Getting the Shopping Cart Out

Looking to add some APPY, BOLT (nice quarter again), ANSS, AAPL, and maybe even some PCP.

Still fairly defensive here, but get out of the bunker and I don't want to miss the party. No rush, however, and I plan to watch today and see if the bulls can turn it around before plunging in.

If things go well, I am planning to put half my cash to work tonight or tomorrow. Still looking for some follow through here.

Covered Again

Covered those puts again for a profit this morning. The bulls are starting to fight after the rate cut. Going to let the long positions run for a while.

The Hedges Worked

Better to be lucky. I was traveling today, so I really didn't get a chance to have my finger on the trading button when the Fed announced a 50-basis point cut. I really didn't think that they would cut another 50 points. I doubted their aggressiveness, but got lucky with my puts with the Bond Insurer Ratings Downgrades shortly after 3 pm eastern.

I made no trades, just holding on with some dribs and drabs. Thinking about adding more AAPL - it is just too cheap.

P.S. Boeing had a good quarter after hours. This may bode very well for their suppliers (think PCP) in the future. I need to read up on their earnings outlook.

Does History Repeat Itself?

I decided to re-post a snapshot of the 1990 recession SPX daily chart below to again monitor if the stage is being set for history to repeat itself. While the circumstances are different this time as to what the catalysts are with respect to this slow down, the price action may be very similar.

I don't see a 2001 type decline in the cards. The equities environment is just not as overbought as it was in 2001, so I am using 1990 as a "reality check" model (among others) to gauge where the market may go.

Using the 1990 model, if we believe that a bottom was reached last week, then past experience tells us that the bottom will be re-tested shortly.



From peak to trough, the 1990 model sold off about the same as the current time frame (about 20%). They also set a low around an established area of support (a range from 1275 to 1250 put in during 2006 for the current scenario). After the final bottom in 1990, the market traded in a range (after a snap back rally) for 5 trading days in early October before the re-test took place.

If we are trying to apply the 1990 model, this means a re-test starts this week.

When combined with a Fed Meeting and Announcement on Thursday and the fact that the market expects another 50 basis points, the set up for a big re-test is very possible. I personally think the Fed will disappoint the Street and that 50 more basis points is not in the cards - the Fed has never done that and the economic conditions are not as dire as pundits claim. Some will claim that the cut is for the credit markets to heal and not the economy, but LIBOR doesn't bring that case out anymore. Time heals that wound and not monetary policy.

This is a stretch. Almost a conspiracy theory. Regardless, I re-added some SPY Put protection this morning just after open.

Stay safe.

Hard to Watch

The daily volatility is sometimes hard to watch. I am still about 60% in cash, happy that ROCM is seeing some life (I actually took some off at $14.00 - I was top heavy). I am also happy that EGY has bounced back even though their 1st North Sea venture was not successful. GRMN's price action response looks like a bottom is in and AAPL seemed to form a double bottom just above $126.00 this morning. If I can just ignore my AAPL call option losses, then things don't look so bad.

I also closed out my SPY puts when the market started to turn positive this morning for an 80% gain. I will add again probably soon, still expecting a retest of the current market bottom.

Bought some Insurance

Bought some SPY puts for insurance. We will retest, so I think that this is a pretty conservative play.

End of Week Musings

I am taking a few days in the mountains with my family and there is nothing like fresh air, snow, and a temperature of 16 degrees to clear the head and focus the mind. It has given me an opportunity to try to see the proverbial forest from the trees and I thought I would share my thinking here this morning as my family dons the snow gear for a morning of sledding.

First of all, before some of my western friends call foul, the "mountains" on the east coast are really hills when compared to their west coast cousins. We are staying at a whopping 1500 feet above sea level to give folks some perspective. Also, the image is not an east coast one, but a Canadian one from Whistler - one of my favorite spots on this planet.

