OptionPundit

Tag: Dow

  • The Shining Asset Class – Gold

    Recall the post on Dec 31 on watching the Gold action. It has been closing upwards every years for the past 8 years. As of Friday’s close, Gold was up almost +7% year to date and as of this writing, it’s rising further.

    Attached chart shows a massive base building around $920-$940. And if Gold is to break-out based on 3 box reversal, the next logical price point is $1060, almost to earlier peak registered in 2008. That would mark either the double top, or if upside momentum is sustained, a new beginning on next Bull Run.

    Based on my understanding of the bull markets and bubble formation, Gold hasn’t yet reached into the mad rush, the speculative zone. It may seem possible that sustained move past $1060 will begin that bull run phase leading to speculative zone. OP readers and OPNewsletter subscribers know that I have been a gold proponent for long time. No matter what others think, I think gold is the real symbol of wealth for generations and been passed in that “psychology” from one civilization to the next.

    Dow has been turning lower and lower when compare with gold. 1 share of Dow buys 8.4 shares of Gold vs. 21 almost year back (this is rough approximation). Many can explain this downtrend via various rationale, but ultimately if coordinated efforts from the world bankers will show somewhere that’s in Gold. There are multiple interpretation of rise in gold including as vague as it is indicating that economy is improving and inflation is on horizon, to “safest heaven”. I am in the 2nd camp for now. I shall warn you though; Gold is not for the weakest heart. It can really stir one’s emotion and throw one out of the game. We played GLD in Aug’08 OPN portfolio and this monster ruined that month for OPNewsletter and resulted into the ONLY loss making month for OPN. However, as part of my personal diversification GOLD is an important asset class and I have NEVER sold any physical gold.

    In any case, I thought to bring this to your attention. Check out your nearby gold vendors, Physical gold coins may be almost out of the market and do you know that Physical Gold is now commanding almost 15-20% premium over paper gold, Yes!!

    The Shining Asset Class, Gold.

    Profitable trading, OP

  • What’s Next?

    What a day that it was. This was the largest market decline ever on an inauguration day which also qualified as a 90% down day on both the NYSE and NASDAQ. According to Lowry’s, this was also the second 90% down day in just four trading days, after a hiatus of 90% Down Days since Dec. 1. While the DJI, S&P 500 and NASDAQ all suffered sharp losses of 4%, 5% and almost 6%, respectively, S&P Mid and Small Cap or Russell 2000 Indexes fell by 6.00%, 7% and 7%. Based on yesterday’s action, the probability of a retest of Nov lows have increased. Unless Dow rises significantly from here, it seems this Jan’09 is going to be a down month.

    This is the warning that I sent out to OPN members on Friday 1/16, that I shall mention again for the benefit of OPN readers-

    Recall sometime back I had mentioned about the importance of 10,700, in early sept’08, and to stay away from the crash on the way….I don’t know when is the next one..but what i do feel is that… if Dow is headed to close below Nov lows (7500), stay away from the markets…that’s as simple a technical analysis as I could share..

    Here is the news from bloomberg, confirming my thoughts, if 7,500 is gone, embrace 6,000. I shall add to that, if Transports also break below it’s Nov lows, just stay out of the game (from my perspective)…

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a9M5TXuo9l1Q

    Trade very carefully, markets are becoming complacent, but there is no room for complacency. Whatever rallies we saw from Nov low, it is driven by withdrawal of supply, not due to fresh demands…

    Though these are the times to make money, but then losing will also be quite easy. Pls dig dipper for information, find out the “facts” and only then commit funds if you need to, for long term investing…don’t buy just on “tips”..

    I mentioned this on my InvesCafe portal as well. Both the transports and Dow are not very far from those lows. And I shall urge my readers to stay cautious, in fact very cautious. I hope some of you were able to cash in a few opportunities I mentioned on the InvesCafe. There is no harm in waiting for a few days to better interpret market action.

    We are opening Feb’09 Income portfolios for OPNewsletter, pls click here if you are interested to Join OPNewsletter.

    Trade very carefully, Profitable Trading, OP

  • Is Berkshire in Trouble?

    This 2 part series will cover recent market developments about Berkshire Hathaway, points to a strategy on how you may benefit more on the same trades he did recently and an option trading strategy that probably Berkshire uses for maximizing it returns on the underlying they find worth investing. Don’t forget to read the big picture of US stock markets. Markets are behaving pretty much that way. I am opening December portfolios for OPNewsletter, to join, pls click here.

