HOT TRADING STRATEGIES FOR A COLD MARKET
Daily Stock Market Equity and Options Trading Commentary

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Friday, April 3, 2009

Palm Still on FIRE! Update to Palm Pre Release Date and Pricing Information

Palm continues to show strength as it is approaching $10 per share. Today Palm had a little help from the great earnings report from Research In Motion (RIMM) last night. However my prediction on Palm to release more info on the PRE phone by today did not happen. The street is still very excited about this device, as the price per share has soared over 56% since the market opened on March 10, 2009. Today Palm made a fresh 52 week high at $9.69 a share and signals are still very bullish! The Bull/Bear ratio on Palm is 10:2 (for more info see my Bull/Bear ratio defined post on my hottest blog posts), with the two bearish statistics being CVAD, and Stochastic(5). Looking at the options market for Palm, there is a 30% chance we'll see palm over $11 per share by April expiration! 1799 April 10 Call contracts traded for Palm today at $35-$60 per contract, and 287 April 11 Call contracts traded for Palm today at $20-$25 per contract. There are just 15 days (less non trading days) left until these contracts expire! Another extremely bullish sign on Palm.

I received an email from Palm yesterday announcing a glimpse at some upcoming apps for the new Palm Pre, so I have to believe that the phone pricing and release date information will be made public soon! Below is a picture of the phone with the applications, and here is the text taken directly from the email about these new applications: "FlightView, which features built-in notifications so you know when your flight’s delayed. Or Fandango, which lets you buy movie tickets from your Palm Pre phone and add the times right to your calendar. Call it webOS integration or call it thinking ahead. Either way, it’s a beautiful thing."


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Update to Visa April Trading Strategy on March 20, 2009

Quick UPdate: I just lightened up on my Visa contracts for the April expiration and I have already made profit on the entire deal. I also have some contracts left and I have until the April expiration to possibly make some more profit. I just repurchased my April 65 Call options back (buy to close after I sold them to open them on March 20) for $30 a contract (a loss of $20 per contract), but I sold my Visa 62.50 April Calls for $100 a contract (a gain of $75 per contract). Therefore the net gain is $55 per contract. I had to sell into this strength, but Visa still looks like a BULL and looks like it may even breakout to the 62-64 area.


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Thursday, April 2, 2009

One of My Methods to Finding Bullish Stocks

I have defined what the Bull to Bear ratio is, now I will define another method of how I find strong stocks. It is through Investor's Business Daily and requires a membership and some idea of strong stocks before hand. One great feature of this site is that every day there is an updated list of "stocks on the move" both up and down. The "stocks on the move" ranks 5 stocks being BOUGHT/SOLD heavily by institutional investors. This is a great way to find strong and weak stocks on a daily basis.

IBD ranks over thousands of stocks, they do not rank ETF's. Let's say you want to see what Google ranks, you'd enter GOOG into the "evaluate stocks" tab and it will return a score known as the "composite rating". To get a more detailed list you'll need to click on the ticker symbol after "quick ratings for (GOOG in this case), or for a more detailed report click "go to Full Stock Checkup". They will give a score for each of 5 categories defined below and a composite score.

Now for the method IBD uses to rank stocks. (all descriptions below are taken directly from the IBD website)

Composite Rating: The IBD SmartSelect Composite Rating combines all 5 SmartSelect® Ratings into one easy-to-use rating. More weight is placed on EPS and RS Rating, and the stock's percent off its 52-week high is also included in the formula. Results are then compared to all other companies, and each company is assigned a rating from 1-99 with 99 being the best. A 90 rating means that the stock has outperformed 90% of all other stocks in terms of its combined SmartSelect Ratings."

EPS Rating: Exclusive rating found in Investor’s Business Daily's SmartSelect® Corporate Ratings. Stocks are rated on a 1 to 99 scale (with 99 being best) comparing a company’s earnings per share growth on both a current and annual basis with all other publicly traded companies in the William O’Neil + Co database. Stocks with EPS Ratings of 80 or above have outperformed 80% of all publicly traded companies in earnings. The EPS Rating combines each company’s most recent two quarters of earnings-per-share growth with its three- to five-year annual growth rate.

RS Rating:This IBD SmartSelect® Corporate Rating is a measure of a stock’s price performance over the last twelve months, compared to all stocks in our database.

The rating scale ranges from 1 (lowest) to 99 (highest).

Initial Public Offering (IPO) stocks will be assigned a “1” rating until the data from five trading sessions are available for calculation.

Group RS Rating: A measurement of a stock's industry group performance over the past six months utilizing A+ to E scale. All 197 groups are combined and distributed into 13 rating groupings: 12 of near equal size and one comprised of industry groups with "E".

SMR Rating: A proprietary rating pioneered by Investor's Business Daily to help investors identify companies with superior Sales Growth, Profit Margins, and Return on Equity ratios.

