GS Trade

I bought a small number of way-out-of-money Goldman Sachs May calls (strike at $185, the price as of last Thursday, BTW) for a trade. I bought them at 70 cents, and they ended at $1.18.

GS recovered after the news came that the SEC's vote to sue Goldman was 3-2, strictly party-lines.

Tomorrow is their earnings report before the market opens. Probably I should have sold, given the uncertainty.

We'll see soon enough...

And GS Outdid Them All..

Goldman Sachs' (GS) April put options, that is. It must be the theme of the past two weeks: an option that was a penny or two a piece one day jumped 1200% (Citi's $5 call, from 1 cent to 13 cents), 6400% (Palm's $5 call, 2 cents to $1.30), and today, boy I can't even calculate. Goldman Sachs' April $175 call went from 1 cent to $19 dollars, courtesy of SEC.

It was a rather quiet morning on an Op-Ex day. The market started out slightly down, and was climbing into a positive territory - another miracle up-day, I thought, when all of a sudden the @#$% hit the fan. It seems to have started at 10:36 AM EST.

This is the Dow intraday chart:

This is the intraday chart of GS:

This is the intraday chart of GS April $175 put option. Someone bought a huge chunk at 10:36 AM, and unload quickly, and probably bought again. Rinse and repeat. The option went as high as $19:

This is the intraday chart of GS April $175 call option. It was solidly in the money, until all of a sudden it collapsed. Call option sellers must have been ecstatic. This particular option was worth $25 in October 2009. Today it opened at $8.74, and ended worthless:

But this GS put option play doesn't qualify as "shoulda, coulda" trade for me, because I didn't even think about putting GS yesterday or even this morning. I had no idea that SEC would come out today, on an Op-Ex day, to file civil charge against, of all people, Goldman Sachs for defrauding the investors with the CDO it crafted with the hedge fund manager John Paulson.

What I saw first was a big, big red candle on the Dow intraday chart, around 10:38 AM. I had no idea what was going on. When I finally got the news 10 minutes later, GS was already down to $170, from $182. $175 put option had already gone from 1 cent to over $11.

But some people made a filthy amount of money in a few short minutes. There are rumors that Goldman Sachs traders were shorting their own stock as well as index futures before the news broke. They don't trade, those Wall Street bankers. They simply profit from prior knowledge and insider information. The playing field is not only NOT level, but there is NO playing field. IMHO, that is. Not based on evidence, or anything else but a hunch. Henry Blodget at Yahoo Tech Ticker/The Business Insider seems to agree with me on that..

Shoulda, Coulda: Citi, Again!

It's bad enough having missed one big opportunity in PALM. I have another one, my old favorite Citigroup (C).

I sold the shares at $4.25-ish average long time ago, and since then I was just watching, until about a month ago when I put the proceeds from selling XLF calls into C's calls. XLF March $15 calls unexpectedly went into money, and at that time C was trading between $4.20 and $4.40. I bought April $5 calls at 5 cents a piece.

Then the option went nowhere, as C lost momentum. Beginning of April, as the Op-Ex day was 2 weeks away, the option became basically worthless, a penny. No way in hell that C could go anywhere near the strike price. I left them for dead. (sound familiar?)

Then I happened to take a look at it two days ago after C made it above $4.60. The option was still 1 cents. PALM was still heavy on my mind, but C? How could this go any higher with no news? Nonetheless I called up the screen, and flirted with the idea of buying 1000 calls at 1 cents. It would cost $1000 to buy them. And probably I would lose it all when they expire on April 17.

So I didn't buy. (sounding more and more familiar.)

Then, JPM (J.P.Morgan Chase) struck this morning. (It was my carelessness - I thought major banks report next week and didn't check the exact dates.) And C went flying. 1-cent call option ended at 7 cents. After-hours trading shows C at $5.01.

Here's what C's chart look like. It is a 6-month daily chart, and since February's turnaround it is full of gaps that are not filled. When it gaps up, C seems to gap up over several days.

