Contrarian Trade Success No.2: NFLX

(UPDATE) out @8.86, 1/27/2011. Good enough.

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IF the after-hour price ($202) holds tomorrow morning, that is.

After betting against Goldman on ISRG paid off big time, I was looking to put NFLX. It has had a phenomenal run, probably due for a decent-size correction. Their earning report on Wednesday AH seemed like a good enough trigger for that correction.

Then I read analysts' comments, and that changed my mind. They were almost all negative. I looked at the front-month options - more puts bought than calls. Then I looked at the chart. It wasn't great, with a recent correction, but I didn't see a negative divergence on technical indicators. The stock seemed to be building a base for about two months (ignoring a bump in mid January), as it worked off the MACD negative divergence from October to November.

Suppose it is a base that NFLX has been forming, and what would be the target price? I figured $205, to complete the right side of a cup. It if were to break out from the cup, the ultimate target would be $230 (cup depth plus breakout point). February 210 calls were selling under $3. I bought one at $2.84. All I would lose would be $2.84 x 100.

Barring unforseen disaster, it looks like I'll get my money back with some bonus.

Tech, Small/Mid Cap Head Down While Big Caps Levitate

Just a heads-up for those who believe Obama is "pro-business". The two indices that represent growth (tech and small caps) may be heading south.

From the top: Nasdaq, Russel 2000, S&P500, Dow Jones Industrial Average.


Dow Jones Industrial and S&P500 continue to levitate, suggesting to me that they - big cap, multinational conglomerates - are the targets of Obama's affection for business. Like, GE.

Whether Dow and S&P can withstand the selling pressure coming from Naz and Russell remains to be seen. It is certainly possible, and may even be probable if the tax repatriation stuff passes Congress. After all, Dow and S&P500 are full of companies that stand to benefit from such a law.

ISRG Surges AH on Earnings Blowout

(UPDATE 1/21/2011)

ISRG went as high as $334.39. I sold my option at $13.60, missing the top dollar at $13.90. Now I could care less if I lose my money on BAC and C... hehehe. Thank you Goldman for being a wonderful contra-indicator.

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ISRG (Intuitive Surgical) has always been an elusive stock for me; I can't develop a tradable feel for the stock, the price movement is always radical, both up and down, options prices seem always inflated and not very liquid.

Then, two days ago, a Yahoo SKF board member linked a sell recommendation by the vampire squid, aka Goldman Sachs. (h/t heartless)

It caught my attention because it was a rare recommendation (any "sell" recommendation is rare), and Goldman was recommending 2/1 put spreads on (I think) the front month. Clearly they were expecting a bloodbath in the earnings report, which was today.

Since the vampire squid's forex desk has been a disaster for the investors (they recommended short Euro at the last bottom at 1.18, among other fine calls), I decided to pull up the ISRG chart and see if there's a case against Goldman.

I thought there were. They're in the chart below, but particularly the positive divergence in MACD. And just to test my thinking, I bought one February out of the money call (@330); if I was wrong, I would lose $3 (x100, of course). $330 is where the stock runs into some overhead from May to August last year.


And this is ISRG after-hours:



Never trust the Squid.

Of course the Squid may attack AH or tomorrow to make sure the stock gets beaten back down and I still lose $3.

Again, never trust the Squid.

Goodbye VIX, and Death of Inverse ETFs?

Seems like it, though never say never. As VIX heads towards sub-10, it is killing the inverse ETFs like SKF. The point and figure chart of VIX has 7 as the target.

The chart below plots VIX and SKF.


VIX is about to break down from a double bottom. If this breaks, hello 7. The last time VIX dipped below 10 was in November 2006 - February 2007.

Bank Run Part 2: Citigroup (C)

I am clearly overdoing it, I know. But since my BAC call options have been a success for me (up 300% since Christmas Eve), I thought, "Whatever..." Ben's stock market put is solidly in place.

