Daily Stock Market Equity and Options Trading Commentary

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Friday, March 27, 2009

PALM On Fire... Still no News on Pre Release Date or Price

Palm has been on fire the last 3 weeks, but still no news about the Palm Pre release date or price. I think that the release date should be around the corner. I have a feeling as posted earlier that the info should be released before Friday April 3, but that is just a hunch- no reason for thinking that-a.k.a. a blind guess. I just figured that Palm would have this phone out by mid June, and they'd want to give it at least 3 months for people to know when it is being released, and pre-order etc... Palm came out with really bad numbers on March 19th showing a loss of .86 a share, when the consensus was for .59 per share. My assumption is that the phone will be released about 1-2 weeks before their 4th quarter results, which is on June 22, they will be able to state some info about how well/bad the pre is selling in their conference call. I am sure Palm will miss the 4th quarter again, without any help from the Palm Pre, but they will still be able to keep the stock price up assuming sales for the new smartphone are going well. I think Sprint will be subsidising a nice portion of the phone, and it could run around $299 with a 2 year agreement (I am waiting to renew my Sprint service for this phone). I think overall we should have some more clarity about the Pre in the week to come. I think if they wait more than another month to release this info, investors may start to get frustrated and sell the stock. As stated before the short interest on this stock is extremely high! The current short interest is 54.04%, even higher than before. If Palm hits a home run with this Pre smartphone, this stock could get to $15 easily or even $20, without making a dime on earnings! The only bad thing is that it is exclusively for Sprint for the time being, and this could hurt them, because I cannot see too many people changing carriers for this phone. Let's face it the entire universe is excited about the Palm Pre, if they do it right palm will certainly be a top competitor in the future with the Pre and Pre like devices to come!

You can certainly tell some Ex-Apple Employees were in on the making of this device, much different from any other Palm Treo or Centro device in the past.

Much better than the iPhone in my opinion, because I need an actual keyboard on the phone. I have the HTC Touch Pro and if I don't slide out my keyboard it is extremely difficult to type on the screen (only way to type on an Apple iPhone). Pre also has the slide out keyboard which allows the screen to be much larger than any other Palm device in the past, another plus!

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Give The Bulls 830 on the S&P 500 & Spark a Rally to 860

I think if we can hold above 830 Friday we may see 860 before we know it. The next major resistance is around 860 on the S&P with nothing in between 830 and 860). I said if we get through 810 we'd see 830, and we are at 832. Now if we can hold above 830 the charts are showing next resistance at 860. If we happen to close below 830 Friday with light volume, I still think we could get to 860 within the next week given the VIX at these levels. However if we get below 830 on heavy volume, we will have to see if we can hold at 810. The chart below shows that next major resistance is around the 860 level on the S&P. We'll see if we can hold above it or get closer to 860 Friday (click chart for larger more clear view).

Another thing to watch for is the VIX dropping below 40, when this decreases it indicates a less volatile market, and could show signs of stabilization in the markets. The option premiums are a bit less, because volatility plays a major role in options pricing, but it is good overall for the stock market. Anything above 30 is historically high, but given it was almost 90 in late October, it is certainly showing signs of a more stable market. The last time the VIX closed below (key word is closed, because it went below 40 intraday on March 18th and 19th before closing back above 40) 40 was January 28 2009, the S&P traded as high as 877.86, and VIX traded as low as 33.76. However the S&P closed at 874.09, and the VIX closed at 39.66. If we can close below 40 I think that will be a relatively good sign if we do not sell off like the days after January 28. Both 3 month charts can be seen below (click charts for larger more clear view).

3 Month S&P 500 Chart. Look at January 28, our last highest trading day and close, when it was the last time the VIX closed below 40.

Look how the 50 and 200 day moving average trend lines are converging with the 10 day moving average in the middle to the lower side. Looks like we broke below the 200 day moving average today. Next support is at 38.79, if we get below that, we could see a drop to the next support at 33.76 or the low set on January 28. This could indicate a rally in the S&P to levels above 860 (875 range)... Call me a wishful thinker...

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Tuesday, March 24, 2009

Chicago Climate Exchange (CCX) Research Paper

I wrote a research paper on trading carbon credits not too long ago. I have uploaded it to my alternate website President Obama has been talking about the "cap and trade program" lately and if this is serious, these carbon contracts traded on the CCX could take off. They have been quite stable since I wrote this research paper in October-November, but that doesn't mean they'll stay stable. You may find it helpful to keep an eye on the carbon credit contract prices, which trade daily on the Chicago Climate Exchange, because I think the contract prices are a great leading economic indicator. When the prices for these contracts start to rise, it could be an indication that we are emerging out of this recession. If you'd like to familiarize yourself with The Chicago Climate Exchange (CCX) which is a trading market for carbon credits, or just more about carbon emission offsets, and the trading instruments associated with them (these are purchased by companies when increasing production, this is because they'll emit more when producing more), then you may find my research paper useful.