    Before I proceed, I must mention that I admire Mr Buffett’s skills. I got an opportunity to meet-up face to face with him in 2005 and it was one of the finest moments of my life to first hand hear the living legend. Listening and questioning him propelled my learning about his style way more than any book did. I, in no way can doubt his selection or will know in full his style of investing. Beyond classic investing theory, his intuition is par excellence. So below post is a mere attempt to interpret in my way. Pls do your own due diligence before making any decision based on info presented here.

    According to Forbes, The credit default swap market says the Oracle of Omaha is headed for trouble. The credit default swap market thinks so. Spreads on insurance against a debt default by Warren Buffett’s triple-A-rated Berkshire Hathaway are trading about on par with that of the embattled General Electric and worse than Goldman Sachs and Citigroup. Per same article, “Credit default swaps on Berkshire traded at 440 Wednesday, according to Phoenix Partners Group.

    (more…)

  • Where are the Markets Heading?

    Below charts and rough technical analysis is not to paint a grim picture but is rather an attempt to define a range for the downside. It’s better to develop trading plans with the worst case scenario in mind vs. developing plans on pure hopes and dreams. I don’t argue that equities are starting to show value and in fact I am already working to develop an OPN value portfolio design to double in next 5-6 years riding on the trends that are about to emerge in the new world post financial crisis clean-up. I think no one can time the market, certainly not me, and hence I shall also share how to fully hedge this portfolio so as to avoid any further losses should the market decline even further. More on that later.

    We are positive for Nov’08 income portfolio for OPNewsletter and already started opening Dec’08 income portfolios. If you would like to join, pls click here

    This is real long term picture of the Dow Jones industrial. For an ultimate bull market that started from the lows witnessed in the great depression. This monthly charts depicts a dow starting from 42.30 in 1930s to the high of 14,198 in the late 2007. My interpretation in an extremely simple way is that, assuming Oct intra day low is gone, 7,200 (+/- 200 points) is a very strong support. If that’s gone, we are talking all the way back to near 6,000 and followed by 5,400. And by that time, the DOW will be yielding roughly 6%. It is not a coincidence that 2002 low halted decline at around those levels. These points were another strong fib support points. Pls see the shaded region.

    MACD is in the most deeply oversold region, ever!! RSI is not too far either which is almost at the levels recorded in 1932s or late 74. Though, these indicators present a bullish scenario, be mindful that these can remain oversold longer than I, as an individual investor, can remain solvent and of course these can also clear oversold level within that bear market.

     Attached chart is for S&P500 Index. The picture is almost exact replica of the Dow industrial. 2002 lows were great fib support points and if translated into current market environment, it seems 790 will be a very strong support followed by 600. In past few weeks we have already seen that the moment S&P500 touches 800, it has bounce back very aggressively. Now that may be driven by program trading, but who knows. We might be heading for 604 that will yield almost 6% classic at which point equities are very attractive (oh some of those are already attractive selling at crazy prices!). From MACD and RSI standpoint is almost the same story as Dow.

    Nasdaq is in a different league and I can’t conclude with it’s charts except a few generic comments.

    So moving forward, how to interpret this. I may very well be wrong, but I think we are not yet done with the selling. The only positive point so far I have seen is that lows have been on decresing volumes vs preceeding low (in past 6wks). A high volume up day was soon wiped-out by major down days. So first level seems Oct 10 intrday day, followed by 2002s lows and finally the points I mentioned above. However, if there is upside from here onwards, supported by strong volumes and improvement in breadth etc, I might consider reversal but till then, I am not covinced with any rallies.

    Many are calling it is a bottom. I’ll prefer to be naive and just be guided by the market action while keeping the big picture in mind. 

    We have started opening Dec income portfolios for OPNewsletter. If you would like to join, pls click here.

    Trade Carefully, Trade Profitably, OP

  • DOW, S&P, Nasdaq All Up

    The Dow increased 4.7% closing at 8979.26, the Nasdaq was up 5.5% to finish at 1717.71, and the S&P was up 4.3% to finish at 946.43. Leading sectors Coal and Consumable Fuels +13.3%, Education Services 13.2%, Steel 13.1%, Oil and Gas Exploration 12.1%, Gas Utilities 11.4%. Gold will surely make it to the lagging sectors.

