than losing money on the downside.
Why? Because we have been brain-washed that in the long-run, the market will recover nicely and you will get your money back.
So for bottom pickers, the exit strategy is the “long-run investor”, I’ll make my money back even if I lose today.
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September 30th, 2008 at 11:31 am
An interesting “How did we get here vid:
Thank God for the internet. No way the truth comes out in the mainstream media.
http://www.youtube.com/watch?v=NU6fuFrdCJY
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September 30th, 2008 at 12:01 pm
Craig,
The answer to the question you posed just now at 11:42am:
<>
I don’t think it will. The market will rally for a couple of days for some 500+ points after the bill passed and then crap out.
For those who are adventurous:pay attention to the weakness in XLI and specifically Caterpiller. This DOW 30 stock down when DOW is up nearly 300. It is near its 52 week low (58.11) set in Jan.
Though not to the same degree as GE, or GM, CAT is also like a financial company. CAT finances most of the sales of its heavy equipment. I good analysis piece I read indicates some trouble with its financing unit.
Yesterday DE was down hard and I think CAT will follow. If it closes below 60 today, this stock may have a 10-18 point downside. First stop at 50 and the 42 for multi-year lows.
http://finance.yahoo.com/echarts?s=CAT#chart1:symbol=cat;range=2y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined
A slow
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September 30th, 2008 at 12:21 pm
I dumped CAT and DE about 6 weeks ago. They’re both gonna get hurt.
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September 30th, 2008 at 11:33 am
Craig
what is your interpretation of the low market volume. even yesterday on possible capitulation spy did less than 500 miliion shares. today also low volume.
Thanks
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September 30th, 2008 at 11:37 am
It makes me believe yesterday was not capitulation. Today, it can be explained by the Jewish holiday.
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September 30th, 2008 at 11:51 am
Craig,
Looks to me like we might be topping off pretty soon, maybe by 2:30.
I’m expecting the Dow to close at 10500.
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September 30th, 2008 at 11:53 am
Hey Craig, what do you think about miners, GDX or AUY, etc.? I know you have mentioned them previously, but I’m curious what you think of the action today.
Gold looks good to me (albeit it is a separate trade) with the consolidation level held so far.
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September 30th, 2008 at 11:55 am
Zen, I actually bought Jan09 36 strike calls on GDX today. This is for my retirement account, so it’s a longer-term trade.
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September 30th, 2008 at 11:57 am
I also own AUY, though AEM is performing better.
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September 30th, 2008 at 12:16 pm
Thanks Craig. I am watching GDX very closely… I’d like to see a pullback soon to test support around $34 and give the 5 day MA time to flatten out (on the 10-min, 195 SMA being the 5 day). It seems like healthy flagging/consolidation, but I don’t want to sit it out too long given the nature of market risk right now.
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September 30th, 2008 at 12:25 pm
AUY now positive while gold is down.
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September 30th, 2008 at 12:14 pm
Mohan made a great point yesterday about following the Nasdaq for true market perspective. Looking at the tape this very minute, Apple is up 4%, RIMM, GOOG and AMZN are up 7 to 8 %, but the broader Naz 100 QQQQ is up only 1.7%. Thats the preferred vehicle for the hedgies and funds to get in and out of tech. Rest of the broad market S & P and Dow are each over 2.7 percent. 52 week low on the Q’s is 37.18. Just looking at the tea leaves, but with the light volume I would not be surprised for a late day reversal to close down or unchanged. There also remains the striking divergence between credit and equity markets, along with the idea that a recovery in the equity markets (even if tepid) doesn’t impress upon Congress the urgency with which it needs to act. I am not a conspiracy buff (the market will fall in order to get a plan passed) but I do think the market has an uncanny ability to trend ahead of precipitating short term events, i.e. there may be other shoes that drop ahead of any Congressional vote, and those events are what will trigger Congressional action. This also may be the buy the rumor sell the news trade that we saw last Friday.
On another note, I pulled up some of the formerly hot commodity names, and it struck this tyronic chart reader that they may be forming long term head and shoulder patterns on the 5 year charts. Check out Freeport McMoran (FCX) over the past five years. If Freeport builds a right shoulder between 50 and 60 over then next year, and breaks it late next year, does it indicate the troubles for world markets (and thereby commodity demand) may extend somewhat farther into 2010 and beyond, which I don’t think is priced into current thinking. This potential outcome would fit with the chartist and other market observers of the longer term yearly charts that suggest this bear market will have the averages revisiting their 200 month moving averages.
