Will history rhyme for 2012?

Every day I see many candlestick or line charts of the $SPY (S&P 500 SPDRs) so I thought I would take a look at the Point ‘n Figure chart:

Based on this chart, we can see the consolidation through most of the summer in 2011, the “sell in May and go away” foot prints. Will we see the same pattern develop in 2012?

 

The zig and zag in Zagg

I made a comment this week about how most charts look like the Loch Ness Monster. Many of you understood what that meant, but some wanted more clarity on just what the heck I was saying. So without further ado, I bring you a Weekly chart of $ZAGG showing the up and down movement of price – the zig and zag that price takes:

To help show some boundaries for the zig and zag, I have put on the Fibonacci levels for the March 2011 bounce to the August 2011 high and retrace to late December 2011. The low in March 2011 was $6.23 and the high in August 2011 was $17.10. The retracement to the low in December 2011 hit a low of $6.40 – coming up $.17 cents short for a full retracement of the move.

Price has since started a recovery and this past week broke up through the 50% retracement of this Fibonacci range. The next target above is at $13.00.

Source: Elfwood

Staying out of no man’s land with Masco

During the course of the week, several scenarios occurred that involved discussions with stocks that were in “no man’s land” – just no apparent edge to a trade, floundering around in between 2 key moving averages for example. In my chart review this morning, I came across the Daily chart of $MAS (Masco Corp) and it served as a reminder of trades that are more ideal – where price is near a moving average, trend line, or an inflection point so a battle then ensues between the Bears and the Bulls.

Here is a glance at the Daily chart:

Let’s review the inflection/resistance test points in recent days:

  1. You have the bounce off the 100 day moving average, nice and clean buy point
  2. The test of the 20 day and 50 day moving average, nice break through those.
  3. Then on to a test of the resistance level (prior breakout level, then support which failed to hold, now resistance). Price is peeking up through this resistance line now.
  4. Now testing the upper Bollinger Band, which acts as some resistance.

Bears will short here on the thesis that the upper Bollinger Band acts as resistance to price. Bulls will monitor for a hold of this breakout and play for continuation.

The Fab 5 update

This week was very active in this basket of stocks. Here are the highlights:

  • $ORLY puts in a bronco busting earnings day but completes the $100 Roll with some gusto.
  • I sold the $PPG position (the $100 Roll had been completed but was leaving it in with a tight stop. It is extended here so seemed prudent).
  • I am giving $LMT a second shot in the same week after the 1st attempt was stopped out.
  • I have put $ULTA back in now that it appears to be starting a recovery (was removed earlier in the week, replaced by $AGN).

 

Rather thin candidate list remains:

PVH 90.06 4/27/2012
ALXN 90.56 4/27/2012
MCK 91.05 4/27/2012
SXCI 91.71 4/27/2012
AAP 92.37 4/27/2012
CL 98.38 4/27/2012
UA 98.89 4/27/2012

What to do when a stock is getting Decked

Knife Catchers certainly have their hands full today with the 25% discount in $DECK to this point. Here is a visual …

I have been monitoring this “opportunity” today and felt earlier that the $57 level was holding up ok. After the market open, that certainly changed. After some additional chart review, I pulled out to the Monthly chart and observed this:

The stock has retraced the move from 2009 to 2011 back to the 61.8% Fibonacci level. The CCI indicator is down with the Titanic (bottoming) so I am getting even more interested at this level. A hold here above $52 and I will put on a short-term bounce play trade (the plan is to use 1/2 position in selling Puts (a Bullish bet) and 1/2 position in long the stock).

One more note, I use Welding Gloves for this trade. :)

Surviving in the Amazon

I am receiving a lot of questions and comments regarding $AMZN this evening so I thought I would expand with more detail here on my current position. For the earnings event, I put on an options trade:

Now many of the questions have to do with what the above really means so let me break it down:

  • “S 4w 200 $CALL” = Short the May 4 Weekly $200 strike Call. This expires next Friday.
  • “L the May 200 $CALL” = Long the May monthly $200 Call. This expires May 18 2012.
  • “S 4w 170 $PUT” = Short the May 4 Weekly $170 strike Put. This expires next Friday.

The above trade cost $.20 cents to put on. Since the short Calls are “in the money” they can be exercised at any time before expiration, but they are protected by the long May calls of the same strike.

The plan is:

  • Let the weekly short puts expire next Friday and keep all the premium collected.
  • As for the Call side, there is time to address the trade exit choices and I will be doing that in the morning.

