Traders Corner   43 comments

Yesterday’s drop in the S&P 500 helped relieved some of the near-overbought conditions in the technicals. Futures are up this morning, so we may get a bullish day here. But I would still approach this market cautiously. Sentiment is mixed, and technicals can easily reach overbought levels from here. However, for daytraders looking to pick up a quick buck, this has been a wonderfully volatile market.

The S&P 500 levels to watch today:

UPSIDE: 1849-1850 (January’s high and December’s high), 1852 (February 25th’s high), 1858 (February 24th’s high and the all-time high), and 1871 (top of the Bollinger Bands).
LAST CLOSE: 1845, inside the 1840-1847 (6 data points) range.
DOWNSIDE: 1835-1836 (3 data points), 1830 (February 13th’s high), 1823-1826 (5 data points), 1816 (50 day moving average), 1815 (February 12th’s low), 1809 (February 13th’s low), 1805 (20 day moving average), 1798-1800 (3 data points), 1791 (February 10th’s low), 1787 (100 day moving average), 1784 (February 3rd’s high), 1774-1776 (2 data points and October’s high), 1770 (January’s low), 1767 (December’s low), 1758 (February 4th’s high), 1755 (February 5th’s high), 1752 (February 6th’s low), 1751 (150 day moving average), 1745 (November’s low), 1743 (February 4th’s low), 1739 (February 3rd’s low and the bottom of the Bollinger Bands), 1737 (February 5th’s low), 1729 (September’s high), and 1723 (200 day moving average).

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Posted February 26, 2014 by edmcgon in Daytrading, Investing, Market Analysis, Technical Analysis

43 responses to “Traders Corner

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  1. Sold some PRAN on the pop this morning. Here’s the final line.
    2-19 PRAN @ 9.28. 2-26 @ 11.13 Plus 1.85 19.9% Looks like the breakout mentioned yesterday was for real. Still have more.

  2. Yesterday Ed mentioned he was waiting for a large drop before he bought stocks. I’m sure some of you agree. What if we don’t drop and continue to move higher? Then what do you do? I’ll share a couple of ideas that will make money and are conservative at the same time. I’ll use GTAT as an example. As I type this GTAT is around 14.00. Let’s assume you want to buy for a long term hold but you want it cheaper. Maybe it won’t be cheaper and you are going to end up with nothing. I see a couple of options. If you are nervous about buying at 14.00, you could buy here and sell the June 12.50 covered calls for the bid price of 2.75 reducing your basis to 11.25. If it stays above 12.50 you will be called out for a profit of 1.25 11.1%. Not bad for a few months. If it drops below 12.50 on expiration you own the stock free and clear at a net cost of 11.25. The 2.75 premium you collected is a 19.6% on your 14.00 investment. You can then sell the stock or sell options again. If you want to keep the stock you then decide if you think it may move lower or higher. Then sell either in or out of the money options. Let’s assume you are sitting on cash earning nothing. You also would feel comfortable owning GTAT at 12.50. You could sell the June 12.50 puts for the bid price of 1.20. If GTAT closes above 12.50 you still have your cash plus the 1.20 premium. If it closes below 12.50 you’ll have to buy the stock at that price. You basis will be 11.30. Keep in mind that one contract is 100 shares. If you sold 10 contracts you’ll need to buy 1000 shares at 12.50.
    Take a look at you watch list and run the numbers to see if you can find something you like. You need to find ways to make money no matter what the market does. Hoping the market does what you want it to do is not a very good business plan.

    • Trader – you know my approach. If you have a longer term view, you really do not have to agonize over the possibility of a 5 or 10% drop. I always have cash on hand to take advantage of a correction. And I like to have dividend stocks where the dividends are reinvested, so in event of a pullback, I am actually getting more shares. If you do your homework, and are buying stocks that are selling for less than they are worth – you can survive the market going nuts from time to time.

    • Thanks for this Trader. Been doing some research on call options and I probably will try this out. Will let you know how it goes if I decide to try it out. 🙂

  3. Not quite sure how this happened but I did manage to get SDRL yesterday for 35.50. Strange that the transaction didn’t show up until sometime after trading closed yesterday. Nonetheless, I got my price and its up nicely so far today.

  4. Marshall why is RIOM dropping today?

    • Jeff – not sure. That entire space seems to be selling off a bit today. But RIOM seems worse than most. Might be a buying op!

    • added more at 2.19 this morning.

    • wow.. going down even more. bought more at 2.14.

    • Precious metals are down today, as well as copper.

    • I’ve got too many miners but I bought back in at 2.14. Half position. This is not a LT trade.

    • My two cents again. Look at a one month daily chart. Look at the last five days. Until yesterday it was going higher. Over the three days it was moving up the MACD was moving lower and the Stochastic RSI was not showing much strength. When you see this it is best to wait. Usually, not a good sign. On the drop yesterday and today, those indicators have moved strongly to the downside. Hopefully, you get lucky and this is the bottom or close to it. I still think it is best to wait for strength rather than hoping you are lucky and catch the falling knife.

  5. I see where RGR is down 10% today. Anyone have any views on whether is worth shooting for?

    • Pretending you didn’t really use that pun…

      I’d hold off on buying gun manufacturers for now. Dropping sales are a bad sign (which RGR reported today). That said, I wouldn’t necessarily sell based on that. I think they are still a “hold”, especially if someone bought it at a good cost basis.

