26 Jan 2011

Market Overview:
It was a volatile day with a lot of ups and downs. The market bounced off the low of the day around 3 pm and rallied to close basically flat. We closed above the 10-day SMA once again to keep the streak alive.

Tomorrow the Fed announces. The Fed statement will be key. I suspect they will just say they are going to keep the party going with QE2. If so, this will likely give the market and commodities a quick boost and the dollar a punch in the face.

SPY Options Trading:
I'm still short the 28 Jan 2011 130 calls. If we get a big bounce after the Fed announcement tomorrow I may look to add to this position. If we happen to get a big sell-off tomorrow I will look to sell some weekly 126 puts on a test of the 20-day SMA (~ 127.70)

Key Levels in the SPY:
Resistance: 129.50
Support: 129, 128.80(2-day SMA), 128.50(5 & 10-day SMA), 128.20, 127.70 (~20-day SMA)

Individual Stock Trading:
USO -
Oil continues to pullback. I'm targeting crude = $85 as a place to get long. I think that works out to USO around 36. If we get a sell-off in oil after the inventory report tomorrow I'll look to get long USO around 36, with a stop around 35 and a target of 38.

GLD -
I sold some weekly 129 GLD puts today as GLD tested 129. GLD bounced around noon and closed over 130. I'll be using that 129 level as my stop in this position now. If we go back down there again, that's bad news for me.

NFLX -
Earnings are tomorrow after the bell. I have no intention of playing this stock ahead of earnings. I think NFLX is setting up for a fall though. A lot of these high multiple stocks have sold off even after good earnings. I expect the same from NFLX. I expect them to beat, the stock to briefly pop and then sell-off. I will likely be too chicken to play it though.

10 Jan 2011

Market Overview:

The market shook off a slightly worse than expected jobs report on Friday and managed to finish the day nearly flat. The market will likely move based on three news generating events this week:

1. The beginning of earnings season.

2. Macroeconomic data released on Wed-Fri.

3. A renewal of fears about the European sovereign debt crisis.

I think this will be the week we see a reversal of the uptrend in the market. After an early pop on Monday last week, the market failed to move higher as volume remained relatively high. To me this churn represents bulls using up their ammunition. I expect the market to find a reason to selloff this week.

SPY Options Trading:

Thankfully, my weekly options expired worthless last week. I'm still holding the 22 Jan 2011 126 calls short in expectation of a pullback to at least 125 before expiration. Since I have a bearish bias for the upcoming week, I will look to sell weekly 128 or 129 calls on any rally. To the downside, I will look to sell 124 or 123 puts if there is a major selloff.

Key Levels in the SPY:

Resistance: 127.50, 127.75, 128

Support: 127, 126.50, 126.15, 126, 125.50

Individual Stock Trading:

NFLX -

NFLX is still stuck in a tight range between 175-185. There is a convergence of SMAs around 180. The 2, 5, 10, 20 and 50 day SMA are all near 180. I'm expecting this stock to make a big move in the near future. I will attempt to play it in the direction of the break. I'd prefer it to break higher as I think that would give the biggest gains as the shorts are squeezed.

RIMM -

After a break higher RIMM has struggled to move higher the past 2 trading days. It looks like the rally is failing, thus I will look to fad an opening pop on Monday. I'll look to short RIMM around 63, with a stop of 65 and a target of 57.

FDX -

FDX is still trapped between 92-94. Like NFLX, I'm looking to play this one in the direction of its break from the trading range.

My updated trading log for the month is below.

7 Jan 2011

Market Overview:

The market rally temporarily ran out of steam today. The employment report and Bernanke's testimony before congress will be the big market movers tomorrow. Here's what I'm thinking on the jobs report:

Much better than expected: Market initially rallies then sells off as the dollar strengthens.

Much worse than expected: Market initially tanks then rallies as the dollar weakens.

Pretty much in line: Market slowly grinds higher.

Bernanke will probably say he's going to keep QE2 going and promise low interest rates forever, so that will likely provide a positive boost to stocks, but the employment number will be the big deal tomorrow.

SPY Option Trading:

I still have my open sells on the weekly 128 calls and weekly 125 puts. I'm hoping to keep SPY below 128 tomorrow and have all my weekly options expire worthless. I'm still holding the 22 Jan 2011 126 calls short as still expect a pullback to at least the 125 level before expiration.

Key Levels in the SPY:

Resistance: 127.50, 127.75, 128 (pre-market high this morning)

Support: 127.20, 127, 5-day SMA (~ 126.85 right now), 126.50, 126.25

Individual Stock Trading:

CHK:

CHK has rallied quite a bit since the middle of December. Today it put up a shooting star candle as it failed to hold above 27. This makes for an obvious stop on a short trade. If I have enough capital I will look to short CHK around current levels (~ 26.75) with a stop at 27.50 (above today's high) and a target around 25 (a potential area of support).

NFLX:

I'm still keeping an eye on NFLX, waiting for it to break out of the 175-185 trading range.

FDX:

FDX is another stock stuck in a trading range (92-94). I'll be looking to play it in the direction of the break.

See my trading log below for my current open and closed positions for the month.

6 Jan 2011

Market Overview:

The ADP employment report came out unbelievably better than expected today. This turned the market around from being down to setting new highs. Weekly jobless claims and chain-store sales will be released tomorrow. A lot of the individual stocks I follow are showing overbought conditions, as is the SPY, so I'm expecting it to be a struggle to go higher from here.

SPY Option Trading:

I started the day worrying about the weekly 125 puts I sold yesterday and ended the day adding to my short weekly 128 call position and worrying about that. I have now used up all my bullets. I got nothing left. If this market breaks above 128, then I'm going to get hit with a margin call, at which point I will probably roll out of this week's SPY call options and roll into next week's. If we happen to get a pretty good pullback tomorrow I will look to sell some weekly 126 puts as I still have the margin to do that.

Key Levels in the SPY:

Resistance: 127.73 (Today's High)

Support: 127.50, 127, 5-day SMA (~ 126.60 right now), 126.50, 126.25

Individual Stock Trading:

RIMM:

RIMM played out just like I expected. I couldn't play it though because all my capital was tied up in short SPY call options. Pity the fool.

NFLX:

Since about 1 Dec 2010 NFLX has been trading very similar to RIMM. Both stocks hit highs on 1 Dec 2010 and have since pulled back. I'm not saying NFLX is going to break out to the upside like RIMM, but it looks like NFLX is starting to get trapped in a tight range between 175-185, near its 20 and 50 day SMAs. I would play this, like I wanted to play RIMM, by waiting for the big volume break out of this range, either to the upside or to downside and then play it in the direction of the break.

See my trading log below for my current open and closed positions for the month.

RIMM

RIMM looks like a good long here. It is sitting just barely above its 200 day SMA (~57.95) and just above its 50 day SMA (~57.50). Since RIMM has underperformed the market significantly this year, you could make the case that fund managers have been selling the stock recently to get it off their books before year end. A new year may be just what RIMM needs to pop. Depending on how the market and RIMM opens tomorrow, I may look to get long around 58 with a stop around 56.50 and a target of 65.

I also have my eye on NFLX. It bounced off its 50 day SMA again today. If it can break 190 with strong volume then I bet we see a resumption of the uptrend with a quick move to 200.