2009 U.S. Trading Holidays

January 1 - New Year's Day
January 19 - Martin Luther King, Jr. Day
February 16 - Washington's Birthday/Presidents' Day (3rd Fri of Feb)
April 10 - Good Friday
May 25 - Memorial Day
July 3 - Independence Day (observed)
September 7 - Labor Day
November 26 - Thanksgiving Day
November 27* - Half Day due to Thanksgiving Day on Nov 26
December 24 - Half Day on Christmas eve
December 25 - Christmas

- extracted from www.nyse.com

Cheers !

PersianCat (Millionaire-in-progress)

Will There Be A Christmas Rally?

The market had been consolidating for the last few weeks. Initially, the market ignored bad economics data (e.g. worse ever Non-Farm payroll (NFP)- negative 533k jobs lost). Lately, the bulls had been losing steam.

We could expect this week and the next to be low-volume weeks. It is partly because of the Christmas extended holidays as well as a Jewsih holiday. As such, any movement in the market would be skewed. (Anyway, we have a 3.5 days of trading this week) Typically, we could expect a bullish run before Christmas and an extended bullish run immediately after Christmas - giving us the Christmas Rally. This is partly due to a "feel good factor" by traders not wanting to dampen the holiday mood.

I am now looking for signs for a Christmas Rally. It did not seem to have. If any, it would have been an early Christmas Rally when the market rallied when the bad NFP data was released weeks ago.

President-Elect Obama is now on 2 weeks holiday. Unless the situation warrant it, I do not expect him to make a news conference. His appearance on TV has created a claming effect on the market. With him out of the picture, the market would have to fend for themselves. More bad news can be expected. Despite the Black Friday sales, it was reported that the retailers still have large inventories to clear by Christmas.

I have placed a January 2009 Bear Call Spread on RTH (retail holders) and a few others, taking advantage of the longer holidays during Christmas and the New Year.

Take note too - AAPL. It had been reported that Steve Jobs would not address the MacWorld in January 2009. MacWorld is an important event for AAPL and APPLE die-hards. As much as AAPL tried to downplay Jobs absence, I think the decision is more because of his health than anything else. It is likely that he himself is uncertain about his health in January (though he may look healthy now despite his loss of weight). AAPL would be obliged to inform SEC if Jobs' health is confirmed significantly detiorating. However, if his health is not "consistently healthy", I believe AAPL would side on the part of caution - Not informing the SEC and not participating in MacWorld (and come out with a "Good" excuse). Any confirmation of Jobs negative health status would tanked the stock to historic low. I also expect AAPL to have less than expected sales/revenue this quarter. I have placed an April 2009 PUT on AAPL.

PerianCat (Millionaire-in-progress)

Comics Strips

Liquidity

Bad Risk

Wall Street Titanic?

Black Friday Sales Data - Aftermath

Well, well, the market did reverse - and what a reversal !

The major indices drops significantly:

• Dow = -680 points
• S&P 500 = -80 points
• Nasdaq Composite = -137 points

Sometime yesterday, when the market keeps dropping, my naughty thoughts tell me that I should have bought Puts on Friday instead of just playing the Bear Call Spreads (less profit and risks). I have to remind myself that I should be thankful and not greedy.

The next target for my short positions is last month's (Nov) Low.

Cheers !

PersianCat (Millionaire-in-progress)

Black Friday Sales Data

In my previous postings, I mentioned that the market would be remained positive this week. Well, it was practically positive for all four days this week for the Dow and S&P 500 indices. The Nadaq Composite Index was also positive by the end of the week. The major indices are now at or above the 23.6% Fibonacci Level as well as SMA 30. How the market move next week would probably depends on the Black Friday Sales data. It would ideal if the market have retraced to the 38.2% Fibonacci Level. Then it would be ripe for a reversal. But at the current level, it is still a good level for reversal though not as good.

The day after the Thanksgiving holiday marks the beginning of the Christmas Shopping. The sales data on that day, also called Black Friday and its immediate weekend could move the market significantly in the following week.

Based on news reports, most retailers were expecting weak Christmas sales this year. To clear their current inventory, they offered deep discounts (even APPLE is giving discounts!) at the expense of profit margin. As such, it may not be surprising that the sales data may be good. However, profit margin would be eroded and retailers might still lose money. The question is, how would the media spin the sales data - would they play on the gross sales or on the profit margin?

This week, I have been playing intraday playing long positions. My last intraday play this week was on SPY Call options. Made a small profit of $45 for every Call options contract. Since I am expecting bad reports on the Black Friday sales data, I have placed Bear Call Spreads positions on SPY, COF, RTH and TGT during the last 10 minutes on Friday. If I am wrong I am cushion somewhat by the time decay of the options. If I am right and see that the market is reversing its Bear rally, I would then increase my positions by buying Puts options.

Cheers !

PersianCat (Millionaire-in-progress)

Citigroup Dec 2.5 Put

Bought back my Citigroup Dec 2.5 Put between $0.18 to $0.19 when Citigroup shares jumped to about $6. I was not willing to wait another month for the $0.18/$0.19 to expire worthless. In one month, anything can happen. I might as well lock-in my profits now. The profit is about 73%-75% (played on last Friday and kept over the weekend).

PersianCat (Millionaire-in-progress)

The Bulls Are Back - For Now

It feels good to be correct about the market direction. It feels better to make money from it.

In my last posting in this blog, I mentioned that the market is grossly oversold and need a rest (and have a short rally). Well, it did have a rally on Friday. The excuse the market is giving now is that the U.S. President Elect is nominating his Treasury Secretary who is rather acceptable by the market. He is also expected to name his Economic Team on Monday.

Since this week will be a short week due to Thanksgiving holidays, it is likely that the market will remain positive over the week.

Next week will be a crucial week for the retailers. Typically, consumers start buying for Christmas, the day after Thanksgiving. As such, the weekend sales data would provide a leading indicator whether retailers would be having good sales till the end of the year. At the moment, I think the profit would be bad (even if sales are good the profit margins would be grossly eroded.). The market would need an excuse to continue its downtrend. The retail Thanksgiving data could provide that excuse.

Position Updates:

• I closed all my short positions during the first half of the Friday's session with profits ;).
• My AIG Nov 2.5 Put will be assigned as it is in-the-money. My previous AIG shares which was also assigned the previous month had been sold sometime back with small profits.
• I also sold Citigroup (C) Dec 2.5 Put for an average price of $0.71. It means that if Citigroup remains above $2.5 on expiry Friday, I will get to keep the $0.71. If C is below $2.5 on expiry Friday, I will get assigned and the cost of the shares that I pay for would be $1.79. Citigroup is a bank that is "too big to fail". So it is likely that the government will do something that would help them survive This strategy is similar to the one I played for AIG - refer to: http://persiancat04.blogspot.com/2008/10/how-to-play-aig.html). (Latest update today, the Feds will be backing up Citigroup for a stake in the bank).

PersianCat (Millionaire-in-progress)

Be Prepared To Take Your Profits !

The three major indices broke its Oct/Nov Low again. However, the market is grossly oversold at the moment. It needs to rest (and have a small rally) before continuing it downtrend journey. So be prepared to take profits if you are shorting the market.

Next week will be a short trading week due to the Thanksgiving holidays.

The next pit stop (support level):

Dow Jones Index = 6975 (1997 Low, also around 61.8% Fibonacci level)
S&P 500 = 606 (1996 Low, also around 78.6% Fibonacci level)
Nasdaq Composite Index = 1108 (2003 Low)

PersianCat (Millionaire-in-progress)

A good bounce it is

At the handholding session last Tuesday, I mentioned to the group that unless the market is on steroids, there is a high probability that the market will bounce off its October Lows. It did that yesterday.

