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.

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.

4 Jan 2011

SPY Option Trading:

I got PUNKED trying to short the SPY on Monday. I put on a bad trade early when I sold the weekly (7 Jan 2011) SPY 127 puts. I tried to close out of this trade and rotate into SPY 128 calls but I ended up closing the trade right near the highs for the day, so I only was able to sell 1 additional SPY 128 call.

I'll be looking to sell more weekly SPY 128 calls on a pop tomorrow. To the downside we should have support at 126 now, so I'll be looking to sell some weekly 125 calls on a pullback,

Individual Stock Trading:

RIMM:

I didn't pull the trigger on RIMM again today. It turns out that the RIMM rally failed at the 20-day SMA and now the stock looks like a good setup for shorting. I'll be looking to short RIMM in the 59-59.25 area tomorrow with a stop at 60.50 and a target of 55.

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

3 Jan 2011

Market Overview:

As the new year begins it looks like the market wants to go higher. We may see a repeat of January 2010. Last year we had a nice rally the first week in January when everyone was expecting a pullback. This squeezed out the remaining shorts. The market did eventually rollover later in the month.

I'm seeing a lot of individual stocks in a consolidation pattern. AAPL, RIMM, AMZN, SNDK for example. If these stocks break higher then they will likely take the broad market with them.

SPY Option Trading:

Despite my short-term bullish thinking, I'm currently short the SPY via selling naked 22 Jan 2011 SPY 126 calls. I'll be looking to sell some weekly (7 Jan 2011) SPY 127 calls on a pop this week. To the downside we should have support at 125 and then 124 in SPY. I'll be looking to sell weekly SPY 123 or 124 puts on a pullback this week.

Individual Stock Trading:

USO:

If we get another rally in oil this week I will look to short USO. This short is mainly a fundamental play. I don't think the economy will be able to support oil prices at > $90 barrel for long. I'll look to short USO around 39.50, with a stop of 40.50 and a target of 37.50.

RIMM:

RIMM is trapped between its 50-day and 200-day SMA. I still like RIMM to pop higher here. Admittedly, I should have pulled the trigger on this trade last week. I will look to get long if RIMM breaks above 58.50, with a stop of around 57 and a target of 65.

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.