New Trades!

Schools's out for two weeks, so now I have a little time to do some more trading!
As always, using my methodology of overbought/oversold and support/resistance, I spotted 3 stocks: TSLA, Z, and LNKD

TSLA

TSLA is testing it's ATH resistance level. It's overbought on all the indicators I use: MACD, RSI, W%R. The trade is -2 SEP14 270/275 call spread @ 1.67. I plan on taking profits between 25% - 50% of the credit. I think that overall market sentiment has changed over the past week, and that investors will be leary before pumping up TSLA above those previous highs... the sell off afterward was quite violent, and nobody wants to be a bag holder this time around!

LNKD

Looks about the same as the TSLA chart, right? LNKD is rampantly overbought, with an RSI reading above 80. Also, notice how volume has been steadily decreasing after that huge gap up while the stock has been steadily increasing. That's not a supportive sign. So, same strategy! -2 SEP14 225/230 call spread @ 1.40

**If either of these stocks meaningfully break through those resistances, then I'll look to get out. To me, that's an unlikely event with the way the markets are right now.

Z

A little while back, I went long Z shares as it was bumping along the 50ma, which has been proven as strong support. Last time, it worked very well! This time I'm playing the options. Since IV is so high (60+%), I could sell a put spread a little farther away from the market and still get a pretty good credit. -2 SEP14 120/125 put spread @ 1.45

**The risk in Z stems from the sell off that happened right after that huge rip. RSI is at levels that have shown strong support since March. If Z meaningfully breaks below the 50ma... then look out below! I'll be looking to get out... or use some non traditional trading strategies to invert the position.

After the success of my last call on the market, I'm trying not to ride a confidence high.

Since these trades were made on Monday, here's a quick P/L of how they're doing:

• TSLA: in @ 1.67, current @ 1.65, profit = $4
• LNKD: in @ 1.40, current @ 1.50, loss = $20
• Z: in @ 1.45, current @ 1.40, profit = $10

You Got Served... Bflakaz was right once again!

As anyone who has been reading this blog in the past month knows, I've been pounding the table saying that stocks were vulnerable and due for a correction, or at the very least a pullback, since late June. Well, well, well... look at what has just unfolded!

All of June AND July's gains were wiped out... WIPED OUT... in a single day. What sent the markets into a tailspin yesterday? An Argentinian debt debacle / default and new concerns over a major European lender, Banco Espirito Santo.

While Q2 GDP was pretty good, coming in at 4% and above the 3% consensus, the economy still only grew by 1% in the first half of 2014. Now when they calculate GDP for a quarter, the reported number is at an annualized rate. If you take the last four months of CPI data, i.e. over the same time that the economy was snapping back from that harsh winter, inflation is at an annualized rate of over 4%. If the trend continues, all eyes will (as if they already weren't) be on the Fed. Will they hike rates sooner to combat inflation? Or will Grandma Yellen say, "We could use a little inflation to really get this recovery going, therefore no rate hike." I believe the latter is more likely, since I've said before that nobody can afford higher interest rates. If they do pull a huge Bernanke and raise rates to combat rising inflation, then it's all over, just like it was in 2006. Ironically, there has not been a rate hike since 2006.

It's also important to take note on the overall atmosphere of the markets... complacent and worry free. Let's take a look at my time stamped tweets on StockTwits: @Bflakaz

Complacent and worry free was the EXACT attitude of the markets in December of 2007, right as shit was really hitting the fan! Now it is important to say that this time is different, since there is no banking crisis about to unfold... unless you look at Europe. But it's also important to say that this time isn't different: The FOMC cannot prop up the stock market. They can't lower rates, and if they unleash QE 4 than it will be just like any 4th movie in a series... overdone, unsatisfying, insignificant, and universally hated.

TAKE THAT NAYSAYERS
AND THIS
AND A LITTLE OF THIS

Sincerely,
Brandon

About that Weekend Review...

On Sunday (scroll down a bit) I posted my nest two trades: TWTR and Z. Both were at strong looking support points. For TWTR, it was a point-and-shoot trade, meaning everything went according to plan; support holds, rallies back up to 20MA, close position. Z on the other hand...

Well, that escalated quickly. Rumor has it that Zillow and Trulia are in merger talks. There is no proof of that, but CNBC was apparently pumping it all afternoon and an immense short covering rally took hold. I had gotten the alert that Z hit its 20MA, the baby blue line, and the next thing I knew the sucker was at $150. I sold out all eight of my shares at 151.67 after buying them Monday at 125.23, making a $211 profit. I'll take that! What luck!