 

How I protected a long position through earnings in O’Reilly Automotive

One of the challenges during earnings season is being long (or short) a stock and planning to hold it through an earnings report. This week has been a very active week for several current positions and thus I have had to make decisions on my plan for each held position.

In the case of Fab 5 member $ORLY I elected to do the following to provide some protection for the long position:

A few other choices were:

  • Sell the stock and do an Options only trade
  • Sell the stock and do nothing else
  • Buy a Put to pair up with the long stock position
  • Sell the $100 Call and Buy the $90 Put (Collar)

For my chosen path, as noted in the message above, here is the breakdown of how what range of protection it provides:

  • If the stock moves up after the event (which it has), and the stock is called away at $95 by the Call owner, then my gain is the difference between the entry and $95 plus the premium collected by selling the Call ($3.21) for a net price of $98.21 per share.
  • On any downside move, as long as price stays above the initial entry-level the overall trade remains profitable. The selling of the $95 Call does help soften any fade down to the $91.79 level.

Due to the strength of the earnings report reaction, I bought back the $95 Call at the open for $6.5 to uncover the long position. So far this $100 Roll day looks very strong. I am now going to put on a Collar using the May $105 strike for the Call (short) and the $100 strike for the Put (long) for a net credit of .73c

Crowdsourcing my exit in Priceline

I am going to give you folks a chance to put together an exit plan for the remaining pieces of a Bear Risk Reversal that I put on $PCLN last week. For those that are not aware, this is a Bearish bet to the downside. Here are the trade specifics:

  • Long the May 700 Put at $28
  • Short the May 720 Call at $37

This trade was for a $9 credit on 4/19/2012. What I have done so far:

  • Sold to Close 1/3 of the Put position for $43.00
  • Sold to Close the balance of the Put position for $41.00

What remains of the trade is the Short May 720 Call. I did add a Weekly 720 long Call position – to cover the May 720 Call – at 2.60 (cheap insurance this week). The weekly 720 Call currently has a bid/ask of 3.4/4.10 and the May 720 Call has a bid/ask of 28.3/28.9

I welcome your strategies, you have until 2PM CST today so give me your best shot.

Source: Option Trading Pedia

The Apple earnings report – Look Both Ways

A lot could be said about the stock price rocket ship move from November 2011 until early April 2012 for $AAPL. One thing is for sure though, the earnings report after hours today has the attention of a LOT of people – for many valid reasons.

First, let me say that many of you will be long this stock into earnings and you really do need to consider some sort of downside protection – just a friendly suggestion. For those with no position, how can you participate in this earnings festival parade? There will likely be many suggestions for trade ideas, many using options, but this is what I am doing:

  • I am long the weekly 580 call and short the May 595 call. This was done for a $1.50 credit last week.
  • Today I added the trade that allows for the other direction, a Bearish bet. I am long the weekly 555 Put and short the May 540 Put. This trade was put on today for free ($16.4 price on each) so just cost of commissions.

Some things to note here:

  • These are earnings event trades and not meant to be held to May expiration (one side will be a “loser” so buying back the short option may be advantageous. Keep most of the premium, reduce Risk, and trim down margin use).
  • The margin use will need to be considered if you do want to hold any short option position until May expiration.
  • There will be 3 trading days to deal with the weekly option components so there is a possibility that both directions can have value.

Buckle up, hold on tight, mouthpiece in. We are in for a bumpy ride.

Update: I have done the following as of 5/2/2012:

  • unwound the Put side of this trade for 2.30
  • Sold the weekly 580 call for 35.20
  • Buy to Open the May 4 weekly 595 Call thus creating a 595 Call Calendar with the May monthly call. Locking in $13.80 in profits if price stays under 595

The Double Bottom – playing the reaction

Walking through the $FAST (Fastenal) stream on StockTwits, I want to break down my initial thought process, and to see how the price action alters my perspective (trade what you see). During my preparation work yesterday, I came across this stock and after my review I elected to put it on my stalk list.

This morning I revisited my list and posted it along with a few others as a place where I would focus for today. For stocks that I stalk, or pay really close attention to, I use the 5 minute chart with a 20 simple moving average and the Accumulation/Distribution indicator.

Throughout the moring the stock has been under pressure, and because I am looking for a bottoming process, I was very interested in the Double Bottom that it made (here is a current chart showing the Horizontal Support line creating the D/B):

Playing the reaction to this test of Horizontal Support was the play and as you can see it was not much of a battle there. The volume print supported the short trigger there – this increases the probability of success.