SecurityGuy's Blog

Today was another down  day but is not convincing.  Volume dried up in comparison to the  selling  seen at the end of last week.  I  saw an interesting stock with an upward bias and opted to purchase it to take advantage of my perception of a potential upward push at least at the beginning of this week. I also closed my bearish DIA spread as well this week as there was more risk than benefit in leaving the trade open.

The SPY today did close down and I expect to see some potential  upward push so that we can take advantage of the current bearish trend.  The IWM was down most  of  the day today but the analysis and price action is very similar to the SPY.

My bullish dollar  trade UUP was positive today and appears to be consolidating.  The EURO is still under pressure and is still presenting a bullish scenario for the dollar. Price stop is still in play from last week.

The PETS trade will be closed tomorrow morning as it closed below my "line in the sand".  I will take another small loss.  This is indicative of  the general change in trend of the market.

TEVA is still going sideways and is consolidating moving into earnings.

The bullish trade taken today was in RVBD.  The trade broke out of a bull flag pattern on Friday.  The price  target for this is 28-29.  Because of the nature of the market now, I will close around 27.50.  I will take a percentage of the  projected target rather than hold out for the full target.  I traded this by buying stock at the open and by establishing a bull put spread in my smaller accounts.

My bearish trades are summarized here:

The DIA bearish spread was closed for a nice  profit.

The CAT trade is still  in play and I still expect the stock to surge.  I will close if the surge exceeds 53.50.

I  am looking  for an  opportunity to increase my bearish exposure. Basically I am generally waiting for the market to make  my expected move and  will not be doing much trading until this occurs.

The market has definitely changed direction on  us.  Here is the chart of the XLF.  As we discussed in the weekly analysis over the last couple of weeks XLF was a key inidicator to market health. We broke 14 in a bigh way yesterday.  Any bullishness in the general market should set us up to play the short side of the market.  One item to watch to see if  the blood-letting can be stopped is what happens in Europe in relation to the governments there that are essentially bankrupt - Greece, Spain, Ireland, Italy somewhat, Portugal, etc.  We are having government bankruptcy issues here as well and this is the next stage of  the credit crisis.  We will pay the piper one way or another, looks like it will be sooner rather than later right now.  This can change on a dime so honor trading systems and stops.

I did not have time to post on the days movement yesterday but not much has changed from Friday or the analysis done on Sunday.  The SPY is still trying to stay above critical trendline support but has not yet broken it.  Based on prior movement in the short term we are forming a bear flag pattern.  If we break below 109 it will be time to short the SPY with a price target of  103.

The IWM is sitting at one of many support levels between here and the 60 area.  Falling to 60 is not out of the question at this time.  Still looking for a move up so that effective shorts can be entered, unless there is significant volume accompanying the move up.  Still in a wait and see mode.  The DIA did break a critical support trendline and almost reached the underside of the trendline.  That would be an ideal place to short the index.  We could also be forming a bear flag here on the DIA as well.  The inverted hammer on all 3 index exchange traded funds could result in a bottoming pattern here.  We will need a higher close tomorrow to confirm the short term pattern.

I occasionally use a proprietary indicator to make very short term trades.  The trades very rarely last  more than 5 trading days.  I received a signal towards the end of the day to enter and I bought a half position in QID, the ultrashort leveraged Nasdaq exchange traded fund.  The symbol has broken out over the last couple of  weeks from a long term downtrend.  The symbol is forming a bull flag  pattern now.  The entry allowed me a purchase price of 19.73.  I did not do a full position because it is not clear what the trend will be.  This signal has a high rate of success, but has been known to throw false signals in areas where trends are changing and not clearly defined.  We shall see.  Nothing risked, nothing gained. Reward:Risk is about 2:1 based on the way the signal normally trades. Entries and exits are not 100% defined so estimates have to be used when entering.  It will act as a nice hedge against long positions.  Should we get another purchase signal before the exit  is received I will buy the 2nd half.  I have attached a  chart but  this charting package does not have the indicator.  Notice that price is sitting at a resistance level.  Lots of reasons to not take on a full measure  of risk.

There have not been any other changes in my positions.  Starting to see more evidence of this being a trend change. We will  have confirmation of the trend change if  we get a lower high on the broad indices.  This has not occurred yet but with the dollar still showing strength we are more likely to trend down than up.

The end of  the week was painful to bullish portfolios.  The massive sell-offs in some issues actually prompted me to close some trades.  We needed a sell-off but I think the tone of the market has now changed.  We are at best sideways for the coming months right now.  I believe the general tenor of the market has changed now based on the heavy selling the last 3 days.  We have not changed trends yet but have called the bull trend into question.  We are at some critical trendline supports in many indices.  Without a bounce the longer term bull market will definitely be in question.

