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)