Its a Beautiful Day

Hey folks.  I'm back, but no play by play.  Compliance issues with b/d will prevent me from talking about anything business related.  So if you are interested, shoot me an email, if not, I will try to give some kind of outlook on what I see from a personal level.

Cheers,
Eric

Na na na na, hey hey hey, Goodbye.

Bet here is that we don't stay long above 1000 SPX. AAPL looks vulnerable, and volatility is cheap. SEP options usually a great value, and now is the time. QQQQ 40 puts @ 1.40 also a good play. Remember, to define your risk, and let the trade develop. Stay small, and let your winners run.

A lot of cash mergers announced recently. Good place to put some of that hard earned trading money to rest.

All Star break

Sell them now. 925-930 SPX should be resistance here, although with expiration in 2 days, we could see a real short squeeze. 5% in a week baby, that's what we like. Longer term still bullish, but we will most definitely retest the 905-910 gap from this morning. Tech's leading the way, with telecom the laggard of that group.

Interest rates, currencies and commodities pretty volatile here. Seems the real battle is being done in that arena. Stocks waiting for the global economy to pull us out of the abyss. Summertime trading is wet and wild, be careful out there.

Merger activity small, as NRG still interesting.

Peace out.

Summer Loving happened so fast...

Buy hat on. Looking to get some love in here 875 SPX level. Plenty of negative sentiment on the boob tube, oil the leading indicator. I like the homies, banks, and metals. Lets roll baby.

Bye Bye Love

Market made a new high, then sold off, then gapped higher, then sells off. Hmmmm. Distribution is the name of this game. How am I to play it? Looking at DIA options, buying the 82/78/74 put fly for $0.85. Thats 4 weeks for the market to retrace 5% and nearly a 4 to 1 risk reward. Don't wait for the goods to be on sale, buy now and I will throw in a Graty :)

Swingtown

Elliot wave theorists looking at this recent up move from 850-875 SPX as a 5th of 5 wave. I see it as a bull trap. That is when the market charts make it look easy to buy the new high, but we will see what pain the market brings. Raising some cash and getiing hedged here at 875. If we make a new low on the day, then this bull move should be done for a while.

I'm not waiting on a lady, I'm just waiting on the FED.

Apple Pie

So its time to see if the recession has slowed down iPod's and iPhone sales. AAPL reporting tonight and I would have to say any whiff of disappointment may send the shares lower than the price of an ishuffle. Earnings plays make you pay for the move in spades. One way to offset the premium is to sell time spreads. In this case, I think we see lower prices so selling the June 130 calls and buying the May 130 gets you about $2.30. I would also sell the June 100 puts and buy 2 x the May 100 puts. This will get you another $0.50 and some juice for a big miss.

I don't want to kill you, and you don't want to be dead.

So a 4% selloff from the expiration high is what the market gives us. I am still looking for increased volatility during the next 3 weeks to shake out both the new longs, as well as those shorts who have still not covered. Once that happens, we should see that move to 1000 SPX that I have been looking for.

If you have been leaning from the overbought camp, today get us back to the top of that 815-835 SPX range from 2 weeks ago. My play here is to get the shopping list ready, and start to place some bids at some names that have truly showed a bottom. Watch your charts, and keep tabs on the new leaders. We know the true rally will not be from the dead money banks. Not sure if energy or natural resources will have the juice, their charts are not looking so well. Large cap tech seems the next logical sector, so I will come up with a QQQQ strategy to follow.

Be careful out there.

NBA and NHL playoffs in action. Spurs need a win tonight or else they are done.

Back to back to back.

Seems like old times. Chart says buy, you buy and the market goes your way. People are getting a little frisky out there. Bank stocks trading like 2007, come on get real. Pain right now is to the down side as shorts seem to be very wary here. I am looking for a 6-8% selloff into expiration next week. Would buy in the money puts as a way to play the negative delta as well as the sub-40 VIX.

Dy dayenu...

Market is marking time in the 815-835 range here for the past couple of days. That is enough to knock the VIX sub 40. 200 day MA drops to 875 as the calendar from last springs highs drop off. This is acting like a real bull. My guess is we get a rally soon as most people out there are waiting to buy the next dip.