An interesting article on the 200 month moving averages and how the broad averages return to them in deep bear markets is here:http://www.gold-eagle.com/gold_digest_08/contraryinvestor080108.html It is interesting to note that when the Nasdaq imploded after its bubble, it did touch its 200 month moving average at the bottom in 2002. Do the DOW and S & P have dates with their 200 month moving averages? I have not a clue, but the convergence of all the historic negatives in the past weeks in the finance and credit areas make me cautious that they will seep out into the broader national and world economies and may create damage that takes many years to repair. Risk management for short term traders and long term investors against that possible backdrop is key.
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September 30th, 2008 at 12:52 pm
Actually FCX is in M pattern right now with unbelievable target price of 15-18 dollars. All miners are in same shape (RIO, BHP).
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September 30th, 2008 at 12:20 pm
Can we just skip all of this elliot wave downward business and just form an inverse head and shoulders from these levels and move higher? Everyone would be much happier and my long term account would be pleased. Thanks. A lot of charts are holding very key support levels that I thought were broken yesterday, there is some hope but not much.
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September 30th, 2008 at 12:27 pm
All,
Over the weekend I was working on a followup to my 9/22 post, http://www.stocktock.com/2008/09/22/market-thoughts/, and couldn’t quite finish i. This is a quick summery before I can get it.
Everybody is now talking about a severe recession. The charts are confirming it. My thesis is that the weakness first reflects in Industrials, it then shows in transports. The consumer is the last to fall apart - IN THAT ORDER.
Pay attention to the charts of Industrials (XLI), DJ Transport (IYT) and Consumer discretionary (XLY).
http://finviz.com/quote.ashx?t=xli,iyt,xly&ta=1&p=d
XLI is completely broken - new lows
IYT looks weak and shaky - close to lows
XLY still holding up above its July low.
On an 300 point up day today, at the last check XLI is down 1.1% and XLY flat in an up market. IYT is up for the day. Today’s consumer confidence numbers didn’t give any boost to XLY.
My strategy: buy puts on or short weaker stocks in XLI and then follow-up with puts on components of XLY.
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September 30th, 2008 at 12:29 pm
Great analysis, Mohan.
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September 30th, 2008 at 12:39 pm
I think you noted last week Mohan, the rather large put buys on the xli at the Oct 27, 28 and 30 strikes. Those positions are still in the open interest and have not been closed out, so some large players continue to believe there is further downside on the xli with only 13 trading days until expiration.
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September 30th, 2008 at 12:48 pm
I see them. I will go with puts on CAT, which looks the weakest of all (after DE, which already imploded). Here are the components of XLI
http://www.sectorspdr.com/spdr/composition/?symbol=XLI
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September 30th, 2008 at 12:45 pm
I just read Brian’s note posted above mine. I agree with his take. For trading ideas, I am following three stocks.
First, of course, COF! It is showing weakness. However, the charts are not broken. It is now trading below its recent secondary offering price of 49. On Thursday, Discover card reported earnings. As you would expect, they admitted to deteriorating conditions via more loan loss provisions. DSC got sold-off. AXP also admitted deteriorating conditions. Both DSC and AXP maintain HIGHER standards in giving out cards than CapitalOne. DSC and AXP are more honest than COF. When COF implodes, it will get to teens in no time. This may be the right time to pull the trigger on COF puts.
My second stock idea is short Caterpiller (or puts). I mentioned the details in my note above. Though not to the same degree as GE, or GM, CAT is also like a financial company. CAT finances most of the sales of its heavy equipment. I good analysis piece I read indicates some trouble with its financing unit. Yesterday DE was down hard and I think CAT will follow. If it closes below 60 today, this stock may have a 10-18 point downside. First stop at 50 and the 42 for multi-year lows.
My third stock idea is EEV. An UltrShort fund MSCI Emerging Markets Index. When the consumer (US) slows down, the producers (Emerging Markets) will be adversely affected. The chart is in an uptrend. this stock is very volatile and approach it with caution.
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September 30th, 2008 at 12:56 pm
Mohan. What do you think about this unbelievable spreads for out of the money calls or puts. They don’t change with stock variations. I bought 280 call for MA when stock price was 150 dollars. Today MA is at 171 and I’m in minus!
Leveraged funds don’t trade how they are supposed too.
It’s really, really troubling and I would not go long anything right now. I hope it’s only because of short selling ban and not some deeper underlying problems.