      • My dream job is to write headlines for stock events. It would be so much fun. RGR sales end the year with a bang! Tesla fires off a great quarter. PM has as mouldering quarter. Feel free to add yours!

      • Marshall, I get the idea you are laying in bed and recovering and the mind is wandering.

        More headlines:

        Lockheed Martin declares war on losses.

        Boeing’s returns are sky high.

        POT continues to grow its profits.

      • Personally, I prefer the headline, “POT’s profits go up in smoke!”. 🙂

    • Just don’t like the business. As the economy improves, the demand for consumer assault rifles will fall.

    • I wouldn’t even think about it until it starts showing some strength. The daily chart is ugly.

  6. DWA is down 13% on in line EPS but miss on revenue. New movie out in a week Peabody and Mr. Sherman for those of us old of enough to remember Rocky and Bullwinkle cartoons. It has good reviews but trending as not a huge hit, Lego and Frozen taken alot discretionary money already? But they do have How to Train your Dragon II this summer which looks like a huge blockbuster (650-800 million range) Also in next year will have alot of theme parks coming on line.

    Anyone biting on this pullback?

    • Oh and Piper Jaffery downgraded today from neutral to sell and a price target of $19….seems a bit drastic.

    • I’m not a DWA fan. They’re a “junior Disney”, without all the popular intellectual property, or ESPN, or cruise ships, etc. The earnings miss proves my point.

      • DIS one year return 48% which is very good, DWA 85%. Do you go with the huge DIS that is well established but a blockbuster doesn’t move the needle much or DWA which is smaller and building theme parks, Awesome TV which is building huge audience on youtube, starting to exploit merchandise possiblities?

      • DIS is safe money in the bank. DWA is competing against “safe money in the bank”. Until DWA can get an IP portfolio like Disney’s, I’ll take Disney.

  7. We have an account with UBS that is a “hold” and watch it grow account. The account is made up of three American Funds — load funds (and the only load funds we have ever owned), one bond fund, and four muni-bonds. This account has done well over the years.

    American Fund sent us their quarterly update on their Capital World Growth and Income Fund:

    Total Returns 1 year: 24.77%

    Average annual total returns 5 yrs: 15.14%; 10 yrs: 9.48%; and Life time (since 3/26/93): 11.35%

    The above is for the period ended Nov. 30, 2013 with all distributions reinvested.

    Didn’t bother to look it up but I believe the Life time return is better than the S&P over the same time period.

    • Tom – that seems very solid. For people that really do not want to get involved with investing and studying stocks, an index etf or a diversified mutual fund with regular capital added (to get a component of dollar cost averaging) is a good way to go. It is very easy to over manage. In his book, “The Intelligent Investor”, Benjamin Graham advocates deciding early on what percentage of your investments you want in each class (like stocks vs bonds). Then every year or two, you re-balance to get back to the desired percentage. This has the natural ability to have you sell the assets that have done well and put them in to those that have relatively under-performed (kind of a dogs of the dow approach).

    • Lifetime return for CWGIX= 204%
      Lifetime return for SPX= 309%

      Comparing the two funds’ returns is apples and oranges. Makes more sense to compare your fund to the World Stock Index or MSCI EAFE Index. MS gives it 4 stars, not bad, but the 5.75% load is tough to swallow.

      • Agree with you. As I noted these are the only load funds we own and its a long story as to why.

        MSCI All Country World Index for same time periods:

        1 yr: 23.45%; 5 yrs: 15.34%; 10 yrs: 7.64%; and Lifetime (since 3/26/93): 7.48%

        I have owned funds and etf’s with better returns (over a specific time period).

        But when I see the above returns I wonder why so many people have their money in a 401K, IRA, etc. all in cash or a CD or a bond fund.

  8. Might be of interest to you GTAT owners

    http://www.fool.com/investing/general/2014/02/26/how-corning-made-gorilla-glass-even-tougher.aspx

    Full disclosure: I own GLW

  9. If youare interested in home builders you might want to take a look. I don’t own any and haven’t done much research yet. I did look at the daily and weekly charts on TOL. They look strong. I may take a position in one of the builders after I check further. Anyone have any thoughts?

    • Trader – I looked at them last May when they sold off when rates started to go up. I just cannot get comfortable with them. None of them looked “cheap” to me, but cyclical stocks like builders actually should be bought when they look expensive and sold when they look cheap.

      I did add to my CS today (50% increase). This was a stock I have scored as an “A” and it was selling off a few % today because of claims they were helping Americans avoid taxes. As far I see CS did not do anything wrong. Perhaps the Americans did something wrong. Either way, minor bump in the road.

  10. Trader – I subscribe to a chart guy and just got a not that he is bullish on SLV. Are you still a fan? (AGQ as well).

    Thanks!

    • Marshall, if you remember my comments from yesterday, I said what looked like the start of a breakout must be confirmed. That didn’t happen yesteday and was worse today. Whether I remain bullish wiil depend on what it does over the next few days. If we get a strong bounce that holds and moves higher i would look for a nice move above the recent high.
      I would not buy here. Better to wait for some strength.

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