Earnings season is here and the time is right for calendar spreads. You can do this in two ways. First, about 3 to 4 weeks before earnings, you want to buy the earnings month vol, and sell the front month against. So for instance, last week or so, you would have bought IBM MAY 110 calls and sold APR 110 calls against them for about $0.60. Today, that spread is worth $1.40.

A second play would be about a week before earnings to buy the May, and sell the next month against it. In this case you could sell the MAY/JUL 110 call spread in IBM for about $2.50. That currently does not look that appetizing to me as you are selling the JUL options on about a 35 volatility, not very pumped in this market. I will scan for better plays out there.

See you on the other side of the Seder plate.

Cop and a Half

A quick reversal off of that 809-813 SPX level this week led to a test of 782. A gap breakout over last weeks/months high, has turned the charts into bull mode. Heck we are a short 9.5% away from the 200 day at 911. Remembering some of Prof. Coopers work, 911 SPX is a big number.

With this in mind, huge good news, breadth, trend, the market will give us a "bait and switch" move to leave us in doubt. My guess is a break of 782 SPX, with a quick flush reversal. VIX staying above that 40 handle until jobs number tomorrow.

Time to play ball, but don't swing at the first pitch. I think we let this first one go by, and wait for that 2-1 fastball to rip up the middle.

One with a smear.

807 SPX coming into play here. For those who bought yesterday, selling here makes sense. If you want to short, the gap of 809-813 is some good resistance. Looks like someone wanted to goose this market a little bit. I cannot remember the last time I saw $MSFT up over $1 on a day. Makes sense, you can put some good size to work in a beaten down name with cash to burn.

Que pasa.

For those who followed my advice, congrats on a 6% pullback. Seeing 782 SPX as a fib, so shorts I would cover, those looking for a quick trade, get long with a tight stop. Any upside should be capped at 807 for now. Target on this downmove is 768-750. Financials telling the story right now, but lots of news out there that could whipsaw this market all over.

Watch the VIX as last weeks new high in the market did not get us to close under 40. We should see a confirmation of the rally with a lower low in this index.

How the market handles this dip is crucial. We should make some headway by the end of the week to turn the calendar and hopefully the charts up.

1000 SPX still in play.

Down to the Waterline

At home dealing with plumbing issues today. See the market broke over Friday's high, as we held Friday's breakout on yesterday's close. (823 to 803 SPX). Charts looking like they are bending backwards, tends to be a sign of the rally running out. Most technical targets out there looking for 835-840 gap fill, so the odds are is that is where some supply rests.

Money flowing out of large, into small. Seems we are ready for a dip in the averages. I would lock in any gains from 675 SPX here by buying calls and selling stock, or collaring up. You will get some ammo to load up for that 750 dip.

All I want to do, is have some fun.

We are back at 800 SPX via the next round of Government market intervention. Financials have stopped going down, hence they must go up. I still like buying gamma here as we should not take each day's move as the prevailing trend. We spent the last 8 months in a down trend, going up is still counter trend.

Stealing a Jeff Cooper line, the second mouse gets the cheese, we should see a breakout above last weeks high. Whether that holds, I am not sure, but I am still waiting for one more push down to get the weak hands out of play.

Looking at the moving averages, we should see a negative slope on the 50 and 200 day as January's high comes 50 days past, and last years high comes 200 days past. This will make the charts start to look really good soon if we rally from these levels. My 1000 SPX target still in play.

Hot Child in the Citi

Having a great discussion with Adam W. about what's going on in the C options today. http://adamsoptions.blogspot.com/2009/03/citi-not-sleeping.html


It seems a few big customers are paying $1.05 for the June $5 conversion. In laymens terms, that allows you to put on a synthetic short in C, but it will cost you 33% to create a borrow for the shares. Why? I believe the reason is to play the preferred/common arbitrage that was created when Citigroup agreed to convert those lousy TARP preferreds for lousy common stock. What they did was sell the preferred at $25 face value, paying between 6.5% and 8.25% dividends. Now with the common so cheap, they offered to take the preferrerd off your hand for a premium to where it has been trading in exchange for the common shares. Without getting in too deep, you can buy the preferred for lets say $8.00, it is convertible into 7.3 shares of the common, which was trading about $1.25, so you are creating about $1.125 of value. As the stock has run to $3, the spread between the offer and where the preferred is trading has gone kablooey. Today, you could have effectively created about $8.40 of value!!!. Remember, you can only lock this in with a short of C, so that is why the options reversal traded so wide.