This week the SPY closed lower than it started and it is sitting on trendline support starting in August and September of last year. Should this line break the SPY will indeed be fully changing trends.  I wrote last week that I expected a move  to 117-120 this expectation is still in force as long as the trendline stays in play.

The last week the IWM pulled back as well.  I am expecting this symbol to continue falling to the 60-61 price range.  We briefly touched the 61 range on Friday, but I am expecting the fall nonetheless.  We should  see a  brief move  up the first part of this week, but I am expecting a pull back later in the week.  A close below 60 would call the overall bullish trend changing.

SECTOR ANALYSIS:

XLY - Consumer Discretionary - This sector is  sitting at a support level.  I decided to futher evaluate this sector this week.  A trendline that started in the August/September timeframe has not been reached yet.  Price would need to fall to the 28.50 level for this to occur.  Some additional downside in this symbol is still possible.

XLP - Consumer Staples - This sector is trending sideways and we have not broken out of the sideways channel yet.  A close below 26.25 is worth watching.  Right now the symbol has formed a candle pattern that if it closes higher would indicate that  the sector will continue up to the 27 level.

XLE - Energy - The sector traded to the price target and  has pulled back  to support.  The quick pull back may be questionable to the long term health of the sector.  If the up trend resumes, bullish entries can be taken.

XLV - Healthcare - Healthcare is one of the single most bullish sectors in the market right now.  Bullish trades in this sector should still be taken.

XLB - Materials -  This sector has moved through a short term support/resistance level.  On a weak up tick bearish trades should be taken to the 30 price level.

XLF - Financials - The bull flag discussed last week failed but critical support has not been violated yet.  Any close below 14 is reason to take bearish trades.  No bearish trades yet.

XLI - Industrials - The bull flag failed but the sector is sitting at a support level.  A break below 27.50/27 would be construed as bearish.

XLK - Technology - Bullish support gave way to very bearish inclinations.  It touched 21.50 a support area but should the symbol bounce at all this week I will be looking for bearish trades in the sector.  It is also very important to remember that the technology sector tends to lead the rest of  the market so we may be seeing an intermediate top right now and bearish trades will become the staple trade.

XLU - Utilities - This sector very much has broken.  Any sign of bullishness and trades to the downside will be taken in this sector.  29.50 is the next level of support/resistance.

BULLISH:

My bullish trades were hit and hit hard.  Some were closed and I did open a new one amidst bullishness on Friday during the market weakness.

BULLISH CLOSED:

JOYG - Trade  closed for a small loss as it started pulled back further than expected.  Loss of $80 per contract.  Still keeping my roughly 2:1 reward to risk ratio.

LTC - Trade closed for a small gain.  $9 per 100 Shares.  The exit saved me from a $150 loss per 100 shares.

BEARISH CLOSED:

My net loss in the bullish sector based on closed trades is $71 overall based on single contracts or 100 lots.  This is not indicative of actual dollars made or lossed.

BULLISH HOLDINGS:

HSP - Still holding onto this trade.  Still a covered call.  Close below 51 and I would be inclined to close the position with earnings coming  up in a few weeks.

DIA - This bullish unbalanced iron condor is still doing okay.  The symbol is threatening the bullish portion of the iron condor but the trade is still profitable.  Will reduce the bullish leg this week on strength to take some of the risk off the table based on the recent  change in market behavior.

UUP - As discussed last week the dollar rallied.  This trade did well.  New close below 23 and I will close the position otherwise I am planning on letting this run for a while.

XRT - The reatail ETF is still trading sideways.  Looking to initiate another covered call to take advantage of this price action and provide a limited cushion should it turn negative.

TEVA - Looking to  initiate a new covered call on  this trade.  Weakness from here and  the trade will be closed.  Looking at$58 as a critical  area right now.  On some  strength I will initiate a new covered call trade.

AENY - Entered this trade expecting a triangle/pennant breakout.  Entered about 4.41.  Close above $4.55 and this  give us a price target of about 5.55  to close the trade.  Close on close below 4 ish.

BEARISH HOLDINGS:

XHB - The homebuilders have reached  their price target of 15 and will be closed on Monday for about an 80% gain in 2 weeks.  Order is already in to close it.  May reenter on siginificant bullishness to downtrending trendlines used as exit point earlier.

I entered an out of the money put trade.  Not to make a ton but take advantage of a pullback.  I have a 1:2 risk to reward ratio  on this  trade based on entry price.  A chart of the symbol shows the entry and the support and resistance of the trade.  I am expecting the price to move to 15 for my exit.

Here is the chart showing my exit on the trade being seen as a failure.  Notice the  resistance at about 16.30.  I also have a time exit of 2 weeks for the trade.