Today's jump was with solid volume (over 1 billion shares changed hands). Short-term (since beginning of April), there is no divergence in technical indicators. MACD histogram's negative divergence in March resulted in choppy trade but not in complete reversal.

Normally you would think it should correct right here, after a jump like C has had since April 1st, particularly after today. But traders were buying C's April $5 calls (volume was 392,352) all day today. What do I know at this point? Some drunken soul on Yahoo message board for C was calling for over $6 on Friday, $8 on Monday when Citi reports its earnings.

52-week high was last August, at $5.43.

Ultimate Shoulda, Couda: PALM

Ever since I started this blog one year ago (almost exactly one year ago), this is by far the biggest miss I've ever had.

PALM.

How big of a miss? I could have bought PALM's April $5 call option at $0.02 a piece - 2 cents!!!!!, and it would have become $1.04 a piece in 3 short trading days. That's 5100% gain!

At one point on today (Monday), this option was traded at $1.30 a piece. 6400% gain.

What's most infuriating thing about the whole episode is that I DID OWN THAT OPTION.

I bought that particular option when PALM tanked after the company released its earnings. I thought it was an overreaction, particularly when analysts started to say things like "The only option left for that company is to declare bankruptcy" or "The target price is Zero." I thought, gee, I remember when they said those to LVS or C, and look what happened to them...

So I bought April $5 calls at 30 cents a piece. Then PALM took a double dip the next day, and it just languished below $4. The option price dwindled, as time premium decreased each day. I left them for dead, as it was a tiny position, not even worth selling to recoup the cost.

One day before the stock jumped on the takeover rumor, I looked at the option in my portfolio: $0.02 a piece. I thought, well, if I add the equal number of calls at this price, then my average price would be $0.16. Or, at this price I could buy 100 of them and it would cost me only $200.

Nah. Why throw money after a dead cause? I didn't.

Then the next day the stock jumped. 2 cent option was suddenly worth 16 cents. The next day it went sideways. Then on Friday it jumped again, and my option was IN THE MONEY! I couldn't believe it. The option was now worth 50 cents. I sold.

WHY DID I SELL? I had been totally willing to left the options for dead, meaning I was willing to lose all. But the moment I saw it in the money, that willingness just evaporated.

But then, WHY DIDN'T I WAIT TILL MONDAY? Today (Monday), PALM jumped another $1.

If I had bought 100 of this call option at 2 cents when I could, that would have turned into $13,000.

I just want to throw up.

VIX Is As High As It Was In May 08, Oct 07

at 16.23.

Take a look at the chart. The Volatility Index landed on some sort of support line from October 2007, when Dow and S&P hit their respective top. May 2008 was a minor top, from which the decline started that led to the crash in October that year.


Does this indicate we are again at a top? I don't know. The index could simply dip under this seeming support line and go back to the pre-crisis (before August 2007, when subprime mortgage crisis started to hit the fan) level of low teens (as if the crisis is over...).

Many analysts, traders have been saying that the rally since March 2009 is getting too long in the tooth. But then, I believe many of them have been saying that since July 2007.

Commodities Breaking Out of Range

That's despite the continued strength in US dollar.

This is a 1-year daily chart of crude oil. It has been in the ascending channel since June 2009, and I've been playing the horizontal range from October 2009 until now. Today it broke above the horizontal upper resistance, though still within the ascending channel.

The upper channel resistance will be somewhere near $97.5. I personally think crude oil is headed above $100 again.

When I sold my last UCO (double long crude ETF) call options when UCO hit $13.20, I flirted with the idea of buying puts on the pullback that I thought might happen. I didn't buy, for I had a feeling that the range would be broken someday soon to the direction of the prevailing trend, which was up. I was hesitant to buy another set of calls, so I lost on that. UCO ended today at $14.20, and I'm sitting with the gain of 18% on the ETF.

I'm at a loss right now what to do with crude oil. My comfort range may be gone. I'll wait and see if it comes down to test the breakout point ($84). If that holds, I do want to add to my holdings of UCO, either the ETF itself or call options.

