Tuesday October 28, 2014

$SPY Remain cautious and be patient if nothing else, there are many reasons for investors to stay cautious. Technically, both the DJIA and the S&P 500 are still under their 100-day and 50-day averages and the Russell 2000 continues to underperform. On the earnings front, the strong dollar could become a headwind for many blue chip stocks. Last but not least, the FOMC decision is due out on Wednesday. Traders aren’t likely to make big bets before the minutes of this meeting are reviewed.

Yesterday we added four positions to the Alpha One Model Portfolio to bring the Long allocation in line with the model recommendations.  We added from the Watch List the following: $AGN, $GMCR, $KNX, and $VRX.

Markets more worried about EU than Ebola: Survey

Sunday October 26, 214

Over the course of the past week the overall market was able to build on the prior week’s gains as earnings season got into full swing. The rally left the S&P 500 and NASDAQ with their biggest weekly gains of the year.  In general it was a strong week all the way around with the S&P 500 higher by 4.1%, its best weekly performance for 2014. However, the S&P 500 has yet to reclaim its uptrend started in November 2012. Also small and mid-cap stocks are lagging again. So stay cautious and watch for resistance near 1967 for the S&P 500.

While I was away for a portion of last week we still did manage to add 545 basis points to the year-to-date gains in the Alpha One Model Portfolio, review the Holdings page of the spreadsheet on the portfolio for the detail.  This was done with Option trades on the S & P 500 using Call Contracts. You will note that the third trade violated my discipline by remaining on overnight.  This was a difficult decision on my part since I do not like to carry this type of exposure from session to session, however in my opinion the event that turned the market Wednesday was an aberration and I felt that earnings would continue to direct the trend upward and thusly I carried the position into the next session which when I closed the trade it ended up being a profitable one.  I do not recommend similar actions for the faint of heart.

You will note below that the Active Trader’s Model have all returned to Buy Status last week and the Watch List has begun to expand with ten names this week up from just four names at the end of the prior weekly period.  The recommended Asset Allocation range has begun to expand also, up to 37.5% Long and 63.5% Cash.  Based upon this recommendation the Alpha One Model Portfolio could add up to five more names to the holdings should this trend continue.  This being said I am still not overall Bullish since only 34.9% of the names on our lists are now Long Opinion’s.  While up some this level is still not comforting and it will require more in the way of positive earnings news to move it into a comfort zone of greater than 65%.   

Caution will remain the name of the game in the coming weeks for me as the market is likely to be on Fed watch next week with the FOMC decision due on Wednesday coupled with earnings season continuing to be in high gear. 

Monday October 20, 2014

$SPY This week will be one of caution on my part I will trade with the market direction and remain alert for changes in temperament such as the one this morning brought on by the IBM disappointment.  Today as a hedge I traded the .SPY141220C188 for a modest profit Entering at $5.92 and exiting at $6.19.  The remaining positions in the Alpha One Model portfolio trading up as well. 

A significant percentage of the S & P 500 members will be reporting earnings results this week so do not expect much to happen until that trend is set.  Trading volume appears to be backing off a bit from the prior two weeks fear driven levels and the internals are much more positive than we have seen in several weeks.  We may be forming the bottom here, but again it is fragile so remain alert.

I will be traveling for the period between the 23^rd and the 26^th of the month so there will be no weekend update nor will I be trading from the road.  I will have a limited ability to respond to email inquiries and questions and will do my best to respond in a timely manner to your questions.

"Blackstone's Wien expects U.S. markets sell-off to abate" 

Cramer calls the market bottom: Safe to buy again

Cashin: The worst Monday of all, nearly 30 years on

Investors Shaken as S&P 500 Reversals Ignite Volatility

What could rock the markets in week ahead

Saturday October 18, 2014

$SPY We finished off the past week on the side lines waiting for direction to be provided by earnings releases in hopes that some leadership for the market would be forth coming.  We should have gone fishing.  We closed both $FFIV and $CP this week on Opinion Downgrades and traded SPY Option’s on four days as a hedging strategy for the portfolio.  Overall the Alpha One Model Portfolio had a very good week albeit a bit boring.  Not much new has surfaced on the Watch List and the market models remain strongly Bearish. 

