One Option Trading Blog

Unemployment Was Not Bad - Buy On Support!!!

2009-11-06T14:49:00-05:00

This morning, the much awaited Unemployment Report was released. The jobless rate jumped to 10.2% in October, the highest level since 1983. The Labor Department showed that employers cut 190,000 jobs last month, greater than the 175,000 that was expected. Employment losses for August and September where revised and 91,000 fewer jobs were lost than initially reported. This number is not that bad considering that last month's figure first came in at - 263,000 and the market was able to recover. While this is not a great number, it does show gradual improvement and that is what the market really wants …

Use Today’s Strength To Line Up Put Credit Spread Candidates. Wait For Friday’s Number!

2009-11-05T16:35:00-05:00

After a nasty decline a week ago, the market has gradually been able to reestablish support. The three-month uptrend was preserved when the SPY crossed back above $104. This is a great environment to sell out of the money put credit spreads on strong stocks. Last week, GDP rose 3.5% in the third quarter and that was much better than expected. This week, ISM manufacturing and ISM services showed economic expansion and both were above 50. Yesterday, the ADP employment index was in line and last month's figure was revised to reflect better employment. This morning, initial jobless claims fell by …

A Bid Is Returning to The Market. Have Your Longs Ready and Sell OTM Put Spreads On Support!

2009-11-04T17:05:00-05:00

Yesterday, the market was able to sustain a nice bounce after two deals were announced. Berkshire Hathaway purchased Burlington Northern for a 30% premium and Black & Decker merged with Stanley Tools. The stock market has moved back above critical support at SPY 104. That represents the three month up trend line and if this rebound holds, we will have a higher low. This morning, Republican election victories helped to generate early strength. That move was strengthened by a favorable ADP employment index. In the month of October, the private sector only lost 203,000 jobs compared to 227,000 jobs lost in …

Fears Of A Bad Employment Number Are Getting Priced In - Support Will Be Tested This Week!

2009-11-03T17:44:00-05:00

The market is trying to climb a "wall of worry". Yesterday, we started off on a very positive note and stocks rebounded after a massive selloff Friday. By midday, the volatility returned and prices whipsawed into positive and negative territory. By the end of the day, we finished with marginal gains. This morning, M&A news should have sparked a rally. Berkshire Hathaway paid a huge premium for Burlington Northern and Black & Decker merged with Stanley Tools. Deals are getting done at current price levels, indicating reasonable stock valuations. Tomorrow, the ADP employment index will be released. This will provide a …

Decent Ecomomic Numbers Are Supporting The Market Today. Expect Volatility This Week!

2009-11-02T17:49:00-05:00

Last week, the market showed serious signs of strain. We have not seen sustained selling pressure like this since July. Earnings have been good and almost 80% of the announcements have beaten estimates. Only 100 of the S&P 500 companies have yet to release. The meat of earnings season has passed and the surprise element is gone. Before tomorrow's open, there aren't any major earnings announcements that will drive the market. Trading this week will be heavily influenced by economic data. This morning, ISM manufacturing was much better than expected. It has increased for three consecutive months and it hit 55.7 …

Nervous Trading Will Test Support Next Week - I Expect It To Hold. I’m Lining Up Longs.

2009-10-30T16:17:00-05:00

Volatility has returned and prices have been all over the board this week. Earnings have been very good and so have the economic numbers. Almost 80% of the companies are beating third-quarter estimates. Unfortunately, great results are priced in and many stocks are trading lower after a good number. We are through the meat of earnings season and the surprise element will diminish next week. Durable goods orders were right in line Wednesday and GDP posted a huge 3.5% gain yesterday. Goldman Sachs had lowered its estimate down to 2.7% on Wednesday and that generated selling pressure. When the actual number …

A Great GDP Number Is Barely Enough To Spark A Rally. Jobs Will Be An Issue Next Week!

2009-10-29T16:02:00-05:00

This week, the market is showing some signs of strain. Four consecutive days of heavy profit-taking pushed the market down to the uptrend line that dates back three months. Earnings have been decent, but that is already priced into the market. After beating expectations, stocks have been trading lower after the release. This is an indication that the market is "fully valued". The majority of companies have posted results and since we have heard from most groups, the surprise element is starting to wane. On the bullish side of the ledger, low interest rates, solid earnings growth and "less bad" economic …

The Market Will Continue To Probe For Support. As Long As The Trend Is Intact - Line Up Your Longs!