Here's another commodity that's about to break out of nearly 2 years of consolidation. Do I see a huge cup and handle formation? If it is a cup and handle formation, the target price will be the depth of the cup added to the handle high breakout point: $788.

My play on palladium has been PAL (call options), which has gone absolutely nowhere because I bought them at a wrong time (when it was surging in the beginning of this year). But now it seems to be breaking out of the symmetrical triangle on a huge volume. I may be in the money by the option expiration (June), just like I lucked out on PCX calls...

Nasdaq Heading Back to Pre-Crash?

I continue to think Dow and S&P are heading to their respective 61.8% Fibonacci retracement area between 2007 October market top and 2009 March market bottom (Dow around 11,260, S&P around 1228) and have been sitting on my long positions.

And guess what. I totally missed the tech rally. I kept thinking, for example, AAPL (Apple Inc.) was a buy when it dropped to $190 in January. $190 was a support for several months. Didn't do anything. I still thought it was a buy at $217 (breakout point), and most recently at $228. I still think it is a buy on a pullback, but haven't done anything about it because I haven't been following Nasdaq as I used to and don't have a good feel for the index.

Nasdaq, after January swoon along with Dow and S&P which many traders and investors took as a sign of imminent severe downturn in the market, recovered and went past 61.8% retracement line around 2250 (that's where the index turned back down in January) and now seems to be on its way to 100% full retracement.



On 10 year chart, Nasdaq seems to be at a "Make or Break" place. The index is currently hitting the upper trendline from 2000 high. It is at a logical place to turn back down again. An ultra-slow slow stochastics (133) shows Nasdaq as an index has been a dead money for the past 10 years. Even now, it has barely emerged from oversold condition, with MACD finally coming back to zero.

We shall see. I think I will start watching Naz again and see how it behaves from here. And I'm hoping AAPL will pull back after iPad launch...

RIMM, OCLR Broke Out... DPZ Next?

Well, buying RIMM (Research in Motion) on the breakout at $71 worked like a charm. I am still sitting on the June call options at $70, with 40% gain. So far so good, but it is being taken down AH today on the rumor that Verizon may carry iPhone. (Rats....)

There's another stock I bought recently on the breakout, and that's working too. The stock is OCLR (Oclaro Inc.), which I bought at $2.10. It is hitting a resistance around $2.80, but I am sitting with 33 gain in 3 weeks. Don't ask me what this company does for business. I bought it after looking at the chart. $2.10 was a breakout point

As far as I am concerned as a trader, when you buy a stock on the breakout and the breakout doesn't fail, then the stock market is more likely to be in a bull market than a bear market. Mind you, it's just about the stock market, and NOT the real (by that I mean productive) economy or what's going on on Main Street.

Some junk food (or comfort food, if you prefer) companies are about to break out, probably to the upside, the general market willing. One of them is PEP (Pepsico), the other one is DPZ (Domino's Pizza). Both seems to be consolidating, forming a flat top after having made a significant increase already.

I like DPZ's chart better. It has had similar breakouts from a flattish base twice since last December, and each time those breakout points were never undercut. Could it happen the third time? Looking at the longer-term chart, the stock is at the same level as in August-September 2008, right before the stock market crash. If this level is somehow taken out, the next resistance is $18 - 20 area. If it breaks down below $13.35 (lower support of the current flat base), I can forget about it.

RIMM Waiting to Break...Out I Hope (Not Down)

I know I know you don't trade on hope as everyone says. As I wrote in the last post, the market has been stuck, listless, going nowhere fast. Today I just got really tired of waiting out to see where the market was going, and I bought a stock that I thought was setting up for a breakout. I also took it as bullish that the market so far refuses to break down. In case I turn out to be so wrong and the market crashes from now on, I will only lose money on call options, still 3 months out (June).

I bought Research in Motion (RIMM) after looking at this nice ascending triangle pattern which has been developing for the past 5 months. Technical indicators are not that great, and a beta stock like RIMM depends on where the general market may be heading. I bought on the candlestick pattern potential, not on the technical indicators.



