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)

Market Bounced Off August 07 Lows

Yesterday, the DOW index breaks the Aug 2007 lows and bounced off from that level. Though the S&P 500 Index and NASDAQ Composite Index did not even touch the Aug 2007 Lows (quite near though), it took the que from the DOW Index and also bounced off its session lows. The major indices closed positive quite convincingly. I expect a retracement from here over the next few days. Any little good news could be treated with great fanfare unless something terrible happens.

The earnings season just started with Alcoa. It would be interesting to watch how the market unfold over the next few weeks with the bulls and the bears fighting for dominance. For the moment, I think the bears wants to give way, take a rest and let the bulls takes over.

As such, I have closed all my positions yesterday to lock-in whatever profits I can salvage. I do not need to wait for my stop loss to kick-in. All my positions are all Bear Call Spreads:

• BSC - Jan 75/80 Call @$1.60. Profit 6.3% over 2 days.
• COH - Jan 30/32.5 Call @$0.22. Profit 39.0% over 5 days.
• CTX - Jan 20/22.5 Call @$0.45. Profit 13.9% over 2 days.
• MER - Jan 50/55 Call @$1.50. Profit 7.7% over 4 days.
• QCOM - Jan 37.5/40 Call @$0.88. Profit 8.0% over 5 days.

I have been monitoring AAPL since last week, looking for the opportune time to enter in preparation for the MacWorld (starting 15 Jan) and its earnings on 22 Jan. Steve Jobs have got the knack of introducing an interesting product during MacWorld and I am bullish about AAPL sales last quarter. Actually, the best time to buy a Call was yesterday (assuming the the market is going to be bullish over the next few days). Anyway, I am considering either a Bull Put Spread, Bull Call Spread or a straight Call. I would need to check the option prices tonite.

At the moment, I am still bearish over the Financials, Retails and Housing. I will wait for a better time to short the stocks in the 3 sectors again.

Take note that semiconductors are also showing signs of weakness.

- PersianCat04 (Millionaire-in-progress)

No Christmas Rally, No January Effect

Late last year, there is no Christmas Rally. In the beginning of 2008, there is no January Effect. So far this year, the market had been going down. Typically, it indicates that it is highly likely that the market would end lower at the end of the year.

Currently, the Dow index is closing in towards the Aug 2007 lows (a strong support level). S&P 500 index and Nasdaq composite index is also closing in towards Aug 2007 lows. Typically, the market would like to test and break this strong support level. The stochastics, MACD and RSI indicators showed that the market is oversold. I would be careful and be alert just in case the market reverse once the market touch or near its Aug low. I do expect some kind of retracement before the market continue in its downtrend. However, should the market breaks the Aug 2007 lows with a spike in volume, the market could continue in its downtrend without much retracement.

- PersianCat04 (Millionaire-in-progress)

Position Updates

Before the Market tanked yesterday, I closed my CTX Put position and replace it with a Bear Call Spread. The idea is to reduce my risk should the stock decided to idle around and not moving down. I also sold a Bear Call Spread on BSC on news that the CEO is given the sack.

• CTX - Sell to close Feb 20 Put @$1.85. Profit 5.7% (over 3 market days)
• CTX - Bear Call Spread Jan 20/22.5 Call @$0.70 (when the stock is around $20.10)
• BSC - Bear Call Spread Jan 75/80 Call @1.80 (when the stock is around $75.07)

On hold

• COH - Bear Call Spread Jan 30/32.5 Call
• MER - Bear Call Spread Jan 50/55 Call
• QCOM - Bear Call Spread Jan 37.5/40 Call

- PersianCat04 (Millionaire-in-progress)

Position Updates

The market was very kind to me during the first 3 market days in 2008. All my short positions are positive. I have taken the liberty to lock-in my profits and expose less capital in the market by either buying new Put options at a lower strike price or playing credit spreads. Note that expiry Friday is just 2 weeks to go. The waterfall effect, where the Options time value decrease tremendously started to kick-in already. Below are my recent plays:

Thursday's (3 Jan) Play
Sell to close COH Feb 30 Put @$2.00.
Profit 5.3% (over 5 market days)
I closed this position as the stock had not move as much but it lost a fair bit of its time value.

Sell to open Bear Call Spread COH Jan 30/32.5 Call @$0.86 (when the stock is abt $30.46)
This play replaced the COH direct Put play above.

Sell to open Bear Call Spread QCOM Jan 37.5/40 Call @$1.00 (when the stock is abt $38.00)


Friday's (4 Jan) Play

Closed Positions
Sell to close CTX Feb 25 Put @$4.30 (when the stock is around $21.62)
Profit 79.2% (over 5 market days)

Sell to close MER Feb 52.5 Put @$4.90 (when the stock is around $49.63)
Profit 48.5% (over 5 market days)

Sell to close SLM Feb 20 Put @$3.30 (when the stock is around $17.42)
Profit 50.0% (over 5 market days)

New positions
Buy to open CTX Feb 20 Put @$1.75 (when the stock is around $20.87)
- on hindsight, I should have just play the Bear Call Spread. Anyway, let's see how it go when market opens on Monday.

Sell to open Bear Call Spread MER Jan 50/55 Call @$1.75 (when the stock is around $50.02)

- PersianCat04 (Millionaire-in-progress)

Position Updates

The market was very kind to me during the first 3 market days in 2008. All my short positions are positive. I have taken the liberty to lock-in my profits and expose less capital in the market by either buying new Put options at a lower strike price or playing credit spreads. Note that expiry Friday is just 2 weeks to go. The waterfall effect, where the Options time value decrease tremendously started to kick-in already. Below are my recent plays:

Thursday's (3 Jan) Play
Sell to close COH Feb 30 Put @$2.00.
Profit 5.3% (over 5 market days)
I closed this position as the stock had not move as much but it lost a fair bit of its time value.

Sell to open Bear Call Spread COH Jan 30/32.5 Call @$0.86 (when the stock is abt $30.46)
This play replaced the COH direct Put play above.