Although the three major indexes finished with nice gains Friday, the Russell 2000 index, which had outperformed during the past three sessions, ran into resistance near 1100 and finished in the red. It indicated that the bounce was still an oversold bounce and stocks are not out of the woods yet. The S&P 500 will most likely run into resistance near 1900, its 10-day moving average, followed by 1906, its 200- day moving average. Earnings have been mixed so far and haven’t been able to give the overall market a clear direction. Expect the market to remain choppy. Stay nimble and don’t be afraid to take profits. If you are working on establishing long term positions, stay cautious and go slow.

FactSet StreetAccount Summary - US Weekly Recap: Dow(0.99%), S&P (1.02%), Nasdaq (0.42%), Russell +2.75%

Thursday October 16, 2014

$SPY Although there was heavy selling Wednesday morning and a decent bounce in the afternoon, there still is no capitulation. The S&P 500 is only 7.4% off it record close. It hasn’t even had a correction (10% correction would take it to 1810). Dip buyers are too fast to buy and yet, there wasn’t enough buying to turn the trend around. Both the short term and intermediate term trends are still down.

The stock market, which has being rising nearly non-stop from November 2012 to early September 2014, is going through a mean reversion. Instead of dip buying and V-shaped bounces, we are likely to see more rip selling and inverse-V slides in the next few months. In the very near term, the outperformance by the small caps suggests that stocks could be close to a near term low. A retest of Wednesday’s low on lower volume will likely bring in more dip buyers. With that said, the character of the market has changed. Volatility helps short term traders.

Wednesday’s trading volume came in at the highest level since September 22, 2011 when the market was attempting to bottom out in the midst of approximately 20% drawdown.  We very well may be close to the bottom but if history repeats itself, which it most often does, there are a few more down days ahead before we see the light at the end of this tunnel.  .If you are looking for long term positions, be very careful and go slow.

$SPX   Mid way into the week found the Alpha One Model with five trades thus far.  We closed out $FFIV and $CP on opinion downgrades and traded both Call Options and Put Options on the $SPY as a hedging action on the portfolio.  There remain three open positions at this time, under the recommended allocation of 25% Long but I am hesitant to commit cash until the model senses a bottom forming. And that is not yet happening.

Buyers beware, the bear market has begun: Gartman

How investors should react to the selloff

Cramer's Remix: Did the market just bottom?

Selloff could get 'a little scarier yet': Jim Paulsen

Wednesday October 15, 2014

$SPX   Mid way into the week finds the Alpha One Model with five trades thus far.  We closed out $FFIV and $CP on opinion downgrades and traded both Call Options and Put Options as a hedging action on the portfolio.  There remain three open positions at this time, under the recommended allocation of 25% Long, but I am hesitant to commit cash until the model senses a bottom forming. And that is not yet happening.

The afternoon selling continued yesterday. But for the first time in four sessions, most of the major indexes held on to gains at the end.  By holding onto the gains, stocks are giving investors a chance to breathe a sigh of relief. However, the morning gain followed by afternoon selloff continued to suggest that the gains were driven by short sellers covering their positions. It will take a lot more rallies to get real buyers in and the major indexes out of their downtrend. The S&P 500 will need to reclaim its 200-day moving average which stands at 1906. Should that happen and the much-watched moving average holds, we are likely to see dip buyers making moves. We are at the beginning of the earnings season which does not look too bad for now.

We have received inquiries recently on our model for the $SPX and specific details as to the most recent call.  On September 22, 2014 the model on the $SPX turned negative at the Close 1994.29, see below for further detail.  The model had begun to turn Bearish on the 10^th of the month, but failed to hold the signal until the 22^nd.

Monday October 13, 2014

$SPY Closed $FFIV this morning at 107.68 on an Opinion downgrade.  Also, as a hedge I traded the .SPY141220P191, entered at 9:40 AM at 5.93 and averaged out at 9:51 AM at 6.44.  There are only 4 remaining positions in the Alpha One Model Portfolio at this time.  Until my market models begin to indicate a bottom forming this will continue to be my daily activity.