Anyway, here is what I am thinking:

• The message boards are very, very negative. Tons of traders (and even long term buy and hold investors) went short and just covered or are planning to get short now.
• The media has never been more negative than it is right now about the economy and the market's outlook. There is something about having a Republican in the White House that gets them going and they have never been happier than now about bashing a situation, a President, and an economic policy.
• The market, including me, thinks that the Fed was slow to act and behind the curve. They have come on strong lately, but their "message" has been very poor. BB needs to hire a communications manager. This lack of message is hurting the policy and fueling the negativity. Regardless, recent easing will have more effect on stimulating greed than most currently believe in the 2nd half of 2008.
• Most traders have only seen the 2001 recession professionally, meaning that they lack any depth of understanding this current environment. The 2001 recession has left a kind of Vietnam-like Syndrome in place that fuels the negativity and the "never again" mentality. A lot of folks are going to cash whenever they see their shadow.
  
• The market, including me, hates the "Stimulus" package proposed by the political class. What a waste of money. As usual, they are just buying votes and continuing the War on Prosperity. Again, more negativity.
  
• Very few folks think that the bottom put in this week is THE bottom.

All these observations are leading me to be very bullish. When the conventional wisdom says one thing about the markets, the opposite usually happens. One thing that we do know is that this week's new bottom will be tested. So everyone needs to expect that 1270 on the S&P will be another buying opportunity.

That last statement means that we will go down 6% from here to retest, just fueling the negativity and giving us a mechanism to go higher. I am not willing to predict that this week's bottom was "it", but it looks more likely than not at this point to me.

Anytime that I can buy AAPL for a forward PE of under 20 (also adjusted for cash), is a time to get excited about the upcoming months.

p.s. Anybody notice ROCM yesterday? Up more than 11% on no news. If anybody knows something, please let me know.

Apple's Deferred Revenues

OK, I admit it. I am drinking the Cool Aid; I have become an Apple Disciple. Well, not really. I still like my money better.

All my research is telling me that Apple's best days are still in front of them. This latest blog from Stephen Rosenman about Apple's deferred revenues is just another little item that is currently not priced into the stock.

Look at this Gap

There were so many images that I looked at tonight that would have been an opportunity to go "down market" with this title, but the realization that a few women (and maybe my kids someday) will view this post has kept me in check (sorry Denis).

The "Gap" that I am talking about is not the company (or the sexual reference in the title above), but the gap that appears on the XLF chart. The ETF finished right at resistance today with a gap evident just above today's close.

The market will want to fill this Gap. The financials are leading the way out of this mess. This is very bullish for the long run. Today looks like a good bottom might have been put in. Qqxyl on the TIE message board demonstrated that the indexes bounced today at the 50 month moving average. This is the same bounce that we saw in 1990.

Very interesting. Too early to call a bottom, but things look a lot better after today's close.

I actually have a theory. When I leave the market to play golf or go on vacation, things turn out better for my portfolio (GRMN rebounded more than 13% from where I bought it this morning).

Maybe I ought to stay on vacation.

Simply Crazy. Bought AAPL Stock

Now it is completely undervalued. My goodness, the PE is now in the 20's. Bought a new AAPL core position at around $130.00. I will keep adding in $5.00 increments until it bottoms. Now only 50% in cash.

Value hunting and bottom fishing now.

Bought some GRMN Today

OK. Now I am probably done. I looked at the GRMN chart and saw the bounce yesterday at $55.00 and entered the pre-market to buy some stock at $56.65 (average). I look at this purchase as a core investment. The price of $55.00 may not be the bottom, but the stock has lost more than half its value since October.

The potential loss of Gross Margin is now fully priced into the stock price and I think their is huge upside. Time to stop messing around with GRMN and make a stand here for the long haul.

Time Out

I'm calling it on myself. I deserve a time out. AAPL is getting crushed. The market will open lower this morning and I am on the wrong side of these trades in both cases.

AAPL nailed earnings and beat the Street by a wide margin, but guided lower for their 2nd quarter (this current quarter). This guidance is killing the stock, down another 11% in pre-market to trade below $140.00. This puts my long calls in a new worthless position.

I should have taken yesterday's Feb155 call buy off the table at close yesterday with a profit. Instead, I am looking at a major loss on this trade. With 68% of my portfolio in cash, it won't kill me, but the last two weeks are setting off alarms in my head that this market is currently very dangerous to trade in.

So I am taking a time out. At noon today I am heading to the mountains with my family to play in some snow and relax for the rest of the week. These plans were made yesterday. I need to clear my head and improve on the portfolio's performance (which is down for the year).

I am keeping most of those AAPL calls for now. I expect them to be nearly worthless (especially the Feb175 calls (depending on this morning, I may take the loss on these today).