Sell to open Bear Call Spread QCOM Jan 37.5/40 Call @$1.00 (when the stock is abt $38.00)


Friday's (4 Jan) Play

Closed Positions
Sell to close CTX Feb 25 Put @$4.30 (when the stock is around $21.62)
Profit 79.2% (over 5 market days)

Sell to close MER Feb 52.5 Put @$4.90 (when the stock is around $49.63)
Profit 48.5% (over 5 market days)

Sell to close SLM Feb 20 Put @$3.30 (when the stock is around $17.42)
Profit 50.0% (over 5 market days)

New positions
Buy to open CTX Feb 20 Put @$1.75 (when the stock is around $20.87)
- on hindsight, I should have just play the Bear Call Spread. Anyway, let's see how it go when market opens on Monday.

Sell to open Bear Call Spread MER Jan 50/55 Call @$1.75 (when the stock is around $50.02)

- PersianCat04 (Millionaire-in-progress)

Intraday Play - Why more $$$ now?

Someone asked me how come I have more success in Intraday plays recently. My answer is simple. I change my mindset and perspective.

Previously, I would think that making 31.1% or $19 per contract is a waste of time (refer to Intraday Play - QCOM). When I have made $19 I would be begging for more (Greedy Me!). Many a times, the market would give me the opportunity to take my profit. But since I was greedy, the market would just reverse and punish me with a loss.

Now, I would just accept smaller profits percentages as long as the profit target is within reach. To compensate for smaller profit percentage , I would just increase the number of contract size. For example, in the QCOM play below, 10 contracts would give me $190 (capital $610). 20 contracts would give me $380 (capital $1220). And so on. So how many contracts I played? Hmmm....... ;)

- PersianCat04 (Millionaire-in-progress)

Intraday Play - QCOM

At pre-market, it was reported that QCOM lost a lawsuit against BRCM. The stock lost more than $1.50 at pre-market. When the market opened, the stock gapped down but it later tried to fill the gap. I expected the stock to weaken. The attempt by the stock to fill the gap just provide a better opportunity to enter.

Referring to the chart above, at A, I bought Jan 37.5 Put option @$0.60 after the stock showed reversal. The stock did go in my direction but it then reversed and filled the gap. I should have closed my position at loss at point B. However, I was distracted by someone who wants to talk to me. I should have loss a fair bit. As if the market want to reward me for my patience, the stock reversed back in my direction. I doubled my position at point C, as I am very certain that the market will continue moving in my direction. The average cost of my Puts was $0.61.

I sold my Puts @$0.80 at Point D for a $19 per contract or 31.1% profits. Well, the Put option increased its value by another $0.10 after I sold my Put. But I am still thankful for what I get.

- PersianCat04 (Millionaire-in-progress)

(P.S. I did not play one contract only for all my intraday play ;) )

New Open Positions

I opened 3 new positions yesterday:

• Buy to open MER Feb 52.5 Put @$3.30 (when the stock is around $53.88)
• Buy to open SLM Feb 20 Put @$2.20 (when the stock is around $20.44)
• Buy to open CTX Feb 25 Put @$2.40 (when the stock is around $26.69)

- PersianCat04 (Millionaire-in-progress)

New Position - COH

After the Christmas season, retail growth had not been good as compared to last year. I expect more bad news to be released.

Yesterday, I buy to open COH Feb 30 Put @1.90 (when the stock is around $30.77). I expect the stock to break new the low (at $29.22)

COH is a mid-tier luxury retailer. As the market is heading towards recession the mid-tier luxury retailers would be greatly affected, more than the mass market retailers.

Others stocks (all for shorting) in my radar:
TGT - though it is supposed to be a mass market retailer, somehow, they are are not doing as well as WMT.

RYL, CTX - Housing stocks

COF, FNM, MER, MS - Financial

- PersianCat04 (Millionaire-in-progress)

Guidelines for Intraday Play

A friend of mine asked me for some guidelines as to how I pick intraday plays. So instead of replying to him alone, I thought it would benefit more people if I document it in my blog.

Here are the guidelines:

Pre-Play Preparation

• Typically, I keep abreast of the developments in the various industries/sectors to know what moves the market and individual stocks and by how much.
• So when a news is released, I would need to quickly assess where the stock/market should be moving and estimate by how much. Some stocks need a little piece of news to move a lot while others need a big news to move. e.g. Tech stocks such as RIMM, AAPL, moves a lot.
• For shorting, look out for weak stocks that gapped up and the price is not justified. (However, you would need to be aware of the short rally (over a few days) even for a stock that had been dropping).
• For long play, look out for strong stocks that gapped down.

The Options Play

• Typically, if I play the options, I would like to see a movement of at least $1.50 from my entry point so that I could make at least $0.75 (assuming every 10cts will give me 5 cts in options). i.e. I could make $75 per 1 contract of options.
• I normally play more than one contract per play. (However, for those who are new to this game, please play 1 contract at a time until who have gained enough experience and confidence. If you play big, you could lose big.)
• Choice of options - front month options with the strike price close to the market price, typically out-of-money options.
• Entry and exit depend on the chart formation based on a 5-min chart over a 5-day period and the price movement.
• Identify the support and resistance over a five-day period (if needs be, over one or 3 mths)
• Wait for the right setup before entry.
• Mental Stop Loss must be identified (based on the 5-minute chart) and strictly followed.
• Be aware of time-decay especially if the options is less than 5 days before expiry.

Mental Preparedness

• You need to have a clear mind when you play this game. This is extremely important as you need to cut your losses immediately after your stop loss is triggered. No distraction should be allowed from your trading/home environment.
• While you may have multiple targets, be prepared to close your position immediately and lock-in your profits once any one of your targets is met and the stock starts to reverse. (I assume you have less than $25k in your fund).
• One should not be greedy when playing this game.
• As this is an Intraday play, you must close within the day. The trick is to catch the short trend till it is about to reverse or wait for it to reverse until it is about to reverse again.

- PersianCat04 (Millionaire-in-progress)

Christmas Rally

Christmas Rally
The market had been rallying for the past few days. It would be interesting to see how far the market indices could go by the end of the year. The market volume would be low this week till the end of the year.

