Friday's Commentary and Trend Reversal Gaps - part 2
Updated late Tuesday and Friday nights
Friday’s Close for Mar 13th, 2009
Written by: Mike Coval
Not the strongest day on Friday but it was an excellent way to end the week. From what has been the norm, plenty of selling, we had none of that after this week’s earlier gains. In fact the lack of selling into the weekend is to be considered extremely bullish. Is it time for some bullish positions? I think we could easily see a few more higher days in the near future but by no means does that mean the selling is complete. In other words, I’m looking for some more short term buying followed by the return of the downturn.
To watch a video of Friday’s market action, along with my thoughts, Click here. The DOW closed up 54 points at 7,224 while the NASDAQ closed higher by 5 to finish the day at 1,432.
Energy: Oil prices were back and forth after Thursday’s nice rally. Late in the day, the price of crude futures was trading down $1.21 at $45.84 a barrel. Track the price of crude with the Oil ETF, USO. 
Sometimes it seems you just can’t win…
Over the last four days, traders returned to financials and sent the Dow back over a critical benchmark. Next week will bring a slew of new data on housing and manufacturing -- two sectors with a recent knack for sending the markets packing.
Economic News: The January reading of the trade balance showed the trade gap narrowed for the sixth straight month. Separately, consumer confidence crept up this month.
Healthcare: Merck & Co, MRK rose 13%. Analysts at Bernstein raised their rating of the blue-chip drug company's stock to outperform, citing valuation. With the MACD’s and Stochastics just now turning higher and a positive news story, I’d have to think an aggressive trader might be able to profit from an April $25.00 call. If the stock pulls back below $24.50, the call should be rolled into a bear cal spread. Though. 
Financials: Citigroup, C, gained $0.11 after announcing it does not plan on asking for additional capital from the government. The firm "is actually one of the better capitalized banks in the world," Chairman Parsons said.
Even the mighty stumble every once in a while. Berkshire Hathaway, BRK.A dropped $2,150.00 after a rating cut by Fitch Ratings. The firm's triple-A rating was downgraded to double-A.
Consumer Non Cyclicals: Still blasting its way higher, Smith & Wesson, SWHC, added $0.52 on strong volume with a third-quarter profit on improved firearm sales, the firm said. Smith & Wesson earned $2.4 million, of 5 cents a share, compared with a year-earlier net loss of $1.8 million, or 4 cents a share. Any pullback to the $3.50 level should provide an excellent entry point. 
Sara Lee shares, SLE moved up $0.41 on news the company may sell its European household and personal-care business, which could carry a price tag of more than $2 billion, according to a Wall Street Journal report.
Good and or bad stocks to watch: BEAT, VPRT, EW, PHI, NSM
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Monday Mar 16 |
Tuesday Mar 17 |
Wednesday Mar 18 |
Thursday Mar 19 |
Friday Mar 20 |
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Empire State Mfg Survey Treasury International Capital Industrial Production Housing Market Index
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ICSC-Goldman Store Sales Housing Starts Producer Price Index Redbook
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MBA Purchase Applications Consumer Price Index Current Account EIA Petroleum Status Report FOMC Meeting Announcement
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Jobless Claims Leading Indicators Philadelphia Fed Survey EIA Natural Gas Report
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Quadruple Witching |
Homework Training: Feel free to leave any stocks you would like to have looked at in the comments section (below) and I’ll try and choose one of the stocks and add it to my analysis for all to read. Please tell your investing friends about this blog as well. It is here for you and the more comments I can get from you the better it will be.
Homework: Trend Reversal Gaps, part 2, click here.
Cheers,
Mike
Hi Mike! I am curious. Why would you pick a $25 call on Merck rather than selling a 25.00 put? I have a little trouble getting my mind around that--I'd like to hear your rationale, especially when you talk about the trade going in the wrong direction.
That information on Trend Reversals is great. I need to print it out and go back and compare to a recent disaster I had with WYNN. I watched it go up and up, finally decided the trend had reversed and bingo--got caught when it went down suddenly. I have a hunch there is a valuable lesson for me there. Thanks! Marilyn
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You're only paying $0.95 for the 5 weeks of time and if the srock moves up to the $30.00 resistance area before then you will have almost a 50% return on your money. If however your wrong and the stock only moves up another $1.00 you'll still have a profit and if it rolls back down, the $22.50 calls will have about $5.00+ of intrinsic value for a nice profit if you decide to roll into a credit spread.
Cheers,
Mike
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Thanks, Mike. I appreciate the input! Marilyn
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Over the years, we have followed some of the diagonal trades (and leaps that we turned into diagonals) that you have published. We have enjoyed some modest success and would like to improve our skills in this area. To that end, I was wondering if you could help us better understand optimal exit strategies.