All my charts and indicators tell me that the market will turn, but I have so far been wrong. Maybe this is stubborn, but the long trade seems to have less risk at this moment in time for at least a minor snapback.

By the way, EGY's latest well in the North Sea came up a dry hole (technically unproductive). The stock took a hit on this news yesterday. I will add more under $4.00. Their program for 2008 still looks good.

Not a Weekly Recap

Its not the end of the financial world as we know, but it sure seems like it. I know that the image is a little dire, but you would think that the mental health community are currently making a killing (pardon the pun).

I took a long weekend away from the chaos and spent time with the family. There was not a huge reason to do basic research when 70% of the portfolio is in cash and the market is going through a multiple contraction and repricing the future based on a US recession.

The first that I heard about the Monday meltdown globally was last night on a Fox News update. Oh well, this morning I heard a CNBC talking head describing the market as having a fever. This fever has to break and the Fed can only put a cold compress on the market's forehead until it passes.

For anyone with a long position, selling in panic at this exact moment is crazy. Take the hit because we are near the bottom (I just stopped writing this post, to actually buy AAPL Feb155 calls at open). The selling panic is here. Finally.

I will post more today. Days like this is why I write this blog. I participated in the 2001 bear market, but can't remember the day to day (I am getting old and losing memory cells). History repeats itself when it comes to human nature.

Losing a Bet Today

I lost a very longstanding bet today. For those of you that don't know my sneakdoggiedog alias on the InvestorVillage Message Boards, I often hang out on the TIE message board.

Over the last two-plus years, TIE has made me an awful lot of money. Even after it gave me a three bagger from December 2005 to May of 2006, I continued to trade the stock netting decent money swing trading and using options. This was done largely with the help of others (you know who you are) who all pitched in to understand the dynamics of the aerospace cycle for titanium .

As one of the long term bulls on the Board, I soon made a bet later in 2006 that TIE would get back to the $40.00 price tag that the stock held shortly in May of 2006 before it ever hit $20.00 with Denis Cowley (a respected poster on the TIE Board).

Well, TIE almost got there again (see chart) when it hit $39.70 in 2007, but close doesn't count in a bet like this. Denis took the brass ring today when TIE dipped down below $20.00 for the first time (split adjusted) since 2005 and the note on the image (which I knew Denis would appreciate) says it all.

Best to you Denis and thank you for being a gracious winner.

Cleaning Up the Mess

The S&P broke the last major resistance left this morning before even the permabulls have to admit that some version of the "Bear" is here. Next stop is above 1325.

So I am doing my best to clean up the mess I made this week. Still holding those AAPL calls, but hedged them with SPY puts this morning for a double before covering just before lunch. The market is now back towards the lunchtime low and at that inflection point that determines whether the day is bad or a complete disaster.

One thing is for sure. The volatility indexes are still a mystery. The market has been in freefall and the VIX doesn't show it. One thing that the trend does show, is that a bounce is overdue and another point on the VIX sets up a triangle. So don't hold those trading shorts too long.

The whole BioPharma sector is taking a bath today. APPY is down on no news, so added some more below $7.00, knowing that the stock won't stay there long. BOLT (formerly BTJ until it's move to the Nasdaq this week) is also in a freefall. I think that investors have lost where the stock went. The volume is way down - probably a lot of computer programs still trying to trade the old symbol. I will buy more of BOLT to average down, but want to find a bottom first.

Any put buying or short positions that I apply is for a daytrade only at this point until the oversold position gets relieved.

Added AAPL Feb165 Calls

Added back some AAPL Feb165 calls this afternoon and enjoyed a little bounce before the tape sold off again near close. Today felt like a intermediate bottom to me. The Bulls put up a fight on what should have been a big down day.

A Bridge Too Far

I love the equities market. I also love golf. I admit that I am addicted. Why? Because both are challenging, pure, and at times very, very humbling. As Bagger Vance said about golf in the movie, I have "lost my swing" in terms of trading this market at the moment.

I expected Intel to beat estimates. I expected the current low in the S&P to be held for the short term. I also expected AAPL to hold up better that it has. Well, three strikes and you are out. Today may very well be a new bottom from which to build a new base up after another 250 point decline, but I am afraid that any further losses to Apple below $165 will create a Bridge to Far to cross in the time left before expiration.

