ONE-TWENTY TWO - A collection of personal articles on financial markets including analysis you can use
Jul
29

Caterpillar’s Stock In Trouble?

written by Dr. Duru
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Last week, Caterpillar (CAT) reported earnings that sent the stock gapping below its 50-day moving average (DMA) with a 3.1% loss. The stock followed its lower-Bollinger Band (BB) until today (July 29, 2014). The stock rallied earlier in relative out-performance to the market before fading to flatline.

All this might be rather unremarkable EXCEPT this is the fourth time this year CAT has closed below its rising 50DMA. The last two were in quick succession. This trading action suggests CAT’s primary uptrend at the 50DMA is in trouble. A retest of 200DMA support is likely on the near horizon at this rate. CAT broke out above tis 200DMA back in December, 2013 and has not looked back ever since, so a 200DMA retest will be a must-watch.


Caterpillar breaks down again - is the fourth time a charm?

Caterpillar breaks down again – is the fourth time a charm?


Source: FreeStockCharts.com

After the post-earnings breakdown, I thought I lost a chance for a good entry point to get put options on CAT. So, I rushed to fade CAT as it approached its 50DMA today. I purchased the Sept 105/100 put spread figuring $100 is a good downside target for even a modest sell-off in the market. As a reminder, I find bearish bets on CAT to be a good hedge against the potential for a market sell-off. Since August and September tend to be the weakest months of the year, I think now is a great time to put on this hedge.

The good folks at StockTwits are evenly split on CAT, but sentiment is notably down from a month ago. That seems to me a large enough non-confirmation of CAT’s recent highs given how well StockTwits folks seem to crowdsource opinion on stocks (that’s an informal/anecdotal observation that I would LOVE to study with hard data – Howard Lindzon, are you listening?).


A 50/50 split in sentiment on StockTwits

A 50/50 split in sentiment on StockTwits


Source: StockTwits

Be careful out there!

Full disclosure: long CAT shares and put spread

Jul
29

An Example of Why It Is Often Better To Follow, Not Fight, Trends: Windstream Holdings

written by Dr. Duru
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At the time of writing, Windstream Holdings, Inc. (WIN) is surging 23.3% on news that the company received a favorable ruling from the IRS to convert to a REIT. From the press release:

“Windstream (Nasdaq: WIN), a leading provider of advanced network communications, today announced plans to spin off certain telecommunications network assets into an independent, publicly traded real estate investment trust (REIT). The transaction will enable Windstream to accelerate network investments, provide enhanced services to customers and maximize shareholder value. The transaction will allow the REIT, which will own Windstream’s existing fiber and copper network and other fixed real estate assets, to expand its network and diversify its assets through acquisitions. The company’s board of directors approved the plan following the receipt of a favorable private letter ruling from the Internal Revenue Service…

The tax-free spinoff will enable Windstream to realize significant financial flexibility by lowering debt by approximately $3.2 billion and increasing free cash flow to accelerate broadband investments, transition faster to an IP network and pursue additional growth opportunities to better serve customers. As a result of the transaction, Windstream will offer faster broadband speeds and more robust performance to consumers. The company said it would expand availability of 10 Mbps Internet service to more than 80 percent of its customers by 2018. It also said it would more than double the availability of 24 Mbps Internet service by 2018, expanding to more than 30 percent of its customers. The REIT will be positioned to provide an attractive dividend to shareholders and grow revenue through lease escalation, capital investment and acquisitions.”

WIN is a high-dividend paying stock that has been on a tear since early February and a nasty five-year low. This punctuated a downtrend in place since early January, 2011 and accelerated in May, 2012. The two trends are great examples of the benefits of following trends with the uptrend providing the best opportunity.

On the downtrend, WIN moved widely from lows to highs and shorts had to have stomachs of steel to hang on. As is often the case with shorting, fading at resistance worked best for this downtrend channel. The uptrend that finally developed was a distinct contrast with its orderly march higher and very neat and successful retests of important support at the 50 and 200-day moving averages (DMAs). I have the benefit of hindsight of course, but if I were short the stock, the extended trading range for most of 2013 would have encouraged me to bail at some point. Bolder shorts who were patient enough to hold on for the 2014 low could have bailed just based on the stock’s history of swinging wildly from lows to highs. Certainly, the breakout above the 50 and then 200DMA should have put shorts on notice with the first successful retest being the final warning. The last 50DMA breakout was different than the others in 2013 as it was accompanied by heavy buying volume – an early warning signal.


A persistent, yet highly volatile, downtrend until 2014's low....

A persistent, yet highly volatile, downtrend until 2014′s low….

A high-volume breakout was an early signal of the high likelihood of the end of the downtrend(s)

A high-volume breakout was an early signal of the high likelihood of the end of the downtrend(s)


Source: FreeStockCharts.com

The downtrend caught the attention of a growing number of shorts. In almost two years, shares short grew about 44%. Soon after the 2014 low, shorts finally began to back off; these early exiters perhaps saw the writing on the wall. Perhaps they bailed on the technical signal of 2013′s consolidation range breaking to the upside.


After a steady surge, aggressive shorts finally began to back-off WIN after the 2014 low

After a steady surge, aggressive shorts finally began to back-off WIN after the 2014 low


Source: Schaeffer’s Investment Research

To make things interesting and more complicated, some ill-timed bear(s) or someone looking for major protection, sent the put/call ratio soaring in June. Open interest on the August $9 put soared from near nothing to over 10,000 on June 18th. This formed a distinct contrast to the 14,000 options of open interest in the January $10 call. These calls were in steady accumulation from early 2013 and well into this year.


An ill-timed move as the open interest put/call ratio surges in June

An ill-timed move as the open interest put/call ratio surges in June


Source: Schaeffer’s Investment Research

A rush to bet on a collapse or for protection...?

A rush to bet on a collapse or for protection…?

