Aug 10, 2009 - Issue #175



EK Rocketship!



EK Rocketship! Last week, after reporting a second-quarter loss of $191 million, or 71 cents a share, the camera manufacturer introduced a new pocket-sized camcorder that can upload videos to Facebook and YouTube. Volume and price moved strongly upward. What to do? Buy, hold, or sell?

For what it's worth, the decision whether or not to sell is always the most difficult. As a trader, taking a worthwhile profit is always hard to resist.

A favorite strategy is to start out buying Calls with a view to shorting stock on rallies (synthetic Put), covering on declines, and shorting stock on the next rally again as often as the market allows. If successful, the swing trading profits from the 'short' side completely covers the cost of the long Call position. Unfortunately, this strategy is unavailable, in the case of EK, since 'short selling' is not allowed in stocks below $5.

An alternative would be to sell higher strike Calls against the lower strike Calls (legging into a 'bull spread') or buying higher strike Puts (putting on a 'box'). Selling Calls requires waiting for the 'time value' to expire while buying Puts requires overcoming the purchased premiums on declines. Neither of these problems are present with 'synthetics'.

CNBC's Options Action never seems to mention 'synthetic' Option positions. Too sophisticated for their audience?

Heads Up

W. D. Gann, a keen market observer, although not an astronomer, nevertheless, was fascinated by the apparent coincidence of important market 'pivot points' and astronomical dates. Theories exist for estimating time and price of important market turning points but astronomical occurrences are computed with mathematical certainty.

There is no logical reason why these occurrences should coincide yet, empirically, they have. The 'Full Moon' and 'New Moon', among others, have been cited. Therefore, one might be well advised to be aware of their occurrence. Note: The first 5 business days of 2008 concluded on a 'New Moon' and we all know how that worked out. Coincidence?

8/20 Thursday - New Moon.

During the next two weeks, the following Dow components report earnings. Keep a sharp eye out for possible price swings leading up to 'earnings day' (Subject to revision):

8/13 WMT.

8/18 HD, HPQ.

Dow score card for the week ending 8/7/09.

DJ-30: 9370.07 +198.46 +2.16%. The Real World (arithmetical) DJ-30: 41.32 +0.87 +2.16%.

UP: 22, Down: 8.

Trends (weekly charts): This is the subjective part.

Rising (Generally Higher Highs/Higher Lows) 16 (-1) 53%:

AA, +*AXP, BA, BAC, CAT, CSCO, CVX, DD, GE, HD, HPQ, IBM, JPM, MMM, +*TRV, +*UTX.

Consolidating (Generally Lower Highs/Higher Lows) 13 (+1) 43%:

DIS, INTC, JNJ, -*KFT, KO, +*MCD, MRK, MSFT, PFE, -*T, -*VZ, -*WMT, XOM.

Declining (Generally Lower Highs/Lower Lows) 1 (n/c) 3%:

-*PG.

+/- denotes change of direction.

* denotes change of category.





Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!

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