To Download the PDF file of My Chicago Climate and Carbon Emissions Research Paper CLICK HERE

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Monday, March 23, 2009

Bulls Chalk Another W on All Major U.S. Stock Market Indices

All indexes had a massive move today with the S&P 500 leading. The S&P was up 7.08%, Dow up 6.84%, and the Nasdaq up 6.76%. I was out today selling into the strength, and buying some BGZ call options and SDS stock. I got stopped out on my BGZ today, but I bought some SDS right at the bell for 74.74 a share. I think we may have a bit of selling pressure tomorrow if we cannot break through the 830 mark on the S&P within the first hour of trading. Looking at the futures (a long shot this early) the indexes are pointing down slightly, which is impressive given today's gains. I actually like, and agree with this new (and long overdue) plan for the banks that the Obama administration has crafted. I honestly think it should work! I wish it would have been announced a bit sooner, but better late than never. The reason I agree with it so much is because it actually provides incentives for the private sector to invest in these banks. In my opinion this will contribute to fixing this crisis more than anything else.

I think that if we get some news about reinstating the uptick rule anytime soon we'll have another nice rally as well. BGZ and SDS should be solely for trading strategies and should not involve investment strategies, set tight stop losses on either ETF. We are not even close to out of this crisis yet, but it certainly helps when we get some clarity out of Washington. I revised my outlook on retesting the lows today. I now think we have a 50/50 (previously 75/25) chance of retesting the lows on the S&P by April option expiration.

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Big Rally... Should I Be Buying Protection?

Okay so with this big rally today, I've decided to buy a few call options for the April 70 on BGZ. I purchased the contracts for $520 a piece (plus commissions) and I am protected for 3 to 1 on the downside (large caps- which tracks well with the S&P). Housing sales moved the market just after 10 AM which was very impressive, however I am not convinced we can sustain this rally. I put a stop loss on my calls for $400 a contract expiring today. If we do not blow through the 810 level, we could get down to 750 on the S&P 500 which would be down about 6.6% from these levels, and would put the BGZ up about 20% or to around 77.50. I would want this to happen sooner rather than later if it happens, so I can get out with a decent time value and make even more money on the option. If we get some selling pressure toward the end of the day, I will most likely flip half of my contracts for a gain. If S&P closes up 10-15 instead of 32 or more I will be able to make over 50% per contract today alone. Hope the rally sustains for the bulls out there, I am just not convinced yet...

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Can This Rally Hold?

I am looking at the short term chart for the S&P 500, and it looks as if this rally may fizzle out soon. If I had to predict a short-term price target for the S&P it looks like we could hit a top at around 810. However if we can rally through that point there is not resistance until around 830. It would be key to rally through the 810 point. If we rally through the 810 we could see a quick move up to 825-830 area on the S&P 500. The options traded for the SPY today have already exploded for the APRIL 81, 82, 83, and 84 call contracts. The SPY tracks the S&P at roughly 10% of the index average, the April 84 SPY Call contract has traded over 4,000 contracts already at (10:55 AM), and is up 83.33% (14¢) today. It would certainly be bullish for the markets if we could rally through these short-term resistance levels, however if we can't break above and hold at the 810 level, we could see the S&P back to 750 relatively easy. As of now we are up about 30 on the S&P (11:00 AM).

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Sunday, March 22, 2009

Possible Options Plays for Possible Breakouts Stocks...Week of 3/23

Here is a list of stocks I will be keeping my eye on for the week to come. You may want to check into the options for these names (some of these companies are too lightly traded so options cannot be traded for them), as if the stocks pop, the options near the money will have an even nicer pop. They all have a high bull/bear ratio. The following stocks from greatest to least (bull/bear ratio) are:

Monro Muffler Brake, Inc. MNRO (13:0)
Goldcorp Inc GG (12:0)
Lihir Gold Limited LIHR (12:0)
BigBand Networks, Inc. BBND (11:0)
Newmont Mining Corp. NEM (12:1)
Companhia Siderurgica Nacional SID (12:1)
The Cooper Companies, Inc. COO (11:1)

These are all stocks on my radar for the upcoming week. As always I'll wait for a 5-7% pull back to purchase any of them and set a tight stop loss if I happen to purchase any of them. If I purchase any of them, I will be selling into strength.

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