Slow and steady, traders/investors in long-term call options win the day

Slow and steady, traders/investors in long-term call options win the day


Source for options charts: Etrade.com

The trader(s) loading up on puts last month made a classic error in fighting the trend. However, I can imagine if I saw it happen in the moment, I might have jumped to the conclusion that someone “knows” something very bearish to WIN. Yet, the trader(s) steadily accumulating long-term calls were doing so despite the downtrend. In a way, the extended record of this buying could have outweighed the very short-term signal of the panic rush to grab puts expiring in a month. This represents a very mixed lesson and knowing who was the “smart” trader/investor is only clear with hindsight. Options trading is always difficult to interpret; doing so is much more an art than a science!

In my case, I had invested in WIN based on the dividend. At the time, I was on the lookout for high-yielding plays, especially in telco/communications, that offered discounts from sell-offs. WIN obliged back in May, 2012 and I was in. (I know, I know. The irony of a habitual contrarian giving a lecture on trend-following!) I felt brilliant at the time because the stock soon bottomed and rallied over the next month. My decision to hold since then was mostly based on using the high dividend as a buffer. I WISH I could say that I used the interesting technical and sentiment analysis above. It would have greatly informed my thinking on the stock! At least I held through the uptrend despite constant nagging in my head to sell. Instead, I decided to let the trend run its course…hoping that I would get a “good enough” signal whenever the trend came to an end.

Regardless, it was a no-brainer for me to sell into today’s surge and lock in profits; combined with the juicy dividend, this turned into a great longer-term trade/investment. No need to be a pig here. I still find WIN interesting and will definitely consider re-entering if the stock suffers another severe setback as its history suggests is bound to happen. However next time, I will conduct a more thorough (and more typical) battery of technical tests.

Be careful out there!

Full disclosure: no positions

Jul
28

T2108 Update (July 25, 2014) – Volatility Watch Part Deux

written by Dr. Duru
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(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are posted on twitter using the #120trade hashtag)

T2108 Status: 47.8%
VIX Status: 12.7
General (Short-term) Trading Call: Hold. Bear/bull line remains at 1962. See important developments below.
Active T2108 periods: Day #265 over 20%, Day #117 over 40%, Day #1 under 50% (underperiod), Day #12 under 60%, Day #15 under 70%

Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary
On May 12, 2014, I wrote “Volatility Watch” as part of the T2108 Update for that day. At the time, the volatility index, the VIX, had dropped to the bottom of a trading range in place since the beginning of 2013. I was on alert for a bounce even as I acknowledged volatility could go even lower. Volatility obliged and did BOTH. First it bounced 10% or so and then proceed to hit even lower levels. The last closing low was 10.32 on July 2nd. A bounce and a surge later, and I am “incrementally” more convinced that volatility is finally carving out a sustainable low.


The VIX seems to be slowly but surely bottoming

The VIX seems to be slowly but surely bottoming


I am now on a second volatility watch, operating on the assumption that a sustainable low has occurred. The 50DMA is looking like a pivot again and as it turns up, the bias for volatility will go upward. Friday’s 7.2% pop seemed to validate my incremental confidence in the low: it was a neat pop over the 50DMA.

As I noted last week, even ProShares Ultra VIX Short-Term Futures (UVXY) seems to be trading differently. I was indeed fortunate to lock in profits on my latest round of UVXY puts as it failed to break the low of the huge surge on July 17, 2014.


Is UVXY actually going to avoid continuing its on-going slide for "a while"?

Is UVXY actually going to avoid continuing its on-going slide for “a while”?


The huge caveat for UVXY and volatility is the Federal Reserve meeting coming up Wednesday, July 30th. I have noted recently how these meetings tend to dampen volatility, especially if it has spiked going into the meeting. Although I have yet to verify this casual observation with a review of the historical data, I am guessing the same will be true this time around. I will look to buy puts on UVXY for one more round. This time of course I will be looking to roundtrip on these puts very quickly.

Another interesting caveat is a convincing technical analysis from Schaeffer’s Investment Research that suggests negativity is already high in the market. It is a good quick read; here are the key bullet points for me:

  • Short interest on S&P 500 components is at the 61% percentile as measured over the past 5 years.
  • Short interest on PowerShares QQQ (QQQ) is at the 79% percentile as measured over the past 5 years.
  • Call buying remains “heavy” on the CBOE Volatility Index. If this call-buying has become a crowded trade then the VIX is not likely to bottom here. Schaeffer’s points out that these call options serve as hedges that will likely prevent deep selling in the market.
  • A Bank of America-Merrill Lynch survey of fund managers indicates heavy weighting in European shares. I pointed how European indices have under-performed the S&P 500 in July. This move is consistent with Schaeffer’s guess that these fund managers will move money from Europe to the U.S.

The point on the high amount of short interest on QQQ is particularly poignant given constant tweets from Doug Kass on accumulating shorts on QQQ (no matter what) as if it is a contrarian move against euphoric trading. These short interest readings are hardly the stuff of euphoria. Instead, tech shorts are in very good company.


Hard to call a top in the middle of a strong uptrend...

Hard to call a top in the middle of a strong uptrend…


I think it is also helpful to remember that the public in general is not paying much attention to the stock market: stock ownership on a global basis is at its lowest level since 1959 when measurements began. As I have heard elsewhere, the current bull market could be one of the most hated in history.

On the other hand, Schaeffer’s reminds us that August and September tend to be the weakest months of the year, on average. You can see something similar in my “Buy In July” piece.


July's average rank is a respectable 5th place, making it a standout in the dreaded May to October period

July’s average rank is a respectable 5th place, making it a standout in the dreaded May to October period


In other words, August and September provide plenty of fodder for an increase in the VIX and an accompanying sell-off. Overall, Schaeffer is suggesting that the dips over the next two months should be bought because it is not likely the market has topped out yet. I think T2108 should provide a relatively good guide for these trades with quasi-oversold conditions or just the mere fact it is “close enough” to true oversold conditions relative to past dips.

On Friday, T2108 closed at 47.8% as the S&P 500 (SPY) dipped -0.48%. The 20DMA uptrend remains intact and the bear/bull line at 1962 is still “safe” with the S&P 500 trading at 1978.34.

Above all, remember that the S&P 500 can trade higher even as the market increases its estimate of the likelihood for a 10% pullback. See below how these odds bottomed around 2005…


Complacency in a chart?