Typically, a Christmas Rally is expected every year and it did not dissappoint investors most of the time.

Under normal conditions, I would long some of the strong stocks (or at least the stock index) during the Christmas holidays. However, for this year, I would be cautious with my trade during this period.

January Effect
This is another bullish trade. Typically, weaker stocks would go up during the first 5 days of January. Investment funds would sell their weaker stocks and buy better performing stocks by the end of the year. This was done to show that their funds invested in strong stocks (called window dressing). It was also done to offset their loss making stocks against taxes. During the first 5 days of January, these same funds would start to buy the weaker stocks (those they think would outperform the market) again. Because of the sheer volume involved, the weaker stocks would appreciate in price.

Personally, I am not sure whether this would happen. For the overall market, I am still bearish.

Basically, I am still looking for bearish play most of the time.

- PersianCat04 (Millionaire-in-progress)

Intraday Trade - MER

MER gapped up today based on news that GE buying over their lending unit and Temasek buying an equity stake. The stock is still a weak stock. However, with the coming holidays, the market tends to end positive. The stock went up more than $2.00. Then CNBC announced that Temasek is buying MER at $48 - a huge discount the current market price (about $57) then.

• Buy to open Jan 55 Put @$2.30 (when the stock is around $56.75)
• Sell to close @$3.60 (when the stock is around $53.81).
• Made 56.5% in less than 2 hours.

The Strategy:
Look out for weak stock that had gapped up but cannot justify its high price.

It is a good Christmas bonus.

- PersianCat04 (Millionaire-in-progress)

Position Update

Last Friday, closed the following before lunch time:

• MER Bear Call Spread @$0.50 (Slightly in-the-money). Made 69.8% over 5 days.
• LEH Bear Call Spread @$3.95 (Deep in-the-money). Loss 62.5% over 8 days.

Last Thursday, closed:

• RYL Bear Call Spread @$1.33 (In-the-money). Made 7.9% (due to time decay) over 8 days.

No open position left.

- PersianCat04 (Millionaire-in-progress)

Intraday Play - BSC

BSC had an earnings results today before market open. The results was bad and yet the stock gapped up. I expected the stock to drop. Bought Dec 90 Put for $0.85. The stock did dropped. As at 1:00am EST, the options appreciated up to $2.70. Could easily get $2.00. But my greed sets in. Didn't think that it is enough. The stock had a short rally thereafter. Luckily, the stock did managed to drop again and I managed to close at $1.55 or a 82.4% profit (over 2 hrs ++).

I still need to do some rewiring of my mental state.

- PersianCat04 (Millionaire-in-progress)

Position Updates

Tommorrow, GS will be releasing its earnings results. It is likely that the outcome will move financial stocks either way. As such, I closed my position in JPM to lock-in my profits. Anyway, I will still have LEH and MER to play.

Close MER straight Put play at a small loss but replaced it with a Bear Call Spread. Also closed CTX as the stock was not moving in my direction and Housing stocks seemed to want to have a short rally. As this week is an Expiration Week, I would minimise leaving any Straight Call or Put options overnight (due to the waterfall effect of the options premiums)

Closed Positions
CTX - Sell to close Jan 25 Put @$2.50. Profit $0.05 (2.0%) over 5 days
JPM - Sell to close Jan 45 Put @$2.40. Profit $0.80 (50%) over 5 days
MER - Sell to close Jan 55 Put @3.10. Loss $0.20 (-6.1%) over 3 days

New Positions
MER - Bear Call Spread Dec 55/60 Call @$2.35 (when the stock is around $56.58)

Previous Positions Still in Play
RYL and LEH (Both Bear Call Spreads)

- PersianCat04 (Millionaire-in-progress)

Is Santa Claus Rally coming?

The overall market is still currently bearish. It is now abt a week before Christmas. The Santa Claus rally that is expected every year has not materialised yet. Whether it does or not would partly depends on the outcome of the earnings results of the following financial plays:

• GS (Tues, BTO)
• MS (Wed, BTO)
• BSC (Thur, BTO)

The market would probably look out for further negative surprises from the above stocks which would send the stocks and perhaps the overall market lower. It would also be looking for excuses (any positive news) to provide a rally till the end of the year.

- PersianCat04 (Millionaire-in-progress)

Intraday Play - AAPL

AAPL is a good stock. It has gone up significantly to reach its all time high last Friday. But somehow, it pulled back to form a shooting star on Friday. The shooting star showed that the stock had reached a state of indecision. The RSI and stochastic indicators are on the high side and are already pointing south.
The probability is higher for AAPL to head south before breaking its all-time high again.

Today, AAPL was given an upgrade so AAPL gapped up above Friday’s close. The overall market was weak. It seemed a good setup was being made for shorting. I waited for the stock to go below session low after 10:00am EST before I shorted AAPL.

• Buy to open, Dec 190 Put @$3.65 (when the stock is around $190.17)
• Sell to close @$5.45 (when the stock is around $187.20 - Though it was not at the best prices but it was good enough).
• Profit = $180 per contract or a 49.3% gain for less than 2 hrs play

AAPL could still go down further over the next few days but I just want to lock-in my profit and have a better sleep.

- PersianCat04 (Millionaire-in-progress)

Open Positions - An Update

Sell to close MER Jan 60 Put @$6.40 (when the stock is around $55.90)

• Profit = 100% (Over 3 market days)
• Close this position earlier to lock-in my profits

Buy to close the TGT Bear Call Spread Dec 55/60 @0.30 (when the stock is around $51 ++)

• TGT have a strong support (52-week low at $50.25). Close this position because I am not willing to wait for another 6 days to collect the $0.30 per options. Could better utilise the funds for another play.
• Profit = 36.2% (over 5 market days)

Buy to open MER Jan 55 Put @$3.30 when the stock is around $56.80.

- PersianCat04 (Millionaire-in-progress)

Reflection - Who are you trading against?

In the initial period when I am still green in trading, I thought that when I play a trade, I am trading against other fellow traders. If I make money, they lose money. After going through some tough trades and reading more, I realise that I am trading against the Market Makers more than I am trading against fellow traders. And I thought I got that part right of my trading knowledge right !!!