Here in the Carolina’s the price of gasoline has dropped significantly of late as I am sure it has in your regions across the United States.  The first six months of this year I enjoyed significant profits on the energy holdings which I held but over the past three month’s I have rotated out of all those positions. 

There are several articles which have been included below for your browsing providing current insight as to the reasons why this occuring, but summarily it appears that OPEC producers lead by Saudi Arabia and Iran have decided to price out of the global equation the potential competition from deep-water projects in the Gulf of Mexico and U.S. shale production.

“….The Saudis appear to be betting lower prices – which could strain the finances of some members of the Organization of the Petroleum Exporting Countries – will be necessary to pave the way for higher revenue in the medium term, by curbing new investment and further increases in supply from places like the U.S. shale patch or ultra-deepwater, according to the sources, who declined to be identified due to the private nature of the discussions.” - Reuters, “Privately, Saudis tell oil market- get used to lower prices” by Ron Bousso and Joshua Schneyer

As we begin to see a bottom forming in the near term it would be wise to do significant fundamental analysis on any names which may come to the top of your list in the Energy Sector.  I would be looking for indications of the price sensitivity levels which their operating margins are subject to failing, looking for the price point where shutting down would make more sense that moving forward.  

"BoA oil analyst who predicted downturn now sees floor" 

Speculators Push Oil Into Bear Market as Supply Rises 

Cramer on oil: Sowing the seeds of its own demise

Exclusive - Privately, Saudis tell oil market: get used to lower prices

OPEC tensions, lower oil prices may hit oilfield firms, analyst says 

What's causing decline in crude oil: Dan Dicker

Below $3 a gallon? Gas prices continue to plunge

Oil Bear Market Tests OPEC Unity as VenezuelaSeeks Meeting

Saturday October 11, 2014

$SPY The past week was abnormally active for the Alpha One Model Portfolio with ten trades it total.  Five positions were closed as the result of Opinion downgrades $SAVE, $SM, $TRN, $HEES and $RFMD.  There were five hedging trades using the November options on the $SPY, four Puts and one Call were traded.  All in all it was a very profitable week, but hectic to say the least.

Stocks continued to be oversold after Thursday’s sell off but they still could not manage a bounce on Friday.  It has mostly been sunny skies in the stock market in the past two years. The Russell 2000 is now down for sixth week in a row. The last time that happened was in 2005. Stocks are due for an oversold bounce, but there is little reason for buyers to get in, as we have not yet seen a capitulation. After all, the S&P 500 is only 5.2% off its record close on September 18.

Earnings season starts in earnest next week. It is likely to give investors a better picture in terms of how those global growth concerns will affect companies’ bottom line in the fourth quarter.  There are four names on the Watch List for the coming week, however I doubt seriously if I will be too aggressive until later in the month.

The market internals are very weak as can be seen on the charts below, it will take several very positive sessions driven by robust earnings reports or strong economic data which is abnormally reassuring, to fuel a reversal here.  

For additional insight the two following pieces from FactSet warrant your reading:

Predictions for actual earnings growth and earningssurprises heading into Q3 earnings season

FactSet StreetAccount Summary - USWeekly Recap: Dow (2.74%), S&P (3.14%), Nasdaq (4.45%), Russell (4.65%)

Friday October 10, 2014

It is easier said than done... but with earnings season picking up next week there is hope that a bottom may be near and we will again see sanity prevail.  

For your reading pleasure...

$SPY  Stocks should fall more. You shouldn't worry

Friday October 10, 214

$SPY Closed the $MPWR position today @ 38.26 for a loss.  Traded the .spy141122P193 entered @4.14 out @5.00, 36 contracts.

As much as Wednesday’s rally was about being overly jubilant, Thursday’s selling felt a little too panicky. While stocks plunged Thursday, both the 10-year and 30-year bond yields were unchanged, signaling that bond yields may have hit a near term low. Investors have been pulling cash out of stocks but they didn’t put it into bonds. Eventually, the cash will have to be invested and stocks look to be the best place to go. That being said, a selling isn’t over until it is over. It will probably take a further capitulation before buyers step in. For the S&P 500, watch for support near 1925, followed by 1905, its 200-day moving average.

If you are seeking some guidance as to the overall Market Direction here are four articles which are worth your time to read.