For example, there was a particular trade which was entered in Month 1 - buying the $35 call option for Month 3 and selling the Month 1 $45 call option. In month 1, the $45 was rolled down to $40 and expired worthless. In Month 2, the $40 call option was sold again. However at the end of Month 2, the price had a huge up move to trade between $45 and $50. Month 2 was rolled to Month 3 for $40. In month 3, the debit is around $3.00 and the position (now a vertical) is long the $35 and short the $40. The price has continued to stay in the $45 to $50 range, even though the market has had some large down moves.
As we see it, there are several exit strategies.
1. Close the trade out early for $4.55, take profit of $1.55.
2. Wait until month 3 expiration. If the price continues to hold or increases, the exit should be for closer to $5.00, and the profit would be $2.00
3. Roll the $40 up to $45 for a $3.70 debit – and if the price stays above $45, then profit would be $3.30.
4. Any other potential exits?
We greatly appreciate learning from you
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HAVE NOT RECEIVED A WEEKLY LETTER SINCE MARCH 14TH. AM ON AOL AND WENT THROUGH THE DIRECTIONS ABOUT SPAM AND MADE SUGGESTED CHANGES.
DAVE CHEEK
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They must be too busy trading E-Mini's.
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Mike,
Where are you? We miss your insight and spunk.
Paul
4/19/2009
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Mike I miss your commentaries on the market that you used to give. I would like to know more about your service and conditions for the sudden leave.
Jim Nelson
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sounds like we have been dismissed
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It appears that if you don't want to trade the E-mini's with a pricey subscription, then they don't want anything to do with you. I would think the very least they could have done is make an announcement. But just to leave everyone in the dark is totally without class.
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I disagree. Mike has always been more than accommodating with the commentaries he writes and the market analysis he has given in the past. He has always done it for free and has never asked for anything in return. He has a lot on his plate as well as a family just like the rest of us. Why not take the knowledge he has given you in the past and apply it yourself in your own market analysis?
I was a subscriber to the trading room for the E-mini's in the past and I can tell you that the knowledge you gain from the trading room far out weighs the price of the subscription to it. I would challenge you to try and find something equivalent to the E-mini's trading room that Mike offers at a better price. It will not happen!! There is not anything that will even come close.
Instead, I would like to extend a very grateful thank you to Mike Coval for all the trading knowledge he has shared simply out of kindness. I'm sure I am not alone when I say: Mike has made a very positive difference in my life!!!
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Thank you Philip!
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Thomas Carmichael,
Your comments are totaly without class. You are asking for more of a free service and then upset when you do not get it? Instead of trying to find out why it is not here you attack without knowledge, completely unprofessional.
I hurt my back to the point where I could not stand, sit or lay down without medication and have not been able to sleep for more than 20 minutes at a time. You combine this with work, tax season, multiple chairty involvements, family life and creating additional courses for people just like you and then you see how busy it can be.
You ignorantly say that trading e-minis with my service is expensive but with just a few minutes of internet searcging you will see that most courses want $3,000 to $5,000 for a 1 week class. I guess that breaks down to about $75.00 to $125 per hour of training and yet all we charge for our tuition is $150 for the first 136 hours and then only $250 for the next 136 hours. I suppose you could break that down to about $1.80 per hour.
So now your comment "It appears that if you don't want to trade the E-mini's with a pricey subscription, then they don't want anything to do with you" now seems a bit odd, incorrect and misleading.
Please refrain from showing your contempt for others here and try to be happy for what is provided. If you do not like it you are free to visit as many other free sites as you wish. I'm sure there has to be some good information somewhere?
Regards,
Mike
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I'VE HAD THE PRIVILEGE TO HAVE MIKE & HIS SISTER FOR 3 CLASS'S AT INVESTOOLS. I FEEL VERY FORTUNATE THAT THEY CONTINUE THIS WORK FOR THOUSANDS OF THEIR OLD STUDENTS. IT'S SHAMEFUL TO MAKE THESE KIND OF COMMENTS IN A PUBLIC FORUM. MIKE HAS MADE A DIFFERENCE IN MY LIFE AND HUNDREDS OF OTHERS.
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Thomas,
So you must be the "freeloader" that everyone was chatting about. Suggest you take Mike's advice and leave and don't come back. All of Mike's students love him and we don't need whining freeloaders in our midst.
We all knew that Mike was having back problems and is incredibly busy.
Mike has always responded to our e-mails and questions very promptly and PROFESSIONALLY. We have learned so much more from Mike and his sister than other (really) pricey programs.
So, stop whining!
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MIKE,
CALLED AOL AND I THINK I'VE RESOLVED GETTING MY NEWSLETTERS BACK. WERE THERE ANY IN APRIL. I KNOW YOU WROTE YOU HAD SOME BACK PROLBEMS AND WANTED TO SEE IF THEIR WERE ANY BACK ISSUSE I MISSED. THANK YOU. DAVE CHEEK
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