Well, I am only partly right. As I gained more experience, when I played the right strategy at the right time, I realised that I no longer trade against the Market Makers. Actually, I am trading against myself - trading against my own trading rules, trading against my self-discipline, trading against my trading plan and trading with my greed and fear.

As the market is with me and my unrealised profits increased, I may be itchy enough to move my targets (not entirely wrong if I move the stop loss too) without placing the stop loss. The Greed sets in. I want to earn more. There were occassions when my profits started to slide and the charts showed a reversal, I keep hoping that the market will reverse again so that my profits will increase again. Very soon, my unrealised profits turned to losses. I keep hoping. As my losses increases, my Fear sets in. I fear that I lose more. I closed my position. The market then reversed. My confidence dwindled. I start to blame myself for a lot of things.

Thank God, I managed to overcome that challenge most of the time now and my trades improved. There are more challenges to overcome. It will take time. I need to be patient and persevere.

Till my next reflection ....

- PersianCat04 (Millionaire-in-progress)

Fed + Other Central Banks

The Feds and some Central Banks create a scare (at least to me!) at 9am EST yesterday when they announced some packages to help provide liquidity in the global financial system. The market immediately rally wiping off most of my gains from my current outstanding positions.

Fortunately, the market corrected itself and resumed its downslide. The package was deemed to be too small to made a dent in the financial market.

I also added another position shorting LEH in view of their pending earnings results on Thurs morning. I was expecting the earnings results to be bad or just meeting expectations. In the current weak market, LEH would then slide further.

• Bear Call Spread, LEH Dec 60/65 Call @$2.20 (when the stock is $60.68)

On hindsight, I should have position myself just before market close (for earnings play) instead of shorting too early in the day. LEH had a short rally before the market close yesterday.

- PersianCat04 (Millionaire-in-progress)

Post-FOMC

The FOMC announced a 0.25% rate cut. As expected, the market tanked.

Made 4 new trades (though not at the best prices) after the announcement:

• MER - Bought Jan 60 Put @$3.20 (when the stock is around $60.80); Target $50.50
• JPM - Bought Jan 45 Put @$1.60 (when the stock is around $46.36); Target $40.68
• CTX - Bought Jan 25 Put @$2.45 (when the stock is around $24.73); Target $17.77
• RYL - Bear Call Spread Dec 25/30 Call @1.60 (when the stock is around $26.26); Target $19.51

The charts for all the 4 stocks showed that the stocks are about to reverse. The FOMC announcement just expedite the reversal. The target are all 52-weeks low.

Actually, there are many weak stocks to short. Cannot play too many as I may not be able to cope.

Not reported before:

• TGT - Bear Call Spread Dec 55/60 Call @$1.55 (when the stock is around $54.98) - Played on 7 Dec and still in play.

- PersianCat04 (Millionaire-in-progress)

Pre-FOMC meeting

The FOMC will announce the next round of interest rate at 2:15pm EST. The market is expecting a 0.5% rate cut. If the FOMC announced a 0.25% rate cut or below, the market is likely to go another round of downward slide. If the FOMC announced a 0.5% rate cut, the market will scrutinise the languauge used and decide how to move. If the FOMC announced a 0.75% rate cut - all hell will break loose (so to speak). The market might rally but be cautious as the market might realised later that the economy might be worse than it seems (then the market dips).

I'm looking for the right opportunity (perhaps today) to short the following stocks:

• JPM
• MER
• RYL
• CTX

LEH will announce its earnings results on Thursday, 13 Dec (Before market open).

- PersianCat04 (Millionaire-in-progress)

MBI Play

Yesterday, MBI was halted within 5 mins after the market opened - pending news. When it resumes trading, the stock spike upwards. Since it is a weak stock and the news should not translate to such a huge jump (almost $8 spike), waited for the stock to reverse. I drew the Fibonacci levels. I enter on the 5th candle (5-min charts). Bought Dec $35 Put @$2.40 (when the stock was $35.95).

I waited till just before 2:30 pm (EST). At that point, the RSI and stochastics were very low. The stock consolidate somewhat. Typically, just after 2:30 pm, stocks might just start to reverse. Made a decision to lock-in my profit and sold my Puts for $3.20 (33.3% profit over a few hours) . As it turn out, the stock went down slightly further before it made a short rally till the end of day.

For those who might think that making $80 for one option contract is peanuts and is not worth the while, think again. For beginners, I always encourage playing small and earning peanuts. When you have consistently made profits (could be peanuts) with your trades, you can slowly increase the number of contracts.

For example, 10 contracts of MBI Put options (as above) would cost you $2,400 of capital but it gives you $800 profits for a few hours work. So those who are new, my advice:

Think Big, Start Small and slowly but surely Play Big.

If you start playing big when you are not good in your trades yet, you will also lose big.

So, how many contracts did I play yesterday? That's for me to know, and for you to find out (if you even bother ;)

- PersianCat04 (Millionaire-in-progress)

5-yr freeze on subprime-mortgage rates

Yesterday, after the Bush Administration intervened in the market by preventing the Adjustable Rate Mortgage from being reset for 5 years, the market reacted positively. The main mid-term beneficiaries are the housing lenders as they would delay the foreclosures of mortgages and provide more time for the house buyers to repay their loan/installment. I would refrain from playing banks, mortgages lenders and housing stocks until the market have fully absorbed the news (or least until next Tuesday when the Feds decide their next move).

However, yesterday's move by the Bush Administration does not change the weak housing landscape. Among the negative news:

• Moody reported that the U.S. housing market will fall into deep recession next year, with home prices dropping up to 35%.
• Just as starters, Luxury homebuilder Toll Brothers posted its first quarterly loss in 20 years. I am expecting more such news from the other builders.
• LEN sold part of its landbank at 60% discount though they retain the right to buy back at latter date.

Retail Stocks
Retail stocks are also expected to be weak due to expected weak consumer demand. We need to monitor this closely as the Christmas spending is not over yet. There is no plan bailout for retail stocks at the moment.