As to what I think about the rumor... it's a rumor. And it doesn't look like many people believe it. In fact, the Z chart looks very similar to what happened to the 3D printing stocks (DDD SSYS XONE) a couple weeks ago:

Some news came out that day of the huge wicked candlestick that Home Depot was going to start selling 3D printers in stores... or something, can't remember off the top of my head. The reason both stocks rocketed was because they have high short interest - people think they're valuations are stretched, to put it lightly. So while it shot up initially, people started shorting and selling again once the "news" set in and things calmed down. DDD SSYS and XONE all sold off considerably in the following weeks.

Do I think Z shares the same fate? No. Z has been in a strong uptrend while the 3D printers have all been in a downtrend and have reversed 40-60% off their highs. But I definitely would not trade Z at these levels, it's too risky: if there really is a merger going through, Z will hit $200. If not, Z will sell back down to pre-rumor levels, $120 ish. I'd rather observe what plays out from the side lines.

July 20 Weekend Review

Bflakaz Weekend Review

July 20, 2014

Recap of Previous Week's Trades

• VIX +10 11/12 SEP14 call spread @ 0.50, out @ 0.95, profit = $450
• AAPL +1 92.5/95 SEP14 put spread @ 1.20, out @ 1.35, profit = $15
• FCX +4 37/38 SEP14 put spread @ 0.45, out @ 0.40, loss = -$20

Management of Current Positions

There are no current positions.

Trade Setups for the Upcoming Week

TWTR

TWTR current IV is around 60%, making it a candidate for credit spreads, not debit spreads. They report earnings on 7/29, next Tuesday, after the market closes. TWTR has good support at the 35 area, and also has found support on that bottom BB recently. It looks like it could be making a double bottom and will head higher to perhaps 39.2X, where the 20sma stands. Additionally, TWTR should found strong support at the 50sma on Friday. Here's the trade: Sell AUG14 34/35 put spread for 0.39 (as of writing)

Z

Z is selling off a little right now, but it's bumping on the bottom BB and approaching the 50sma, where it has found good support numerous times. One could argue that it is forming a head-and-shoulders pattern, but I wouldn't back that up. Those patterns tend to have "longer durations," i.e. the heads and shoulders form over a period of weeks, not days. This name has horrible liquidity in its options, so I'd rather buy a few shares.

Wait a few days... just to make sure support is found and its not a h+s.

VIX Home Run: Anatomy of a Trade

Roughly a month ago, I rebooted my entire trading methodology to include risk control, essentially structuring myself like a hedge fund. It's not entirely finished - the Long Term Invesntment (LTI) and Iron Condor (IC) sectors have not been booted up. It's only been a short while, but the Short Term Trading (STT) sector of the "book" has been doing pretty well, especially after this last trade!

The trade (that will probably be the best of the year) went a little like this:

Here's a daily chart of the Volatility Index (VIX), as seen on July 16:

That orange line is the "floor" on the VIX. it has rallied hardcore every time it nears that floor. The previous time was only a week before when it jumped from just under 11 up to 13 and change. So, I'm thinking it will probably do so again. I chose options that expire in September, as to not suffer from the "death by a thousand cuts" of Theta decay. I also figured that the risk/reward was pretty good, as the floor wasn't too far away, and VIX probably would not penetrate it.

So I bought 10 of the SEP14 11/12 put spread for 0.50, risking $500, or 2.5% of the total STT capital. When analyzing on the new brokerage software, at 13 and change, the previous high, the trade would net about +20%. Not bad. What happened next was kind of total luck...

The VIX skyrocketed 40% higher the next day as the markets sold off on news of the Malaysia Air flight that was shot down over Ukraine, which may or may not have had US citizens on board.

I was at work and was unaware this had happened until about 3pm. I checked my phone and was absolutely elated! (Not at the deaths of innocent people, obviously) I took a look at my VIX position, up $450 and just sold out immediately. What a return, 90%!

That leaves the total profit on STT at $666.15 (oh God!), or +3.33% in about 3 weeks, with an accuracy of 70% (7 winners, 3 losers).

