Saturday, May 24, 2014

Active-Trader - Welcome iPhone 4s

Welcome back loyal blog readers.

Recently, I finally broke down and got smartphones for myself and family of 4.  Up to now, I have avoided it since I could not justify the $250 per month expense.  After all, don't I have enough screens already?

In the end it was a confluence of events, and i'll spare you all the gory details.  The thing that won me over was AT&T's plan where you get 4 lines, unlimited talk and text and 10GB shared date for $160 a month.  That wasn't much more than I was paying for 4 dumb phones from competitor Verizon.

Sometimes I have to get dragged, kicking and screaming into the present and in this case I'm truly amazed at all the things this device can do.  And just to wrap your head around that, here is a partial list:

- Wireless connectivity - WiFi 1x, 3G, 4G and Bluetooth
- E-mail access to multiple web-based accounts, Yahoo, Gmail
- Live TV at home via Optimum App
- Live streaming traffic and weather anywhere via News 12 App
- Web browsing via Safari web browser
- Social media access via Twitter, Facebook and linked in apps
- Live streaming CNBC anywhere via CNBC app and Optimum subscription
- Access to 1000's of movies and TV shows via Netflix
- Access to nearly any radio station around the globe via Radio apps including my favorite local station 107.1 the Peak via their custom apps
- Access to all the Financial Apps, banking, E-Trade, TradeStation, TD Ameritrade, TC2000
- Access to large corporate e-mail, calendar, notes and contacts using Good Enterprise.
- Still and video camera with photo and video capture and playback
- Full mapping with real-time location awareness on a map
- Live video chatting with family and friends with facetime.
- Automated turn-by-turn directions when traveling - no need for a separate GPS device for the car
- Compass for remote navigation
- Save and play an entire music library, 16 GB is a lot of music
- Text messaging to the world

One last thing I forgot, you can use it to make phone calls.

We are living in truly amazing times.  Enjoy your weekend.

Sunday, May 18, 2014

Active-Trader - 5 Days of Fib - Day 2

Welcome back loyal blog readers.  This is post 2 in my 5 Days of Voodoo series where I will share my interpretation of the location of the Fib lines for popular stocks.

Next up is warehouse retailer Costco (COST).  Wave 1 started at the low of $63.22 back on 8/8/2011 and ended at $80.84 on 12/5/2011. Since then, prices topped out just short of the 61.8% extension of the 281% line at 109.35.  The 109.35 line has served as an important line of support for nearly the past year as you can see from looking at a weekly chart.

COST was a challenge since I could not verify it against any external sources.  The low was easy to identify - TOS does it for you - but there were several interpretations of where Wave 1 could end.  I chose this interpretation since the resulting levels proved to be important lines of support as shown on the chart.

That is an interesting point it itself - if  you think this work is purely scientific and objective, think again.  It may be based on scientific principles - but coming up with the lines is a subjective and often backward-looking process.

Next up in drug maker Celgene - CELG.  Wave 1 began on at the low at $51.70 back on 8/8/2011 and ended at $80.48 on 4/16/2012. Since then the stock topped out just beyond the 423.6% line.  Since then it has been in correction mode like many of the big drug stocks.

I featured CELG in my 4 Horseman of Biotech post back in July of 2013.  Of the 4 horseman, CELG has the highest 5-year earnings growth rate at 32% but with a PE of 47, it is fairly valued.   The entire group is now in retreat and with many buyers trapped at higher levels, I'm not likely to tread here on the long side any time soon.  Instead, I prefer stocks much closer to all-time highs and much earlier in the speculation cycle.

Last up for this week is Catamaran - CTRX.  Wave 1 began at the low of $20.18 back on 10/24/2011 and ended at $32.36 back on 1/16/2012.  Since then, the stock topped out just beyond the 32.8% extension of the 161.8% of wave 1 and has been a complete slop fest since.  CTRX recently found support at the 161.8% extension at the $39.3 level.