The SMR Rating data item is one of five Investor's Business Daily SmartSelect® Corporate Ratings. This data item combines into one simple "A" to "E" rating system, four fundamental factors used by analysts:

Accumulation/Distribution Rating (Acc/Dis Rating): Exclusive rating in Investor's Business Daily. One of the IBD SmartSelect® Corporate Ratings, it tracks the relative degree of institutional buying (accumulation) and selling (distribution) in a particular stock over the last 13 weeks. Updated daily, stocks are rated on an A+ to E scale.

A = Heavy buying
B = Moderate buying
C = Equal amount of buying and selling
D = Moderate selling
E = Heavy selling

The rating is enhanced by "+" and "-" signs to show additional detail on institutional activity; a "B+" indicates greater accumulation than a "B" rating, whereas a "B-" indicates less accumulation than a "B" rating, and so on.
Above are the 6 rankings IBD uses, and have allowed me to know when is a good time to buy and sell a stock. Although IBD charges an annual fee it is much cheaper and accurate, in my opinion, than many other quantitative analysis sites I've come across.

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Wednesday, April 1, 2009

U.S. Stock Market Plays an April Fool's Joke on Everyone

Since early last night the futures were down significantly, and this morning we opened very low on horrible ADP data. However the market turned around shortly after 10 AM and went positive and actually finished the day very positive. A very nice way to start off the quarter indeed! With tomorrow's decision coming out about suspending mark-to-market accounting it will certainly be a game changer for the market. I have a feeling we'll see this rule suspended and have a very nice rally, however you may want to lighten up ahead of Friday's profit taking and March unemployment number. I may buy back some SDS or BGZ (double and triple leveraged short ETF's) if we get a rally and sell into any weakness on Friday or next week. But if we do not get this mark to market accounting rule suspended, I will not be buying SDS or BGZ, and if I do end up getting either of them I will set a tight stop loss on them, in case market continues to rally on Friday.


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How to Fix Upside Down Videos on Youtube for April Fool's Day

Today for April Fool's Day Youtube decided to be funny and flip the screen upside down for the featured videos. It is an easy fix and all you have to do is fix the URL a little bit Here is an example of a URL that is flipped: http://www.youtube.com/watch?v=zLCtY4fm3us&feature=rec-HM-r2&flip=1 all you need to do to get the video restored is take out the "flip" part of the URL after div& so the new URL is http://www.youtube.com/watch?v=zLCtY4fm3us&feature=rec-HM-r2&=1

Very creative by Youtube and I do have to say it got me. Thought I might just share the way to fix it in case it was driving you nuts!

Happy April Fool's Day!


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Tuesday, March 31, 2009

Expected March Unemployment Estimate for Friday April 3, 2009. Could the Stock Market React Positively?

It seems like whenever unemployment numbers are about to come out the market sells off. This has been the case lately, but 2 out of the last 3 months the market actually rallied after unemployment numbers came out. The estimate for this Friday (March) is an 8.5% unemployment rate, up from 8.1% in February. If these numbers come in 3% or more above 8.5% (or higher than 8.7% unemployment rate), we could see a huge market sell off, and I think we'll break below 750 on the S&P 500, and even set new lows in the weeks to come. However if these numbers come in better than expected (wishful thinking), we could see the S&P at 900 in the weeks to come. My guess is that the analyst estimate is quite accurate, but revisions to the previous months could also have a significant effect on the markets. If revisions for January and February are dismal it could also put selling pressure on the market. What we want is for the analysts to overestimate to the downside. When analysts become too bearish that is usually when things start to reverse, this is because if we beat estimates it is a good sign. Think of it as earnings for an individual company and analysts expect you to make $1 a share, but you come out and make $1.50 per share, the stock will rally on such positive news. If analysts expect the unemployment numbers to be 8.5% and we come in with 8.4% or less, we would take this as a good sign, and the market would most likely rally.


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Monday, March 30, 2009

U.S. Government Forces out GM's Rick Wagoner... What's Next for the Ailing Auto Company?

Today the U.S. forced out Rick Wagoner of GM as well as most of the other directors. This is the most drastic government involvement in the private industry since the beginning of the financial crisis. What is next may be that the U.S. Government forces GM to file chapter 11 bankruptcy, hurting all of the bondholders, creditors, and of course shareholders. This comes just days before GM and Chrysler were required to submit information about where their restructuring programs are heading. The United States has held off their threat to force a chapter 11 bankruptcy but they demand to see the UAW and Bondholders make further concessions. This is quite difficult because the UAW are stating they have made significant concessions, and that the bondholders have not made any, while the bondholders are saying they will make concessions after the UAW makes further concessions. I think it's time for both sides to wake up and realize, if they don't both make many more concessions simultaneously, they'll both lose anyway! Almost certainly GM will need to dilute shareholders by issuing more common equity up to two-thirds of their debt.

Chrysler may also be forced into bankruptcy if the deal between them and Italy's Fiat fall through. On the other hand the government may invest up to 6 billion more in Chrysler if they can work out a deal with Fiat. This has been quite negative news for the stock market futures. The Dow Jones Industrial Average (DJIA) futures are down 107, NASDAQ futures down 18.75, and the S&P 500 futures down 12.90. This is not a good indicator for the bulls with the futures down this much at 12:27 AM.