Complacency in a chart?


Source: Bank of England June, 2014 Financial Stability Report

Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)


Weekly T2108
Weekly T2108
*All charts created using
freestockcharts.com unless otherwise stated

Related links:
The T2108 Resource Page
Expanded daily chart of T2108 versus the S&P 500
Expanded weekly chart of T2108

Be careful out there!

Full disclosure: no positions

Jul
28

It Was A Great Day for Amazon.com: A Post-Earnings View

written by Dr. Duru
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Everywhere I read or watched coverage of Amazon.com’s earnings announcement, the theme was “are investors fed up with Amazon.com’s constant spending and lack of profits???” I have never understood why investors are willing to cut Amazon.com (AMZN) so much slack, but it is a resilience that should be held in awe…and traded.

Over the past few years, I have concentrated on a very simple post-earnings trade on AMZN: buy the open and sell within two weeks. Stop out if AMZN closes below its low on the first post-earnings day. Shorts are OK after that, but they are even riskier than the buying strategy. One of my last articles on the trade was aptly titled “Amazon.com Returns to Typical Post-Earnings Behavior.” The trade was relatively consistent from 2010 to 2012 and started breaking down from there. I documented results through April, 2013 in a Google spreadsheet. I will be updating it again soon after Friday’s tremendous return of the trade.


Amazon.com surges off its post-earnings low

Amazon.com surges off its post-earnings low


Source: FreeStockCharts.com

AMZN jumped in choppy intraday fashion from its post-earnings open that happened to also be near the low of the day and the lower-Bollinger Band (BB). I bought shares and call options as I have done in previous times: call options to be sold on a quick pop and shares held for the potential of additional gains over the next two weeks. I held the call options for as high as a 73% gain before stopping out to preserve a 38% gain. I am still holding the shares. The big caveat with this trade this time around is AMZN trades below its 50DMA which also happens to align roughly with the lows of a trading range/consolidation phase from June 6 to July 10th. This could/should be stiff resistance.

Nightly Business Report covered AMZN’s earnings and covered all the themes and protestations that have accompanied AMZN’s latest display of losses:

Start at the 5:20 market…

Full disclosure: long AMZN

Jul
23

T2108 Update (July 23, 2014) – Post-Earnings Special for Apple, Intuitive Surgical, and Whirpool

written by Dr. Duru
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(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are posted on twitter using the #120trade hashtag)

T2108 Status: 54.80%
VIX Status: 11.5
General (Short-term) Trading Call: Bullish bias now. Aggressive traders with shorts on the S&P 500 should be stopped out. Bulls continue holding. Bear/bull line remains at 1962.
Active T2108 periods: Day #263 over 20%, Day #115 over 40%, Day #4 over 50% (overperiod), Day #10 under 60% (underperiod), Day #13 under 70%

Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary
The S&P 500 (SPY) closed at a fresh (marginal) all-time high. T2108 trickled higher to 54.8%. The VIX, the volatility index, moved lower and is ever lower to completely reversing last Thursday’s monster surge in volatility. If it were not for the all-time high, this day would be unremarkable from a technical trading perspective.

For today’s T2108 Update, I am skipping straight to three stock reviews: Apple (AAPL), Intuitive Surgical (ISRG), and Whirlpool (WHR). All three stocks experienced notable post-earnings reactions that provide good trading lessons.

Apple (AAPL)
I covered the pre-earnings trade for AAPL in “The Apple Pre-Earnings Trade: July, 2014 Edition” and a quick follow-up in the last T2108 Update. I went to sleep thinking that I would have a chance to load up on call options at a steep discount based on AAPL trading down 0.5% or so in after hours. I was quite surprised to find the situation reversed in the morning with AAPL even gapping up slightly. With the stock closing the day at $97.19, up 2.6%, anyone who followed the original trading plan of a $95/96 call spread did very well with a rough doubling in value – as targeted. If only AAPL had traded DOWN ahead of earnings, I too would have been right there with you!


AAPL earnings propel the stock to a fresh 52-week high and a fresh resumption of it suptrend

AAPL earnings propel the stock to a fresh 52-week high and a fresh resumption of it suptrend


I did stay committed to the plan to get long post-earnings even with AAPL opening to the upside. I bought call options right after the open. Options across the board were all down significantly as the implied volatility premium evaporated quickly (and market makers celebrated). Whether up or down, AAPL’s small price move validated my assessment to play the pre-earnings trade conservatively with spreads. Even as the stock started higher, my call options first LOST value as the pre-earnings premium continued to seep away. I was of course dismayed, but at some point the tide turned and the options gained with the stock. (A limit order to double down on my position was never filled). I promptly sold when the value of the call options nearly doubled: quick doubles in options trading almost always get sold just on principle. I also consider myself fortunate to generate the same return as if I had followed the original plan.

Anticipating a typical Friday letdown I bought a small number of put options, but I think I was too early.

I listened to the earnings conference call and only heard one small thing that worried me slightly. It seems that the momentum in iPads has notably slowed and the prospects are lukewarm. Here is a quote from Seeking Alpha transcripts:

“iPad sales met our expectations but we realized they didn’t meet many of yours. Our sales were gated in-part by a reduction in channel inventory and in-part by market softness in certain parts of the world. For example IDC’s latest estimate indicates a 5% overall decline in the U.S. tablet market, as well as a decline in the Western European tablet market in the June quarter.

But what’s most important to us is that customers are enjoying their iPads and using them heavily. In a survey conducted in May by ChangeWave, iPad Air registered a 98% customer satisfaction rate, while iPad Mini with retina display received an astonishing 100% customer satisfaction rate. The survey also found that among people planning to purchase a tablet within 90 days, 63% plan to buy an iPad and our own data indicates that more than half of customers purchasing an iPad are buying their very first iPad.

Another recent study by Custora found that iPad accounts for 80% of all U.S. tablet based e-commerce purchases. We’re very bullish about the future of the tablet market and we’re confident that we can continue to bring significant innovation to this category through hardware, software and services. We think our partnership with IBM, providing a new generation of mobile enterprise applications, designed with iPad’s legendary ease of use and backed by IBM’s cloud services and data analytics will be one such catalyst for future iPad growth.”