Even though the stock is acting poorly, 5 year earnings growth is 34.59% with a PE ratio of 31.95 so the valuation is pretty respectable.  That said, I'm not likely to tread on the long side here anytime soon.

Have a great week and keep your cash levels high since this market is in a stealth correction.

Sunday, May 11, 2014

Active-Trader - 5 Days of Fib - Day 1

Welcome back loyal blog readers.

A few posts back, blog reader Peter left a comment asking me to share the Fib lines for the major stocks I follow.  As you know, I consider the Fib lines to be the most significant stock market discovery in my 30 plus years of trading the markets.  That's because they appear to have actual predictive value in terms of future support and resistance.  How well do they work?  You be the judge, so let's get started.

First up is AAPL.  Apple is an easy one since there seems to be universal agreement that wave 1 began at the low of 310.5 set on 6/27/2011 and ended at $422.69 on 10/17/2011.  All the subsequent voodoo lines can be calculated based on those 2 values alone which is pretty cool when you think about the fact they happened over 3 years ago.  We have further evidence that these are good levels since AAPL topped out on at 705.07 on 9/17/12 just 5 points beyond the 61.8% extension of the 281% of the original move.

In terms of technical outlook, AAPL tried and failed a test of the 281% line at $594.33.  Apple also attempted a breakout above the $600 level this week and failed.  AAPL's recent split and capital return appears to be positioning it to join the Dow-30 and become a value stock.  Recall when that happened to MSFT and INTC, the stocks became dead money for years.  Bottom line is I love the Apple products and the company, but I don't love the stock and it may never exceed the all-time highs.

Next up is Amazon.  Wave 1 began at a price level of $166 back on 12/26/2011 and ended at $227 on 4/30/2012.  Since then, it made an all time high on 1/20/2014 at $408 just a few points short of the 423% extension of the original move at $413.  Since then it has been all down hill and the recent down move found support within 50 cents of the green tree line at 284.82.

At this point, Amazon stock is in a death dive.  I would not short it here, but I would wait for a rally up to the $300 level or even better at the fire line at $320.  I love AMZN as a company and as a customer since they have invented an entire category of on-line retailing as well as cloud services.  But I detest AMZN as a stock since for many years it has been run for growth only.  The management is interested only in growing sales, but not producing profits.  That works in the early stages of growth, but long terms investors want to see growth on both the top and the bottom line.  As a result, AMZN stock has been punished and with a 5-year earnings growth rate of -23.77 and a PE of 454 and no dividend yield - I expect much, much lower prices ahead.

Next up is AZO - Autozone. Wave 1 began at $342 on 1/7/2013 and ended at $402 on 4/8/2013.   Since then, the stock make a new all-time high at $561 just short of the 61.8% line of the 281% line.  Notice how the move up to the high was made in a single daily candle that went up and tagged the tree line and pulled back.  As of now AZO is hanging out just below the tree line at 525.92.

AZO appears to be in a bullish consolidation pattern.  Notice how the sell-off from the highs took about 8 weeks and found support at the lower snow line (not shown) just above the fire line at $497.72.  Since then the stock has been in 4 week recovery and appears in be trading up in advance of earnings coming up on 5/27/2014 before the open.  I don't know a damn thing about auto parts, but it appears to be a hot group with similar advances and solid fundamentals in related stocks AAP and ORLY.  As for AZO, it has a 5 year earnings growth rate of +23.66 and at a PE of 17.83 so the stock is under-priced because the growth rate exceeds the PE.

Next up is BIIB - Biogen Idec.  I have a history with this stock and have made some good money with it over the years.  Wave 1 began on 8/19/2013 at $203.09 and ended at $249.31 on 9/16/2013.  This is a complex pattern and I'm not as confident in this interpretation versus the other stocks covered so far.  Even so, values seem to be working as the 32.2% tree line extension of the 261.8% fire line formed resistance which has held except for a brief spike up to the all-time high of $358.89.  Since then, the stock has been in a serious slide, but has found substantial support at the 161.8% tree line.  Note how this value proved to be an area of support in the past, and appears to be holding support now.  Overall, however, the easy money has been made in BIIB and its going to be a tough slog making it out until new all time highs.  With a 5 year earnings growth rate at 20.88 and a PE of 35, the stock is not under-priced.

