OptionPundit

Tag: Bull Market Signal

  • Is It the Beginning of a New Bull Market?

    It’s been quite a while since I last posted and since then a lot has occurred in the markets. Just to provide the context before proceeding, since we opened Aug OPNewsletter portfolio 2wks back , hold your breath, X is up almost +25%, OIH +14%, IWM /RUT +11%, GDX and Dow +9%, S&P500 almost +8%. What a spectacular bull run over bearish bias we had for OPNewsletter. These are fairly large move, in such a short span, from historical standards.

    And guess what, Bulls have been charging up and away without any resistance from Bears, day after day. The market behavior seems to change. Stock markets moves higher during the last hours as opposed to diving deeper in red the last hour. Such an interesting phenomenon, in an overbought condition, represents the strength of the market. It really doesn’t matter to market participants that such a thing has been happening without any volume sponsorship and internals (as measure by Lowry’s) are not at their best level as represented by price action of the markets.

    • Bullish side of the coin – Markets have been moving higher in spite of overbought conditions. The bull market signals from Coppock curve and Dow Theory must have converted even one of the most conservative investors to turn Bullish now.
    • The Bearish side of the coin- The markets are overbought and a short-term pull back is overdue.  Based on Demand and Supply, even a single day of ample sell-off can drive shivers in the markets.

    Over the last few days there are two interesting quotes that I came across which pretty much define the whole move from March lows to current high in a simple yet powerful way-

    This one is from Lowry’s-

    An old factoid says that the most learned scientists and aerodynamic experts have concluded that it is impossible for a bumblebee to fly. But, the bumblebee does not know that he cannot fly, so he just keeps buzzing along. Similarly, despite our evidence that the rally from the March’09 market low has not conformed to the normal characteristics of a new bull market, the major price indexes have just kept advancing to new rally highs. The difference is scientists are dealing with absolutes, while the stock market deals with probabilities.

    Another one from latest weekly update from John Hussman-

    That said, I can only describe our investment stance here as “uncomfortably defensive.” That is, the measures that have guided the performance of the Strategic Growth Fund over time are still holding to a defensive stance, which is admittedly uncomfortable with the market pressing strenuous but persistent overbought levels. It’s a lot like watching people scale across a tenuously secured rope bridge and get a nice meal at the center. You’d like to climb across and join them, but you know that too many things aren’t right with the bridge, and it’s not clear that the people who are eating will ultimately survive.

    Whatever your take on the markets us, this run in the markets since March 9 low has proven “If something doesn’t happen, doesn’t mean it can’t happen. It’s just that the data till date is not sufficient to prove its occurrence” (this is not my quote; I can’t recall where I read that).

    Analysts have been increasing earnings estimates left, right and centre. (Btw, do these guys really know anything that helps retail investors? Where were they in 2007 early 2007 when Subprime was about to bring financial Tsunami? Where were those “early warning system” to help guide investors? what about just 4 months back when Markets were to register one of the most powerful rally? The famous excuse “We change as new data emerge”- a convincing one ).

    Bottomline- I want to be bullish, but don’t want to be overly bullish. I am still looking for margin of safety. I shared a trade idea for long term with OPNewsletter members and will share more in the coming days. The most I can say is that probably you can treat this as mini bull market (or an extended Bear Market rally) within a set of primary bear market. Near term support for the DJIA appears to be 8900-8800 level, at 945-950 for the S&P 500 and at 1875-1860 for the NASDAQ.

    Trade Carefully, Profitable Trading, OP

  • OPNewsletter- Mar’09 +8.8%, Apr +2.4% (Open)

    March’09 portfolios were closed +8.8% (excluding commissions) and +5.6% (including commissions). I used up about +46.7% of the assumed 10K capital for OPNewsletter. This result doesn’t include excellent results from bonus trade alerts.

    market-movement-mar09-opn-portfolio When compared with broader markets, this was probably one of the best months for OPNewsletter. Look at the major market movements since we opened the Mar (Mid Feb’09) portfolio. RUT traveled almost -20% south; and DOW, S&P500 and Nasdaq ranging from -14% to -16%. All this was followed by sharp snap back rallies. Isn’t this amazing, almost 20% back and forth move in one month. I have not researched to find if this is one of its kinds or has happened before. But whatever be case, this is not income trader’s best friend. This was surely not an easy period. In fact one of the toughest and most volatile periods, at least of my lifetime (leaving aside Oct 1987 crash). Hence preserving capital and delivering just positive results itself is good enough. One of the strategy I used was to focus only what was opened and keep cash free to make adjustments as needed. This served nicely without really triggering panic due to shortage of capital. For Option Trading Strategies, We used multiple strategies i.e. Calendars, Credit Spreads, Digonal Spreads and so on. I however, decided not to open an Iron Condor this month anticipating extreme movements which also served nicely (There is not a single losing Iron Condor since re-opening of OPNewsletter).