First, I was surprised to hear Cook acknowledge that results did not meet analyst expectations. If they met company expectations, he should not really care about analyst expectations. The commentary on iPads gets a little stranger when Cook says that the most important thing is that customers enjoy their iPas and use them a lot. This sounds like a subtle nod to a soft upgrade cycle for iPads. Softness in consumer upgrades sure puts the IBM deal in a fresher light. It is certainly no accident that Cook ended his commentary connecting the iPad’s promise to the enterprise vistas opened wider with the IBM partnership.

Cook let slip another interesting point that I believe is new. It has become standard in earnings conference calls for Cook and team to brag about AAPL’s broad reach across companies in the Fortune and Global 500. However, THIS time Cook noted that the penetration rate into these companies is very low:

“We also are in the — virtually all Fortune 500 companies, we are in 99% of them to be exact and 93% of the Global 500. However, when we dig into the business market deeper, though our market share in the U.S., in the commercial sector is good at 76% — this is according to IDC; the penetration in business is low. It’s only 20%. And to put that in some kind of context, if you looked at penetration of notebooks in business, it would be over 60%.”

It seems to me that the penetration rates are just as important, if not more so, than the reach. Cook of course twists this low penetration into an opportunity given all the notebooks that can be cannibalized. Again, the IBM deal makes even MORE sense knowing the poor penetration rate.

Intuitive Surgical (ISRG)
I tried and tried to get long ISRG ahead of earnings but the spreads on the options were just too wide, and I was too cheap. I liked the stock’s stabilization at the 50DMA ahead of earnings. Given my bullish bias on the stock (as explained in earlier posts), I was inclined to give this trading action a positive interpretation.

ISRG did not report anything stellar, it just was not more bad news. Still, I was blown away by the 50 point, 13% gap up at the open. This action immediately put me on watch for a shorting opportunity to bet that such an extension above the upper-Bollinger Band (BB) would get faded as is usually the case, even post-earnings. However, after seeing ISRG’s continued strength in earlier over-extension episodes (see chart below), I decided to stay put. My bullish bias was the clincher in preventing me from making a regret-filled move: ISRG continued higher for 20 MORE points! The lessons here are never get over-confident about a technical trading pattern and always watch for confirmation/contradiction in the historical record for an individual stock.


Intuitive Surgical soars post-earnings but remains below the April 1st open on new product news

Intuitive Surgical soars post-earnings but remains below the April 1st open on new product news


Whirlpool (WHR)
WHR finally printed a stinker for its earnings report. The company guided down:

“Whirlpool Corporation has adjusted its full-year 2014 guidance to reflect trade customer inventory transitions in China related to the pending acquisition of a majority stake in Hefei Rongshida Sanyo Electric Co., Ltd. and investment expenses related to the pending acquisition of a majority stake in Indesit Company S.p.A. The company expects full-year net earnings per diluted share of $10.30 to $10.80 and full-year ongoing business earnings per diluted share of $11.50 to $12.00.”

Previous guidance was for FY14 EPS of $12.00 to $12.50. The stock gapped down abut 3%, and I braced for a fresh downward plunge on the fresh breakdown below 50DMA resistance. I practically fell out my chair when I saw how the stock closed. A sharp reversal for a GAIN of 1.4%. The stock was stopped cold just under its 200DMA. A close above that resistance would be a very bullish signal.


Post-earnings Whirpool prints a strong reversal pattern that typically marks a lasting bottom. Just a 200DMA separating the stock from a fresh bullish run

Post-earnings Whirpool prints a strong reversal pattern that typically marks a lasting bottom. Just a 200DMA separating the stock from a fresh bullish run


Earnings season so far has produced some good results and healthy stock reactions. The sporadic jitters going into earnings have almost all faded away. Traders should assume net-net that the market is back to looking for reasons to buy earnings stories, not sell them.

Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)


Weekly T2108
Weekly T2108
*All charts created using
freestockcharts.com unless otherwise stated

Related links:
The T2108 Resource Page
Expanded daily chart of T2108 versus the S&P 500
Expanded weekly chart of T2108

Be careful out there!

Full disclosure: long AAPL puts

Jul
23

T2108 Update (July 22, 2014) – S&P 500 Presses Against All-Time Highs And Bottoming Volatility (Includes Chart Reviews And Addendum for Apple Pre-Earnings Trade)

written by Dr. Duru
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(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are posted on twitter using the #120trade hashtag)

T2108 Status: 53.0%
VIX Status: 12.2
General (Short-term) Trading Call: Hold. See below.
Active T2108 periods: Day #262 over 20%, Day #114 over 40%, Day #3 over 50% (overperiod), Day #9 under 60% (underperiod), Day #12 under 70%

Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary
The S&P 500 (SPY) pushed higher to a new (marginal) intra-day all-time high but failed to hold for a fresh all-time closing high. Regardless, the index confirmed it wants to maintain the bullish trend and critical support I pointed out in the last T2108 Update.


The S&P 500 keeps its head up

The S&P 500 keeps its head up


At these levels the index is once again working on the rare feat of entering the next overbought period at a HIGHER level than the last overbought period. T2108 closed at 53.0%, implying the market has plenty of upside potential for the next phase of trading (overbought triggers at 70%). Aggressive traders who still have shorts on the index should stop out after/if the S&P 500 closes at a fresh all-time high (the on-going churn is the price to pay for being aggressive).

On the flip side, the VIX, the volatility index, is showing more hints of bottoming. I have been watching it ever more closely since last Thursday’s monster surge. Volatility faded as expected, but today I detected potential confirmation of a bottom as the 50DMA has held as support on the third post-surge day. Ever so slowly, the 50DMA is transforming from a downtrending cap on volatility to support.