Last up for this go-round is Chipotle - CMG.   Wave 1 began at $233.82 back on 10/22/2012 and ended 5/20/2013.  I'm not 100% confident in this interpretation since the reaction after the top of wave 1 was very shallow. That said - and like the other examples - the levels do seem to hold real significance.

The all time high in CMG was set at $622.90 not far from the 261.8% fire line. Since then it has been all down hill, but note how prices found support at the 161.8% fire line at $469.74. Given the magnitude and steepness of the sell-off,  CMG is going to have a tough go of advancing to new all-time highs.  Fundamentally, CMG has a 5-year earnings growth rate of 28.7% and a PE of 46.95.  Based on that, I think it fairly priced, but certainly not under-priced.

This year has been a tough one so far for the Nasdaq and momentum players.  Of the stocks reviewed here, AZO is the most bullish and AMZN is the most bearish.   That's all for now, enjoy your day and use these fib levels to your advantage in your trading.

Saturday, May 10, 2014

Active Trader - Trading the Earnings

Welcome back Active Traders and Wealth Builders.

It was another solid week of trading and for the 2nd week in a row,  Monday's open brought nice gains on directional option positions put on for stocks which exceeded the expected move after earnings the prior week.  As for next Monday, I went out long the TSLA 200 puts, so stay tuned to see how that one turns out.

What I have observed is that the price movements of stocks are contained by the options market itself. Prices for stocks reporting earnings have a very strong tendency to remain within the expected move for the week - presumably because the market makers themselves sell options outside the expected move and defend these levels with their own trading in the underlying. Once a new week comes, that constraint is removed and prices are free to run to the next level of support or resistance.

This past week was a parade of earnings reports. Recall that I am selling call credit spreads above the expected upside move and selling put credit spreads below the downside expected move.  The desired outcome is that the stock remains within the expected move and I get to collect the premium.

Last week I said the stock stays within the expected move 80% of the time.  Is that just a guess and if so how does this play out with actual experience?  Let's look at a table of my trades to find out.

NUS 80/82 91/930.80Closed put side at a debit of 1.88, short of max loss-1.08
APC 95/97 102/1040.80Max profit0.80
TRIP 72.5/75 89/910.80Max profit0.80
FSLR 61/63 72/740.80Closed put side for a debit of 0.500.30
PCLN 1070/1075 1195/1197.51.60Closed put side for a debit of 0.351.25
TSLA 177.5/180 220/220.51.06Closed put side for a debit of 1.07-0.01

The bottom line is that I put on a total of 12 spreads in 6 stocks and 5 of the 6 stocks closed within the expected move.  For the spreads which threatened to close in the money, I was still able to close them out at a profit except in the case of TSLA which was a small loss. In retrospect, had I done nothing into expiration, 5 of the 6 stocks would have closed within the move taking my positions to a max profit.

For most of the positions, I did small size - 2 contracts on each side.  The exception was PCLN where there was so much premium I did 5 contracts.  I took the largest profit on that trade and all told, I made some about 7.5 points or about $750 which is not bad for a part-time effort.

Looking at each position in terms of the expected move, here's what we have.

StockMarket Maker MovePercent of Underlying
NUS +/- 3.94.5%
APC +/- 2.82.8%
TRIP +/- 7.048.3%
FSLR+/- 4.196.7%
PCLN +/- 58.355.1%
TSLA+/- 18.049.02%

PCLN was the largest expected move in points, but at only 5% of the underlying, TSLA wins out with an expected move almost 10% of the price of the underlying.

Enjoy your weekend.

Saturday, May 3, 2014

Active-Trader - Post Earnings Resolution

Welcome back Active Traders and Wealth Builders.

This past week was a pretty good one all things considered.  The week started out with upside continuation in AAPL and I was positioned to take advantage of that as described in last week's post Lemons into Lemonade.

