Archive for May, 2011

Intraday market notes & observations – May 31

Tuesday, May 31st, 2011

11:40am ET: Beware today’s large topping tail in Coleman Cable (CCIX)! The stock has been a stellar performer, rising over 140% (from $6 to $14.50) in four months.

Although stock is trading higher, it looks as if profit-taking is setting in. If you’re lucky enough to hold positions in this stock, look to lighten up as there are no options.

11:25am ET: Intraday support/resistance:
SPX 1329/1335–typo! Should be 1329/1345. Corrected at 1:55pm ET
DTX 538.5/548.5
DJIA 12445/12575
Nasdaq 2805.5/2827.5
OEX 590.75/596.75
VIX 15.1/16.9
Trin range: 0.80 – 1.20
Average VWAPs: 32/-79 (bearish)

The SPX spiraling down?

Tuesday, May 31st, 2011

The chart of the S&P 500 (SPX) has been trading in a channel with a decidely downward bias. [See chart below.] This is a bearish pattern and there are reasons to believe that the pattern will continue.

Why? For one, the topping tail on today’s mid-morning chart shows that the early morning buying pressure couldn’t be sustained, most likely due to negative housing and manufacturing reports.  Secondly, the market internals (as of this writing) are edging into the bears’ camp (rising VIX & Trin), but the weak VWAPs (a measure of institutional buying) is tepid at best on both sides, giving credence to the Sell in May and Go Away adage. (Or may be that traders just decided to spend an extra day or two in the Hamptons.)

So, how should one play this scenario?  If you haven’t bought portfolio protection, now is the time to do so.  More risk tolerant players may wish to purchase index puts on days where the SPX hits its channel high and shows signs of reversing course (like today). [Note: Set a mental stop/loss just above the upper channel level.] 

Support levels for the SPX are 1325 (minor), 1300 (major), 1280 (minor), and 1250 (major).

Is Near-Term Dollar Strength Coming To An End?

Tuesday, May 17th, 2011

Dr. Kris’ Note: Jennifer Gorton from Forex Traders contacted me and asked me if I’d be willing to run an article from one of their Forex contributors on my website. Since I must admit that my Wall Street education lacks currency trading, I most welcomed the invitation. Below is their offering from Forex analyst Jason Hoerr.

By Jason Hoerr – Market Analyst for Forex Traders

Is Near-Term Dollar Strength Coming To An End?

The U.S. dollar has rebounded nicely over the last two weeks as risk assets took a beating with large corrections in gold and silver leading the way. As equity and commodity markets corrected sharply over the last few weeks, the U.S. dollar has been the primary beneficiary as an increasingly unstable global environment caused investors to rush into the safety of the dollar.

2011 Not Pretty For U.S. Dollar

The dollar has been in a one way decline for most of 2011. The Federal Reserve’s adamant stance of extremely loose monetary policy is in direct opposition to the rate tightening cycles that Europe, Australia, New Zealand, and Canada are experiencing; thus, the dollar has weakened considerably as investors move capital out of the low-yielding dollar and into higher yielding assets.

The rapid decline in the dollar has, of course, been paired with a dramatic rise in equity markets, oil, gold, silver, and other commodities. Therefore, as the dollar finds strength in this current bout of risk aversion, as investors we want to identify areas of potential resistance in the dollar index, which will in turn give a time-table for when to look for potential resumptions of bullish movement in EUR USD, GBP USD, AUD USD, and NZD USD and bearish movement in USD CAD.

Potential Areas For Continued Dollar Weakness

In the chart above, you can see that the dollar dropped significantly in 2011. The U.S. Dollar Index is a weighted financial instrument that tracks the value of the U.S. dollar relative to a basket of currencies including majors such as the euro, yen, franc, pound, and Canadian dollar.

The USDX found strong support down at the 73.00 level in early May, and the current rally to the upside is just running into an area of major price resistance at 76.00. If price can break through the 76.00 area, then the next level that should bring strong resistance is 76.80, which is an area of confluence with the 50% Fib Retracement of the overall swing HI/LO and it is also a very strong area of previous support and resistance.

Combining Technicals and Fundamentals
There are currently several major themes in the U.S. economy that will most likely make a sustained rally in the U.S. dollar very difficult. The current Congressional debate concerning the debt ceiling and sovereign fiscal concerns, high unemployment, and continued loose monetary policy from the Federal Reserve are three primary drivers of a weak U.S. dollar, and none of these appear to be changing in the near-term.

Furthermore, the European Central Bank and other central banks in the developed world are continuing to tighten policy in order to return to more normal monetary conditions following the 2008 Crisis. This continued divergence between the Fed and other central banks around the world will most likely keep the dollar under some pressure in forex trading until the Fed begins showing signs of possibly tightening monetary conditions.

Therefore, as the dollar hits these two resistance areas this week at 76.00 and 76.80, look for potential reversals and a return of dollar weakness to enter the market. A break of 74.50 back to the downside would confirm a resumption of U.S. dollar weakness.

Risk Warning: Foreign exchange trading carries a high level of risk that may not be suitable for all investors. Leverage creates additional risk and loss exposure. Before you decide to trade foreign exchange, carefully consider your investment objectives, experience level, and risk tolerance.

Dr. Kris’ Notes: As an add-on to this article, I’d like to show how you can capitalize on this information. If you’re not interested in trading currencies directly, you can still emulate a similar position with less risk but also with less reward (unless you go with options which is very do-able, providing you know how to trade options).

Consider the bull dollar ETF, the UUP. (The bear equivalent is the UDN.) The daily chart of the UUP is shown below. Although I can’t position both charts side-by-side, the UUP does track the chart of the dollar index shown above, per its stated intention.