Correction? S&P first has to clear a technical hurdle

Expect "Seven Years of Lean" - Bill Gross 

Still Cautious, But Doing A Little Buying In My Income Portfolio

"Wall Street sells off on growth concerns; volatility picksup" 

Thursday October 9, 2014 Trade Follow Up

$SPY Just closed today’s hedge on .spy141122P197, entered @11:01 AM $4.34 closed at 11:44 AM @4.88, Contracts #35.

Earlier in the week I received a question on how I determine when to exit a trade.  The answer is simple when I either hit my Profit or loss limit. 

The limits are established by entering data points into a spreadsheet a picture of which follows. 

The arrows are generated by certain indicators which I have utilize and modified for my personal preferences.  The modified indicators come with the ThinkorSwim platform provided by T.D. Ameritrade, but since the risk associated with Options trading is large I am not willing to discuss this discipline blindly.  The platform is very user friendly and has plenty of tutorial material, so I recommend to those interested, download the platform and work at it. 

Thursday October 9, 2014

$SPY I closed out the position in $RFMD shortly after the open today after the Opinion was downgraded to Neutral.  With the  current  Asset Allocation recommendation remains at 25% Long and 75% Cash the Alpha One Model Portfolio is a little under invested at 20% Long, but I will not be adding to the portfolio until the Market Models begin to reverse themselves.

The markets were due for a bounce after Wednesday’s selloff but it took a dovish FOMC meeting minutes to spark an upside reversal.  With the Fed temporarily out of the way until near the end of the month, earnings are likely to drive the market in the next couple of weeks. AA reported after the bell this afternoon. From first look, it was a good one. Stay selective during an earnings season.

Here is an interesting statement from ROBERT KEISER, Vice President, Global Markets Intelligence at Standard and Poor’s.

“…Returning to the outlook for third quarter S&P 500 earnings growth and stock market performance, the resumption of respectable and very often better-than-expected quarterly earnings has proven to be the backbone of this bull market since its inception in March 2009. Sustained positive earnings growth has consistently propelled the market higher, often in opposition to high visibility concerns such as the "fiscal cliff," federal budget sequestration, and now potentially Fed monetary policy. Expectations for a resumption of double-digit earnings growth bode well for the out-look for stocks, presuming Fed policy and the entire interest rate normalization process turns out to be little more than a technical adjustment.”

Tuesday October 7, 2014

This morning I closed the $HEES position at $37.11.  The opinion was downgraded to Neutral last evening.  Then I followed by Purchasing 37 contracts on the .SPY141122P196 @4.04 this morning, 10:32 AM.   Closed the trade @4.44 at 11:15 AM when the profit target was hit. 

Yes it has continued to move up, but the objective was to offset the portfolio decline and make a profit for the day not hit a grand slam.  Alpha for the Independent Investor is about investing not gambling, if you are into gambling, what I do is not for you.

Monday October 6, 2014

$SPY Today I closed out the three positions which were referenced on Saturday $SAVE, $SM and $TRN.  All three had been downgraded to Avoid and I saw no reason to hold on in today’s session.

More and more, small caps are getting attention from investors. All the media talks about today’s morning reversal blamed the small caps. It is true that small caps are weak. The Russell 2000 has spent a dozen sessions beneath its 10-day moving average. The large caps are weak too. Both the DJIA and the S&P 500 could not reclaim their 50-day moving averages even after last Friday’s big rally.

As discussed previously, stocks are in a make-or-break juncture as they wait on the start of the third quarter earnings season. The FOMC will meet again near the end of the month. Suffice it to say the combination of these two scenarios will make the rest of October a choppy one. Remain cautious.

In addition to the sales mentioned above I traded the SPY 141122Put198 today.  The trade was triggered at 10:14 AM when the trend indicator alert on the underlying was triggered.  The order for 38 contracts was filled at $3.93.  The range was then established and the trade closed around 11:40 AM at $4.40 when the daily target was hit. 

Saturday October 4, 2014

My market models remain Bearish along with the recommended Asset Allocation range at 25% Long and 75% Cash.  The Alpha One Model Portfolio holds only 11 positions currently with three of those $SAVE, $SM and $TRN having Opinion downgrades as of Fridays close and subject to sale in the coming week.