The big question is whether the bounce is sustainable. I do not believe so. It is likely that the Lows would be broken again and stay broken for some time.

PersianCat (Millionaire-in-progress)

The Bear Are Back !!!

The Bears are back in action since the last 2 days after giving way to the Bulls for more than a week. The funny part is that the media blame it on Obama winning the U.S. Presidential Elections. Actually, the market was already in overbought position. It just need an excuse to continue with the major trend (which is the downtrend). The market might want to test the Oct lows again. I will address this issue when we are nearer the Oct Lows.

Today, there will be a non-farm payrolls result. The market is expecting -200k change in the number of people employed (excluding the farming industries) during the previous month. Anything worse than -200k, would likely to negatively impact the market.

Today too, President Elect Obama would make his first Press Conference. It might calm the market somewhat (for a while though).

I have been asked about which stock to short. My advice is if we do not know which stock to play, we can just play the ETF stocks of the major indices, e.g. DIA, SPY, QQQQ. Then just play the major trend. My favourite is still SPY because it has good liquidity. I have already bought Puts on SPY, AAPL, IBM and COF. COF have been a tough cookie for me. But I believe the next bubble to explode would be the credit card market. Already Citibank reported that its credit card payment deliquency rate is critically high.

PersianCat (Millionaire-in-progress)

The Market Having a Breather

The market have been experiencing a short rally for the past four days. It seems that it will remain so for a while. The major trend is still down. Will abandon new short plays until the short-term trend is clearer.

PersianCat (Millionsulasaire-in-progress)

Market was on Steroids

The market was on steroids yesterday and kept moving up sometime mid-day onwards.

With such a big rise in price almost without a rest, the market is likely to open negative.

According to analysts, the market have already priced in the 0.5% rate cut by the Feds today. If the Feds failed to cut by at least 0.5%, the market might just be in steroids again but in opposite directions. However, the market might also just sell on news today. Anyway, I do expect a limit down to be in place again - i.e. the exchanges would only allow the market to drop by maximum percentage in a day.

PersianCat (Millionaire-in-progress)

The Next Pit Stop - Year 2002 Low?

Last Friday, the market opened and gapped lower on Friday. It was hit by the Limit Down ruling. As such, the market was cushioned from going down further. I believe this ruling will only prolong the slide further. In a way, it is good for traders as it give others more time to react and perhaps more short plays.

Today, the European and Asian markets are bleeding red again. Nikkei is at its 26-year low. The U.S. stock futures are also in the red. While Nasdaq composite already broke its October Low last Friday, Dow Jones Index and S&P500 Index are already close to its October Low. With the current situation, the market would certainly want to test the October Low again.

The next Pit stop (Support) are the Year 2002 Low:

• Dow Jones Index - 7197
• S&P500 Index - 768
• Nasdaq Composite - 1108

PersianCat (Millionaire-in-progress)

Attempt Fresh Lows ?

The market is testing to break Oct 08 lows for the past 2 days. Technically, it seems that it is highly probable that it could break the Oct lows. The market is not in oversold position yet (in daily chart). I would abandon any long position (if Ihave any), except my AIG shares which I collected by selling Oct 2.5 Put last month. For AIG, I am now waiting for the right time to sell either the 2.5 or 3.0 Call option.

My Dec and Jan Put options are still in position.

Despite analysts' bullish views on IBM (after its earnings result recently), I bought IBM Put options. I do not believe that IBM is immune to the market downslide. So after the initial euphoria, IBM slide downwards. Likewise for AAPL. While AAPL gave a grim forecast for its next quarter, the market seems to believe that AAPL mgt are being careful again and want to under promise but overdeliver. However, I feel that this round would be different. The next earnings could indeed be lower than analysts' expectations. Anyway, we shall see what happens next.

PersianCat (Millionaire-in-progress)

Jewish Holidays

Check out the Jewish holidays at:
http://www.chabad.org/calendar/holidays_cdo/aid/357733/jewish/2008-Holiday-Listing.htm

While I do not celebrate Jewish holidays, as traders we should be aware of them. During the Jewish holidays that do not permit any work, the market volume tends to shrink - sometimes by more than half. The market movement for the day could easily be skewed in low volume market days.

PersianCat (Millionaire-in-progress)

Singapore Stock Market

I am now looking at investing my CPF funds in the Singapore stock market. The Singapore market can go down further and I want it to go down further. Then I will start picking up the blue chips stocks.

Intended holding period for my CPF investments would be 3-7 yrs. Target returns 100% to 300%. Target might be more depending on how low I pick up the stocks. For my CPF funds, I typically invest, as I do not have time to monitor it. For my cash funds, I trade.

While Temasek and GIC targets a single digit returns per annum for their long term investment, I targets more than 20% per annum for my CPF investment. I typically gets more. The trick is to cash out when the market gets too hot (I did cashed out most of my positions before the November dip last year) and buy into the market when most people are fearful.

As Warren Buffet said, " Be fearful when others are greedy, and Be greedy when others are fearful" .

PersianCat (Millionaire-in-progress)

Learn From Black October

Intially, I wanted to take a break from any handholding sessions and Live Trading sessions in the month of October. My reason being that during that month, I would want to concentrate on my trades as October tends to be a very exciting month in a bear market.

But due to requests from the current batch of handholding sessions, I am conducting 4 Live Trading sessions in this month of October. What a month it have been. The market is extremely hot and volatile.

As I mentioned to the participants in my Live Trading sessions, even if we do not trade, we should watch the market. Look out for patterns and learn from it. The market patterns always repeat itself. A similar type of bear market will repeat itself in about 10-12 years again. Great amount of money will change hands again. Even the experience hands can get killed if they are too over-confident. Risk management is key to not only surviving in the market but do well in the market.

PersianCat (Millionaire-in-progress)

It Is Really A Bounce Worth Waiting For !!!

The Bounce as expected came on Monday. What a Bounce!!! It is beyond my expectations.

• The DOW Index bounced more than 936 points from its previous close
• The S&P500 Index bounced more than 104 points from its previous close
• The Nasdaq Composite Index bounced more than 194 points from its previous close

I have closed my SPY Nov 90 Call on Monday, when it showed some retracement. I was waiting to re-enter the market with a SPY Nov 95 Call or SPY Nov 100 Call. However, I could not find the right retracement level. The market just went further upwards after a very short retracement. Nevertheless, I am thankful to have made more than 50% by just leaving my position over the weakend.

Yesterday, the market did retraced sufficiently. I am currently not sure of the immediate market direction.

The earnings season has just started again. The market fundamentals are still very weak. Generally, the results and/or earnings guidance should not be good. So the market can be expected to go down again. The bottom is not there yet. I am now considering some earnings play.

PersianCat (Millionaire-in-progress)

The Average Investor Mentality

I received this from Wendy (she attended my handholding sessions). It is a fun guide to an average investor's mentality. Since we do not want to be an average investor, we should then make sure we do not think like an average investor.

PersianCat (Millionaire-in-progress)

The Market Cycle

One of my trading buddies shared the above market cycle with me. I thought my readers would benefit from the above.

My 2 cts worth is that we are definitely beyond Fear Stage. Likely to be in the Panic Stage. Anger Stage - perhaps not yet.

PersianCat (Millionaire-in-progress)

The Bounce Worth Waiting For?