The target of the pattern would be around $86 (height of the triangle $16 added to the resistance level of $70). That would nicely fill the gap from September 2009 when the stock totally bombed on earnings report.

Depending on the market, it could test the lower ascending trendline again before it either breaks down or goes up and test the resistance and break out. If it's the former, it would be very bearish for the stock, to break down from a bullish chart pattern.

If the pattern doesn't collapse suddenly, I may add April calls. RIMM reports its earnings on March 31.

Where Is This Listless Market Going?

I can't make head or tail out of it. The best position still seems to be in cash, until we see more definite trend. I am being caught holding long positions (gold, silver, miners, oil) but I am sitting on them because my costs are low (except for oil).

I looked at the 3-year weekly chart of Dow that captures the market top in October 2007. As one of the indicators I put "volume by price" as background, and noticed a very interesting thing.



Take a look at the volume by price when the market started to tank in late September 2008. A tiny volume for such a big drop. The volume didn't reach a panic size until Dow hit between 8,000 and 8,500. Many investors didn't unload their holdings until Dow hit that interim bottom. Not only that. It looks there was more buying than selling as Dow rapidly descended. It's nearly 30% drop in the index, but many individual stocks fared far worse.

For those who didn't sell at the bottom of that drop, a sudden, accelerated decline in February 2009 must have been just too much. They dumped this time, probably, as soon as the index started to go down in earnest.

So, where are we at now? We are back to that very thin volume by price zone, between 10,350 (about 50% Fibonacci retracement) and 11,000. It may be easy for the index to go through this thin area, as there shouldn't be much resistance. Volume by price bar near 61.8% retracement, around 11,260, shows more selling volume than buying volume, so there may not be many sellers left if and when the index hits the area again.

My feeling is that Dow (and the US stock market) may still have an upside at least to 61.8% Fibonacci retracement area. But there are too many uncertainties in the market and the world outside the market that could easily torpedo TA and render it worthless. Greece, for example. S&P is saying Greece may be downgraded yet again, and the stock futures drop. Last I checked, Dow futures were down 58, S&P 500 futures down 7, Nasdaq futures down 12

But then again, miraculous clutch save may appear in the premarket tomorrow, and turn the indices around in a flash.

As I said, I can't make head or tail out of it, and I am annoyed that my gold holdings are being hammered down...

S&P 500 in 2003-2004

March 2003 was when the U.S. stock market finally bottomed after the dot-com bust and started to make a year-long, sharp recovery.

Sounds familiar?

Guys at Break Point Trades had this log chart in their free newsletter: daily S&P 500 from February 2003 to December 2004. The similarities are almost spooky. Should the history repeats, then what we may have for most of the year looks like a choppy market that makes lower highs and lower lows within the falling wedge/flag.


That would actually be a bullish formation, as you can see in this chart; S&P finally broke to the upside in November.

Just watch out for non-financial events that could obliterate any TA. Greece, EMU, US domestic politics, Middle East... take your pick.

Junior Gold Miners Anyone?

Bloomberg News reports that "the value of mining mergers and acquisitions may more than double this year" to 2006 level of over $170 billion.

I've been looking at several junior gold miners as potential acquisition targets. Here's a comparison chart of these miners since November 2008. Barrick Gold (ABX), a major miner, was thrown in for comparison.



As you can see, Iamgold Corp (IAG) and Allied Nevada Gold (ANV) have already taken off. I'm particularly cross about missing ANV when it broke out of the 3-month base in September 2009. If I am to put money at this point, I would go for the bottom 3: Hecla Mining (HL), Nova Gold (NG), and Great Basin Gold (GBG).

I like NG here. It didn't correct as steeply as the others, and it may be clearing the heavy overhead area, as seen by "volume by price" overlay in the 18-month daily chart below. Also, it didn't break below the trend line support from early 2009. Technical indicators (RSI, MACD, stochastics) all show negative divergence. It has been in a channel, and right now it is right in the middle of that channel. I have no idea whether it goes back down to the lower channel support (around $5.20) or goes up to the upper channel resistance (around $7.20).