Volatility continues to look like it is finally bottoming

Volatility continues to look like it is finally bottoming


This observation motivated me to close out my put options on ProShares Ultra VIX Short-Term Futures (UVXY). Ironically, while I nailed the fade with a first tranche of puts at the high of UVXY on Thursday, the subsequent fade barely increased the value of the put. I braced myself for a reversal and sure enough Monday delivered. I stuck to plan and added another tranche of puts. Tuesday’s fresh decline got me impatiently anticipating a fresh swoosh lower. After a big swoon failed to materialize, I hurriedly closed out the position to preserve profits. The chart on UVXY is behaving a bit differently than earlier rendezvous with fresh all-time lows: it has built a small base for almost three weeks at its all-time low. UVXY is acting like it actually wants to put on a show up and to the right….


Is UVXY trying to bottom along with volatility?

Is UVXY trying to bottom along with volatility?


The implications of increasing volatility are many. While the S&P 500 can certainly continue increasing while the VIX trickles upward, we should expect the index to trade down at any moment volatility erupts to the upside. Volatility is so low now that the market implies there is little chance of a 10% correction (according to the Bank of England):


Complacency in a chart...

Complacency in a chart…


Notice how the odds of a big correction bottomed out 2 or 3 years before the big one finally hit.

The next two charts give homage to a potential bottom in volatility as they feature likely tops.

Acuity Brands, Inc. (AYI) is a cyclical company that provides lighting solutions mainly to commercial real estate. The stock broke down for a major post-earnings loss on July 1st. The trickle of selling since then has confirmed an important breakdown below the 200DMA. A gap fill should be around the corner for the next major test. A break below this support would be a major bearish event. Even if the stock rallies from here instead, it should meet stiff overhead resistance at the 50 and 200DMAs as a double-top now looms heavy on this stock.


Acuity Brands, Inc. (AYI) breaks down and confirms a likely double top

Acuity Brands, Inc. (AYI) breaks down and confirms a likely double top


Michael Kors Holdings Limited (KORS) recently gave way under the weight of a slew of downgrades. The stock was already struggling to hold on after two breaks below 50DMA support. A high-volume plunge below the 200DMA flashed a major warning signal. Sure enough, the downgrades came the next day among a lot of downside fireworks. The stock plunged one more time the next day on a big gap down. As we observe so often, a stock rarely holds far below its lower-Bollinger Band for long. KORS snapped back like a rubberband and has churned ever since.


Looks like a top is in for Michael Kors Holdings Limited (KORS)

Looks like a top is in for Michael Kors Holdings Limited (KORS)


Now let’s swing over to a stock that might be bottoming after a series of under-performing months: Oaktree Capital Group, LLC (OAK). I have been eyeing this stock for a new buy point for a long time. Here is the description from Yahoo! Finance:

“Oaktree Capital Group, LLC operates as a global investment management firm that focuses on alternative markets. It manage investments in a number of strategies within six asset classes, including distressed debt; corporate debt, including high yield debt and senior loans; control investing; convertible securities; real estate; and listed equities. The company pursues these strategies through closed-end, open-end, and evergreen funds. Oaktree Capital Group, LLC was founded in 1995 and is headquartered in Los Angeles, California.”

With a 7.8% yield now, the stock is looking pretty juicy for a fresh purchase. It is of course the kind of “reach for yield” that has central banks across the globe increasingly complaining even as it is essentially their low-rate policies that both motivate and enable the reaching. OAK is full of special investments that are attractive in a low-rate environment. For example, the WSJ recently reported that OAK may be joining forces with Blackstone (BX) to purchase $8.84B in Spanish loans. (gulp!)

From a technical standpoint, OAK hit two important milestones. First, on July 8th it printed a hammer on high-volume. The buying off the lows continued and confirmed the bottom. This week buying volume picked up again to push OAK over pesky and persistent 50DMA resistance. This combination makes a very convincing case for a bottom.


Oaktree Capital Group, LLC (OAK) may have finally hit rock bottom

Oaktree Capital Group, LLC (OAK) may have finally hit rock bottom


I conclude the chart reviews with a bullish chart that I promised to brich2day on StockTwits. This user wanted to understand my commentary on the post-earnings outburst on Crocs (CROX).


My attempt at explaining my amazement with the outburst from Crocs (CROX)

My attempt at explaining my amazement with the outburst from Crocs (CROX)


The chart below shows the neat consolidating channel that no longer has CROX trapped. Regular readers know I pointed out CROX as a buy after it surged to end 2013. Regular readers should also know that it is typically good to stay patient after such extensions well past an upper or lower Bollinger Band. Hard to believe I had to wait THIS long for the pay-off after I neatly entered a position as the 200DMA got tested. I promptly took profits with the stock so far above its upper-Bollinger Band (again, standard practice). I will be looking for another post-breakout fade for the next buying point.


An outburst from CROX...finally.

An outburst from CROX…finally.


Finally, a quick follow-up to the July pre-earnings trade for Apple (AAPL). I neglected to point out that IF AAPL closed for a gain ahead of earnings then the bullish signal would get muddied. I decided to respond to the move higher by putting in TWO orders, one for a call spread and another for a put spread. Neither triggered as the market refused to give me a good entry price (I really wanted to go long).


Sure enough, AAPL made a decent gain of 0.8% going into earnings. It dropped 0.5% in after-hours trading post-earnings. Essentially, the stock is fading the pre-earnings gains. As I stated in the earnings trading plan, I am firmly focused on buying a post-earnings dip (before switching back to using the Apple Trading Model). AAPL’s earnings were fine and did not change the fundamental bullish trading (or investing) thesis.

Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)


Weekly T2108
Weekly T2108
*All charts created using
freestockcharts.com unless otherwise stated

Related links:
The T2108 Resource Page
Expanded daily chart of T2108 versus the S&P 500
Expanded weekly chart of T2108

Be careful out there!

Full disclosure: long OAK

Jul
21

The Apple Pre-Earnings Trade: July, 2014 Edition

written by Dr. Duru
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It is earnings time for Apple (AAPL). Expectations are undoubtedly high after April’s huge post-earnings surge – the 8.2% one-day gain is, since 2007, second only to the 8.9% gain in April, 2012. The subsequent run-up certainly has me thinking AAPL has confirmed my expectations for eventual all-time highs. It is now time to temper expectations a bit, but the technicals and history are still on the side for another post-earnings gain. I was not able to update the Apple pre-earnings analysis ahead of April earnings, but hopefully regular readers were able to get what they needed from previous posts to know to go bullish in April.