2009-10-28T16:20:00-05:00

Yesterday, the market continued to slip and now we have four consecutive days of heavy selling. The breakout from two weeks ago has failed and we are approaching a very significant support level at SPY $104. That is the uptrend line that dates back three months. We are currently just above the 50-day moving average. In today's chart, you can see that the recent trough a month ago was deeper than the previous dips. The recovery and subsequent breakout was also smaller in magnitude. Recently, sustained selling pressure has appeared for the first time since July. This price action suggests that …

Expect Nervous Trading Into Next Week. Line Up Strong Stocks For Put Credit Spreads!

2009-10-27T15:29:00-05:00

Earnings continue to pour in and they have been positive. Over 80% of the companies that are reported have exceeded expectations. Yesterday, the market started off on a positive note. A stronger than expected GDP release in South Korea sparked buying in Asia. That spilled over into other markets. After a brief rally, our market reversed sharply and it closed lower for the day. In the chart below, you can see that we have fallen below the breakout from two weeks ago. The price action the last few days has been bearish. Overnight earnings were decent, but that was already priced …

5 Ways to Handle a Draw Down

2009-10-26T17:25:00-05:00

How should I handle a decline in the value of my trading account?

Great Earnings News Was Not Enough To Fuel A Breakout To New Highs. Heavy Price Action!

2009-10-26T16:31:00-05:00

Last Friday looked like it had the potential to be a strong day. Good news from Amazon, Microsoft, Capitol One, American Express, Ingersoll-Rand and Honeywell should have provided a bid to the action. The S&P 500 did not jump higher on the open and that was a little suspicious. As the morning progressed, profit-taking set in. Two of the last three days have been negative with heavy selling pressure. This morning, the market moved higher on news that South Korea's GDP rose faster than expected. That provided a boost for Asian markets and it seemed we would be off to a …

Resistance Could Get Tested Today After Great Earnings. I Am Selling Put Spreads!

2009-10-23T13:48:00-05:00

I am trying to get today's comments posted before the open. Overnight earnings have been spectacular and we are likely to see a rally today. The good news spans from tech stocks to retail to credit card companies. Amazon blew estimates away and the stock is up $16 from yesterday's close. Microsoft trounced expectations and the stock is up two dollars pre-open. That is a huge move for Microsoft. CapitalOne is up four dollars on better earnings and lower than expected delinquencies. American Express also looks solid. Ingersoll-Rand and Honeywell also beat expectations and the stock's are indicated higher. Over 30% …

Nasty Key Reversal On Wednesday Signals Overhead Resistance!

2009-10-22T16:07:01-05:00

By the end of this week, 27% of the stocks in the S&P 500 will have reported earnings. Results have been good, but that is already priced into the market. Yesterday, the S&P 500 made a new high for 2009 and an intraday reversal pushed it to a new five day low just before the close. This type of price action tells me that significant resistance is forming. We saw the same type of price action in September and that key reversal resulted in a five-day decline. The most recent dip in September was deeper than the prior two dips and …

So Much For Profit Taking. The Earnings Heading Into Tomorrow Could Add To This Breakout!

2009-10-21T14:47:00-05:00

Yesterday, the market took a breather after a mixed bag of earnings. Good news from Apple, Texas Instruments and Caterpillar was not enough to upset weakness in Coca-Cola, United Technologies, Bank of New York and Zions. After the close, SanDisk, Seagate and Yahoo all posted decent numbers and the stocks traded higher. This morning, Boeing, Manpower and Wells Fargo were not bad enough to offset results from Freeport McMoRan and Morgan Stanley. Earnings are flooding in left and right and the overall result has not translated into a market move either way. In general, the news has been very good and …

Creating a Trading System: Steps to Success

2009-10-20T16:22:00-05:00

How can I be a successful options trader?

Earnings Beats Fail To Spark A Rally. Investors Will Continue To Take Profits This Week!