So I bought C, February 5 calls, 2 days ago. It sat there yesterday, and it moved up a bit today, on the wake of JPM's stellar 4th quarter results. One junk after another, you might say. If you think about them on fundamentals, there's no way in hell that you would want to touch them (other than Ben's put on the market). I am just looking at their charts, and BAC had seemed a good buy back then, and C looked good enough to buy 2 days ago, as it was breaking out of a short consolidation. (Some technicals are signaling a slight negative divergence - MACD histogram, CCI, RSI somewhat - but do you care? The only time the technical signals are followed is when they happen on gold and silver..)

Both C and BAC continued to behave well today. Then I just saw this chart posted at Zero Hedge, and now I know why, and the reason is called "short squeeze". C regained the top spot for the most shorted stock on NYSE, and BAC is ranked 7th.

Ooops... C will report its Q4 earnings on Tuesday 1/18 (premarket), BAC on Friday 1/21 (premarket). They almost always disappoint... Oh well. I guess I did push my luck one day too far. C'est la vie.

Bank Run Continues

I mean Bank of America's share price. Today it broke decisively above the 200-DMA on a larger volume than yesterday, though less than on Monday. Congrats to those of you who joined me. The stock almost reached the target price I mentioned, $14.56.

Now what? It is a good place to sell, though I have a feeling that there will be one more final push before it corrects, like April 2010. Look at slow stochastics at 60 and 133, and compare the present with April 2010.

One more push, and then WikiLeaks hits BAC...? Maybe. Maybe not. I haven't decided what to do with my tiny position.

Here's the Point and Figure chart of BAC. It was a bullish reversal day, with the bullish target of $22. I have little doubt that it will get there, thanks to Helicopter Ben. Just the matter of when.

BAC Update 2

I hate that bank but I couldn't help it. I bought BAC at Thursday's close (the red candle in the chart three trading days ago) when the stock didn't break down below Wednesday's breakout. (I guess I was bored of inaction.)

The target is still $14.56, but I would settle for the 200-DMA ($14.39) if that happens within the next week or two. The stop is Thursday's low, slightly below $13.

It's hilarious to hear about CNBC pumping the stock market (as if the stock market is the economy), and one of the junk that they've been pumping is the financial sector, BAC included.

As I said in the previous post, the setups for the fins continue to look good. JPM and MS are breaking out of the range, GS may be forming an "ascending triangle" pattern, and C may be forming a handle on a cup that's been forming since April.

Double Bottom Pattern on Bank of America (BAC)

(UPDATE 12/21/2010)

BAC had a breakout from the handle of the double-bottom pattern today, taking out the buy point (12.73) on a larger volume than yesterday. Target price $14.56. GL if you are trading.

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Negative sentiment of November dissipated as soon as December hit (just like the head and shoulders pattern that everyone was watching was negated as soon as September hit).

Financial woes in Europe continue, and the US had the largest November monthly deficit on record. If you read the financial news, buying the stocks of financial institutions should be the last thing on your mind.

But guess what? They are the ones leading the market up. Here's Bank of America, whom many think may go Lehman pretty soon. Whatever their fundamental problem is (bad, very, very bad), the stock chart shows a clean double bottom pattern with the target price of $14.56, over 14% gain from the current price.


A buy point would be the middle of "W", which is $12.73. It could form a handle right about now, and if it does, the buy point would be still $12.73. RSI and MACD both show positive divergence.

If you don't worry about the fundamentals and don't worry about factors outside the control of the bank or of the US government (such as Ireland decides to default instead, or China's bubble suddenly bursts), it may be a quick trade if the breakout from the current level happens, with a very tight stop.

I have no intention of touching banking stocks and I certainly do not recommend any such stocks, but if you are interested in gambling on Wall Street banks, BAC seems to be one of the less extended. C is too extended, and GS doesn't look constructive. JPM and MS look range-bound, and they are both at the top end of the range. Do your DD.

Dow at Fibonacci Resistance

Technically, a logical place to stop and turn back.

As the chart below shows, Dow Jones Industrial Average tried to bust through the 61.8% retracement from the March 2009 bottom back to the October 2007 market top, and failed.