Among the stocks I am following are TGT, COH and JWN. TGT reported yesterday that it lowered its expectation for the next quarter. I would refrain from shorting WMT as it is a company targeting the mass market. In economic downturn, the middle income earners might have to downgrade themselves and shop at WMT while the mass market will cut down on their spending at WMT. COH focus on the middle income market and sells discretionary items (items that would be in the low priority to buy in an economic downturn).

- PersianCat04 (Millionaire-in-progress)

Black Friday

Today is Black Friday. It is the day after Thanksgiving and the day Americans starts their Christmas shopping. Typically, it is the start of the period where retail stores make money to cover the losses throughout the year. If the retail stores do not rake in much sales with good margin, then it is likely that the stores would lose money for the whole year. The sales figures on Black Friday could move the market especially during this period where there is a huge uncertainty whether consumers will minimise buying discretionary items and start a recession.

The sales figures should be coming in by Monday. However, analysts will start looking at the physical queues at retail stores on Black Friday to anticipate the actual sales figures.

As the market close early today, the market volume should be thin.

- PersianCat04 (Millionaire-in-progress)

FRE & FNM update

FRE & FNM gapped down at opening on Wednesday. Subsequently, it rally up and did not break the session low. Since I played Dec Options (front month) I decided to take whatever profits that are left by the end of the day. I would lose more on time-value of the options if I keep it overnight as Thursday was a Thanksgiving holiday.

Closed my FRE Dec 25 Put at $3.00 (Profit = 87.5% over 2 market days)
Closed my FNM Dec 30 Put at $3.80 (Profit = 2.7% over 2 market days)

I had left both my credit spreads overnight. Both are still positive since the time-value of the options had dropped.

- PersianCat04 (Millionaire-in-progress)

FRE & FNM

Yesterday, I heard from CNBC that FRE had a very bad earnings results . I had been monitoring the housing market. Checked both FRE and FNM. It was down for more than 20% at pre-market. Watched the stocks when the market opens. Both gapped up. Since I expect the stocks to go down further, I waited for the stocks to complete its retracement, typically 50% or 61.8% of Fibonacci level (measured from yesterday's opening price and the previous day closing price.)

.................FRE...................................................... FNM

Made the following entries:

• FRE Dec 25 Put @$1.60 (when FRE was $28.89)
• FRE Bear Call Spread Dec 25/30 Call @$2.80 (when FRE was $28.59)
• FNM Bear Call Spread Dec 30/35 Call @$2.50 (when FNM was $32.00)
• FNM Dec 30 Put @$3.70 (when FNM was $29.82)

Both the Bear Call Spreads are sold in-the-money. Both straight Puts play are bought out-of-money.

Closed part of my FRE Dec 25 Put at $2.65 after lunch time (not at the best price for the day though). I thought the market would continue its slide after 2:00pm (EST). It happened that the market reversed and enjoyed a short rally. Anyway, it was good money earning 65.6% from that play.

I have kept the rest of my play for today. So far, the market is still in my favour.

Note: When a stock tanked like FRE and FNM yesterday, the time value for the options increased substantially. It would be good to sell the options (in my play, I played the credit spreads). The time value would drop substantially by the end of the day.

- PersianCat04 (Millionaire-in-progress)

Level 3 Assets at MS, GS, LEH, BSC, C, MER

With the current credit crisis in the U.S., it is important to monitor the following development.

Extracted from Online Trading Academy email newsletter (free subscription).
"The Financial Accounting Standards Board (FASB) is the referee for accounting practices. They recently issued a new rule which will be implemented November 15. Essentially, Statement 157 requires a financial firm to divide its assets into three categories called simply enough, Level 1, Level 2 and Level 3.

Under FASB terminology, Level 1 means assets that can be marked-to-market, where an asset's worth is based on a real price, like a stock quote. Level 2 is mark-to-model, an estimate based on observable inputs which is used when no quoted prices are available. You can go get several bids and average them, or base your assumption on what similar assets sold for.

Level 3 values are based on "unobservable" inputs reflecting companies' "own assumptions" about the way assets would be priced. That would be market talk for best guess, or in some cases SWAG (as in Simple Wild-***ed Guess.)

.... It seems that some companies have far more Level 3 assets than they have capital. Take a look at these six banks which have already posted their Level 3 assets ahead of the deadline:

• Morgan StanleyEquity base: $35 billionLevel three assets: $88 billionLevel 3 to equity ratio: 251%
• Goldman SachsEquity base: $39 billionLevel 3 assets: $72 billionLevel 3 to equity ratio: 185%
• LehmanBrothersEquity base: $22 billionLevel three assets: $35 billionLevel 3 to equity ratio: 159%
• Bear StearnsEquity base: $13 billionLevel three assets: $20 billionLevel 3 to equity ratio: 154%
• CitigroupEquity base: $128 billionLevel three assets: $134.8 billion Level 3 to equity ratio: 105%
• Merrill LynchEquity base: $42 billionLevel 3 assets: $35 billionLevel 3 to equity ratio: 38%"

I will certainly monitor the above stocks especially MS, GS, LEH and BSC and consider shorting them when the time is ripe. At the moment, these stocks are recovering from their recent losses. It seems that there are more room for these stocks to go down.

- PersianCat04 (Millionaire-in-progress)

Market Update

The general market bounced back yesterday after 4 down days. Basically, the market bounced from its Support levels:

• Dow Jones (50% of Fibonacci level)
• S&P 500, SPY (61.8% of Fibonacci level)
• Nasdaq Composite (SMA200)
• AAPL (50% of Fibonacci level)
• RIMM (38.2% of Fibonacci level)

Could it be a bull-trap? It remains to be seen. (Btw, I have no open positions at the moment)

I am now looking at the right set-up to short the financials (banks, mortgage lenders, etc) and housing stocks again. They are now experiencing a rally (it should be a short one though). Frankly, I prefer the market to experience some rally to recover some of their lost ground before testing the August Lows.

- PersianCat04 (Millionaire-in-progress)

Tech Play - Positions Closed

Hi !