Last week saw the positions in $TRW and $URI closed as the result in Opinion downgrades. The portfolio gains once again came from hedging day trades on the $SPY.

The general markets gain Friday wasn’t enough to make up all the losses from earlier this week, but it did help to keep the longer term uptrend intact. The DJIA reclaimed its 50-day moving average while the S&P 500 climbed back above its 100-day moving average. Since November 2012, every time the S&P 500 broke below its 100-day moving average, the index spent no more than 2 sessions underneath before a “V” shape rally took it to new highs.

The question now is that whether the broader market index can do that again this time. The answer probably lies within the small caps. Although the S&P 500 set fresh records in September, the Russell 2000 didn’t. The small cap index has been in a downtrend since reaching its record close on July 3. It continued to lag even in Friday’s broad-based rally. It will likely continue to weigh on the larger-cap indexes. With that said, today’s jobs report will motivate dip buyers to step in on pullbacks, keeping near term downside limited.

The following articles by FactSet Insight warrant reading in my opinion as we prepare to enter the final Earnings period of this year.  No, I do not write for the firm nor do I have any financial interest it, however I do find their work to be well done and timely. 

For those of you who were with me as this year rolled out you may remember that my forecast for the S&P 500 was a High of 2082.65.  I remain confident in that number at this time.

US Weekly Recap: Dow (0.60%),S&P (0.75%), Nasdaq (0.81%), Russell (1.30%)

Industry Analysts & Market Strategists predict increase in S&P 500

Higher EPS estimate cuts in Q3compared to recent averages

Friday October 3, 2014

$SPY Stocks staged an oversold bounce yesterday but that wasn’t until stocks took more hits in the morning as investors were not happy with the ECB’s decision to keep interest rates unchanged.

As the session ended it was a decent bounce saving the market from more technical damage (had the Russell 2000 broken its February and May lows). However, the short term trend remains down. We had a couple of nice bounces last week but neither was able to get a follow-through the next day.

I remain cautious today; will most likely trade Calls on the SPY shortly after the noise settles down. But as has been the case for the past two weeks, it is will remain a news driven market and with the absence of earnings news it will be what the talking faces think will sell advertisements that directs the markets.  We narrowly missed a fourth consecutive day of Distribution yesterday so we are not yet out of the woods, be cautious.

Options trader calls the bottom for stocks

As stocks slide, the big money is getting in

SEC's Gallagher: Market regulation overhaul needed

Thursday October 2, 2014

$SPY Yesterday’s sell off, coupled with unfavorable seasonality, implies that selling may not be over and any bounces are likely to be met with continued selling. With stocks oversold, we are likely to get at least an intra-day bounce tomorrow. But unless one of central bankers makes a dovish move, don’t expect the major indexes to run back to records any time soon. Stay cautious and be selective.

Yesterday’s Close of the S & P 500 was the third consecutive day of Distribution readings on this major index.  Distribution is defined as a Lower Close on Higher Volume.  Distribution days are not that unusual, this year approximately 23% of the trading sessions warrant such a distinction.  But three days in succession is not normal and over the past three years has only occurred on three or four occasions.  Each time the markets were bottoming and began to recover after a few days.  While my models remain in a sell mode the Alpha One Model remains invested at about 33% Long and 67% Cash.   As I did last week I have been trading Puts on the $SPY as a hedge against the market volatility and will continue to do so.. Additionally, today, we are looking to close out the $URI position on an Opinion Change to Neutral.

Wednesday October 1, 2014

$SPY October is set up to be another volatile month. Although the three major indexes are holding up relatively well, the rest of the market continues to deteriorate. The Russell 2000 small-cap index fell below its August low today. Its support now stands at 1100, followed by 1082. The S&P 400 mid-cap index (1370.97) broke under its 200-day moving average. A break below the 1350-1356 area would suggest an end of the uptrend started in November of 2012.

With the Fed ending its QE in October, things can get a little harder for the bulls. After the Fed ended its QE1 (March 2010) and QE2 (June 2011), stocks started a correction within a month in both times. If history repeats, a correction could be in the cards for this fall.

Fewer S&P 500 companies issue negative EPSguidance for 3rd straight quarter