As of now there are no open positions in STT. I'm looking at some new opportunities, but that's in store for the Weekend Review

S&P 500 SHOULD Be Headed For A Correction... SHOULD

According to my recent posts, markets look vulnerable for a correction as we are very, very overbought. GDP disappointed, yet most throw it out as fluke data. The June employment report was the market's "fatal conceit." Sure, NET 288,000 jobs were created. BUT over 500,000 FULL-TIME jobs were lost! Here's a nifty chart from Zero Hedge:

If this recovery is so real and so sustainable as the talking heads would have you believe, then why is there so much more hiring for part time as opposed to full time? Better yet, why are full time positions contracting?

But let's get down to nitty-gritty technicals as opposed to fundamentals, because obviously those don't matter anymore! Quantitative Easing shall never die! Long live central bank manipulation!


Let's look at a chart of the S&P 500 Index (SPX)

The three gray ovals indicate the largest areas of divergence between SPX and its 50sma.

June 9- SPX @ 1955.55, 50sma @ 1883.65. Divergence = 71.9 pts (3.68%).
June 20- SPX @ 1963.91, 50sma @ 1897.42. Divergence = 66.49 pts (3.39%).
July 3- SPX @ 1985.59, 50sma @ 1917.62. Divergence = 67.97 pts (3.42%).

As you can see, though, SPX hardly declined after being so rampantly overbought. The last time the RSI was above 70 was on June 9 and SPX only declined ~1.5% Hardly a correction. But, as we all know, market participants will try to scoop up shares anytime the market slightly declines because they perceive more risk in being out of the market than being in. That's a dangerous illusion - obviously stocks are riskier than cash!

As well as a large divergence in the SPX from its 50sma, the new highs are not being confirmed with McClellan's Oscillator:

The oscillator looks at components (this case the Dow Jones DJIA) in an index and its current price oscillators to check if each one is above or below zero. A declining number of stocks in the index are participating in the uptrend creating a divergence as well as a movement below the oscillator's 15 period moving average. Usually, markets don't power past this, but they "certainly could try."

Many participants also look to the VIX for signs of trouble. With the VIX hitting a fresh multi-year low, there doesn't seem to be any present danger in the market. Once again a foolish assumption. Here's a chart of the VIX:

Previously with the aforementioned June 20 divergence, the VIX jumped off the sub 11 lows to 12 and change as SPX traded down slightly. We're now at the same lows. Bottom line (no pun intended), SPX will fade this week off the fresh all time high, but a full on correction at this point seems impossible... the Fed has consistently reassured the markets that a rate hike will not be coming anytime soon. DESPITE THE FACT THAT BOTH THRESHOLDS FOR A RATE HIKE HAVE BEEN MET. The original thresholds were an unemployment rate of 6.5% and inflation of 2%. Both of those have been met / exceeded. 

With the fundamentals for stock appreciation and an economic "recovery" so lousy, the markets are, in my opinion, a ticking-time bomb. At these strained levels, anything could trigger a sell-off, not unlike what we saw in late January and into February with the Ukraine developments. I think the catalysts for such an event could be Q2 GDP or rising inflationary pressures.

Q2 GDP is likely to be bad, or at least below consensus, much like Q1. JP Morgan has already cut its full year 2014 GDP forecast in half! They think that 2014 will be the lousiest growth in a year sine 2009. Yes, the depths of the Great Recession. Why is the market writing this off?! A snowstorm?! Give me a break!

Even with inflationary pressures, the Fed will never raise rates. The US Government, nor the big banks, nor consumers, can afford a higher interest rates. The result is stagflation, not unlike what we saw in the 1970s.

Will the stock market call the Fed's bluff? Will the bond market cease to believe the Fed's lies? Only time will tell. This ain't your father's market anymore.

Quick Bollinger Scalps To Kick Off New Brokerage Account

A few quick and small trades on the new account!

Ticker	Date	Asset Class	Spread	Strikes	Expiration	Amount	Opening Price	Closing Price	Date	P/L
SPY	06/25/14	Option	Bear Put	192/195	08/14/14	1	0.88
DDD	07/01/14	Equity	Short			-15	65.5	61.81	07/02/14	55.35
TLT	06/30/14	Equity	Short			-14	113.58	111.38	07/02/14	30.8
FCX	07/01/14	Option	Naked Put	37	08/14/14	3	1.25	1.15	07/02/14	-30
KBH	07/01/14	Option	Bear Put	18/19	08/14/14	8	0.41	0.47	07/02/14	48

Much smaller nominal returns are going to be expected from here on out. I'm changing my trading methodology into a "portfolio" of "accounts;" I.E. a book. To be elaborated on later.

Holding the SPY bearish bet through the employment report tomorrow, and looking at QQQ short for another Bollinger scalp. Low volume overbuying.