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September 30th, 2008 at 1:30 pm
With the high implied volatility in the market options can be very pricey if the upside or downside moves are not of the magnitude that the implied volatility is implying. The spreads between bids and asks are usually wider in times of volatility, and are generally wider in individual stock names, especially the small caps or thinly traded issues. The best place to play options are in those names that have high trading volume and liquidity. If I want to play the market via options I will usually look at options on the QQQQ, or SPY. DIA is more thinly traded and the spreads are usually wider. The implied volatility also seems to be lower in the morning, and tends to expand later in the day.
As a trading idea, one that has worked reasonably well for me on a speculative basis, I have played options the day after a company has released earnings, especially on companies whose earnings can move the stocks 10 percent or more. What I have found happens the morning after earnings is option players are whether on the winning or losing side of the trade (calls or puts) will usually try to liquidate around the opening and the market maker will usually buy those liquidations on the cheap. Remember the implied volatility on the options drops significantly after the news is out, and even those option positions that are on the right side of the trade can lose value if the stock doesn’t move as far as the volatility was priced for. Earnings tend not to be one day events, and whether up or down, cheaper calls or puts can be bought the morning after the trade in the direction the stock is heading. I usually wait for the counter trend rally at 8:50 and the buy into the position I want. Again these are purely speculative plays and are done with less than 5 percent of my trading equity. I got into the RIMM 60 puts the day after earnings when RIMM opened in the mid 70’s. I exited after the puts tripled, and as is usually the case, left money on the table when RIMM cratered with the market yesterday. That was an outlier, but I have have had luck more often than not on these plays, usually getting a 50 percent return, but again it is purely speculation. I was mesmerized by the market action yesterday and did not enter any trades, but right now am watching the SPY 110 puts and the AAPL 100 puts for Oct. Will scale in at the 1154 resistance, with the idea that there may be a reversal at 2 p.m. We will see.
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September 30th, 2008 at 2:47 pm
Thank you, Brian. But I don’t care about price as an absolute number.
I usually use calculator http://www.ivolatility.com/calc/?ticker=SPY to check the price of a contract and it uses volatility to calculate the price.
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September 30th, 2008 at 1:42 pm
First things first, my record on options trading was dismal prior to lurking on StockTock. I took Craig’s input on market and fine tuned my strategy. FOr the last 2 months I am doing better. So, take it for what its worth.
I won’t play deep OOM calls/outs unless the stock is very volatile and if I think some news will drive it in that direction. Also, the B/A spreads on 3-figure stocks are prohibitively big. If I am only betting in the direction of the stock, I will buy deep ITM options.
For example, last week I bought ATM calls on Emerging Market Short fund EEV when the stock was at 90. EEV has a very high volatility of 84. The reason I bet on EEV last week is based on the conviction that the weakness in US is here and emerging markets will collapse before US does. Without that conviction, there was no point in buying that expensive call in EEV. So far I proved to be right. The calls I bought for 7 and change went for 28 yesterday (should have sold them). I still believe that this selloff will accelerate shortly and EEV will march towards 150. I might add to this position today. It is also possible that they will intervene in the markets big time and I will lose everything in a heart beat.
Hope this helps.
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September 30th, 2008 at 2:58 pm
Thank you, Mohan. I prefer to trade out of the money calls because A) I always buy two/three month ahead of expiration B) I have to be right about stock price. C) I always trade at the top or bottom of a trendline. Never in the middle. There was one exception this year - RIG and I pay for it.
Here is an example. I bought MA Jan 280 calls at 150-155 level for $1.1. I don’t care what this or other stocks will do in a distant future, but I know that it will bounce tomorrow. Today my calls should be around $3.5. I’m always willing to sell for less $2.8-3. But bid is only 1.85. Discount is 80 to 100%.
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September 30th, 2008 at 3:00 pm
I can see that EEV is not broken and might go at least to 127-128. But it does not fit to my risk strategy. I would only buy at 75 (last drop) or short at 144-148.
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September 30th, 2008 at 1:04 pm
Why not wait until bailout? There has to be a bailout rally
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September 30th, 2008 at 1:36 pm
I believe in bailout in charts, not media or congress.
My statement was about broken option market. Stock went up 30 dollars from it’s lows. Contracts didn’t follow.
Tried to play short term bounce. Didn’t work. From today I trade stocks.
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September 30th, 2008 at 1:43 pm
Before yesterday, I thought there will be no rally. Now, it is possible that there will be a 2-3 day rally after the bailout.
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September 30th, 2008 at 1:58 pm
I liqudated all my remaining CAT yesterday. It’s too expensive still by mnay valuation metrics. There’s too much of a premium built into it as with all ‘best of breeds’.