First, a reminder that since 2007, AAPL tends to deliver a gain the day after reporting earnings: 18 of 30 (60%) of earnings have done so. However, only TWO of the last 8 earnings announcements have delivered positive gains. AAPL’s earnings “mettle” has clearly become tarnished.


Number of Positive Versus Negative One-Day Reactions to Apple's Earnings By Month of the Year (Since 2007)

Number of Positive Versus Negative One-Day Reactions to Apple’s Earnings By Month of the Year (Since 2007)


Note the strong bullishness of April earnings reports. I was fortunate enough to start this analysis before the April, 2012 earnings, and it gave me the confidence to continue this analysis. July is second to April in bullishness. The other two earnings seasons are actually net bearish.

The distribution of post-earnings gains shows some real promise if a trader nails the direction correctly. However, despite the bullish bias in AAPL’s post-earnings behavior, the distribution skews toward large downside potential with a median price change of 2.5% while the average is only 1.0%. In other words, WHEN AAPL screws up, it tends to do so in a big way.


Distribution of One-Day Price Changes After Apple Reports Earnings (Jan, 2007 to Apr, 2014)

Distribution of One-Day Price Changes After Apple Reports Earnings (Jan, 2007 to Apr, 2014)


The most interesting correlations are those where actual trading provides indicators for future trading. In AAPL’s case, April is unfortunately the only earnings month where very clear and strong relationships exist. April has a strong inverse correlation between AAPL’s price change at the close before earnings and AAPL’s price change the day after earnings. Sure enough, this past April, AAPL traded down 1.3% just ahead of earnings – a notable move when the average change is only 0.1% and the median is 0.7%.

Click for a larger view…


Correlation of Apple's Various Average Daily Pre-Earnings Price Change to the One-Day Post-Earnings Price Change Sorted By the Month of Earnings

Correlation of Apple’s Various Average Daily Pre-Earnings Price Change to the One-Day Post-Earnings Price Change Sorted By the Month of Earnings


Removing the segmentation by earnings month, there is an increasingly strong (inverse) correlation between the price change at the close before earnings and the post-earnings 1-day price change. The last 4 earnings have delivered a nearly perfectly inversely correlated relationship. The last 4 earnings also stand out for a strong inverse relationship between the average price change in the 14-days prior to earnings and the post-earnings price change.

Click for a larger view…


Correlation of Apple's Various Average Daily Pre-Earnings Price Change to the One-Day Post-Earnings Price Change

Correlation of Apple’s Various Average Daily Pre-Earnings Price Change to the One-Day Post-Earnings Price Change


Here are charts showing the time series of the average daily price changes for 7 and 14 days prior to earnings. As of Friday, July 18, AAPL was down an average 0.3% for the past 7 days and down an average 0.1% for the past 14 days. AAPL finished down 0.5% on Monday, thus nearly guaranteeing negative averages going into the close on July 22nd ahead of earnings – and adding a slight tip to the bulls for the day after earnings.

Click for a larger view…


Apple's Average Daily Price Change During the Weeks Prior to Earnings Since 2007

Apple’s Average Daily Price Change During the Weeks Prior to Earnings Since 2007

AAPL has churned with a slight downward bias going into July earnings as 2014's rally stalls

AAPL has churned with a slight downward bias going into July earnings as 2014′s rally stalls


Source for graph: FreeStockCharts.com

So how to play the slight bullish bias? If you are only an investor, there is nothing to do except to sit back and watch the cows come home. :) If you want to trade the post-earnings reaction, I recommend just conservative plays. I prefer call options. The market has already priced in about a 3% gain post-earnings for the call options expiring on Friday, so the bar is very high for making any money. A bullish call spread is the most effective way around these excessive premiums. If a trader targets a conservative 2% gain from Monday’s $94 close, this gives a $95.88 target. The $95/$96 call option costs about $0.40/per spread. So, this leave an opportunity to roughly double your money assuming an expiration at $95.80 or above. There are of course many potential configurations to suit your trading style and risk tolerance.

Another interesting play is to WAIT until after earnings. Assuming AAPL’s July earnings do not hurt the fundamental upward and bullish bias, any post-earnings dip is buyable. After earnings, I will return to playing the Apple Trading Model (ATM). I have updated the regression (decision) trees through Friday, July 18. You can access the links and an additional explanation in this article: “Apple Trading Model – Preparing for A Potential Change In Trading Patterns.” If AAPL sells off after July earnings, I will update an old analysis showing likely times to expect a post-earnings bottom for AAPL.

I am always interesting in hearing feedback on these modeling exercises. Good luck to all!

Be careful out there!

Full disclosure: long AAPL call option (note this is leftover from a failed play for a typical Monday pop in AAPL)

Jul
19

T2108 Update (July 18, 2014) – S&P 500 Snap Back Preserves Important Bullish Trend and Support

written by Dr. Duru
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(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are posted on twitter using the #120trade hashtag)

T2108 Status: 51.3%
VIX Status: 12.1 (a 17.1% drop!)
General (Short-term) Trading Call: Hold. See below.
Active T2108 periods: Day #260 over 20%, Day #112 over 40%, Day #1 over 50% (overperiod), Day #7 under 60% (underperiod), Day #10 under 70%

Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary
In the last T2108 Update, I managed to say all the right things to characterize the technical picture and the risks for bears and bulls. However, I managed to miss perhaps the most important signal which was what the forex (currency exchange) market was saying about Thursday’s sudden sell-off.

In “Forex Mainly Yawns As Stock Market Volatility Finally Surges Off Lows” I pointed out how the typical risk/fear plays did not manifest in the forex market in reaction to or in response to Thursday’s selling. Most importantly, AUD/JPY, the Australian dollar (FXA) and Japanese yen (FXY) currency pair, bounced back quickly before the U.S. market closed on Thursday. Well before it opened again, AUD/JPY had already started to trade HIGHER. The bottom-line was that Thursday’s selling did not have sufficient conditions for me to switch the trading call to an outright bearish one. Indeed, the snap back on Friday was almost as swift and vicious as Thursday’s plunge.