Not all is lost. On the daily chart, it is sitting right on the 50-day simple moving average, which may act as a support. Personally, I don't like the way it's been trading for the past week - one big down day followed by one big up day, and then another big down day. That doesn't look like a bottom being formed; rather, it looks like a topping pattern.

It looks and feels the same - that the index is about to break down - as at the end of August. Back then, a big up day was followed by a big down day, and just about everyone was looking at the neckline of the big head and shoulders pattern. And it didn't happen. September was a big up month as the US dollar cratered.

Ben's printing (QE2) hasn't resulted in an up-market in November, contrary to what Ben said when he boldly embarked on the purchase. The only thing keeping the market from crashing (there are a plenty of reasons why Dow should be tanking 1,000 points every single day) may be the hope that Ben and the Inkjets at the Federal Reserve will deliver on their word, that QE2 will cause the stock market to go up, making everyone feel rich.

I'm watching the US dollar, which has broken out of the pattern which could be called a bullish falling wedge. The breakout coincided with the worsening of Ireland's debt problem, which is supposed to be resolved now by the $113 billion bailout.

US dollar down, stock market up. That pattern persists.

Louise Yamada Cautions Further Weakness

A week ago I posted that Dow was on the blink. A week later, it is still on the blink, actually almost at the same level; the index had a huge rebound 2 days after I posted (to be expected, LOL), then went nowhere for two trading days, and a big down day with good volume.

Louise Yamada, one of the best technical analysts out there, thinks the next logical support will be the August high, around 10,700 for Dow (like I said....), and that would be still considered consolidation.

However, she sounds caution that it may not hold there. The reason? Because the market failed to break out of the April high. She considers that to be more important than the lack of daily volume which many analysts (including Art Cashin) have pointed out as a bearish sign.

For more, go to Kingworld News.

(h/t erikbacardi)

Dow on the Blink

I am very well aware that the last post's title was "Dow to 16,000". That was right after Ben and the Inkjets announced $600 billion QE2. Things haven't changed much in the US, I don't think, but ever since it has been the "sell whatever the news is" market. The debt crisis in Ireland hasn't helped either.

Here's a 1-year daily chart of Dow. It's a simple chart with just the Bollinger band, and intermediate/long-term indicators. It stopped today at the lower Bollinger band. If this doesn't give support, the next suppot level looks like 10,700 area. The intermediate/long indicators - CCI set at 133, slow stochastics set at 89 - are signaling a potential turning point. CCI is right now 100.11. If it breaks below 100, the bull run since September may be over. The same thing with slow stochastics. It is just about to cross below 80.


I am not putting any new trade, long or short. It does not feel safe here. Instead of TA, I have been paying more attention to what's happening politically in the US and Europe.

(How can a stock market of a country where you have to allow a total stranger put his/her hands inside your pants so that you can get on an airplane go up? That's what I have been wondering since the beginning of November, and the answer so far is no it cannot.)

Dow to 16,000! (Thank Ben)

As the deranged central bankers running amok with $110 billion per month monetization (that's what it is, even though it is done through the primary dealers - who happen to own the Fed), the sky seems to be the limit for the stock market and the commodities market.

Buy anything, it will be good for you, says the bankers.

So, let's take a look at how high Dow Jones Industrial Average can go, TA-wise. I know, I know, what's TA in the age of permanent meddling by the Fed? Well, algos used at the NY Fed may be programmed to think and act like a human trader. Their time-span is in seconds for their "long-term" holdings, that's all..

This is 5-year monthly chart of Dow. See how it is fashioned like a cup and handle? A rather pointed cup but never mind that. The index is just breaking out of the handle high. From the pattern, the target price would be:

Depth of the cup + handle high. And that computes to: 16,046.


Sometime in 2012 maybe. Ben should do QE3, 4, 5, 6, 7... to make sure it gets there. But good luck when you have to answer Ron Paul in the Finance subcommittee, Ben. You can't laugh at him like you did before, because he will be the chairman of the subcommittee...