I closed my short positions on Wednesday last week because the market was showing signs of reversal and I would not be around when the market opened on Thursday - Hari Raya visiting. Thus I am locking in my profits. The market dropped further on Thursday and Friday last week. The DOW index and the S&P500 Index breached its 78.6% Fibonacci level.

However, towards the end of Friday's close, the market bounced significantly from its lows. The news that the G7 countries are working on something definitely helped. The VIX index was also on an all-time high. The market is grossly oversold. It needs to rest and have a short rally. I have bought Nov SPY Call on Friday. So far it is positive. Will it gapped up and bounce up today? We shall see what happens next .....

Over the weekend, the G7 countries dissapointed the market. They have done N.A.T.O. - No Action, Talk Only stance. However, the EU countries are more aggressive in soothing the markets. That could help in reducing the panic. If the European markets and Asian markets ends positive today, it is likely that the US markets ends positive too today - unless more bad news are released again.

PersianCat (Millionaire-in-progress)

Market looking for a Reversal

Today, the charts are showing signs of reversals. I am happy to close all my short positions :) - I am locking in my profits. I am now looking for clearer signals. The market might just have a short rally over a few days before continuing its downwards trend.

For the next round of shorting, I might short more of retail stocks.

Cheers !!!

PersianCat (Millionaire-in-progress)

How to Play AIG

I have been looking at AIG eversince one of my trading buddies raise this question to me about 2 weeks ago - "Should I sell AIG Put?"

After thinking through, I came out with the following and I thought I should share with others who are reading my blog.

Assumptions:

• The U.S. Government would not let AIG failed after pumping US$85 billion. Otherwise. they would look like a fool and there would be a public backlash - apart from a financial backlash.
• On a worst case scenario, AIG will be taken over by the U.S. government just like it did to Freddie Mac and Fannie Mae. The stock price would then hovers around $1.
• The AIG stock can go higher over a longer term.

At the moment, AIG is hovering around $4. About 2 weeks ago, it is hovering around $3. The strategies below were based on the stock and option price about 2 weeks ago.

1. Strategy 1 - Sell the Put options to get the shares at a cheaper price.

• Instead of buying the AIG shares outright at $3, we sell the Oct $3 Put for $0.80.
• If the stock goes above $3 on expiry, we keep the $0.80. If this happens, we repeat the strategy again by selling the Nov Put.
• If the stock goes below $3 on expiry, we buy the shares for $3. However, since we already pocketed the $0.80 premium when we sell the Put, our cost is effectively $2.20. If this happens, go to Srategy 2 or Strategy 3.

2. Strategy 2 - Sell the Call (Playing Covered Call) to collect more pocket money

• Sell front month Call to collect pocket money. In this case, sell the Nov Call (e.g. $3 Call for $0.80)
• If the stock goes above $3 upon expiry, we have to sell the shares for $3. But we have already pocketed $0.80. Our capital was $2.20 but our returns is $0.80. Good money !!! Then Go back to Strategy 1.
• If the stock goes below $3 upon expiry, repeat Strategy 2 and sell the next front month i.e. Dec Call. If you repeat this 3 times, you would have recouped you capital of $2.20.

3. Strategy 3 - Play Strategy 2 and and Strategy 1 at the same time.

Risk:

• If you already collected the shares, the stock may go down to $1. From $3 or $4 stock to a $1 stock.
• If you already collected the shares, and you sell the Call options, the stock may go to say $10. You lost the opportunity to earn more. Covered Call strategy gives limited profit.

Cheers !!!

PersianCat (Millionaire-in-progress)

So What's Next?

The 3 major indices closed a new 52-week low again just now. The next level to monitor remained the same as the last blog entry yesterday.

Today, the new seasons of earnings announcement commenced with AA. It gave a worst than expected earnings results. The stock tanked further after market hours.

Whether a stock goes up or down after its earnings results generally depends on 2 things, the earnings results and its forecast for the next quarter.

With the current market environment, most companies would not dare forecast a better than expected earnings results. As such, I expect the market to drop further this quarter unless there are very good news to lift the market from the Feds, Hank Paulson, etc .

Coincidently, in a bear market, October month is typically a bad month for the Bulls. This is the month to short the market until the chart says otherwise. Typically too, market tends to plunge on Monday or Friday (Black Monday or Black Friday). This is the month to make money!!!

Beware of a quick rebounce though!

Cheers!!!

PersianCat (Millionaire-in-progress)

Dow Broke below 10,000

All the 3 major indices broke the 61.8% Fibonacci level. Interestingly, the host in CNBC were not showing or reporting the panic in the market. They mentioned that it have been a 'smooth slide downwards'. Perhaps, they were told not to aggravate the situation by not reporting the panic (if any).

Anyway, the Dow Jones Index broke its 10,000 mark and more importantly, it stayed below that mark. Psychologically, the market still seems to see lots of bearishness in the market.

The next Pit stop would be the 78.6% Fibonacci level:

• DOW = Around 8,700 (but the market will look at 9,000 followed by 8,500)
• S&P 500 = Around 950 (but the market will look for 1,000 followed by 950)
• Nasdaq Composite = Around 1480 (but the market will look for 1620 followed by 1480)

Having said that, yesterday, all the 3 major indices had long shadow in its candlestick. Perhaps, the market need to rest and consolidate before making its next move. I would be careful though. If an interim reversal is shown in the market, I might close some, if not all of my short plays.

The European and Asian Markets are currently having a positive rebounce. Wall Street might just follow suit.

Cheers!!!

PersianCat (Millionaire-in-progress)

Next Pit Stop

The market rewards those who are able to read the charts and have the patience to see it through. As expected, the market went down further. The 3 major indices broke its 52-week low again last Friday.

The next pit stop (a term borrowed from the F1 fever) for the 3 major indices are:

• DOW = 9900 - 9700 region (around 61.8% Fibo level) on a monthly chart
• S&P500 = 1080 (around 61.8% Fibo level) on a monthly chart. It is reaching that level soon - likely to be today.
• Nasdaq Composite= 1780 (around 61.8% Fibo level) on a monthly chart.

Weak sectors are still the usual:

• housing
• financials
• retails (selected)
• Tech stocks

Cheers !!!

PersianCat (Millionaire-in-progress)

KBH & Housing Stocks

KBH as expected, released a worse than expected losses. Housing stocks are not seeing bottom yet. However, Jim Cramer said in CNBC yesterday that KBH is a good stock to buy and hold. The stock went up after what he said yesterday. I learnt not to trust what Cramer says. (like his Bear Stearns fiasco).

Anyway, for housing stocks, it is good to sell on rallies. The housing stocks such as TOL, KBH, RYL had been having a good time recently. So it should be good to short.

If there is no other good news, I expect KBH and the other housing stocks to gap down and stay down.

Careful though, the USD700 billion bailout plan which is on and then off, might be on again and spoil my shorts. As a rule, I shorted using Jan options for housing stocks.

I played both Jan Put options and Bear Call Spread for housing stocks.

