Archives


 

us stock market, stock watch

[Weekend Summary]

Dear Member:

If this week told us anything, it is that the markets are waiting to see what the Fed is going to do about interest rates next week. I made the mistake of turning on the TV this morning and heard three talking head experts tell me what the Fed is going to do. One said definitely a quarter point rate hike; another said no hike, a pause; the third, believe it or not, assured me that there would be a rate reduction. I remember why I watch the stock shows with the volume turned off.

I see nothing but indecision in the markets for now. The Nasdaq was down a little (-9), the Dow Industrials were barely up (+20) and the SP-500 was essentially flat. Both the Dow and the SP-500 closed again at resistance.

So far, the downtrend is in place. If the Fed reduces the rate (very low probability) the markets will probably jump. If the rate is left alone the market movement will probably be dependent on the accompanying Fed commentary and there will be a slight bias up. If rates are raised again, the accompanying commentary will be very important, but the market bias will probably be down.

There you have it. I've taken 3 full paragraphs to tell you I don't know either. My current bias is still to the downside, but it is a very weak bias and absent some wild news event the Fed is in control of market direction. They haven't called to tell me what they are going to do.

As you may recall, I have a bearish call spread on the Diamonds (DIA) where I sold the Aug 112 calls and bought the Aug 113 calls. This morning during the first hour, the market jumped well over 113 and I was asked what I intended to do. Since the jump was in that first hour, sometimes called "amateur hour" I decided to do nothing and wait. Before two hours passed, it was back below 113 and continued a descent below 112. However, in the last hour, it turned and moved back up producing some strong volume on the 5 minute chart. All this to say the spread will be watched carefully as this indecisive market develops. Again, I suspect Fed action or inaction will determine what, if anything, I need to do. I write all this simply to explain my thought process and not because of any distress with the play.

This week, I made a couple of adjustments for technical reasons. I closed the short leg of my spread (long Jan '08 2.50 calls and short Dec '06 5 calls) on Sirius (SIRI)when it appeared that the stock had broken the downtrend. I created a spread on SPY by selling to open the Aug 129 calls for 65 cents against my Dec '07 120 calls as SPY hit resistance and drifted back down.

I closed the call leg of my Aug straddle on COP at a profit. Overall, that straddle is under water and I'd like to see a dive so that I could reach breakeven or profit on the put leg. The stock did drop to a support today and could give a little ummmph to my puts if it breaks through.

I also closed the short leg of my spread on BBH and realized a 45 cent a share profit on that leg in 6 days.

Micron (MU) has a long term spread so it is doing fine.

XLK which tracks technology stocks wound up flat this week. I own some LEAPS calls.

I initiated one new play this week, opening a bearish call spread on the S & P Small Cap 600 Index Fund (IJR). I sold the Aug 61 calls and bought the Aug 62 calls as the protective leg all for a net credit before commissions of $0.25. Since the spread is only a dollar, and I brought in 25 cents to open the position, I have 75 cents at risk. If I don't have to do anything and the Index Fund stays below 61 at August expiration, I'll have a 33 1/3% return on risk in a couple weeks.

Get ready for the fireworks next week.

Bill

Home  |  Subscribe |  All Rights Reserved |  Privacy Policy |  Advertising |  Contact Us |  Terms of Use |  Disclaimer |  Links


us stock market
stock watch