Just an update. I have closed all my positions in AAPL, RIMM and SPY when they are consolidating during lunch time yesterday. At that moment, AAPL and had been resting on its 38.2% Fibonacci level (taken from Aug low to year high), SPY resting on its 61.8% Fibonacci level and RIMM is resting on its 50 SMA. It seems then that the market is poised for a short rally. Since I have made my money, I thought, let's not take chances and take my profits that I deserve. The market went down further towards the later part of the day. Well, I am not perfect - but for these trades I am still very happy.

Sold Bear Call Spread AAPL Nov 185/190 @1.80
Bgt back @0.10
Profits = 53.1%

Sold Bear Call Spread RIMM Nov 125/130 @2.28
Bgt back @0.20
Profits = 74.5%

Sold Bear Call Spread SPY Nov 148/153 @1.81
Bgt back @0.83
Profits = 30.7%

The above play were over 3 market days.

Also played intraday trade for GOOG (straight Put). The first trade was disastrous. The second trade was much better and managed to recover the previous loss plus some profits. Then again, I closed too early and the market tanked further. I should not complain and still be thankful for what I have got.

- PersianCat04 (Millionaire-in-progress)

Tech Play - AAPL, RIMM & SPY

In today's bearish market, I would not be a hero and play Long no matter how good the stock is - unless the stock benefit from an economic downturn. For shorts, which sector should we focus on then?

I would focus on sectors that had a good run recently and might be affected by the current bearish sentiments. One sector I'm focusing on now is Technology stocks. e.g. AAPL, RIMM, GOOG and many others had a very good run. While they are good stocks with strong fundamentals, they are not impervious to bad consumer sentiments. Since CSCO guidance yesterday, the tech stocks had been beaten badly yesterday. At market opening today, the bloodshed continues.

Since the market is volatile and the option premiums are somewhat expensive, I thought I should just play credit spreads and be less affected by the volitility (but less profit/risk). I opened 3 new positions yesterday, playing Bear Call credit spreads for Nov month (7 market days left) for the following stocks:

AAPL = Sell 185 Call , Buy 190 Call, for $1.80 when AAPL is around $182.72
RIMM = Sell 125 Call , Buy 130 Call, for $2.28 when RIMM is around $126.61
SPY = Sell 148 Call , Buy 153 Call, for $1.81 when SPY is around $147.60

For RIMM, I sold the 125 Call in-the-money. It is against what we have been taught (normally sell out-of-the-money). It is a higher risk play. But I reckon that since RIMM can move big, if I am wrong I would lose money anyway. I might as well collect more credits from my spreads and lower my risk that way.

So far, these new positions are positive. I may not wait for expiration Friday (Nov 16) to collect my profits.

Other sectors still bearish are Housing & Financials.
Note that SPY is not a Tech stock.

- PersianCat04 (Millionaire-in-progress)

Quick Comments on the US Market

My quick assessment of the US Stock Market:

I am generally very bearish over the US stock market based on the following reasons:

• Subprime woes. It is already affecting housing stocks, mortgage lenders and banks in US. I believe the bottom is not near yet. More bad news can be expected. Once consumers spending is affected, it will greatly affect credit card companies, retail and tech stocks. The general market will go down in tandem somewhat. The earliest sign that tech stocks could be affected comes from today's CSCO guidance. Tech stocks that had pushed the market lately, tumbled today (as at 2:00pm ET)
• Weak US Dollar. The ridiculous trade and budget deficit in the US coupled with lower Fed Interest Rate will push the US dollar lower. This somewhat pushed Gold & Oil to go higher. More countries such as China are also reducing their US$$$ holdings. As long as the FX market sees no bottom for the weak US dollar, the US stock market will be under pressure to go lower as inflows of funds to the US stock market might be lower.
• China's Stock Market Bubble. Greenspan had been saying that China's stock market is generating a huge bubble. Now that he is out of government, I tend to trust his words more than before. China had enjoyed a bouyant economy. However, with the recall of many products from China, it had created a BIG FEAR among consumers in the West. Demand for its product might be affected. I suspect that a significant number of Chinese factories should face overproduction now. It is a matter of time before the media get to know about it. If the US market go down coupled with the weak US dollar, US consumer spending would be affected. The demand for Chinese goods would go down too. Thus creating more overproduction in Chinese factories (unless they can create demand from elsewhere fast enough). Soon the Chinese stock market will be affected to.

In a down market, all stocks, good or bad will go down too. Stock markets all over the world might go down the drain too. My concern is that this whole episode might create a global recession. The question is, "What will trigger (it is just a market excuse) the global market meltdown?" Is it something from the US, China or elsewhere?

The above arguments may sound very simplistic, but I suppose you get my point.

- Persiancat04 (Millionaire-in-progress)

I'm Back

Hi All,

I'm back updating my blog. It's been more than a year since I last wrote. I have been actively trading though. It is just that I couldn't find the time to write. Sometime last year, my mum-in-law was diagnosed with cancer. So have been busy shuttling her for treatment and check-ups and handling new chores/routines.

Anyway, she is now diagnosed to be free of her cancer cells. I have more time now and you could expect more of me in this blog.

The market is now entering an interesting phase. So watch out for my 2 cts worth.

- Persiancat04 (Millionaire-in-progress)

GM Play

I have been playing GM for a number of times for the past few months - going in and out of positions. Technically, GM had broke new 52-week high and had been on an uptrend since April 2006. Its uptrend had been quite predictable within a channel (a rally followed by a a good pullback within a range). Lately, I have also been following the news about its possible alliance with Nissan/Renault and the sentiments that its Chairman Rick Wagoner has against the alliance.

03-Oct-06 08:34 ET Briefing.com
General Motors board faces key decision on alliance - Detnews.com (33.50 ) -Update : Detnews.com reports all eyes are on the General Motors board today as directors evaluate the widely different analyses of a blockbuster alliance of GM, Renault and Nissan Motor (NSANY). ........ GM declined comment Monday on the agenda for today's meeting of the 12-member GM board headed by Chairman Rick Wagoner. But people close to the co said Wagoner is certain to report on last week's summit meeting with Renault-Nissan chief Carlos Ghosn in Paris -- and possibly present GM's recommendation against the deal. People familiar with the matter say Ghosn is interested in Renault and Nissan each buying a 10% stake in GM, with GM purchasing a similar stake in the French and Japanese cos. However, GM insiders say that the automaker can't afford to spend its precious capital on stock in Renault and Nissan.