- PersianCat (Millionaire-in-progress)

-------
08:04
KBH KB Home reports wider than expected loss, misses on revs (21.16 ) - (From Breifing.com)
Reports Q3 (Aug) loss of $1.87 per share, $0.65 worse than the First Call consensus of ($1.22); revenues fell 55.7% year/year to $681.6 mln vs the $734.7 mln consensus. The 2008 third quarter results included a pretax, non-cash charge of $82.2 mln for inventory and joint venture impairments and a charge of $58.1 mln to record a valuation allowance against net deferred tax assets generated during the quarter. The co's cash balance at August 31, 2008 totaled $942.5 mln, up 46% from $645.9 mln at August 31, 2007. The Company's debt balance at the end of the current quarter was $1.88 billion, down $284.1 mln from $2.16 billion at the end of the 2007 third quarter, largely due to the redemption of debt. "Continued deterioration in new home demand, new and existing home prices, excessive inventories and mortgage credit availability prevailed across most U.S. housing markets in the third quarter... These difficult conditions have now been exacerbated by the recent, unprecedented turmoil in financial and credit markets, and it is too early to assess whether the federal government's proposed interventions will be effective. As our industry navigates a housing market decline now subsumed by a larger global financial crisis, we at KB Home continue to focus on three integrated strategic objectives: maintaining a strong financial position, restoring operational profitability and positioning ourselves to capitalize on a housing market recovery when it occurs... The sharp decline in net orders we experienced in the third quarter reflects the broader dynamics of the housing market and our strategic responses to these conditions - reducing our active community count, implementing a comprehensive product transition and executing a more disciplined pricing strategy... Market fundamentals appear unlikely to improve significantly in the near term, as foreclosures continue to rise, housing inventory overhang remains at historically high levels and mortgages have become more difficult to obtain. In this environment, we will continue to pursue opportunities to optimize our financial results while operating conditions in our markets across the country move, at varying rates, towards a long-term supply and demand equilibrium."

Market Reversal

Dear All,

Dow Jones Index

S&P500 Index

Nasdaq Composite Index

Yesterday we had a strong market reversal. The major indices had very strong showing with extremely good day ranges:

• DOW - more than 600 points
• S&P500 - more than 77 points
• Nasdaq Composite - more than 131 points

Whether the market sustains this strong reversal today depends on how Paulson plays his cards at 10am EST - when he will be giving a news conference addressing the measures that he is proposing. The RTC proposal or the likes of it seems to have boost market confidence. Similar proposals were seen in Asia when it had its economic crisis years back. It seems to work.

For the moment, I will abandon all shorting views and wait for a confirmation of trend. I may convert my Dec and Jan Puts to calendar spreads instead of taking immediate losses. The IV is high - so good to sell options. This is a repair strategy.

The market fundamentals are still bad. The market may still make another round of downtrend. The current market is not for the faint-hearted.

PersianCat (Millionaire-in-progress)

AAPL Play Updates

Closed my AAPL Aug 150 Call at $18.30 yesterday for a 129% return over 2 days.

AAPL - Fill the Gap Strategy

Chart 1: Nasdaq Composite Index

Chart 2: AAPL 52-Week Chart

Chart 3: AAPL Intra-day Chart

The following happened while I was conducting a handholding session yesterday and demonstrated a “Live” trade on a paper trading account.

AAPL announced their quarterly earnings results the night before (21 July 08 - after market close). As usual, it released a stunning set of results. But the stock gapped down at pre-market hours (as much as $18.00) due to less than expected earnings forecast. But AAPL is known to lower its analysts' expectations by lowering its forecast. A similar gap down happened in April when AAPL gave a lower than expected forecast. But the stock subsequently reversed and went up. A possible Fill-the-Gap strategy is identified.

• Checked the 3 major indices – All pointing a bear rally. Nasdaq Composite Index also showed a triple bottom in the daily chart (Chart 1)
• AAPL resting at its 38.2% Fibonacci Level before the Gapped down in its daily chart (Chart 2)
• RSI and Stochastics are at a good level in the intraday chart
• Refer to Chart 3 for Entry & Target. The stop loss is at the lowest of the first candle

Initially, I planned to enter immediately after the stock went above the ideal point - buying AAPL Aug 150 Call option for $7.00. In the midst of the excitement, instead of buying, I sold the Call option instead. I realized my mistake. By the time I closed my position and opened a new position in AAPL Aug 150 Call Option, I can only manage to enter a trade at $8.00. The mistake cost me an opportunity cost of $1.00.

In the class, I mentioned that if the stock remained around or below the 38.2%Fibonacci level (in an intraday chart) towards the end of the day, I would take my profits and run. However, if the stock hits the 61.8% Fibonacci Level, I may consider leaving the options overnight. i.e. changing my stance from a day trade to a swing trade.

The stock hovered at around its 38.2% Fibonacci level in intraday chart, which coincided with the 50% Fibonacci level in daily chart. Hence, at that level, it is a strong resistance. However, my intuition (at around 11:30pm) says that the stock will break the resistance. As to when exactly, I am not sure. It did break the resistance around 1:15pm and it went pass my two targets.

By the end of the day, the stock close around $162. My 150 Call option is deep-in-the-money with a closing price of around $14.575. That is, if I were to close my position before the end of the day, I would easily made $6.575 x 100 (before commission) per option contract or about 82.2% return in one day. I left the position open. On hindsight, I should have closed my position and opened a fresh Aug 165 Call at a lower premium (and thus locking-in my profit).

PersianCat (Millionaire-in-progress)

We had more bad news ...

The market had one bad news after another last week. FNM, FRE and IndyMac are in trouble. Iran missile testings also doesn't help the markets. The list goes on....... Any attempt by the Bulls to rally up the market failed miserably.

The market is in its exciting period. Lots of volatility. Lots of traders lose money to the market makers. A lot to learn for all. We shall see what happens next.

During this period, I tends to trade intra-day rather than keeping my trades overnight.

PersianCat (Millionaire-in-progress)

Market in Triple Bottom?

It's been sometime since I last write. I have been busy with other things including sharpening the content and delivery of my handholding sessions.

I''ve been mentioning before and repeat it again in my handholding sessions that the current U.S. market correction is not the normal correction. Things are just too bad at the moment to be bullish about the market. So it is no surprise that the DOW drops 20% from its peak. I do expect a little more - maybe another 10% down.

But now, it is a good time to take stock after the July 4th Independence Day holiday.

The three major indices (DOW, S&P500 and Nasdaq Composite Index) are all in oversold territory. The oscillators (e.g. RSI, stochastics) for each of the 3 indices are at the low end. While I believe that the market is in for another thrashing, it needs to rest and retrace (in this case, go up) a bit before continuing its downtrend. Unless a series of bad news or an extremely bad news is announced, any little good news might push the market upwards in the short-term.

PersianCat (Millionaire-in-progress)


As such, what we could be seeing is a possible triple bottom being formed.

Bears Are In Play Again?

After experiencing a double bottom (in Jan and Mar 08), the major indices reversed its downtrend and broke its respective neckline to confirm an uptrend is established. Indeed, since mid-March, the major indices moved within an uptrend channel.

However, since the last 3 weeks, an interesting formation appeared in the charts. The Dow, S&P500 and the Nasdaq Composite Indices experienced resistance at the SMA200. Furthermore, the markets closed negative in huge numbers over the last 2 days.

• The Dow30 index broke below its uptrend channel and is resting at the SMA50.
• The S&P500 index broke below its uptrend channel and is resting at the SMA30.
• The Nasdaq Composite index is resting at the low end of the uptrend channel.

Would the market continues its downtrend? It seems so.

PersianCat (Millionaire-in-progress)

Market Updates

The market did not behave as it suppose for the past one week or so. With bad news, the stocks went up. With good news the stocks went down. For example, BBBY provide lower guidance and yet the stock had been relatively up since the announcement. On hindsight, I should have just closed my BBBY position earlier.

Anyway, I had mixed results from my credit spreads play expiring last week.