By the way, the WSJ picked this trading activity up so you can read about it tomorrow.

Pop Goes the Weasel

Call this the Bernake Short Busting rally. First the financials are being scooped, then everything else. As I write this we are sitting at 800 SPX with money flowing into retailers, home builders, you name it. Get out a shopping list, because the bull is back. I still like straddles here as a way to play the gamma and give you a real shot at buying the dip, whenever that may be.

Around Here

Financials with the big perk up this morning. AIG near a buck and a half from .40 earlier this month. Buying gamma in some of the big banks here an easy shoe in. Either we have busted out of a trading range in them, or else the shorts have covered and we head back down. Either way, the ATM struddle looks nice. With a bearish bias, I would maybe sell some out of the moneys also, but only for a trade.

The IBM/SUN deal rumor put a fire under the tech group, but the oils and consumer staples are dragging. Would not be surprised for that expiration week vol swing from these levels. We held 750 SPX, would like to see a recut of that level before I get super long again.

Bubble Busters.

As the Mad Man on TV says, I would schnitzel some here and take some off of the table. What that means, is to hedge some longs here as there is a strong possibility of a market correction from these levels. For those aggressive playas, maybe a short or two.

Financials acting like there is huge upside to come, but tech is holding the market in slow mode. We have expiration this week which may put a cap on the rally for a few days, but I am still looking for 1000 SPX before long.

My John Malone play still looking great. Hey, we almost are above a quarter a share.

Looking for some interesting bracket plays for the early games this week. Go Blue! Welcome back to the NCAA's. I hope they got some game left for Clemson this week.

Love on the rocks.

From yesterday's NY Times article on Madoff investors:

“These were people with a fair amount of money, and most of them sought no professional advice,” said Bruce C. Greenwald, who teaches value investing at the Graduate School of Business at Columbia University. “It’s like trying to do your own dentistry.” Mr. Hedges said, “It is a real lesson that people cannot abdicate personal responsibility when it comes to their personal finances.”

A friend of mine was describing to me his reaction to the Cramer-Stewart confrontation. What he got from this was that there are 2 financial systems, one for the everday joe investor, and one for a privledged few, which cannabilized the everyday joe. Now myself being involved on Wall Street for nearly twenty years, I offered him some pretty hard evidence to the contrary of whatever ideas he thought were being given to him via the Stewart camp. But that did not matter, his mind was already made up.

The sum of all fears it seems is distrust. Distrust with a financial system that was preached for the past 50 years as a way for the salaried worker to see his money grow faster than inflation. It still is, in my opinion. Only with the guidance and dilligence of the few, not the many. If your only means of financial literacy comes from the idiot box, rather than the squauk box, thnn caveat emptor.

Stop in the Name of Love...

750 SPX looks like some minor resistance on the way to 1000. Would not be surprised for some backing and filliing for the next day or two.

Big Bottoms

This is it. I am calling the bottom of the move here at 675 SPX. For anyone in cash, this is the time to buy. Any shorts, please cover. You will see a 50% move up on this trade.

March 6 2009 10:05 am CST

Hubba Bubba

After one bubble pops, probably another one is about to lose air. It looks like the 10 yr note is about to settle comfortably with a 3 handle yield. We havn't seen this one for a while, my guess is a quick move to 4 is a good trade.

Market holding well with GE being brought to the woodshed. A lot of bearish talk on the tube. Seeing one interview with SPX value derived in the 375-425 range and other looking for silver coins.

Next event risk is in the Autos.

Farewell to the AMEX, lots of memories.

Whop bop a loo bop...

Doing some serious charting this evening. Fibbonacci numbers from the 2006-2008 top put us at 675-695 SPX target. Based on all of the other doom and gloomsters out there, probably have found a level to rally from.

Saying that, where can we go? My theory is always to a level beyond the mass expectations. Just like we have sold off so far so fast, it will be the same on the upside. So buckle up and get ready to rumble.

Taking in to account the fiscal dollars flooding the system, and using 1931 as an example, 50% from these levels puts us at 1050. Just north of the 200 day as well as the high of 2008 Q3.