Comparing these charts, we can see major resistance levels on the UUP at $21.75 and $22.25, corresponding to those resistance levels of 76 and 76.80 on the dollar index. The UUP breaking the first level of resistance would be a signal to initiate a long position.

That can be done by buying the UUP itself or, if you’re more bold, buying call options. Bullish behavior was exhibited today in UUP options with the 22-23 strike prices in the calls garnering the most attention. The call/put volume in the highest volume strikes was in the June 22 call and put strikes where the volume was 17,100 calls to 419 puts, yielding a ratio of 40:1. That’s pretty bullish!

Since the difference in resistance levels is only 50 cents, buying a spread may not be advisable especially considering commission costs (unless you’re trading a lot of contracts and are able to absorb it).

We’ll see how the dollar fares as QE2 winds down. For now, put the dollar on your watchlist. Remember that every uptick in the dollar makes Euro-Disney all that more affordable!

Intraday market notes & observations – May 17

Tuesday, May 17th, 2011

2:45pm ET:  Why would a company that’s sitting on $35B in cash issue bonds? Wouldn’t happen, you say?  But that’s exactly what Google (GOOG) is doing.  On the surface, this action is a head-scratcher but this article shows why it’s actually a very astute business move. An interesting read with a possible trade.

12:55pm ET: Intraday support/resistance:
SPX 1317.5/1332.5
DTX 529/537
DJIA 12350/12550
Nasdaq 2751.5/2783.5
OEX 584/591
VIX 17.25/19.25
Trin range: 0.7 – 1.5
Average VWAPs: +31/-69 (mild-moderately bearish)

Intraday market notes & observations – May 16

Monday, May 16th, 2011

1:50pm ET: Interested in learning about covered calls? Check out our covered call strategy in the Cooking Recipes and also check out the CBOE website for more info. Just crossing my desk is a note saying that the CBOE will be doing a live tutorial on the Covered Call strategy tomorrow at high noon (Central Time).

1:50pm ET: Hi-income & preferred funds & stocks still attracting investor interest. Hitting new highs today:
Income funds: DHF (10.4%), FHI (9.4%), HYF (9.5%)
Preferred funds & trusts: FFC (8.5%); RBS preferred PG & PE (9%)

1:02pm ET: Intraday support/resistance: SPX 1331/1338
DTX 536.5/542.5
DJIA 12540/12660
Nasdaq 2797/2828
OEX 590.25/596.25
VIX 16.6/18
Trin range: 0.5 – 1.0
Average VWAPs: +24/-97 (moderately bearish)

Intraday market notes & observations – May 13

Friday, May 13th, 2011

2:04pm ET: Intraday support/resistance:
SPX 1332/1350
DTX 537/546
DJIA 12515/12715
Nasdaq 2826/2862
OEX 592/599.5
VIX 16/18
Trin range: 0.9 – 2.00 (rising Trin is bearish)
Average VWAPs: +28/-88 (moderately bearish)

Intraday market notes & observations – May 12

Thursday, May 12th, 2011

1:20pm ET: Coffee micro-roasters brewing up some terrific gains in recent days. Hitting new highs today on heavier than average volume: BCCI (+40%), HCEI (+100%), JCOF (+60%). Note that all of these stocks are speculative and all trade well under a buck. Volumes on these issues have been negligle, that is, until recently. Perhaps there’s some consolidation ahead..?

Below is a chart of what technically looks to be the best bean in the bag, Javalution (JCOF). The chart shows major support/resistance levels at the 20 cent multiples with minor support/resistance at the odd ten cent levels. [Note that the price scale on this chart (and with all of my charts) is logarithmic.]

12:30pm ET: Intraday support/resistance:
SPX 1332/1345
DTX 540/547
DJIA 12540/12640
Nasdaq 2820/2860
OEX 592/597
VIX 16.7/17.9
Trin range: 1.0 – 1.5
Average VWAPs: +90/-24 (bullish)

Intraday market notes & observations – May 11

Wednesday, May 11th, 2011

12:52pm ET: Note to subscribers: I’m taking my dad out to lunch today so the *Blue Plate Specials* are out earlier than usual.

12:50pm ET: Intraday support/resistance:
SPX 1338/1355
DTX 545/553
DJIA 12600/12750
Nasdaq 2835.5/2875.5
OEX 595/602
VIX 16/17.3
Trin range: 0.6 – 1.3
Average VWAPs: +18/-135 (bearish)

Intraday market notes & observations – May 10

Tuesday, May 10th, 2011

12:16pm ET: Intraday support/resistance:
SPX 1348/1358
DTX 547/555
DJIA 12680/12775
Nasdaq 2850/2865
OEX 599.75/603.75
VIX 16.1/16.9
Trin range: 0.9 – 1.4
Average VWAPs: +47/-39 (lackluster action)

How the mighty are still falling

Monday, May 9th, 2011

Tags: AIG, bear-call credit spreads, put options

Insurance giant American International (AIG) recently broke $32.50 major support and dropped another 3% to below $30 today on heavier than normal volume. Although the stock is down over 50% since its January high of $63, it still has a ways to go before it reaches its all-time recession low of $6.60 set in 2009. (FYI, the stock’s all-time was back in 2000 when it hit $2075!)

A glance at today’s options action on AIG shows big volume at the May and June 29, 30, and 31 put strikes. These puts may be financed by bear call credit spreads. Evidence that this well might be the case is by the increased call option activity seen in the May 30 through 33 strikes. The May 33 call is trading near the ask while the lower strikes are trading near the bids suggesting bear-call debit spread positions.

The weekly chart of AIG shows lower support levels around $27.50 and $22.50, something to keep in mind if you’re interested in establishing a bearish position.