Sunday, October 25, 2015

The Bulls are in Charge

Bulls Are In Charge

Last Thursday and Friday was a very pleasant surprise in the market. Institutions came into the market with hoards of cash that they had harvested from taking their profits from the Biotech and Health care sector ($XLV). Institutions were very anxious to deploy their cash when the market opened on Thursday, leading to a gap up in all the three major indices ($SPY,$QQQ,$DJX). Volume had been lackluster ever since option expiration Friday October 16th and the first 3 days of last week. There was a bearish tone to the market since all the major indices were meeting their resistance levels and there just wasn't any significant volume commitment from the institutions. That all changed once Mr. Draghi of European Central Bank (ECB) indicated monetary stimulus on the horizon for the euro zone. To top it off, the Peoples Bank of China (PBOC) slashed their lending rate for the sixth time to spur growth and support their declining stock market and unhappy populace.

We are in the midst of earnings season this week. There are over 40 diverse firms slated to come to the earnings confessional - some with very poor outlook and others with mediocre performance. Expectations are that earnings in the third quarter will be 5% less than the second quarter. That doesn't bode well for the market except that we are now expecting easy monetary policies from the two largest economic zones of the world. This will lead to money being invested in the stock market and we can expect the bulls to be in charge now.


My Market Sentiments

Currently we have accumulated 7 distribution days just in the last 9 sessions. This would alarm me under normal market conditions. That all changed on Thursday and Friday when the volume in the market was 70% above the average volume that we witnessed at the beginning of the week. $GOOGL,$MSFT,$AMZN and $MCD traded over 200% in volume two days in a row during earnings report and they popped up anywhere from +5% to +9%. These are very bullish signs. My bullish targets for the major indices are:

$SPY ... $214
$QQQ ...$117
$DJX ... $183

Currently these indices are trading above the 200 DMA (simple daily moving average) and the institutions use this as a line in the sand to make their bullish move. Monday morning we should be getting a confirmation of the institutional commitment if the Asian and Australian markets make a similar bullish move.


Follow My Stocks

Currently I have conservative low risk option trades on the following stocks:

$PAYX ... 52.50 Nov Call Spread (October 23 trade for 35cents debit)
$NKE ...  127/130 Nov Put Credit Spread (October 21 trade for 90 cents credit)
$PM  ...  86/88.5 Nov Put Credit Spread (October 21 trade for 70 cents credit)
$ORLY ... 270/280 Nov Call Spread (October 16 trade for $1.30 debit)

They are all in the money (ITM) right now. Feel free to follow these trades along with me and comment your thoughts on them.


Stocks on My Watch List

There were 5 growth stocks that made my watch list this week and subscribers to my service got an access to my detailed trade plans for stock purchases on these stocks. There are other stocks that I am monitoring for possible Option Trades this week and they are:

$AMZN
$MON
$PPG
$INTC
$MMM
$KO
$DAL

There are other stocks with strong fundamentals and technicals but they have earnings reports in the next two weeks. I just don't want to take the risk of earnings surprises. There are plenty of opportunities from my very strong watch list of 5 stocks and it is best to just concentrate on the "Rock Star" stocks that have come through my funnel method.

Happy Trading!

ps: A lot of my subscribers were asking me as to why they didn't get my blog delivered to their email box last Monday. I was gone to Nashville Tennessee the previous week for a  'Cancer Walk'  along with my family. I also took some time off for a mini vacation and as such I didn't publish anything on Monday. I am back on my bullish mode as of this week.














Tuesday, October 6, 2015

Don't Celebrate Yet! $SLB $GG $POT $OIH $SBAC


We had 4 days of high volume trading in the market last week but all the three major indices that I monitor - $SPY,$QQQ and $DJX - moved up about just 1% from the week before. They are also trading below the 200 sma. Some of my readers have been asking me as to weather or not this would be a good time to be taking some stock positions since the market is in a  "Confirmed Uptrend"  My outlook on the market is still leaning on the bearish side. All the 9 major sector etf's - $XLK, $XLV, $XLB, $XLI, XLY, XLP, XLE, XLF, $XLU - are still trading below the 200 day sma as well too.

Payroll report on Friday was downright ugly. Figures for September payroll was 30% below estimate. The numbers for August were revised downward as well. $CAT had announced a plan for major reduction in their payroll as well. $WMT also announced a cut back of 500 positions at their headquarters. We are already in a deflationary environment and there really isn't any wage growth to speak of. Under such circumstances, it is best to wait for a few days to see where the institutions are deploying their capital. In the mean time it is best to continue to look for bearish opportunities in the market.


Institutional Behavior


I have often indicated that the institutions - pension funds, hedge funds and  mutual funds - account for over 75% of the volume in the market and they ultimately are responsible for moving the market. One has to follow their lead if a trader is going to be profitable and successful. One also has to be cognizant of the fact that there is an actual human person who works for the institution that actually makes these trades. They all suffer from the same emotions that we as retail traders have to deal with. They also exhibit the same herd mentality that we as retail traders do as well.

Lately in the last several weeks I have noticed that the institutions keep rotating in and out of biotech and health care stocks. They also begin to look for bargains in the depressed sectors such as the energy, industrials and materials. This is what has caused the rally in the market last week. One thing that the institutions can't do is keep the extra cash in a checking account like we as retail investors can do from exiting profitable positions. They have to be fully invested at all times. What they have been doing for the last several weeks is spreading their monies into thin stocks where they can control the price or they are taking positions in the depressed sectors where they think they are getting a bargain. This is the reason why I as a retail trader just don't trade thin stocks or consider depressed stocks as a bargain.


Bearish Opportunities


I continue to see opportunities on the bearish side of the market. Some of the stocks that can present itself for short term credit spreads are:

$SLB
$GG
$POT
$OIH
$SBAC

Just be mindful of the fact that most of these stocks report earnings this month. Plan your trades so you don't get caught with a nasty earnings surprise !

Happy Trading!




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