The S&P 500 snaps back

The S&P 500 snaps back


T2108 also surged nearly reversing all of Thursday’s losses. It closed the day at 51.3%. I was actually a bit disappointed the market did not deliver a gap down on Friday because it would have created clear quasi oversold conditions which would have finally triggered my purchase of call options on ProShares Ultra S&P500 (SSO).

The most important development for T2108 is that the pattern of higher lows from last year’s oversold conditions remains intact. This creates a VERY bullish case for aggressive traders to, yes (sorry!), churn again to look for opportunities to go long the S&P 500 (SPY). My choice for now remains to fade volatility, and I held onto my put options on ProShares Ultra VIX Short-Term Futures (UVXY).

I switched the trading call to hold to basically say that whether you are bearish or bullish, you have enough reasons to hold onto your positions if you did not already get stopped out: bears should stop out at fresh all-time highs (but likely will not given what the commentary I see from various bulls), bulls should stop out if Thursday’s lows get breached. In both cases, these triggers are for risk management (of losses). The risks of churn remain high although I think we are close to a new sustained trend, perhaps after the coming week of earnings.

The volatility index, the VIX, is the biggest source of caution for the bulls. While I think it will continue to fade this coming week, Thursday’s surge could very well FINALLY mark a bottom for the VIX. The S&P 500 can of course continue higher at higher levels of volatility, but higher volatility will likely mean buying dips rather than breakouts will remain the preferred way to get long. I may make ONE exception at the moment T2108 re-enters overbought territory.


The VIX plunges...and confirms resistance at the 15.3 pivot

The VIX plunges…and confirms resistance at the 15.3 pivot


I had a VERY interesting exchange on Saturday (July 19, 2014) on twitter with master “old school” technical trader Helene Meisler. She noted the impressive surge in breadth on the NYSE on Friday while another trader corrected her on the timeframe for the last time breadth was this good. I noted that when breadth was last this good it occurred during a time when it looked like the market was finally topping (I even went so far as to call a market top later that month!). Meisler made the excellent point that this time is different because of the sell-off in small-caps. In other words, the strong breadth this time around is not likely a blow-off of the last eager buyers; it is instead likely the eager rush of “bargain shoppers” stepping into the breach left by sellers.


A strong surge in NYSE breadth may indicate the beginning of a fresh rally for stocks

A strong surge in NYSE breadth may indicate the beginning of a fresh rally for stocks


Source: Twitter

Contrast this observation to a bearish thesis grasping for a reason to stay bearish.


I will not go into the overall context since Kass churned rapidly in and out of his positioning through the rapid events. Just note that the switch back to net short happened within the first few minutes of the U.S. open, before it was clear that breadth was so strong. From my perspective, using the technicals I described for Thursday, the sudden gap up was an early warning/confirmation that the market was already prepared to leave Thursday’s pessimism behind. My advice to aggressive (bearish) traders in the last T2108 Update was to go short preferably on a fade. The gap above the old bear/bull line of 1962 on the S&P 500 hopefully told you folks to be cautious and stay patient. I definitely understand if you chose to fade near the close – just stay on your toes and continue to consider all such trades to be very short-term for now. The only thing in your favor right now is that the S&P 500 did not manage to recover ALL its losses from Thursday.


This 15-minute look at intraday trading makes the latest 2-day episode look like another fake breakdown below the 1962 bear/bull line

This 15-minute look at intraday trading makes the latest 2-day episode look like another fake breakdown below the 1962 bear/bull line


Kass’s idea to take into consideration the impact of options expiration is a good one. However, to interpret it better, I would like to know whether traders were positioned very bullishly or bearishly going into Friday. Absent that info, Monday becomes a critical test for follow-through. Stay tuned…!

Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)


Weekly T2108
Weekly T2108
*All charts created using
freestockcharts.com unless otherwise stated

Related links:
The T2108 Resource Page
Expanded daily chart of T2108 versus the S&P 500
Expanded weekly chart of T2108

Be careful out there!

Full disclosure: long UVXY puts

Jul
17

T2108 Update (July 17, 2014) – A Bullish Trend Suddenly Hanging By A Thread

written by Dr. Duru
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(T2108 measures the percentage of stocks trading above their respective 40-day moving averages [DMAs]. It helps to identify extremes in market sentiment that are likely to reverse. To learn more about it, see my T2108 Resource Page. You can follow real-time T2108 commentary on twitter using the #T2108 hashtag. T2108-related trades and other trades are posted on twitter using the #120trade hashtag)

T2108 Status: 42.6%
VIX Status: 14.5 (a 32% increase!)
General (Short-term) Trading Call: Should be stopped out S&P 500 longs. Aggressive traders can go bearish for wing trades until/unless T2108 returns to overbought territory. See below.
Active T2108 periods: Day #259 over 20%, Day #111 over 40% (overperiod), Day #1 under 50% (underperiod), Day #9 under 70%

Reference Charts (click for view of last 6 months from Stockcharts.com):
S&P 500 or SPY
SDS (ProShares UltraShort S&P500)
U.S. Dollar Index (volatility index)
EEM (iShares MSCI Emerging Markets)
VIX (volatility index)
VXX (iPath S&P 500 VIX Short-Term Futures ETN)
EWG (iShares MSCI Germany Index Fund)
CAT (Caterpillar).

Commentary
The S&P 500 (SPY) quickly went from a whiplash for the bears to a true retreat for the bulls.


The primary uptrend for the S&P 500 ends with a decisive blow

The primary uptrend for the S&P 500 ends with a decisive blow


T2108 accompanied the market sell-off with a massive drop from 54.2% to 42.6%. The resulting -21.5% change in T2108 ranks #229 in size of NEGATIVE plunges since 1986. T2108 has had drops of similar magnitude on January 24 and February 3 of this year. So today’s action did not provide a sufficient signal that a sustained top is in the market. However, the close below the bear/bull line at 1962 on the S&P 500 qualifies to switch the trading call to bearish for the most aggressive traders (fades are of course ideal). Churn remains a huge risk, especially with earnings season in full swing, so bearish trades should be considered very short-term.