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September 30th, 2008 at 12:54 pm
Charts of broken stocks in XLI
http://finviz.com/quote.ashx?t=utx,cat,emr,de,itw,tyc,pcar,ir
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September 30th, 2008 at 1:08 pm
possible head and shoulder ind SDS and QID over last two days.
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September 30th, 2008 at 1:23 pm
Anyone think the market has a chance of being up tomorrow? or is this really a dead cat bounce?
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September 30th, 2008 at 1:49 pm
I cannot help but think that yesterday’s action would have triggered a lot of margin calls, calls for redemption to mutual funds and hedge funds. Also, some hedge funds might have blown-up in the past several days. Especially yesterday. With so much destruction in capital, I cannot see todays rally as nothing other than a dead-cat bounce.
A savvy trader I follow thinks that this market is a buy if we close above 1156. I think the domino dynamics are in effect now. There are more people who are ready/eager to sell today than yesterday.
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September 30th, 2008 at 1:24 pm
SPY is now above the 20/50 bowtie on the 10m StockChart charts at $114.25
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September 30th, 2008 at 1:33 pm
JRCC is trying to push into its gap on expanding volume for those looking for a quick trade there could be a nice little pop here.
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September 30th, 2008 at 2:05 pm
Whats your entry point?
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September 30th, 2008 at 1:41 pm
Covered my long position on SSO at 48.40..
I’m out of the market for now.. No more swing trades for me until the whole economy just chill the …. out!
WE might see an end of the day rally.. but I’m not taking the risk on any overnight positions..
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September 30th, 2008 at 1:44 pm
A savvy trader I follow thinks that a close above 1156 is a buy.
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September 30th, 2008 at 1:57 pm
No, I hate the market conditions right now.. I went long SSO and should have made double today..
Some things aren’t right, and until they get corrected I’m not taking any overnight positions..
I’m long RIO cause I made a foolish trade and now I have to either take a 16% loss or go long and hold onto some calls to break even..
But that’s it.. nothing else for me.
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September 30th, 2008 at 2:10 pm
SSO not functioning properly at all. I’m still long and still pissed. I think market trades sideways till plan approval then another rally thursday (unless it is priced in at this point). I will get out of longs then and dump most accounts to cash.
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September 30th, 2008 at 1:45 pm
This looks the time to get in on the short side. Dow rallied pased 10700, we almost retraced 50% of yesterday’s move, and now its time to sell off.
I agree with you on watching the 2PM reversal craig. It is about to come.
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September 30th, 2008 at 1:51 pm
‘Representative Frank: Reportedly notes that FDIC is seeking to increase deposit insurance limit - unconfirmed report.’
- This should have been the first thing they did.
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September 30th, 2008 at 1:57 pm
It smells like the Congress is coming up with a more creative plan to unfreeze the credit markets. It will not take taxpayer money. It will involve suspending the mark-2-market rule which has caused all this need for immediate capital raising, and they will raise the FDIC limits to avoid runs on banks.
The market will ROAR because this plan can go into effect immediately rather than wait for assets to be priced and sold like Paulson required. The public will embrace this as it wont be a bailout.
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September 30th, 2008 at 2:00 pm
Anyone wanting a really good article on the ted spread and its implications should read the following:
http://www.rgemonitor.com/us-monitor/253797/understanding_the_ted_spread
I hope that it helps some of you understand the issue that the FED is trying to address and maybe become even better traders.
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September 30th, 2008 at 2:11 pm
watch UAUA
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September 30th, 2008 at 2:33 pm
Off the lows, but basically flat. Not sure how much it can rally in the face of rising oil. I’d only play United Air for scalps and short term swings. It has been in bankruuptcy 2x since 9/11, and if the recession is as deep as some are predicting, the airlines are the first to lose demand.
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September 30th, 2008 at 2:19 pm
Hey Craig,
Are you still in gold? I thought it was consolidating but I’m not exactly sure here.
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September 30th, 2008 at 2:21 pm
Yes, this is a not a short-term trade for me. I am building a position as it corrects.
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September 30th, 2008 at 2:25 pm
December Gold futures getting clobbered here now down $28 at $865.60 last. Something tells me more pain for long gold holders going forward. Thinking now USD will continue higher over the next few days and Equities higher as well. That could be the only combination that would put pressure on gold going forward.
Pete
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September 30th, 2008 at 2:32 pm
I don’t see it. Retrace before a huge move lower on the dollar and higher move on Gold.
Nothing changed in 1 day. It’s all technical. Tomorrow or thursday will be more blood.
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September 30th, 2008 at 2:36 pm
I’m watching 80 on the USD Index. If that goes then I&