• Closed LEN credit spreads on 14 April for a profit of 36.1% (over 5 days)
• Closed FDX credit spreads on 17 April for a profit of 22.1% (over 8 days)
• Closed MER credit spreads on 18 April for a loss of 8.0% (over 8 days)
• Closed BBBY credit spreads on 18 April for a loss of 160.2% (over 8 days)

PersianCat (Millionaire-in-progress)

Market updates

The market finally caved in last Friday after a dismal outlook by GE. The major index continued to bounce off their resistance levels.

Out of my 4 credit spreads plays, 3 are out of the money and looking positive. The 4th credit spread was playing BBBY into earnings deep-in-the-money. BBBY guidance was bad. However, the market somehow push BBBY upwards even last Friday. My BBBY play is now negative. I shall see what happens next before making a decision on BBBY.

This week we will see a number of financial stocks releasing their earnings results. These stocks include WM, JPM, WFC, MER and SLM. The outcome could greatly impact on the market this week. I am still bearish in the sector.

PersianCat (Millionaire-in-progress)

Latest Credit Spreads Plays

The three major indices had been drifting lower rather slowly for the past 6 market days. It had been hovering around its resistance. The Bulls were trying very hard to hold on since one bad news after another (Non-farm payroll, AA earnings, etc) failed to push down the market convincingly. However, today's market performance seemed to show that the Bears were back to play.

We have less than 2 weeks before the next Expiry Friday. I love to play Credit Spreads during the last 2 weeks before Expiry Friday. At the last handholding session on last Tuesday, I entered a "live" trade.

• Sell to open, Bear Call Spread, FDX April 95/100 Call for $1.62 (when the stock was around $94.89)

Subsequently, I also played the following trades:

• Sell to open, Bear Call Spread, LEN April 20/22.50 Call for $0.70 (when the stock was around $19.91) - played on Tuesday.
• Sell to open Bear Call Spread, MER April 45/50 Call for $2.25 (when the stock was around $46.07) - played today. This is in-the-money play.
• Sell to open Bear Call Spread, BBBY April 27.50/30 Call for $1.55 (when the stock was around $29.62) - played today. This is deep in-the-money play. I am testing out playing deep in-the-money credit spreads for earnings play. BBBY was due to release its earnings after the market close today. It later reported that it beat earnings expectations but it also issued downside guidance. We shall see how the stock and my options perform tommorrow.

All my trades were short plays as I expect the market and the underlying stocks that I played to continue its downslide.

PersianCat04 (Millionaire-in-progress)

Interesting Set-up

The market was extremely upbeat last Tuesday. It was somewhat subdued yesterday. The major indices were still showing a downtrend though they had been ranging for the past 3 months. The indices were or near its resistance level. The Tuesday strong rally followed by yesterday indecision provided a good setup for shorting.

The Non-Farm Payroll figures will be released tommorrow followed by the earnings results starting next week. I expect earnings results to be bad.

Among the stocks under my radar for possible shorting (need confirmation candle though):

• FDX
• LEH
• C
• BBY
• RYL
• LEN

Do your due diligence though.

PersianCat (Millionaire-in-progress)

Market reversal - Downtrend to continue ?

The major market index (DOW, S&P500, Nasdaq Composite) had a short rally since a week ago. The three major index are now at their first resistance level.

While there are many Bulls in the market saying that the market have somewhat bottom, I personally do not believe it is. The market diarrhoea is not over yet. If this is a normal pull-back, I would agree with the notion that we have reached a bottom. However, this is not a normal pull-back. This is a systemic problem that affect not only the US financial market but also the global financial market. In the meantime, let's watch what happens next.

In the coming weeks or months, I foresee more bad news. These news should include more credit card defaults, more private education loan defaults and worse - the credit swaps defaults (a US$45 trillion industry - as per Moneynews.com).

The latter are basically insurance policies that buyers of mortgage securities (CDOs) bought against a mortgage default. Banks and hedge funds 'wrote' this insurance, a highly leveraged speculation. Now that the mortgages are defaulting, the sellers are saying they don't have the capital to make good on the insurance - as per Moneynews.com.

Currently, a number of financial and housing stocks seem to offer good setups for shorting.

- PersianCat (Millionaire-in-progress)

QQQQ - Intraday Play

After buying BSC Put, the market turned to the worse. I also played the following:

• Buy to open QQQQ Mar 42 Put @$0.52 (when the stock is around $42.67)
• Sell to close QQQQ Mar 42 Put @0.82 (when the stock is around $42.16). Profit = 57.7%

PersainCat (Millionaire-in-progress)

BSC - Intraday Play

Heard from CNBC on last Fri (pre-market) that BSC was pursuing financing from the Feds through JPM. Apparently they had liquidity problems. This kind of news typically offered a significant jump in the stock prices.

A quick assessment at that point of time, offered 2 possibilities:

1. The market takes the news positively since the Feds and JPM were extending a life-line and end BSC liquity problems. The stock gapped up. (Probability = unlikely)
2. The market takes the news negatively (Probability = likely). The stock gap down at opening hour. From here it offered some other possibilities. One, after gapping down, it stabilises it will not go beyond the first 5-min candle. Two, after gapping down, the market is still digesting the impact of the news. It later either goes down further or go up and close the gap.

So I waited and watched the market made its move. In a 5-min chart, the first candlestick formed was long, then an inside bar was formed. CNBC (I considers them as cheerleaders) could not provide anything positive about the event. I was ready to play my move then - Playing the Inside Bar strategy (even before 10am EST).

• Bought BSC Mar 45 Put @$4.00 (when the stock was around $51.00). The Bid/Ask spread was huge then.
• Sold BSC Mar 45 Put @$16.00 (when the stock is around $31.00) within 30 mins. Profit = A Cool 400%.

PersianCat (Millionare-in-progress)

Bullish Engulfing Pattern - Market Reversal?

Worm... Worm ... Worm...

It has been a week since my three computers were infected by worms. 2 of the computers are back in action. One is still down. Had to reformat the harddisk, etc ......

At my handholding sessions yesterday, I shared that the market was trying very hard to test the Jan 08 low and trying to find an excuse to bounce back. That Jan 08 level had not been breached by the DOW and S&P500 index. For Nasdaq Composite index, the Jan 08 low was broken. Prior to yesterday's move, the indicators were showing an oversold market. Since Jan 08 low is a strong support level I do expect some bounce before the level can be broken by the DOW and S&P500 index.

With yesterday's strong bullish close, a bullish engufing pattern is formed in both the DOW and S&P500. Should the market ends higher today, it would confirm a reversal is in play. Whether will be a short or long rally, it is yet to be seen. However, the market is still in a downtrend.

I close my MET last Friday @$1.20 (Loss of 24.2%).

Currently, I have not been playing as much as I would like to since I have been distracted by the handholding sessions that I am now conducting. However, I must admit that I am enjoying conducting those sessions.

Position update

Closed my QQQQ position at breakeven yesterday. The stock was doing well and my options was doing well too (made more than 30% unrealised gain). However, at the last hour, the stock rebounced with vengeance. I do not like the way it moved so fast and furious in such a short time. Furthermore, the stock is near its 52-week low. Will I believe the stock will break the 52-week low, I am not playing it at the moment. Let it retrace back before shorting again.

PersianCat (Millionaire-in-progress)

Market Back On Track

The market was down for the last 2 sessions. With a confirmation candle in the major index, the market is back on track to continue with its down trend.

Bought the following on last Friday:

• QQQQ Mar 42 Put @$0.64 (when the underlying stock is at $43.19)

- PersianCat (Millionaire-in-progress)

Play ONE contract only !!!