Received further news about GM on the same day.

03-Oct-06 08:44 ET Briefing.com
Newspaper Notable Mentions : FT: Nissan Motor (NSANY) wants to conclude talks on a possible tie-up with General Motors (GM) and Renault by mid-October, despite recent suggestions that the three auto giants should extend a 90-day study of their proposed alliance beyond that...

Since then, I have been on the look out for more news. Futhermore, CNBC reported that the Board is convening a meeting to discuss the proposed alliance. To me, that is strange since they have until mid Oct to decide.

On 4th Oct, Bear Stearns upgraded GM to Peer Perform from Underperform. Then the big news came:

04-Oct-06 11:46 ET
Follow-up: WSJ says GM, Nissan-Renault alliance talks terminated, according to source (32.47 -0.94) -Update : Dow Jones reports the chief execs of General Motors and Nissan-Renault terminated talks about a possible globe-spanning alliance, according to a person familiar with the situation. In a phone call Wednesday morning, GM CEO Rick Wagoner and Carlos Ghosn, chief executive of Nissan Motor (NSANY) and Renault, decided that the two sides were too far apart on the value of the potential tie-up and decided to stop the high-stakes talks which had been underway for two months. The move comes ahead of the mid-October deadline the two sides had set for a decision. Behind the failed talks was GM's demand that Nissan-Renault pay GM a "control premium" if it bought 20% of GM's stock as part of the alliance, according to another person familiar with the matter. Wagoner told his board Tuesday that investment bankers advised GM to secure a 20% control premium because such an alliance -- while not technically control -- would prevent the Detroit automaker from making any other joint ventures.

I interpreted this as bad news for the stock. As such, I expect the price to drop. The stock was dropping when I bought its Nov 32.5 Put. (And I bought F Nov 8.0 Call as I expect the stock to gain from this news. It was mentioned before that it is willing to talk with Nissan-Renault should the talk with GM failed.) It however gained in price over the next two days. Intuitively, I know the stock will drop dramatically. I just do not know when.

{Prior to the Put Position, I played in-the-money Oct Bear Call Spread (30.0/35.00) playing on the pull-back and planning to close my position when the stock reverse again upwards. My mistake was that I did not stick to the plan. From a positive position, my Bear Call Spread turned negative. As it was more negative, I hang-on to it because the Oct options had about 3 weeks more before it expires. Anything is possible in 3 weeks. On hindsight, I should have stick to the plan and close my position when it was positive then. - eventhough Friday's move saved my position}

Then on Friday, 6 oct 06, I saw my GM chart started to move significantly in the direction that I expected (down). The bigger news came as I read from Briefing.com:

06-Oct-06 12:09 ET
Follow up: General Motors dislcoses Tracinda has decided not to pursue the acquisition of additional shares of GM common stock (31.84 -1.29) -Update : From Tracinda's SC 13D/A: "On October 4, 2006, General Motors abruptly announced the termination of discussions regarding its proposed alliance with Renault and Nissan prior to the expiration of the time period originally established for the initial evaluation of the alliance and without the General Motors Board of Directors obtaining an independent evaluation of the alliance. On October 6, 2006, Tracinda received a letter from Jerome B. York stating that Mr. York had resigned his position as a director of General Motors. The Filing Persons have decided not to pursue the acquisition of additional shares of General Motors common stock. The Filing Persons will continue to review their investment in General Motors and may determine, based on market and general economic conditions, the business affairs and financial condition of General Motors, the market price of its shares and other factors deemed relevant by the Filing Persons, to acquire or dispose of additional shares."

A lot more news about GM were released that day. While it is uncertain what Kirk Kerkorian (one of GM's major investor) might do next, the market is not willing to hang on to GM at that price. Two analysts interviewed by CNBC also agreed (normally one is bullish while another is bearish) that GM stock will go down further with one of them saying that the price could be around $26 - $28. I added more to my Put position. The stock ended $2.08 lower at $31.05.

We shall see what happens next on Monday. I would probably lock-in some of my profits.

- PersianCat04 (Millionaire-in-progress)

Home Builders Stocks

Today, the existing home sales data was released. For the first time in years, the median price for the existing home sales decreased (about 1.7%). CNBC also mentioned that the inventory is at the highest since 1993.

The drop in the median sales price is what I have been waiting for. Continuing drop in median sales price would put pressure on the home builders stocks to break its recent support.

- PersianCat04 (Millionaire-in-progress)

Market Update

The DOW is now about 170 points away from its May high and 250 points away from its all-time high. On a very good day, to achieve 250 points is not a problem for DOW. The S&P 500 index had already broke its May high.

However, the market had shown a lot of lethargy, trying to break new high. It is in overbought situation. It had 2 down days for the past 2 trading days. While the market will probably make another attempt to break an all time high for the DOW, it is time to consider that the market might be in for a pull-back. There are many stocks as candidates to short, especially the Tech stocks (many with confirmation candles). The stop-loss should be the recent high.

A few things to consider however:

• Jim Cramer had been calling to dump energy stocks and push for Tech stocks (at least till the end of the month) as he believe that the institutional investors will window dress this quarter with Tech stocks.
• He also mentioned that crude oil will drop to $56 before it go up again.
• Many analysts are still expecting a Christmas rally. Such expectations tend to be a self-fulfilling prophecy.
• September tends to end lower.

While I tend to give what Jim Cramer says with a pinch of salt, what he says tends to move the market in the short-term. As a swing trader, I play on a short-term basis. As such, I have to take notice of what he says eventhough I may disagree with him.

- PersianCat04 (Millionaire-in-progress)

DOW and S&P500

DOW ($INDU) S&P500

Based on the daily charts, the DOW is just about 130 points away from its 52-week high. Whereas the S&P500 is just 10 points away from its 52-week high. One could expect the market to attempt to break the 52-week resistance line. Barring unforeseen circumstances (e.g. war with Iran), I feel that the market would break new high and remain high for most part of the next quarter.