    For OPNewsletter, The best performing portfolio was USO which delivered +22.8% and it was also rolled over to Apr. I expect this portfolio to deliver +50% by July. The worst portfolio was ABT which was almost break-even (+0.89%). MCD delivered +5.5%. A tough month though, it required greek’s analysis, technical analysis, gut feel and past experiences with similar situation (VISA, May 2008) helped sail through this month.

    Some of the excellent intraday trades, results not included in OPN tracking, were +42% on SRS, +58% on VIX, CF arbitrage of $6, DECK for +220%, AZO (+27%, +39%, +73%), SKF +20% to +50%, FDS lost to break-even, NKE earnings +22%, DELL earnings amongst others. As mentioned, These results are not part of OPN tracking.

    We are nicely positioned for Apr’09 portfolios as well and so far invested only +19.7% of assumed 10K capital. I shall be opening a few more portfolios next week, if you would like to join, pls sign-up for the OPN waitlist.

    Those who could trade intra-day, markets offered wonderful trading opportunities, specially on the Expiration day. A smiling butterfly was shared with all the free members as well, that resulted into >+100% gains. Hope folks who followed invescafe/speculative trade alerts (some of those listed above), probably had some good opportunities that I played for intraday trades.

    (You may want to sign-up for the Basic Membership (Free until Dec 2009) that I use to share free trade alerts for registered members).

    I have been experimenting with several underlying/strategy combos over past 3-4 months, with real money. I think I am ready for opening new Portfolios/newsletter(s) to take advantage from current environment. I shall share more on this later.

    One final message, markets are not out of woods yet, pls don’t let complacency set-in, these are extraordinary time and it requires one to be taking extraordinary steps.

    Trade Carefully, Trade Profitably, OP

  • Bullish Monday

    So we had a good rally, and two 90% up days along the way. An excellent week for Bulls. There are two schools of thoughts. One, it may feel like,oops..I missed the rally. Probably “that” was the bottom and since I don’t want to miss the “value”, I better get on-board quickly. While other thought is, Nah, this is one of those bear market rallies, it was due to short covering and it is bound to fall back.

    Which side are you? What to do? For me personally, I took advantage of rally and closed most of the bullish positions on our OPNewsletter. In hindsight we may say, gosh, that was a bad decision? Or we may walk to the bank smiling on our decision. We’ll see.

    Generally, I mean generally, bull markets starts in the midst of deep pessimism. When retail public has already suffered big losses, lost interest in markets and is left with no money, the bulls find no resistance, no sellers and it marches to its own beats.

    Last week’s rally possessed one thing different from rest of the rallies so far, it was driven by demand. Albeit, I am not sure whether demand was short covering or bottom fishing; I am not sure (Though I did pick a few value plays). So let Mr. Market guide me by his actions, by the committed money of its participants and whether it can cross 7,500 supported by continuous increase in demand and supported by strong volumes.

    This week is filled with lot of data. Industrial production today at 9:15am, Housing starts and Producer’s Price Index (PPI) tomorrow at 8:30am, Consumer Price Index (CPI) at 8:30am tomorrow followed by FOMC announcement at 2:15am ET (is there anything left for Fed to announce?). Then we have jobless claims on Thursday 8:30am, Cash settled index option expiration on Thursday as well, followed by Uncle Ben speaking on Friday and the March US equity options expiration day, on Friday. Possibly Goldman Sachs (GS) will be announcing earning this week and Fedex will also share a glimpse of economy’s move.

    Net, any day can reverse Mr. Market’s mood in either direction. So trade very carefully.

    This week has some interesting plays to offer that I shall keep sharing time to time, so stay tuned.

    Profitable trading, OP

  • Citi, Uptick and Mark-To-Market

    So we had it finally. The pressurized spring bounced back and shorts were pressed against the wall to cover. Fantastic rally by all means, it was easily qualified as a 90% Upside Day on both the NYSE and the NASDAQ that too on expanding volume. Market breadth was also much more impressive during yesterday’s rally. I had never thought (Probably Vikram Pandit as well) that his letter to Citi (C) employee can spark such a massive global stock market rally. In fact there were 3 things of note yesterday.

    1. Citi CEO’s letter.
    2. Reimpose the uptick rule (An untick rule is a securities trading rule used to regulate short selling in financial markets. The rule mandates, subject to certain exceptions, that, when sold, a listed security must either be sold short at a price above the price at which the immediately preceding sale was effected or at the last sale price if it is higher than the last different price) and
    3. Possible “Improvement” to “Mark-to-market” rule

    All good till it is not. We’ll find out later if y’day was a bottom and this bull has legs to run or Bears just released ground for a technical rebound from deeply oversold levels to set stage for next down leg.

    (more…)