I have seen many novice traders lose all their capital, irregardless whether their capital is US$5,000, US$10,000, US$50,000 and even US$100,000. Most lose them within a year of trading. One of the main reason why they lose capital so fast is because they over-trade or others call it lack of money management. Basically, they trade too many contracts in any one trade.

To all novice traders, my advice to them:
PLAY ONE CONTRACT PER TRADE at any one time.

The rationale is very simple. If you are a novice trader, the tendency for you to play a good trade and make money is less than you playing a bad trade and/or lose money. If you play just one contract and lose $50 per contract, then you lose only US$50. If they you play 10 contracts, the loss is multiplied by 10, i.e. US$500. Some would argue, "Yes, but if I make, I would make 10 times i.e. US$500". Yes, that is true, but like I said, tendency is that you make more bad trades and good trades in the novice stage.

So in the novice stage, my recommendation is always, play one contract at a time. When you have gain confidence (which needs to be built up) and play more good trades than bad, then increase the contract size incrementally. e.g. 1 additional contract at a time.

You play small, win small and lose small.

Following this simple rule requires discipline and patience. Both of these assets are important for traders.

- PersianCat (Millionaire-in-progress)

News Bytes - U.S. in Recession

Rogers: U.S. in Recession, Will Get Worse (MoneyNews.com – 26 Feb 08)

The United States economy is already in recession and is set for a further slowdown with the dollar expected to remain under pressure, investment guru Jim Rogers said on Monday.

Rogers, who co-founded the Quantum Fund with billionaire George Soros in the 1970s, said the housing and automobile sectors were in a situation "worse than recession" with soaring energy and food prices hitting consumer spending.

"They (the U.S. central bank) are printing money and are trying to prevent the recession — they are putting on Band Aids," he said ahead of an investor conference in Dublin.
Rogers said the central bank was making the "same mistakes" Japan did in the early 1990s before its credit-inflated bubble economy burst.

"The Japanese did it and the Japanese still have not recovered 18 years later," he said.
"As long as the (U.S.) central bank and the federal government keep making the mistakes, you will have a longer period of slowdown and it will be perhaps one of the worst recessions we have had in a long time in America," he said. Rogers said the dollar was set to "go down a great deal" adding he hoped to get out of all his dollar holdings at some stage this year.

Rogers reiterated he preferred investments in the agriculture sector in the light of tightening supplies worldwide.

"Inventories for food are the lowest in 40 or 50 years. I don't see where the supplies are coming from," he said.

"Agriculture is still the best place to be, maybe (also) silver, maybe palladium," he said.

News Bytes - Recession Could Be Long and Severe

Recession Could Be Long and Severe - Key Reagan Adviser (extracted from MoneyNews.com 23/2/08)

Martin Feldstein, chairman of President Reagan’s Council of Economic Advisers, says that evidence is mounting that a recession began in December or January.

And unlike many economists who say any recession will be mild and brief, the Harvard economist wrote that there is a good chance it will be long and severe.

That’s largely because Federal Reserve interest-rate cuts are having little effect, he argued this week in The Wall Street Journal. "If a recession does occur, it could last longer and be more painful than the past several downturns because of differences in its origin and character,” Feldstein wrote.

The recessions of 1990-91 and 2001 lasted only eight months, and even the deeper recession of 1981 was over in 16 months.

"But these past recessions were caused by deliberate Federal Reserve policy aimed at reversing a rise in inflation,” Feldstein wrote.

"A key cause of the present slowdown and potential recession was not a tightening of monetary policy, but the bursting of the house-price bubble after six years of exceptionally rapid increases,” he wrote.

"The principle cause for concern today is the paralysis of the credit markets,” Feldstein wrote.
"Credit is always key to the expansion of the economy. The collapse of confidence in credit markets is now preventing that necessary extension of credit.”

It’s not just banks that are cutting back on extending credit, Feldstein notes. It’s also bond markets, hedge funds, insurance companies and mutual funds.

"Securitization, leveraged buyouts and credit insurance have also atrophied,” Feldstein wrote.
As a result Fed rate cuts just can’t jumpstart the economy like they have in the past. "Monetary policy may simply lack traction in the current credit environment,” according to Feldstein.

The situation has turned into a vicious cycle.
"The lack of confidence in asset prices also translates into a lack of confidence in the creditworthiness of other financial institutions, impeding the extension of credit to those institutions,” according to Feldstein.

"And because financial institutions do not even have confidence in the value of their own capital and in the potential availability of liquidity, they are reluctant to make new lending commitments,” he wrote.

12 Steps To Financial Disaster

The following are extracted from FT.com - stating Prof Roubini's 12 – steps to financial disaster. The full article could be found in: http://blogs.ft.com/wolfforum/2008/02/americas-economy-risks-mother-of-all-meltdowns/

Step one is the worst housing recession in US history. House prices will, he says, fall by 20 to 30 per cent from their peak, which would wipe out between $4,000bn and $6,000bn in household wealth. Ten million households will end up with negative equity and so with a huge incentive to put the house keys in the post and depart for greener fields. Many more home-builders will be bankrupted.

Step two would be further losses, beyond the $250bn-$300bn now estimated, for subprime mortgages. About 60 per cent of all mortgage origination between 2005 and 2007 had “reckless or toxic features”, argues Prof Roubini. Goldman Sachs estimates mortgage losses at $400bn. But if home prices fell by more than 20 per cent, losses would be bigger. That would further impair the banks’ ability to offer credit.

Step three would be big losses on unsecured consumer debt: credit cards, auto loans, student loans and so forth. The “credit crunch” would then spread from mortgages to a wide range of consumer credit.

Step four would be the downgrading of the monoline insurers, which do not deserve the AAA rating on which their business depends. A further $150bn writedown of asset-backed securities would then ensue.

Step five would be the meltdown of the commercial property market, while step six would be bankruptcy of a large regional or national bank.

Step seven would be big losses on reckless leveraged buy-outs. Hundreds of billions of dollars of such loans are now stuck on the balance sheets of financial institutions.

Step eight would be a wave of corporate defaults. On average, US companies are in decent shape, but a “fat tail” of companies has low profitability and heavy debt. Such defaults would spread losses in “credit default swaps”, which insure such debt. The losses could be $250bn. Some insurers might go bankrupt.

Step nine would be a meltdown in the “shadow financial system”. Dealing with the distress of hedge funds, special investment vehicles and so forth will be made more difficult by the fact that they have no direct access to lending from central banks.

Step 10 would be a further collapse in stock prices. Failures of hedge funds, margin calls and shorting could lead to cascading falls in prices.

Step 11 would be a drying-up of liquidity in a range of financial markets, including interbank and money markets. Behind this would be a jump in concerns about solvency.

Step 12 would be “a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices”.

U.S. Market Holidays 2008

1 Jan - New Year's Day
21-Jan - Martin Luther King, Jr. Day
18-Feb - Presidents' Day
21-Mar - Good Friday
26-May - Memorial Day
4-Jul - Independence Day
1-Sep - Labor Day
27-Nov - Thanksgiving Day
25-Dec - Christmas Day

Early Closures (1:00pm):
28 Nov - Day After Thanksgiving
24 Dec - Christmas Eve

How The Markets Really Work

Rajan, a good friend of mine alerted me of a 9-mins video that could be found in http://www.brasschecktv.com/page/187.html. It is a good, simplified and comical perspective of how the markets really work. The issues mentioned include the sub-prime issues. Watch and enjoy.