With the fate of Euro uncertain vis-a-vis US dollar, I'm not betting heavily on gold stocks. For that matter, the most prudent position right now seems to be "cash".

Scary Days Are Back Again? Or Not?

I can't decide. But ever since the Presidential temper tantrum in mid January, the market increasingly feels like it is a replay of February-March 2009, if not September-October 2008. It was downright scary sometimes, like the day Dow went down more than 200 points.

But I just want to point out one repeating pattern in the weekly charts of Dow and S&P 500. We will find out soon enough, whether the scary days are back again or not.

This is a Dow weekly chart from December 2009. The final plunge (for now) in February-March 2009 took 4 consecutive down-weeks. Then a sharp reversal took place. In June-July, 4 consecutive down-weeks happened again, again followed by a reversal that took the index higher without much of a correction (on a weekly basis) until January this year.

It is a log chart, so you can compare the magnitude of each correction. The correction this time is about the same percentage as the correction in June-July 2009.


I noticed this pattern in July last year, after the reversal happened. "Hmmm, it's fractal... the pattern repeated on a different scale..." Maybe I mentioned it in a post here, maybe not.

This week was the 4th down-week. Will the pattern repeat itself?

Today Dow went as low as 9835, only to reverse all of a sudden out of nowhere to end above 10,012. I was planning on buying gold and gold miners EOD, thinking this was a solid, no-recovery down-day.

According to Jim Cramer of CNBC's Mad Money, it was the job of one hedge fund, who wanted some action in a thin market. The fund used 100 to 1 leverage (I think that means either options or futures), according to Cramer.

That reversal was reminiscent of March 09 reversal, when out of nowhere buy orders flooded the market. Rumor at that time was J.P. Morgan, buying a large quantity of S&P futures that cascaded throughout the financial markets that were open at that time. Who could that hedge fund be this time?

If this is their game plan - 4 consecutive down-days in a volatile fashion so that retails are scared away (again), and pros (hedge funds, market makers, banks) will jack up the market higher on a thin volume. It would be easy to jack it up, precisely because the volume is thin.

In the chart, I put in a target number just in case this pattern repeats itself and the market miraculously reverses from next week on. The target is 12,664. I know it's ridiculous, but I'm just calculating, based on a simplistic assumption that the pattern may repeat.

Now let's laugh at it and be merry. Doesn't feel like it's going to happen, and analysts and pundits are predicting 20% correction from here. But then it felt like the market would never go up again back in March 2009.

Low Risk Trade Ideas

Stocks I've been watching/trading that have been in a channel. Until it breaks, it works. Right now, they are at or near their low end of the channel.

Needless to say, it depends on the direction of the general market, which is increasingly dictated by the political development.


UCO (double-long crude oil ETF)

GBG (gold exploration)

AGU (fertilizer)

JASO (solar)


Do your own due dilligence.

Can Toyota Bounce Back?

Not just as the leading auto maker known for quality but also as a stock?

The sticking pedal recalls and production suspension (which was ordered by the Obama administration, by the way) clobbered Toyota (TM), from the 52-week high of $91.97 on January 19 to $76.51 on January 29, a 17% haircut.

But if you look at the chart, despite the sudden, violent drop, the move was still within the channel that the stock has been in since July last year.


The drop was arrested at the trend line from May last year, and today's bounce stopped at 200-DMA. You would think a news-driven drop like this would defy any TA.

So, ignoring the political chatter (Toyota is being hauled in front of the House Energy and Commerce Committee), can TM recover?

If I draw Fibonacci retracement lines from the recent top to the bottom of last Friday, there is a congested area between 38.2% retracement and 61.8% retracement. It may be able to go back to that area at least, and that would be between $84 and $86.

Since the damage was severe on an extremely high volume for the stock, it may bounce around between $76 and $80 for a while before it makes the next move. Today (Monday)'s move was still a DCB (dead cat bounce) after a huge plunge. Let's see how the stock behaves from here.

(By the way, there are people who say Toyota was politically targeted by Obama for the benefit of Government Motors.)