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Richard
richard[at]hedgeagainstspeculation.com

I’ve been meaning to post but work and moving has been getting to me. It’s been a little while so let’s do a recap…I posted this chart on Feb 17, 2009:

We broke our symmetrical triangle and closed below 800 that day…both were signs that a new leg down was going to begin. Let’s take a look at what has happened since:

Excuse all my trend-lines but as you can see we continued further down as expected. What surprised me however was that we couldn’t hold support at 750 (741 to be exact, a key support level). We did get a bounce on the 24th of February and I honestly thought we had formed a double bottom (a bullish formation) at that point but we didn’t! Instead of following through we broke below 741 breaking yet another key level. I must say I was very surprised to see this on Friday…I have been mentioning the “bearish pennant” in my last few posts as a possibility but come on, I did not want to see it happen!! I’m trying to be optimistic but Friday’s action forced me to short the markets yet again. I felt we were oversold but I had to short to hedge my two remaining longs and I’m glad I did!!!…cause what happened TODAY shocked me even more. We broke another major trend-line!!!! I do apologize for all the “!”s but how could you not be bearish with all those cracked support lines? We are in a primary downtrend and it seems to be worsening daily…please do yourself a favor and do some research on bear ETFs. Try either Horizons BetaPro ETFs or ProShares for a start.

Happy trading!…and don’t forget to check out HY Markets and all my other sponsors!! Thanks again to all those who have subscribed to my feed/newsletter, it means a lot!!!

Richard
richard[at]hedgeagainstspeculation.com

I meant to post a couple times this past week but just haven’t gotten around to doing so…but I do appreciate the comments you peeps have left. I do reply to all your comments and emails (so please continue to do so), in fact I tend to leave market updates and strategies under the comments section. And hey, 15 comments in my last blog article…great work! Keep them coming!!

Today’s post is going to be a short one, but a post is better than no post, right? The markets are looking horrible, it is likely we will see further danger to the downside. A short relief rally tomorrow morning is possible but if we follow through and close below 800 on Wednesday that’s a sign of bad things to come. We’ve been getting lots of mixed reactions to news…in situations like these the overall trend trumps everything and the path of least resistance still continues to be lower. Today’s bearish action pretty much eliminated all bullish arguments…take a look at the S&P 500:

We broke out of our symmetrical triangle today. As mentioned before, a break below 825 would lead to much more downside. Other important support lines include 800 and 750. Today’s break below the 800 level could easily lead us to 750 in the coming days. If you haven’t read my previous post about a potential bearish pennant, you should! Cause it is looking more and more like one as the days pass. A push lower to 750 forms a double bottom…this may sound bad but really it isn’t…double bottoms are usually a reversal pattern. But for the time being, I’m going to stay away from picking bottoms…speculating bottoms is a losing game.

Happy trading!…and don’t forget to check out HY Markets and all my other sponsors!! Thanks again to all those who have subscribed to my feed/newsletter, it means a lot!!!

Richard
richard[at]hedgeagainstspeculation.com

I hope you’ve all enjoyed Dylan’s guest posts. It’s an honor to have him on Hedge Against Speculation, but I think it’s time for me to update you all on what I’m seeing in the markets. Patterns are developing as I write this article but before I go on to details I’d like to thank my newest sponsor HY Markets. Without my sponsors I would not be able to continue with this blog so please support me by checking them out! Other means of supporting H.A.S. include commenting on my articles, subscribing to my feed and simply spreading the word about my blog :)

So today is Monday, February the 9th and I’ve decided to blog while in the middle of the trading day…in fact I’m doing a few day-trades as we speak. As mentioned in my previous post, we are forming a symmetrical triangle.

This triangle can break to either side but the weekly charts tell me that we are more bullish than bearish. We haven’t gotten to our year’s highs yet, but it is looking much healthier. In fact the NASDAQ is up for the year! Buyers controlled all of Friday and I suspect they will do the same today. If we do infact break out of our symmetrical triangle, we will most likely slow down at 900. I suspect we will turn around at around 900-925 BUT if we pop through this mark the bulls are in full control. I will go as far as calling this a bottom if we do in fact pop through this important level.

But do we really have a symmetrical triangle or just a bearish pennant?!? Remember folks, the path of least resistance is still down. So what is a bearish pennant?…take a look at this picture:

A pennant is considered a bearish signal, indicating that the current downtrend may continue. The big picture indicates that we may such a pattern. After a strong volume decline on negative fundamentals, we’ve been getting weeks of narrowing price consolidation on weaker volume. This typically follows by a second sharp decline on strong volume. 

Keep these patterns in mind when you trade this week. I will add some charts later tonight to give you peeps a better picture of what is happening in the markets.

Richard
richard[at]hedgeagainstspeculation.com

Hello all.  This is Dylan, the infrequent guest writer on Richard’s site.  I just want to write to both promote my own site (http://bulldodger.blogspot.com) as well as enhance the general community on trading and investing strategies.  I recently posted an article on my site highlighting my exit from a trade in EQ and entry into a trade in KALU.  But KALU recently had a move that I look for in a stock that provides a short term small scale profit on a position using a covered call or debit spread strategy.  Let me start from the beginning.  One of the things I like about this stock is that the current trend is linear relative to the diagonal support. A stock like this provides a good opportunity to make short time profits by writing a covered call against a stock position or selling a short dated option to create an option spread (if I was long a call option to begin with). When I do this, I look for stocks that I think will continue in the current overall direction based on strength of support areas. I generally like to do this in stocks that have a relatively low level of volatility. While lower volatility implies a lower option premium, it allows for my strategy to be more effectively executed. Here is what I do. In a bullish stock where I have a long position, I like to sell the nearest out of the money call in the current expiration month. For KALU this would have been the Feb 30 Call. In this case the trade would have brought in a premium of about $90 per option contract if I had sold the call on 1/28/09 when the stock began to show some weakness. I then hold the option until it makes a higher low near support. At this point I rebuy the call (close the position), locking in a profit of about $60 per option in this trade.

The reason I trade the nearest out of the money option is because I want to leave myself room incase what I perceived to be a higher high is just a hitch in yet a larger movement. In this case, the 30 call would have given me just over $2 of reaction time should the stock move higher and I wish to hold onto my position. Plus, options near the money have the highest time value, which is what I am trying to lock in. The reason for selecting the nearest month is because time decay occurs at the highest rate in the final month of expiration. So not only will the option lose value as the stock declines, but it will lose value as the month wears on.

The major difference between a covered call and a debit spread creation is that in a covered call you own the stock where as in the spread you own a lower priced call. In the trade above I locked in a profit of $60 per option that can be deducted from the total price of the long position. This may not sound like much. If i bought 100 shares at the break out above 24 on 1/23/09, i would have spent roughly $2400. In effect I am reducing the total price to $2340 by the end of this trade. Conversely, if I had bought the $25 call upon the breakout, I would have spent about $2.50 per share, or $250 per contract. In this case, I would be significantly lowering the total per contract price of the initial call position (2.5-.6=1.9 and 2.5-1.9/2.5 = .24 or 24% reduction in total cost per long contract.) I have indicated with the big blue arrow where the call should have been sold, and indicated with the big red arrow where it should have been rebought to close the trade.
Be sure to check out my site at http://bulldodger.blogspot.com for other trade ideas and analysis.

Happy trading- Dylan