Today was a do nothing day.  Up a couple down a couple finally closing  with little to no change.  There was pretty significant change in my current holdings based on today's  price action though.  Very satisfied with my perfomance today and yesterday as I will explain.  I traded my plan and planned my trade.  This also means that failed trades are now out of the way and that the losses are half the size of my typical gain.  Since I have a success ratio on my spread trades of about 70% this will yield a net profitable trading system.   I made some changes to my current portfolio based on  yesterday's analysis and  it  proved fruitful.

The IWM closed down slightly today and is now almost right on top of the previous highs.  The IWM trade was closed completely today.  Closed because it had violated my level for closing the trade but did not do it enough to need a close on the short strike.  Loss on the trade was about $35 while my typical gain is about $70.  The bullish up trend in this symbol has not changed.

The SPY closed up slightly adding to yesterdays gains.  No  change in the up trend and my bullish portfolio benefited from this overall trend in the market.

My trades, particularly the bullish ones, are doing well and the analysis follows:

BULLISH:

DIA - The Bull Put Spread is a good fit for a market that does not move.  Was slightly positive today and will benefit for more sideways or moves up.

GGB - This  stock moved up through resistance early in the day but closed right in the range for  staying in  resistance.   We will see what tomorrow brings.

HPJ - Continued the strong move to the upside today. 

HSP - This stock did very well today for not moving.  Made money specifically because the stock did not move much.  Looking like it  is forming a consolidation pattern which works well for my covered call trade.

LTC - This stock was a disappointment today.  Still forming a consolidation pattern with the bounce.  Holding as we have not crossed my line in the sand.

UUP - Closed part of this trade down to take some profits.  Support still  at 22.75. Stock is currently forming a bull flag.

XRT - Stock is consolidating right now.  Will likely close the short call likely this week to bank some profits and allow the stock to continue its uptrend.

TEVA - This stock has done exceptionally well thus far.  This symbol changed direction today and formed a bearish candle pattern.  Will need a close below today's close to confirm that bearish formation.  The short call is out of the money now and is back to break even.  No changes  in  the trade.

BEARISH:

IWM - Closed the trade today.  Mentioned above.

OIH - This trade was also closed. The line was crossed.  It proved very beneficial considering the strength in fund today.  Trading the plan is essential.  Loss was about $45 right in line with the IWM trade leaving me  with a solid potential if my gains on  other trades continue to be consistent.

TAP - This trade had not closed above my "line in the sand".  The stock  reversed direction from yesterday and started the formation of a bearish candle pattern.  Close below today's close will confirm this move.  No real change in the trade.

NEW TRADES:

I did make one new  trade based on the change in OIH.   Yesterday JOYG made a nice move and I entered a Feb Bull Put Spread 48/50.   The trade revolves around the recent change in oil service sector and my buy signal with price above the MA, Stochastics and the MACD confirming the  move.  Will close on a close below $50, if the spread reaches .08 or if the stock moves sideways and reaches the 4-10 day window before expiration.  Expectation is a continuing move higher and a close within the next 2 weeks.  Chart of  the entry follows:

In order to set up some additional bearishness in my portfolio I opted to use an index etf rather than trying to find individual stock issues.  This trade is  limited in size and can also be  used  to set up an Iron Condor  later.  The trade  has  about a 50/50 chance of expiring worthless.  The trade will be closed if the stock closes above 64ish.  Weakness in the price at this level is evident.  This trade is not expected to last until expiration.  The chart of the trade follows:

I came across this chart today. No specific plan to take a trade but this one looked  good when I saw it this morning.  I added this to the bullish portofolio today and benefited from the trade.  I bought the  stock this morning  at about $7.50.  This is a strong support bounce from the $6.75 level with very strong volume.   I have a stop loss set at $6 right now to give it a bit of room to move.  Right now we have a strong bullish stock so the probabilities are the stock will continue to move higher.  Notice the bullish indicators as well MACD above the  zero line and preparing to cross as well as the move higher on the  stochastics.

Thought I would do a post more specific to my TAP Bear Call Spread Entry so that I have an additional reference to the trade entry today.

TAP is a consumer stock and is part of the Alcoholic Beverages group.  Based on the Weekly analysis I looked specifically for a mid-high priced issue with Bearish tendencies and near a resistance point.  Price action is the most important aspect of any chart as all indicators are a derivative of price or volume.  Price has risen recently and is hitting its head on  the resistance in the $45/$46 price range.  Support and resistance are ranges and we have a valid range for this resistance.  MACD is below the zero which generally supports the bearish cause.  We have lower highs on the stochastics study right now which also supports the bearish cause.  One of the contraindications on this chart is the small divergence in price and  the MACD.  Price made a lower low but MACD made a higher low.  This is part of the reason for the use of a short term credit spread. The other reason is the credits were good being so close to resistance and with the relatively short time frame to expiration I should see a reasonable return in the near future, especially if there is a quick drop in price.  Credit will be closed at .26 debit as I shoot for about 80% of the total credit.  The spread will also be closed 10-4 days before expiration to protect profits.