Again, this is not an investment advice. Just for your entertainment. Laugh and be merry. A cup of Starbucks coffee may cost you $20 soon, but your 401K will increase in price (until the government decides to seize it from you by stuffing special Treasury retirement bonds...) GLTA.

Goldman Sachs Says "Front-Run the Fed POMO"

to make money in the stock market. Buy stocks before the Fed's open market operation, and sell into the rally induced by the operation. Rinse and repeat. Buy anything.

The market is in a suspense mode, going nowhere speculating and re-speculating the Federal Reserve's move. Today's sell-off came after the reverse-repo operation was done (that sucked out liquidity from the market). Everything depends on what the Fed does, what the Fed talking heads say.

What's the point of TA? Not much these days, other than to out-guess algo bots..

Here's from Zero Hedge today:

After a few months of breaking down what the simplest trade in the world is, that would be frontrunning the Fed for the cheap seats, Zero Hedge is happy to advise our readers that finally Goldman Sachs itself has capitulated and is now indirectly telling its clients to frontrun Ben Bernanke via POMO. No complicated value investor nonsense, no pair trades, no cap structure arbitrage, no hedging, no levered beta plays. Buy ahead of POMO. Sell. Rinse. Repeat.

On the interplay between the FED and STOCKS: Since Sept 1 – when QE was becoming a mainstream focus – if you only owned S&P on days when the Fed conducted Open Market Operations (in US Treasuries), your cumulative return is over 11%. in addition, 6 of the 7 times when S&P rallied 1% or more, OMO was conducted that day. this compares to a YTD return of 5.8%. the point: you would have outperformed the market 2x by being long on just the 16 days when – this is the important part – you knew in advance that OMO was to be conducted. The market's performance on the 19 non-OMO days: +70bps.

And there you have it - the top in frontrunning the Federal Reserve is now in.

The most recent Fed POMO calendar is linked (there is one tomorrow). Frontrun away.

Oh, and Ben, your criminal organization will one day pay for making a complete manipulated travesty out of capital markets.

I do have one chart to show you. CORN. The bull flag may break out. But it all depends on the US dollar, which seems to be finding (or trying to find) a temporary bottom. I'm not in the stock, but thinking about it, looking at the USD. G20 this weekend, a currency war brewing.

Good luck trading. No matter what Ben and the inkjets do, it could all collapse in a very short time like October 2008, and a trigger in such a case is often political... Just saying...

Coal Trade the Day After

If you picked up the coal stocks that I mentioned in the last post, good for you. I slept late and missed the action :-(

Early birds do get worms and more.

If you have PCX, congrats on the 10% gain in one trading day.

Including PCX, if you look at the weekly charts, it is not too late to go long, AS LONG AS the general market trend is up.

Looking at Coal Stocks for Next Trade

Congrats for those who bought SIRI (wish I had it), congrats for those who bought CENX and still have the shares not taken away in a mini flash crash (like mine). I'm moving on, and I'm thinking coal.

Why? Because it looks like one of the last remaining commodities that haven't broken out. The other one is crude oil, but at least I've caught the last week's big move with UCO calls (sold half today).

I'm looking at the charts for:

MEE (Massey Energy)
ANR (Alpha Natural Resources)
PCX (Patriot Coal)
BTU (Peabody)
ACI (Arch Coal)

BTU and ACI look strong, and may be doing the triple top breakout on the 3-year weekly chart. MEE, ANR, PCX all look alike, and they are still basing.

BUCY (Bucyrus) looks ready for double top breakout, too, on the weekly. It actually looks like a very deep cup and handle, with the handle part itself is a cup. Its competitor, JOYG (Joy Global), has already broke out.

Fundamental reason for coal? The world may be entering "global cooling", not "warming". We may need more carbon in the air to keep the planet warm...

I am also looking at uranium companies, for the same reason. In severe cold, wind and solar just don't cut it. USU (Usec) seems to be forming a symmetrical triangle after wild moves.

As usual, do your own DD.