- PersianCat (Millionaire-in-progress)

News Bytes - Greenspan, BRKA

Greenspan Speaks (Schaeffer Research - 15 Feb)
Former U.S. Federal Reserve Chairman Alan Greenspan was addressing energy execs at a CERA conference in Houston, saying the U.S. economy was on the verge of recession, warning that conditions would "continue to erode until housing prices stabilized," MarketWatch reported. In conclusion, Greenspan noted that the housing-market woes were still far from a bottom.

Warren Buffett Portfolio Changes (Schaeffer Research - 15 Feb)
Berkshire Hathaway (BRKA) disclosed it was accumulating shares of Kraft Foods (KFT) , gathering an 8.6% stake by the end of 2007. The billionaire also revealed a 1.5-million-share stake in drug maker GlaxoSmithKline (GSK) , amongst others, while reducing stakes in Iron Mountain (IRM) and Ameriprise Financial (AMP).

Bernanke Speaks (www.thestreet.com 14 Feb)
Federal Reserve Chairman Ben Bernanke on Thursday offered a bleak economic outlook for the near term and signaled the central bank's willingness to continue to cut its target rate.

Bernanke expects a period of sluggish growth, followed by a "somewhat stronger pace of growth starting later this year" as the tax rebates and interest rate cuts begin to impact the economy, the Fed chief told the Senate's Committee on Banking, Housing and Urban Affairs. He noted the Federal Open Market Committee's aggressive rate cuts to battle tight interbank lending market that have resulted in a 225 basis point drop to the federal funds rate since September to its present 3%.

Bernanke said further cuts in homebuilding and related activities are likely, as is more-expensive and less-available credit straining the economy. Additional subprime writedowns also appear likely in the short term. And while the chairman doesn't expect a "rip-roaring labor market," the Fed will be looking to see if it stabilized at current levels.

"It is important to recognize that downside risks to growth remain, including the possibilities that the housing market or the labor market may deteriorate to an extent beyond that currently anticipated, or that credit conditions may tighten substantially further," said Bernanke.

Bond Insurers Getting the Heat (www.wsj.com 15 Feb)
The clock is running out for bond insurers to save their triple-A credit ratings.
In congressional testimony yesterday, New York Gov. Eliot Spitzer gave a three-to-five-day time frame for the bond insurers to raise much-needed capital or find other ways to resolve their problems.

Bond insurers -- relatively obscure companies that insure the principal and interest payments in the event of default -- have emerged as the linchpins of large swaths of the financial markets, ranging from municipal bonds to short-term securities backed by student loans. With investors worried that potential downgrades will lead to massive write-downs in their holdings of securities guaranteed by the insurers, regulators have been trying to rally banks to help rescue the insurers.

FGIC Corp., the third-biggest bond insurer by amount of insured debt outstanding after MBIA Inc. and Ambac Financial Group Inc., has already lost its top-notch triple-A rating from all three major ratings firms, indicating that the banks so far have failed to devise a way to raise enough capital to save its status. Moody's Investors Service cut FGIC's triple-A financial-strength rating by six notches to A3, with a warning that it could be cut to the lowest investment grade level of Baa if FGIC's strategic and capital plans had "an unfavorable outcome."

FGIC is closely held by mortgage-insurer PMI Group Inc., which owns a 42% stake, and private-equity firms Blackstone Group Inc. and Cypress Group, each with 23%.

The forays of FGIC, Ambac and MBIA into the risky business of insuring complex mortgage-related securities have put them on the hook for potentially billions of dollars of claims as the housing market stumbles.

The Moody's downgrade -- which could prompt money-fund managers to unload their FGIC-insured holdings -- is more severe than the downgrades of FGIC to double-A in January by Fitch Ratings and Standard & Poor's.

- PersianCat (Millionaire-in-progress)

New Play - MET Put

Played the following yesterday:

• Bought MET Mar 55 Put @$1.65 (when the stock is around $58.03)

- PersianCat (Millionaire-in-progress)

Position Update

Yesterday, the general market had another positive day (3 consecutive positive days. The charts showed that the market seems to start a rally and not testing the low of January 2008. Given the current market sentiments and looking at the charts, I closed all my positions yesterday with mixed results:

SPY - Bear Call Spread Feb 133/136 Call @$2.48 (Loss 65.3% 5 market days)
BSC - Bear Call Spread Feb 85/90 Call @$0.05 (Profit 57.1% 6 market days)
COF - Bear Call Spread Feb 50/55 Call @0.40 (Profit 64.3% over 7 market days)

- PersianCat (Millionaire-in-progress)

Position Update

Yesterday, the general market had another positive day (3 consecutive positive days. The charts showed that the market seems to start a rally and not testing the low of January 2008. Given the current market sentiments and looking at the charts, I closed all my positions yesterday with mixed results:

SPY - Bear Call Spread Feb 133/136 Call @$2.48 (Loss 65.3% 5 market days)
BSC - Bear Call Spread Feb 85/90 Call @$0.05 (Profit 57.1% 6 market days)
COF - Bear Call Spread Feb 50/55 Call @0.40 (Profit 64.3% over 7 market days)

- PersianCat (Millionaire-in-progress)

New Play - SPY

Played a Bear Call Spread on SPY last Friday.

SPY - Bear Call Spread Feb 133/136 @1.50 (when the stock is around 133.72)

- PersianCat (Millionaire-in-progress)

New Position Added - BSC

The market was volatile yesterday. It broke the previous day low but it rally back before it broke the same level again and end negative for the day. Anyway, I added another position again yesterday:

• BSC - Bear Call Spread Feb 85/90 Call @$1.85 (when the stock is around $84.90)

In the current volatile market, the credit spread play (above) would not make me too excitable seeing my position going from positive to negative to positive..... Since it also requires less monitoring, I am able to focus in preparing on some project which I am starting next week.

For those who celebrate Chinese New Year or its holidays, I would like to wish you "Gong Xi Fa Cai" and have a prosperous and profitable year.

- PersianCat (Millionaire-in-progress)

We have confirmation !!!

We have a reversal confirmation with a black candle yesterday. How to play? I would short if the market/stock goes below yesterday's low. The stop loss is Friday's high (or last week's high - whichever is higher) and the first target is January Low. I have to be careful though. In the current volatile market, crazy swings should be expected.

As for me, I have already started by playing the following yesterday:

• COF - Bear Call Spreads Feb 50/55 Call @$2.20 (when COF is about $51.65)

- PersianCat (Millionaire-in-progress)

We might have confirmation candle today !

The futures were negative before market open. The ISM data released today was also below expectations and the futures react accordingly pushing the prices lower. It seems that this week is the week to go back to reality and continue the downtrend. If we close lower today, we would have the confirmation candlestick required to confirm a reversal after yesterday down day. Anyway, I have to be careful, as the market is very volatile these days and like to give mixed signals.

Since it is 2 weeks before expiry, I am considering to play one of my favourite strategies - at or in-the-money credit spreads. This strategy offered limited risk and limited profit. The sector to play is still the same - housing, financials, etc.

- PersianCat (Millionaire-in-progress)

Thoughts - Are you winning the battle?

If a soldier is fighting in a battle, it is important that he keeps himself alive so he can fight for his country. Even if he is injured, he can still fight. But once he is dead, it is the end of the story. Of course it is the soldier’s greatest honor to die for his country.

In trading, if a trader wants to keep trading (like the soldier fighting for his country), he needs to ensure that he has enough capital (to keep himself alive). Even if he loses some money (injured), he can still trade as long as he has capital (his life). However, if he has no more capital (the soldier is dead), then his trading days are over (at least for the moment).