2009-10-20T16:11:00-05:00

Great earnings and lower interest rates failed to produce a rally. The market is digesting news and it looks a bit tired. Apple, Texas Instruments and Caterpillar handily beat expectations. Apple is up $10 and the news was fantastic. Even "whisper numbers" were smashed and revenues were strong across all product lines. Texas Instruments raised its sales and earnings forecast. Caterpillar raised its full-year forecast citing signs of a global economic rebound. With all of the good news, you would think that a major rally would be underway today. Unfortunately, much of the good news has already been priced into stocks. …

The Next Leg Of This Rally Will Be hard Fought. I Expect To See Profit Taking This Week!

2009-10-19T16:12:00-05:00

Last week, the market was able to stage a nice little break out to new highs. That happened ahead of major earnings from the largest banks and mega-cap tech stocks. Goldman Sachs blew estimates away, but the stock did not surge higher. J.P. Morgan Chase, Bank of America and Citigroup also beat estimates and the stocks declined after the news. Consumer lending was a major issue for the nation's largest banks and those concerns will be elevated this week as regional banks post results. Zions Bancorp releases after the bell today. Intel, IBM and Altera are all trading lower after posting …

Great Earnings Might Not Be Good Enough - The Headwinds Are Blowing!

2009-10-16T15:46:00-05:00

It's all about earnings, and more importantly the market's reaction to those releases. After seeing a muted response to Goldman's blockbuster number, I suspected that all of the good news might be built into financial stocks. J.P. Morgan Chase also smashed estimates, but the stock did not rally. That had me cautious heading into earnings from Google, IBM, Bank of America and GE. Google increased sales by almost 20% and profits by 9%. They gave great guidance and the stock traded higher after the news. IBM posted higher-than-expected profit and it raised full-year estimates up to $9.85 per share from $9.70 …

Take Profits On Longs Today - Aggressive Accounts Can Buy A Few Puts!

2009-10-15T14:39:00-05:00

Yesterday, the market jumped to a new high for 2009. Great earnings from Intel and J.P. Morgan Chase fueled the rally. As I mentioned, option expiration buy programs would kick in and we would close near the high of the day. This morning, Goldman Sachs blew the doors off of estimates. They had positive comments and they saw growth across many sectors. They have traditionally beat expectations and a big number was already priced in. After the news, the stock dropped five dollars. Citigroup also released earnings. It beat estimates as well and the stock is trading lower. Consumer loan losses …

Another New High and Room To Run Into Thrusday’s Close!

2009-10-14T15:43:00-05:00

My forecasts have been accurate. As predicted, CSX, Intel and J.P. Morgan rallied after earnings announcements. The market is making a new high for 2009 and 70 stocks in the S&P 500 are hitting 52-week highs. Transportation is one of the fundamental indicators I use to forecast an economic recovery. This sector has been lackluster and shipping volumes have me skeptical. Revenues were down 23% (primarily due to fuel surcharges since oil prices have come down) and that is acceptable. However, overall rail activity is down 19% year-to-date compared to 2008. Because the decline in shipping volume was smaller than it …

5 Options Trading Tips for Beginners

2009-10-13T17:36:00-05:00

Do you have any tips for beginner traders?

Intel and Chase Will Set The Tone For the Rest Of The Week. Momentum Favors A Rally.

2009-10-13T17:00:00-05:00

There isn't much news to push prices either way and the path of least resistance is up. Bears won't stand in the way and that means that we will inch higher each day. We are right at the highs of the year and earnings will be the next catalyst. Johnson & Johnson posted better-than-expected results, but revenues missed. The stock is down in early trading this morning. After the close, CSX and Intel will release earnings. Transportation has been gradually recovering and earnings will be a little light. However, I expect improving guidance and the stock has a good chance of …

Get Ready For Decent Earnings - Bullish Week Ahead!

2009-10-12T16:37:00-05:00

The market continues to march higher. The recent dip has established a higher low and that springboard has pushed us to a new relative high for 2009. In today's chart you can see that each of the recent pullbacks has been brief. Asset Managers do not want to miss a year-end rally and those who are under allocated need to aggressively add to positions. This pattern of higher lows and higher highs is very bullish. With the exception of the Unemployment Report, economic numbers continue to show gradual improvement. Traders are happy with "less bad" and they are focusing on interest …

Look For A Quiet Rally Today Ahead of Merger Monday and Good Earnings Next Week!