Another risk for bearish trades could be quasi-oversold conditions. These conditions occur after a 2-day decline of T2108 totaling at least 20%. Both days should feature “significant” declines (loose definition is on purpose). Typically, after such plunges, the S&P 500 experiences sharp reversals (upward). True oversold occurs when T2108 hits 20%, but we have not seen THOSE conditions in over a year! The 20% “overperiod” is now on day #259 and counting. T2108 will also be experiencing a critical test of the higher lows it has printed since oversold conditions in June. It is a bullish trend now suddenly hanging by a thread. I will consider a CLOSE below 39% on T2108 as a very bearish change in the fundamental underlying character of the market. That is, I will tend to “err” on the side of bearishness when signals are mixed.


The fundamentally bullish undertones of the market are "threatened" by the potential end of the higher lows on T2108 since 2013's oversold period

The fundamentally bullish undertones of the market are “threatened” by the potential end of the higher lows on T2108 since 2013′s oversold period


The ostensible explanations for the market’s down day rest on negative geo-political headlines from Gaza and Israel and the tragic crash of a Malaysian airline in Ukraine. No one will be able to explain why THESE headlines are more important than all the other negative headlines the market has essentially ignored recently. All we really know is that the market is bullish until it’s not. Or perhaps the Federal Reserve’s posturing this week on valuations is playing with people’s heads…

In the meantime, I faded ProShares Ultra VIX Short-Term Futures (UVXY) on principle: the VIX surged over 30%. Such a sudden and sharp intensification of fear does not last. The only question is how much higher it will go until it experiences the first fade. I will accumulate puts if the market serves them up at lower prices. Note that this trade does NOT come with a bullish or bearish call on the S&P 500. It is a call specifically on volatility that I think is more reliable than a directional bet on the S&P 500 here. The lower T2108 drops, the less sustainable such surges in volatility become. Stay tuned….


The VIX surges...and amazingly manages to stop cold at the old 15.35 pivot (you just can't make this stuff up!)

The VIX surges…and amazingly manages to stop cold at the old 15.35 pivot (you just can’t make this stuff up!)

UVXY interrupts its regularly scheduled downtrending programming....

UVXY interrupts its regularly scheduled downtrending programming….


Daily T2108 vs the S&P 500

Black line: T2108 (measured on the right); Green line: S&P 500 (for comparative purposes)
Red line: T2108 Overbought (70%); Blue line: T2108 Oversold (20%)


Weekly T2108
Weekly T2108
*All charts created using
freestockcharts.com unless otherwise stated

Related links:
The T2108 Resource Page
Expanded daily chart of T2108 versus the S&P 500
Expanded weekly chart of T2108

Be careful out there!

Full disclosure: long UVXY puts

Jul
14

Some Chart Reviews Before Earnings Potentially Change Everything: RAX, MLNX, DBA, JJA, KBH, BBY, IBM, VLO

written by Dr. Duru
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Technical analysis becomes particularly precarious during earnings season, but there are some intriguing charts I felt compelled to post anyway. Some telling and strong stories here…

Rackspace Hosting, Inc. (RAX)
RAX has given back all its gains from the initial excitement over the potential for “strategic alternatives.” Bears have added insult to injury by rushing back into battle. Note that the open interest put/call ratio has also plunged to at least 2-year lows, so shorts are likely well-hedged…just in case.


RAX has almost returned all its gains from initial excitement over "strategic alternatives"

RAX has almost returned all its gains from initial excitement over “strategic alternatives”

Shorts have rushed back into RAX as potential for a deal diminshes

Shorts have rushed back into RAX as potential for a deal diminshes


Source: Schaeffer’s Investment Research

Mellanox Technologies, Ltd. (MLNX)
MLNX has struggled o build on the positive catalyst of insider buying. I remain bullish but missed this latest jump into 200DMA resistance. Once MLNX finally makes a higher high, I will get more bullish and much more aggressive in trading/buying the stock.


Mellanox Technologies struggles to build on positive catalyst of insider buying

Mellanox Technologies struggles to build on positive catalyst of insider buying


PowerShares DB Agriculture (DBA)
iPath DJ-UBS Agriculture TR Sub-Idx ETN (JJA)

What in the world is going on with agriculture stocks?!? The worst drought in California’s history is clearly not a concern across major ag-related indices. I really hope to have some time in coming weeks to study this closer. It is yet one more signal that casts doubt that inflation is a looming problem – even if food is not a core component of the inflation index.


Major breakdown in DBA

Major breakdown in DBA

JJA has been completely demolished

JJA has been completely demolished


KB Home (KBH)
I was soooo hopeful that the post-earnings excitement would finally be sustained. Instead, a fresh retest of support has greeted a strong fade of the initial post-earnings surge.


Same old story: good earnings news and a fade

Same old story: good earnings news and a fade


Best Buy Co., Inc. (BBY)
As I feared, the 200DMA served as stiff resistance for BBY. I have five more months to go on this call spread play. If the market turns its attention to Citigroup’s hike of its price target, then I should be golden. Still clinging to profits…


Best Buy fails the test

Best Buy fails the test


International Business Machines Corporation (IBM)
IBM has followed through with its 50DMA breakout after a short period of consolidation. This is very bullish. I need strong follow-through this week though!


IBM follows-through on its 50DMA breakout - very bullish

IBM follows-through on its 50DMA breakout – very bullish


Valero Energy Corporation (VLO)
I have kicked myself for a long time now for not participating in the recent run-up in refiner stocks. I was very bullish refiners back during the run-up at the end of the last bull market. I had promised myself to stay alert for an opportunity to buy back in. Neither a bottom or several breakouts later got me back in. Now, I just keep watching…


Valero faces a critical retest of 200DMA support as a negative news cycle settles in

Valero faces a critical retest of 200DMA support as a negative news cycle settles in


Full disclosure: long KBH, long BBY call spread, long IBM call spread

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