To everyone...

Have a happy, healthy and prosperous new year!!!

cheers

Market Thought... consolidated?

When I look across the indexes, and various stocks I see an internal market that has somewhat consolidated.

Its weird. Or maybe we find ourselves in a scenario where everyone 'knows' something is going to happen, so that 'something' will not happen.

Throughout the week I kept hearing the chatter that the market will pull back in January. (I, for one, was/am holding this thesis.) But when everyone on CNBC agrees to the thesis, and I mean everyone, I have to re-question the thesis. (Despite the general bullish thesis on the market.)

My VIX/current-market-rally overlay chart saw a mini spike earlier this week. I thought the strength in the week would cause it to re-test the low, but it has not. IMO, this means too many players are betting the same way: protection for an early January pull back.

Basically, the chances of a pullback in early January have declined.

With that said, I am still protected, but with the addition of AAPL and ATI, I am not as protected. (And I am about to add to my AAPL call position if it keeps declining today.)

I was planning on adding to the protection when the VIX retests the lower line on this chart.

new link... forward PE

At the top right corner I added a link to a forward PE analysis. (I got tired of continuously calculating it, so I created a spread sheet on it.) I will use it for stocks I can assess via PE. For now, I am using it for AAPL and IBM.

I use this concept as one way to gauge a base as to where the stock should be trading from one quarter forward.

For example, AAPL and IBM, when they report next quarter, their trailing PEs should stay around current levels. With that assumption, when they report next quarters earnings, the stock price should be at specific levels.

(I put it up there as a quick link for me to use and reference.)

some trades... ATI, PBR

I purchased common shares of ATI today. (I am not familiar with the way their options trade, so I stuck with the common shares.)


This is a play on the boom in aerospace manufacturing. Regardless on who makes the planes, the manufactures will need products from ATI. (see previous reference)

It has consolidated from a breakout, and I think now is a good initial entry point.

NOTE: To do this with ATI common, I decided to unload the position of PBR I wanted to around 38 to maintain a comfortable risk profile. PBR is currently trading in the mid 37s. To me, it is close enough. I still own a position PBR.

AAPL... quick trade

I have been purchasing some AAPL every time it tests its 10SMA, and then selling that position when it pops. (But keep a position until 330 or higher is seen.)

AAPL is now testing the 10SMA again, so I added a light day trading position.

Also, if AAPL breaks down from here, as it might with a potentially correcting market, the down side is fairly limited.

I think its down side would be correlated with AAPL's trailing PE. A trailing PE between 19-20 should be a low for AAPL's stock, which would correlate to a price between 318 to 330, when incorporating next quarter's results. So I will add if it breaks down to 320.

Technicals... PBR

The last few post on PBR I indicated I do not want to sell until 38, but for a fair analysis, 38 is not the first level of resistance. We are currently near the first true test for PBR.


The daily shows PBR is smack at the 200SMA, and the weekly indicates the next SMA resistance is at 36.97.

Due to the magnitude of 'overbought', and the potential resistance present, if anyone needed to sell PBR for portfolio reasons or conservative trading practices, now would be the time to do it.

I indicated I would wait to around 38 (which is the test of the 200SMA on the weekly), so I will wait.

smells funny

Back in mid November, Goldman Sachs issued a stock replacement strategy for some large tech stock. (link) Basically it was strategy to sell stocks, and replace the common with call options.

When I read about it that day, my ears peculated, cause IBM was one of the stocks highlighted by the report.

It caught my attention because the cynic in me always thinks of new risks. Goldman's call has been dead wrong because since their call, the lack of volatility has caused IBM's premium to get sucked away.

IMO, this smells funny.

I am a believer in the market's efficiency over the mid/long-term, but I know it can be grossly inefficient in the short-term. The inefficiency can be from many things, one of them being a pseudo manipulation.

It is just too convenient that a 'strangling-option-strategy' (at least that is what I call it), is fucking with Goldman's call. By sucking away call premiums, the pure-long call strategy is losing a ton of money, especially if in the Jan calls. (If you sold calls or puts, you would be making the lost premium.)

Leads to a ton of questions: Was the Goldman call the green light for the strategy? Are Goldman traders involved? Are the market makers facilitating the lack of movement? etc.

I am a guy who does not give a shit. I am a trader. I take advantage of these inefficiencies, so it is hard for me to get too pissed off, even though it is costing me right now. This is one of the reasons I was glad I pushed out my calls from Jan to April 2011. While funny activity can take hold within a low volume, lack of news environment, it will not last long.

It may last until the Jan 2011 options expire, or near that date, as the strangling unravels. But I will smile, if IBM produces some sort of news, to up their earnings profile or something that will fuck the strangling strategy and return the premium into the calls. The closer the year ends, and 4th quarter earnings are to be reported, this risk increases for the stranglers.

Or until some smart/independent-first-moving-heavy-handed mutual/hedge fund manager sees how consolidated it is, and how inexpensive it is, and starts buying a shit load of it in anticipation of the increased earnings profile, which can lead to multiple expansion.