- PersianCat04 (Millionaire-in-progress)

Home Builders

$HGX - the housing index made a strong rally today. Lately, the home builders stocks have been resisting the downtrend eventhough the homebuilders industry had been bashed with continuing bad news (e.g. increasing inventory & increasing lower sales). At current market value, most homebuilder stocks are valued at a very low PE ratio (single digits).

However, what is interesting is that the median price of each houses sold had not dropped. Until and unless the price of houses sold drop, the continuing slide of the home builder stocks could not be justified further. As such, I believe the home builder stocks would get a reprieve it badly needed (as shown in today's rally).

I'm however, feel that the prices of houses sold would start to drop next year if not sooner. Depending on the severity of the drop in prices, it could impact consumer spending (which would impact the market in general)

I've been playing Bear Call Spread on BZH and RYL recently (typically in-the-money). I closed my sold leg yesterday with profits. But what make it more interesting is that my bought legs, which were negative before is now positive. I might close these positions tommorrow.

I would wait for a reversal signal before playing Bear Call credit spreads on the home builders again.

- PersianCat04 (Millionaire-in-progress)

RIG - Huge Oil find in Gulf of Mexico

Heard from CNBC about the huge oil find in the Gulf of Mexico. Also read from American Capitalist:

Black Gold Gushes in the Gulf
Just announced this morning, Chevron Corp. (CVX:NYSE) has successfully completed what it called “a record setting production test” on a well located about 270 miles southwest of New Orleans in the Gulf of Mexico. Chevron said the well sustained a flow rate of 6,000 barrels of crude a day. Unfortunately, the equipment used is not able to maintain more than 6,000 barrels, but we’ll take what we can get.
Chevron owns 50% of the well, with companies like Devon Energy (DVN:NYSE) and Statoil (STO:NYSE) holding the remaining 50% equity interest. All three companies are estimating the new oil field to hold between 3 billion and as much as 15 billion barrels worth of oil and gas reserves. If 15 billion barrels are found, oil reserves would be boosted by 50% in the United States.

The find should benefit Oil Services stocks. One player I like a lot is RIG. It had quietly gained more than $4 on Friday and further gained $2.70 so far today. We have 2 more months before the hurricane season is over. Any freak hurricane in the Gulf of Mexico (where many of U.S. oil rigs are located, apart from Alaska) would again benefit RIG.


Target = 80.10, 84.05 & 90.16 (52-week high)
Stop loss = 65.52

- PersianCat04 (Millionaire-in-progress)

AAPL - Special Media Event

Read from Briefing.com about the impending AAPL Special Media event next week on 12 Sep 06 to introduce new products and services. I would expect the market to react positively to the new slate of AAPL's products and services (It had gained $1.65 so far today).

Chart-wise, AAPL broke its resistance today. Target 73.38, 76.60 and86.40 (52.-week high). Stop-loss at 65.12. Note that AAPL is now above its SMA 200 again.


05-Sep-06 12:13 ET
Apple Computer confirms media event - AppleInsider (69.77 +1.39) -Update : AppleInsider reports in a digital invitation sent out to US-based media this morning, Apple confirmed that it will hold a special media event on September 12 to introduce new products and services. "It's Showtime," reads the invite, which displays a white Apple logo floating amongst four crisscrossing Hollywood movie spotlight rays. The event is scheduled for 10:00 am local time at the Yerba Buena Center for the Arts Theater in San Francisco, Calif. (See 8:30 comment)

05-Sep-06 08:55 ET
Apple Computer: Cell phone is a reality; new product cycles including Macs, iPods, and cell phone drive ests higher; increasing tgt to $91 - AmTech (68.38 ) -Update : AmTech says Skeptics abounded when AAPL first launched their iPod MP3 players and revolutionized an emerging market and created a new business segment and a major rev driver for the co. Firm believes the new AAPL handset will be a major player and competitor set to disrupt another industry. Firm has learned that the kinks have been worked out of the new handset, and it is set for production. Firm is confident that AAPL will time their launch opportunistically, and that the new handsets are positioned to gain significant traction. This new market could easily represent an incremental $2 bln annual rev run-rate rev opportunity in Y07. Firm says 10 mln units does not seem a lofty target to them. This is not even contemplating sales of potential services and accessories which would be incremental. With Steve Jobs' history of revolutionizing the PC industry, the music industry, and the movie industry, firm encourages investors to get aggressive in purchasing shares of AAPL prior to the potential revolution of the handset industry. Firm ests for FY07 are now $22.2bln and $2.60 EPS up from $22 bln and $2.45. Firm adds AAPL to their Focus List, and their new tgt $91.

05-Sep-06 08:30 ET
Apple Computer to roll-out iTunes movies and 'one more thing' - AppleInsider (68.38 ) : AppleInsider reports Steve Jobs plans to summons the worldwide media to a special event this month in which he'll usher in a new chapter in the co's digital media strategy. Although the semi-official word out of Apple Americas is that invitations to the event have "not been sent" out, a seemingly inadvertent leak out of Apple Europe last week pinned the affair for Tuesday, September 12. Jobs will have much to talk about during the event, sources familiar with the chief exec's plans have said, including new iMacs and a much-anticipated update to the iPod nano. But the real push, they say, will be tied to the big screen. After what has seemed like nearly two years of rampart speculation and unbridled enthusiasm on the part of its fans, Apple is ready to introduce its al la carte feature film download service as part of iTunes. For some time now, published reports have insinuated that Apple and Jobs would be unwilling to launch a movie download service without a wide, touch-screen video iPod player to coincide. Jobs many months ago commissioned an elite group of Apple engineers to get the ball rolling on an intuitive hardware solution that would more closely tie the co's digital media strategy to the living-room. And so AppleInsider has been told, Apple has been quietly developing a video streaming device that will interface with an updated version of its iTunes jukebox software.

- PersianCat04 (Millionaire-in-progress)