    Though the rally came on more than average volume, the up volume wasn’t impressive at all. The new lows also increased. Net net, poor market internals in the face of a “strong” reversal, far short of saying any strong bounce.

    I earlier mentioned my bias via alerts on InvesCafe–

    I am worried. There is so much optimism that Friday was bottom. It will be nasty surprise to many if it wasn’t.

    We are seeing almost thousand points move every day for Dow. VIX was at record high (over 80%) when I sent out an alert mentioning that “theoretically we should see a rebound” but don’t be surprised if this IV also represent a big crash coming. The moves are becoming bigger, the volatility is higher, the news is bad and so one. I wonder if this is a precursor to any big crash on the way.

    On the other hand, Friday low might prove to be low for this bear market as well. So I want to be ready. There are some interesting value emerging in this market and my list for value stocks is growing each day (You can check my current list if you are an OPN subscriber). I would like to do pre-work now so I can move funds at the confirmation that a bottom is in place.

    Google announced good set of results and hence up GOOG +10.9%; AMD +10.9%; IBM +2.2%… low ones are ESLR -16.5%; TPX -12.0%; LEG -11.2%; ESLR -10.6%; PMCS -6.1%; SYK -3.2%., CBI -6.2% ,CMI -5.3%

    Tomorrow is US equity Oct’08 option expiration, so expect volatility, this is also a time for maximing leverage as all the OOM options are left with is the IV and time value which reduce to zero by the end of the days if those are still OOM.

    Have fun and profitable trading, OP

  • The Wall Street Bailout Plan- OP’s Perspective

    The $700billion market bail out plan is disclosed and is for review withCongress. The Target is to get it to President table by Friday, according to Forbes. As per the same article– Treasury Secretary Henry Paulson “is in effect becoming the dictator of the American financial system for a few months, subject to congressional oversight,” said Wall Street historian John Steele Gordon, author of a book about the national debt. They are seeking unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets.

    I hope congress evaluates the plan going into deeper level of analysis so as to a) solve the crisis, b) Fix it for long term and c) consider the implication on average American. I hope they read the fine prints (If those were read earlier, the results wouldn’t have been so severe for the US economy). This massive bailout plan plus the past ones (~1 or more trillion dollars), almost of the size of entire Indian Economy (one of the pillars of BRIC) will be funded from the Taxpayer’s money primarily. So I sincerely hope that the guardians of world’s largest economy view this in all fairness to the small and medium and average American who had nothing to do with this mess but still need to pay for this clean-up (instead of letting these institution bear the sour fruits of their doings). US’s “Every Street” will now bailout “The Wall Street” ; and probably the guys who created the mess will still earn gazillions of $$$ in salary. If you would like to know more about this plan, read this straight forward explanation from New York Times. All eyes are upon US financial systems, how wizards solve this issue.

    Let’s come back to Markets-
    This was the largest two day rally since 1987 market crash. I think last week’s event provides a good story for a Hollywood movie that could be equally successful as “Wall street” if not better. On a bigger picture basis S&P 500 is almost flat as a week ago, as if nothing happened in a week that was full of pain, drama and a lot of emotional swings. So if we had such a huge rally, ideally I will be expecting huge volumes, IV crash especially for those financials. That should be the case. Really?

    • RVX, a measure of volatility on Russell 2000 index was in fact up in spite of a massive rally in the underlying.
    • VIX a measure of volatility on S&P500 was still above 30 and merely 3% down vs. a day ago.
    • Show me the volume- There wasn’t much of the volume in the financials in spite of huge surge (volume with respect to the down volumes we saw preceding few days). Goldman (GS), nearly half of the last two down days…AIG same; BAC, so so; Citibank (C), nearly 3/4; Morgan Stanley (MS), 1/3; Wachovia (WB), nearly 3/4; XLF, financial etf, half of the day before and lower than preceding 3 days; and IYF, DJ Financial Sector index, half of average of past few months and nearly 1/5th of the past few days.This is not what one would expect after such a massive “bail-out”….

    Further more, even though it was a huge up day, for NYSE- Up volume was still less than 90% (my gauge for trend strength) and on Nasdaq it was close to 80%. Technically, all the key indices Dow, S&500 and Nasdaq all closed below respective 50 days moving averages. A lot is going on in financial markets. Not an easy pill to swallow. Even if you are right, you are now not sure which rule will be changed next and you’ll lose your shirts in spite of being correct. A baffled market that it is.

    Trade extra carefully, Profitable trading, OP