Crazy, yes, but that's what got us here in the first place!

Hey Now

Watching Dr. Doom on the CNBC. Doesn't he remind you of Yul Brenner in the Ten Commandments?

Other significant research shows that since Tiger Woods went off the PGA Tour, the DJIA has lost 40%. The 25 or so years that he has played golf (since age 2), the DJIA has gained about 1000%. Things look to be picking up with him back on the course!

Speaking of commandments, Thou shall not try to pick a bottom seems to be the one most broken around here.

Enjoy the weekend. Its 88 and sunny here in Tejas. Time for some BBQ and Beer.

Spongeworthy

Looking at the 10 min SPX chart, perfect reverse head and shoulders. Measured move from 780 to 818. Stops around 754. About a 2 to 1 set up, but pretty reliable I think.

Ding dong the witch is dead.

Looks like an all clear signal. I guess we can attribute this to the Oscar's.

Had a bad day.

Two things. Kind of had my dates crossed with today being expiration, so got whomped on any Feb trades. With that, we have a expiration/nationalization selloff. Remember the good old days of 2008 when every Friday we saw huge out of the money put buying on financials? Well, we are now just seeing long capitulation. Hey, if the common is going to zero, no need to hedge, just sell it. No body want to go home long on Friday to wake up Monday with C, BAC, WFC as part of the Fed.

760 looks like the target on SPX chart dump. Long term bullish, but you got to respect the trend.

Running with the Band

Bears trying so hard to push this puppy down, but the markets got some left. Kind of like Rocky vs. Apollo Creed. The numbers look too good, but the underdog just outlasts the champ.

Remember, you got to eat lightning, and crap thunder.

SPY FEB 80 calls for .50 look yummy.

Hotel California

Markets making a digestion day. Hopefully we can keep the bad news in our stomachs and get an expiration Wednesday pop. Charts look like garbage, need a close above 798 on the 10 min SPX to make anything look good. Large gap 818-826 good target for bulls this week.

Large cap growth (tech) looking mahvalous. Time to play the QQQQ's here as they are the best of the breed out there. For a trade it looks like $1 up with a .30 stop.

Stay cool.

I heard it on the radio....

Well not quite 3 to 1 on SIRI, but I'll take it in this lousy tape.

VIX soaring over 50, SPX under 800, end of the world scenario again. Using this pullback to roll some buywrites out 3 to 6 months if possible. .90 on the SPY 80-82 call spread looks like a good trade for the week.

Would hedge some of that GLD here at 95, looking for a pullback to 88-90 to add to positions.

What's with oil? I just paid $2.00 for gas and we don't even have a $40 on crude. Damn crack spreads.

I'm on WKRP in Cincinnatti

In this world of 0.25% money markets and $950 gold, any type of risk is avoided. For instance, SIRI is already trading as it is in bankruptcy. ENE traded for .05 before that puppy was settled. Buying SIRI this week was a free call on someone out there with financial acumen besides the government. The odds are low, but the risk reward lines up. I'd say at .10 you have a 3 to 1 upside/downside. Pretty good if you are willing to take that leap. More news and Les Nessman.

Golden Slumbers

Well a lot has changed since I last posted on this blog. A few new rules, first of all, I am going to do less market analysis and more on specific trading strategies. Think of it as reading the manual in your glove compartment as opposed to Car and Driver. I am more about when to change the oil than whether the V8 is a better buy than the 6 cylindar.

Moving from one of the major wirehouses to a regional B/D, has given me the freedom to allocate assets in across a wider spectrum of risk profiles. In order to do this, I attempt to capture market inefficiencies using my knowledge and tools.

An example of this is available in the WYE/PFE transaction. Because of the decreased use of leverage across hedge funds, we have a wide arbitrage spread. Buying WYE at $43 is effectively creating PFE at $13.10. This is a great way to pick up a large pharma with lots of cash at a 8% discount to market value. Using the large edge in the spread, you can effectively hedge market risk with a put on XLV (about 14% combined of PFE and WYE).

Of course, we would add this to an already allocated portfolio to create some alpha. With assets at a huge discount to fair value, it is important to manage the volatility of the overall portfolio. I currently do this with ETF puts and calls.

Told you about Brett Favre, what a maroon.