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Sunday, March 29, 2009

Bull Bear Ratio Defined

When I post about possible breakouts and rate the stocks on Bull/Bear ratio I am talking about specific technical analysis signals from Advanced Analyzer that indicate possible bullish and bearish stocks. The Bull:Bear Ratio is a quick report of up to 13 popular indicators and several other indicators which are offshoots of the major indicators. The report shows which indicators are generating Bullish or Bearish signals for a selected stock. Here are the following signals and definitions:

MA (10) is Bullish/Bearish where: MA is Moving Average and 10 day average crosses up above a longer term average.

MA (50) is Bullish/Bearish where: MA is Moving Average and 50 day average crosses up above a longer term average.

Strength Meter is Green Yellow or Red where: green is when an individual security is up 10% or more in the last 2 weeks, this is a bullish signal meaning the security is trending up, yellow when a stock or security trades between a lower and an upper resistance level, this means the security is range bound which is neither bullish or bearish, and red is when an individual security is down 10% or more in the last 2 weeks, this is a bearish signal meaning the security is trending down.

Price Break (3) is Bullish/Bearish where: 3 is number of days (most popular price break used), and Price Break is a visual pattern made up of "blocks." The blocks are created
using a stock's closing price to highlight trends and reversals. An arbitrary starting point is selected at some
point in the past and is designated as the reversal point. When a stock's closing price
rises below the reversal point, a green block is added. When a stock's closing price falls
below the reversal point, a red block is added. The reversal point is a stock's closing
price in the fourth most current block, so it acts like a moving stop limit. As green blocks
are added, the reversal point keeps rising and vice versa for red blocks. (Advanced Analyzer manual)

3 Higher Highs/Lower Lows where: 3 is the number of trading days, and higher highs means the stock has traded at its 52 week high 3 days in a row a bullish signal, and lower lows means that the stock has traded at its 52 week low 3 days in a row a bearish signal.

CVAD is Bullish/Bearish where: CVAD is Chaikin's Volatility indicator and it compares the spread between a security's high and
low prices. It quantifies volatility as a widening of the range between the high and the low price (Advanced Analyzer manual).

PROC is Bullish/Bearish where: PROC is Price Rate-of-Change, and it is a technical analysis tool that measures the rate of change for the stock or the strength of momentum. The formula is (today's closing price-closing price in period(s) X)/(closing price in period(s) X).

OBV is Bullish/Bearish where: OBV is On-Balance Volume. This is a technical analysis tool that relates volume to price. Shows when an individual security is being bought or sold heavily or lightly. Heavy buying is bullish, and heavy selling is bearish, light selling after a massive gain is bullish, and light buying after massive loss is a bearish signal.

Breakout Bull/Bear where: breakout means a stock is making a new two-month high/low with today's trading range larger than any of the nine previous trading days.

RSI is Bullish/Bearish where: RSI is Relative Strength Index and is a measure of how overbought/oversold the stock is. When a stock becomes overbought it is a bearish signal for stocks, and when a stock becomes oversold it is a bullish signal for stocks.

MACD is Bullish/Bearish where: MACD is Moving Average Convergence/Divergence. Measures the relationship between two moving averages. The MACD is calculated by taking the difference of the 26-day EMA (exponential moving average) and the 12-day EMA. A nine-day EMA of the MACD is then used as a signal line, and is plotted over the MACD, functioning as an indicator for buy and sell signals. When the MACD falls below the 9 day EMA line it is a bearish signal, and when it crosses above the line it is a bullish signal.

MACD (weekly) is Bullish/Bearish Similar to MACD but taking weekly moving averages instead of daily moving average.

Stochastic(5) is Bullish/Bearish where: The stochastic oscillator compares where a security's price has closed relative to its price range over a specifically identified period of time. In an upwardly trending market, prices tend to close near their high, and during a downward trending market, prices tend to close near their low (Advanced Analyzer manual). Where 5 is the number of days which is the specifically identified period of time. 5 is the most common period of time.

Other indicators included in Bull/Bear ratios that are offshoots of other indicators:

MA(10) crossed up/down MA(50) where: MA is moving average, up is a bullish signal, and down is a bearish signal

Other crossing indicators similar to the indicator above include: MACD Crossed up*/down**, MA (10) Crossed up*/down**, and MA (50) Crossed up*/down**. Where: * indicates a Bullish signal and ** indicates a Bearish Signal.






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Stocks on the Breakout for Week of March 30, 2009. Possible Options Plays

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:

AsiaInfo Holdings Inc ASIA (13:0)
3Com Corp COMS (13:0)
APAC Customer Services Inc APAC (13:0)
lululemon athletica Inc LULU(13:1)
Theravance Inc THRX (12:0)
ADC Telecommunications Inc ADCT (12:1)
DTS Inc DTSI (12:1)
SYNNEX Corp SNX (12:1)
CPI CorpCPY (12:1)
Lumber Liquidators Inc LL (12:1)

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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