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Jan 29, 2007 - Issue #043
Get Ready to Bail!
Dow score card for the week ending 1/26/07.
DJ-30: 12487.02 -78.51 -0.62%. In the Real World: 51.96 -0.33 -0.62%.
UP: 12 (-6), Down: 18 (+6).
Trends (weekly): This is the subjective part.
Rising 12 (-4):
AA, DIS, HON, JPM, KO, MO, MRK, PG, +*T, UTX, VZ, WMT.
Consolidating 17 (+5):
AIG, AXP, BA, -*C, +*CAT, -*DD, -*GE, GM, HD, HPQ, IBM, INTC, JNJ, -*MCD, -*MSFT, PFE, XOM.
Declining 1 (-1):
+/- denotes change of direction.
* denotes change of category.
Get Ready to Bail!
The size of Friday's sell-off is too much to ignore, in my opinion.
If big money tends to be smart money, you got to figure they must have their reasons.
Wouldn't you love to see what MarketClub's Big Footprints feature is signaling for your
If your trailing open sell-stop orders are filled, thereby closing out your long positions,
and if you want to take a short position in the same stock, see if reasonably priced
put options are available rather than putting on an outright short stock position.
Never short stock when suitably priced put options are available. Limit your risk at all
Options 2 strikes in the money have less time value and higher delta value and should
track the underlying stock better than ATM or OTM options.
If you must short stock, use limit orders 2 ticks away from the market. You don't want
to get trapped in a down market because of the "up tick" rule.
If available, short single stock futures (SSF). No up tick rule, less margin required,
you don't have to replace dividends and, rather than pay premium, you take in premium.
How cool is that?
Whether shorting stock or single stock futures, buying call options as protection to
limit potential loss is recommended. Otherwise, use open buy-stop orders to limit loss.
If the latter, be aware that there is no guarantee as to the orders' execution price.
An open stop-order is "elected" when the underlying stock trades "at or through" the
orders' price. Upon "election", the order becomes a "market order" and is executed at the
best price immediately available. And who knows what that price will be?
We would like the price always to be filled at or near the elected price but what if the
stock gaps way through our hoped for price? Only an option can provide guaranteed
"insurance" protection. The choice is yours. Do you like to sleep well at night?
On the buy side:
In the Dow, keep an eye on CAT.
Outside of the Dow, VCI, one of the "magic formula" stocks. Check it out.
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!