The moral of the story is:

Capital preservation is extremely important in trading.

Often we have seen or heard, that once in a while, some traders (even good ones) like to participate in a suicide-like mission. They play big contracts (over-trading) in one trade hoping to make that BIG money that they are so sure of winning, but end up losing HUGE money that make them lose most of their capital. They end up so demoralised that they have lost their confidence in trading. They are "dying" and almost as good as dead. So are you surviving, winning the battle, badly injured or dying?

If you are "dead", you would not be interested to read this blog anyway. Oh, by the way, you can die for your country, but there is no such thing as dying for the market ;)

- PersianCat (Millionaire-in-progress)

Post Non-Farm Payroll

Last week, the market seemed to shrug off bad news and continued its rally. It broke the Resistance at August 2007 Low. For the moment, I would not short the market unless there is a confirmation of a change in direction. The longer term trend is still bearish.

- PersianCat (Millionaire-in-progress)

Pre-FOMC

The FOMC interest rate outcome will be released today around 2:15 pm (EST). It seems the market has already factored in a lowered 50 basis points. Whatever the outcome, the Feds will be having a hard time to please the market (it seems that they have been doing that for the pass few months).

If the interest rate is:

• Lowered by 50 basis points, the market may react in unpredictable ways.
• Lowered by less than 50 basis points, the market will slide again.
• Lowered by more than 50 basis points, the market might slide again as the market might feel that economy is worse than it is perceived that is why the Feds lowered much more than what the market wants.

Should I play a Put, my stop loss would be highest point among the last 5-6 market days. The target is January low. Good sectors to short are the same: retail, housing, banks, mortgage lenders, etc. These sectors had rallied a fair bit since the January lows.

Trade with care as the market is still very volatile.

- PersianCat (Millionaire-in-progress)

Aug Low Becomes Strong Resistance

The Aug 2007 Low is now a strong resistance level for DOW and S&P 500 indices. Closing above that level could spell trouble for the Bears.

This week there are 2 important news that could drive the market crazy. The first is the FOMC meeting on the Interest Rate hike (Wednesday). The other is the NFP - non-farm payroll (Friday). These 2 news could make the market more volatile. They could either break the DOW and S&P 500 indices higher above the Aug Lows or continue the downtrend and perhaps break the Jan 2008 lows.

Have to be extra careful in these volatile market.

- PersianCat (Millionaire-in-progress)

DOW & S&P500 has a hammer !

Based on the OX charts, the DOW and S&P 500 indeed formed a hammer candlestick with a long shadow yesterday. Almost a similar formation as Aug 2007 Low. It makes things more difficult to short at the moment. I do expect the bulls will try to take advantage of the situation and try to create a rally (however short-lived it may be) just like in Aug 2007. However, the overall trend is still down. Sell on rally is still the current mantra. I would still short the banks, mortgages, housing and retails at the right time. I mentioned energy and commodities as a possible play for shorting. Have to look into it in more detail.

However, I would refrain from shorting gold and precious metals. With the recession looming, gold and precious metals could be the few sectors that appreciates in price while the rest are just sliding down.


- PersianCat (Millionaire-in-progress)

Futures indicate DOW at -600 points !!!

On Friday, the market closed lower than on Thursday continuing the downtrend. As at Tuesday, 7am Singapore time, the DOW futures is already at minus 600 points with S&P500 futures at minus 60 points. The Asian market suffered a meltdown yesterday. It is likely that the Asian market continues it downtrend. The once invincible Shanghai market is also poised to lose its shine. The China bubble might have been pricked well before the Olympics Games !!

When the market sentiments is this bad, typically there are bargain hunters who would come in to long the market on a very short-term basis (within the day or over a few days). I expect the US market to be very volatile with big swings. We have to be careful just in case a similar hammer candlestick (with long shadow) is formed again (as in Aug 2007 low) . On that day, the market sentiment was very bad, stocks just pushed itself downwards. Then out of the blue, Fed Chairman announced some measures and the market quickly reversed itself. Nevertheless, the market is poised for another beating.

To my fellow traders, in market such as this, certain strategies do not work or difficult to make money. These strategies include Iron Condor and Selling Naked Put. So trade with care.

If the market really believe there is a recession looming in the US and perhaps even in Europe, it is very likely that the energy and commodities stocks which had a good run would also suffer a downtrend. This is due to the expected downfall in demand should the US and Europe is in recession.

Anyway, as I mentioned before, I do not want to be a hero and go against the trend. Until the charts showed a reversal is in play, I will short the market at the appropriate time. The weak sectors remained the same - housing, financials, retail and technology.

- PersianCat (Millionaire-in-progress)

Position Updates

The market was up when market open last Friday. As I do not think that the market can hold, I patiently wait to close my position (it was negative when market opened). Managed to close the following at a profit:

• Sell to close STX Jan 20 Put for an average of $0.25. Profit at 25.0%.
• Closed STX Bear Call Spread @$0.05. Profit at 113.0% (I sold the in-the-money spread on Thursday with little time value. What I gained is mostly the intrinsic value).

- PersianCat (Millionaire-in-progress)

S&P 500 at 15 months Low

The S&P 500 was at 15 months Low yesterday. The Dow and Nasdaq Composite broke Aug Lows convincingly. The Bears are now in control again. While the market may experience short rallys in the near future, the downtrend continues.

So how do we play the market? For the moment, I would only play shorts playing the weak stock in a weak sector when the market is also weak.

Yesterday, I played the STX in preparation of their earnings results after the market closed yesterday.

• STX - Jan 20 Put @$0.20 (when the stock is around $20.80)
• STX - Bear Call Spread Jan 20/22.5 Call @1.35 (when the market is about 21.48)

- PersianCat (Millionaire-in-progress)

AAPL, C & the Market tanked

The market tanked yesterday. Dow broke the Aug 2007 Lows again and closed lower. The S&P 500 and Nasdaq composite index almost test last week lows. Until these 2 indices broke the Aug 2007 Lows convincingly, the Bears and the Bulls will fight it out. In the meantime, the market will be very volatile.

At the stock level, Steve Jobs did not managed to impress market watchers at MacWorld 2008. As such, AAPL tanked almost as soon as Steve Jobs started his keynote address. Lost some money there. C also tanked on such a bad earnings results. Closed my positions yesterday with mixed results.

• Closed Bull Put Spread AAPL Jan 175/170 Put @$3.40. Loss at 48.4%
• Sell to Close C Jan 27.5 Put @$0.73. Profit at 87.2%

- PersianCat (Millionaire-in-progress)

News Play - AAPL & C

AAPL - I have been looking to buy AAPL in anticipation of Steve Jobs' address at the MacWorld on Tuesday (today). Typically, it is a much watch event as market watchers are looking forward for AAPL to launch new products. Sold a Bull Put spread yesterday - less risk for a relatively good potential profit. Might buy straight Calls today depending on how the chart goes and what other news is avalaible.

• Bull Put Spread Jan 175/170 @$1.90 (when the stock is around $175.85)

C - Yesterday, I bought out-of-the-money Put in anticipation of Earnings today. It's been a long time since I play earnings. The market have been talking about a big write-down of its capital. How the stock moves today will depend partly on the following:

• How big the write down
• How big they intend to lay-off employees (if any)
• Whether they announced any potential white knights to inject capital into C.
• Buy to open Jan 27.5 @$0.39 (when the stock is around $29.00)

- PersianCat (Millionaire-in-progress)