This past week was also notable because of the abundance of quarterly earnings reports.  The outcome of earnings reports can be thought of as binary events one of 2 potential outcomes as follows:

1) Stock stays within the expected "Market Maker Move"

This outcome occurs about 80% of the time and I position for these ahead of earnings by selling call spreads above the expected move and put spreads below the expected move.   For more detail on this technique, see my prior posts here and here.  Recall I will take these trades only if I can take in more than 30% of the width of the spread as a credit.

2) Stock exceeds expectations to the upside or downside and blows through the expected move and becomes a continuation candidate.

You will know this outcome is a reality when one side of the spread you put on ahead of earnings goes max in the money against you.  Sometimes its tricky to tell when this is going to happen since the stock with often come up and threaten your short strike (but never exceed it) then pull back.  Other times the stock will come up and blow through your short strike then pull back.  What happens next is key - does the Market Maker Move level become a new point of support (for further upside) or resistance (for further downside)?  The price behavior is a key tell.  Let's look at a few examples.

Starting the week on Monday, for Herbalife (HLF),  I sold the 53/55 62/64 condor for a credit of 0.75 and a max loss of 1.25.  After briefly threatening the 55 strike on the downside, the selling turned out to be overdone and the stock rallied off the bottom and eventually threatened my short strike on the call side only only to back off and close in the middle of the range.  This trade went to max profit and I didn't even need a closing order which is ideal. The short strikes are shown in the chart as red horizontal lines, and the long strikes are shown in green.

Twitter was our next candidate that came along on Tuesday.  I sold the 36/38 49/51 condor for a credit of 0.75, max loss $1.25.  Again the stock sold off hard after earnings, but rallied off the lows and closed well within my short strikes.  On Friday, the stock sold off and started to threaten my short strike to the downside so I bought back the short 38 put for a debit of 0.05 which is a commission free trade on Thinkorswim. As it turns out I would have been fine doing nothing.

On Wednesday, I sold the Mastercard (MA) 69/71 75/55 condor for a credit of 0.65 which was just under my target of 30% of the width of the strikes. This one ended at full profit with no closing transaction required.

Also on Wednesday, I did Yelp 50/52.5 65/67.5 condor for a credit of $1.20 which is a very good credit for a 2.5 wide strike.  This one got the better of me as follows.  Yelp violated my short strike, so the closed the 65/67.5 for a debit of 0.90 (having sold it for 0.55).  Then to pile on (and figuring it would break out, I sold the 63/65 PCS for a credit of 0.70, then eventually had to buy it back at 1.35 when YELP rolled over later in the week.  So all told, I lost about 1.05 on this deal which is good loss control on an otherwise fiasco of a trade.

On Thursday, I did WYNN 195/197.5 217.5/220 condor for a credit of 1.0 even.  This one started out okay, but as the news came out, it got increasingly bullish.  Note how once the short strike was violated, it was no longer a line of resistance, it became a line of support.  I closed this one out at a debit of 1.35 which was a good thing to do since had I done nothing, it would have come to a max loss of the full width of the spread which is 2.5.  So overall, only lost 0.35 on this trade which is good loss control.

Our lemons to lemonade strategy would be go to out long shares of WYNN expecting further upside continuation post earnings.  But I already had a good decent size position in Lasvegas Sands LVS.

As for up and coming stocks, I have a good position and a small profit in RF Micro Devices (RFMD). This is not a new all-time high, but its a 3+ year high. All time high in the shares was set at 92.25 back at the very top of the dot-bomb bust on 1/31/2000.  In fact I think I traded RFMD back in the day which is why it peaked my interest.  Based on that old top, RDMD is going to need a long climb back to a new all-time high.

Finally, I went out short a few shares in LNKD has shown on the top chart.  LNKD had earnings, and they did not overwhelm.  At a PE of 714, this stock has a long way to go to the downside before its at a easonable valuation.

Have a great week ahead and good trading.