2009-10-09T15:36:00-05:00

Let earnings season begin! The handful of companies that have released third-quarter earnings have performed well after the announcement. The market looks strong and economic data continues to gradually improve. Yesterday, initial jobless claims came in much better than expected. As I noted last week, I thought that last week’s initial claims miss was over exaggerated and things would even out this week. That’s exactly what happened. The week-to-week number is very volatile and that's why it's important to watch the four-week moving average. Continuing claims also dropped dramatically and that is a good sign. Retail sales came in much better …

The Market Is Close To A New High - Play The Breakout!

2009-10-08T15:36:00-05:00

The market continues to move higher and we are one good day away from establishing a new high for the year. As I mentioned yesterday, retail sales and initial jobless claims had the potential to rally the market. Most retailers posted better-than-expected same-store sales. A late Labor Day holiday delayed back-to-school purchases and that showed up in this month's figure. Initial jobless claims are very volatile week-to-week and that is why most analysts follow the four-week moving average. Last week's number was so far from estimates that I felt we might get a knee-jerk reaction the other way. That's exactly what …

Earnings Season Kicks Off Today. This Will be The Catalyst For A Rally!

2009-10-07T15:51:00-05:00

Yesterday, the market staged a nice rebound and the SPY finished back above 105. We are now within striking distance of the high and earnings season will kick off this afternoon. The economic news is fairly light this week, but it started off on a good note. ISM services rose to 50.9, indicating economic expansion. The service sector accounts for 80% of our economic activity and this was an important number. With the exception of the Unemployment Report last week, the economic numbers have been pretty decent. Tomorrow, initial jobless claims and retail sales will be released. The market is bracing …

Another Higher Low Has Been Established. Look For A New High Next Week!

2009-10-06T15:30:00-05:00

As I've been mentioning, the market has all it needs to move higher. However, the easy money has been made and you need to "buy the dips and sell the rips". Choppy trading has settled in while the market searches for new information. The economic releases have not been robust, but they are "less bad". Last week, the Unemployment Report came in worse than expected. That actually could be bullish for the market because it means that the Fed will maintain its accommodative policy. Low interest rates benefit consumers, businesses and lenders. In two weeks the financial sector will dominate the …

Look For Support This Week and An Earnings Rally Next Week!

2009-10-05T15:49:00-05:00

Last Thursday, the market fell dramatically after initial jobless claims came in higher than expected and Goldman Sachs lowered its estimates for the Unemployment Report. Nervousness spread throughout the market and traders took profits. Jobs were weaker than expected and payrolls fell by 263,000 in September. Analysts had been looking for a decline of 200,000. After an initial decline, the market was able to recoup most of its losses. Last week, economic data was not all that bad. Employers plan to cut 13% fewer jobs than they did in August. Continuing unemployment claims fell by 70,000 and the four-week moving average …

The Market Should Find Support Today - Look For A Bounce Next Week!

2009-10-02T16:02:00-05:00

Yesterday, the market sold off on a weak initial jobless claims number. Once the downward momentum was established, profit-taking set in. The SPY broke below support at 105 and it closed near its low of the day. More than 90% of all stocks traded lower. When I dissected the news, it wasn't dire enough to justify such a huge decline. While it's true that jobless claims increased by 17,000 (when a decline is expected), all of the other news was fairly positive. Continuing claims dropped by 70,000, planned job cuts by employers fell 13% from August, the four-week moving average for …

The Numbers Weren’t That Bad - This Is Porfit Taking - Look For Support Tomorrow!

2009-10-01T16:28:00-05:00

The market is finally starting to feel a little heavy. Ever since the key reversal last Wednesday following the FOMC statement, profit-taking has set in. As I've been mentioning, nervous trading should precede the Unemployment Report. The economic news this morning was not dire enough to justify a 20 point drop in the S&P 500. Construction spending increased 1.8% in August and that was better than expected. Private residential construction spending rose 4.7% and that is an encouraging sign for builders. Pending home sales increased 6.4% last month and that was also better than expected. From 2001 through 2005, 50% of …