Oct 13, 2008 - Issue #132
CNBC has been asking everyone and anyone, "Is this the bottom?"
The answer is simple enough. The market will touch bottom when the last seller has sold.
J. P. Morgan's answer was, "I'll tell you six months after it happens."
Jesse Livermore (see Trade like Jesse Livermore) identified possible 'pivot points'
as early as possible. Humphrey B. Neill's Tape Reading and Market Tactics stresses
the same point.
Using suitably priced options either to hedge stock positions or to substitute as stock
positions are the favored techniques of professional traders.
During periods of high volatility, such as we are currently witnessing, one way to reduce
the time value cost of an option position is to buy in-the-money Calls and,
simultaneously, sell at-the-money Put credit spreads.
Buying in-the-money Calls cuts down on the 'time value' of the options purchased while
selling (writing) at-the-money Put credit spreads maximizes the amount of 'time value'
taken in on the options sold. The resulting position not only hedges down side risk while
leaving upside potential unlimited but the overall time value cost is reduced. Another
plus is no margin calls and no risk of 'stop' orders being 'gunned'.
The above strategy also allows for the future possibility of shorting stock into a rally
with no risk.
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':
10/14 INTC, JNJ, (Transportations) CSX, JBHT.
10/15 JPM, KO, (Transportations) AMR, LSTR.
10/16 C, UTX, (Transportations) CAL, LUV.
10/21 CAT, DD, MMM, PFE, (Transports) CHRW, NSC.
10/22 BA, MCD, MRK, T, (Transportations) CNW, R.
10/23 MSFT, (Transportations) BNI, GMT, UNP, UPS, YRCW.
10/24 (Transportations) AXB.
Dow score card for the week ending 10/10/08.
DJ-30: 8451.19 -1874.19 -18.15%. The Real World (arithmetical) DJ-30: 35.37 -7.84 -18.15%.
UP: 0, Down: 30.
Trends (weekly charts): This is the subjective part.
Rising (Generally Higher Highs/Higher Lows) 0 (-1) 0%:
Consolidating (Generally Lower Highs/Higher Lows) 1 (-9) 3%:
Declining (Generally Lower Highs/Lower Lows) 29 (+10) 97%:
AA, AXP, BA, -*BAC, -*C, CAT, -*CVX, DD, DIS, GE, GM, HD, HPQ, IBM, INTC, JNJ, -*KFT,
-*KO, MCD, MMM, MRK, -*MSFT, -*PFE, -*PG, T, UTX, VZ, -*WMT, -*XOM.
+/- 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!