I am therefore selling my Feb185's on any strength this morning to roll over these funds to the Feb175 calls I currently own at a lower entry point. This huge loss is very humbling and frankly one of the worst trades I have made in years. Time to learn from it. This correction is definitely different than others that I seen before.

Putting a Cover on It

Covered those AMZN puts and SPY puts this afternoon. Not enough more juice to squeeze in my opinion. With the Apple debacle, this hedge makes me look somewhat smart today. It didn't offset my losses today, but certainly kept me from the poor farm.

That AAPL low (at $168.30) couldn't hold, so me now holding those calls looks even dumber. These last few months have been humbling, even for someone who has been trading a long time.

AAPL Investors are Selling the News

Apple investors are currently selling the news coming out of the MacWorld keynote at this moment. For a minute or two, I just gazed at the computer transfixed by the trading with waves of buying and then selling based on one-liners coming across the wires as the Keynote unfolded. I actually imagined hedge funds having employees in the MacWorld audience shooting information via a smartphone (probably a Crackberry) to their boss back in Greenwich that caused traders to buy and sell.

Then I realized the trend was down further and that I still owned calls! Yikes. Too late to sell them, I missed my trading window and the trade has gone south badly. Selling now has limited value, so I am breaking a golden rule and changing my thesis to hold into earnings next week.

So far with Apple, the news actually has me fairly excited. More than 4 million iPhones have been sold and they are now claiming 20% of the US smart phone market. Not bad for 200 days. They also announced new software upgrades to iTouch and iPhone hardware to allow for more tools to be added to the devices. Movie rentals are now a reality on iTunes with movies that can now be rented for $3.99 (so long Netflix)! Movie rentals can now also be seen using improved Apple TV software directly to your widescreen. They also introduced a very neat wireless back-up system for Macs called Time Capsule.

Finally, Apple will release a new laptop, dubbed the Macbook Air, priced at $1800. With a 13-inch display (larger than the "experts" thought), a full size keyboard, and a thickness of only 0.76-inches. Apple hopes to succeed where others have failed in this "ultralight" category. From my seat, I think they will succeed and feel that most of these critics also pooh poohed the iPhone last year.

To me, the selling seems overdone and that is why I am holding options (Feb175 and Feb185 calls). Unfortunately, you could basically say "oversold" to the entire market.

By the way, AAPL had an almost perfect double bottom at $168.30 today with their low fours trading days from now. Lets see if it holds, but this could still set-up better than where I am at now financially with my options.

p.s. GRMN is a broken stock. I covered the last remaining calls (just a hand full) left from the snapback rally we got last week. I was playing with the houses money on this one after selling a ton of calls for a profit, but I should have sold them all at once.

Calling All Bears

The bears might as well throw a party because betting on a down market is getting crowded. Soon after I hemmed and hawed about whether to hedge my AAPL calls (and subsequently bought some AMZN and index puts), I checked some of my charts and noticed that I wasn't alone.


The CPCE (Equity-only Put/Call Ratio) is off the charts negative again with a 0.97 ratio. John Summa, the founder of optionsNerd.com, writes a great article listed in Investopedia about this indicator. What the indicator tells us is that a LOT of folks are betting on the market (or individual stocks) going down in the short term. What the article confirms is that this bet is most often wrong.


Tomorrow's PPI news, based on the options data, probably means that good news will have a better spike than bad news (everyone is already in the bad news trade). This indicator, in combination with others that are still saying we are in an oversold condition has me a little more bullish about this week's outcome.


We are running out of sellers. That is what the data are saying.

Stubborn to the End

Sometimes I am just a little too stubborn. I may get run over, but I put together a 3 pm plan today for tomorrow. I am keeping my AAPL calls, but hedged some with some AMZN Jan80 puts and some SPY Jan141 puts.

AAPL seems to want to run into the close and I hate buying and selling options in the last 1/2 hour of trading (I never get the deal I was hoping for), so I am sticking with my MacWorld trade thesis. The hedge is to protect these calls and also hedge against the Citi news and the PPI news in the morning.

This kind of mix and match approach never turns out as good as I would like, but I am at least hoping to not lose money in the process. I thought about put spreads with AAPL and other strategies, but I kept it simple. The market news will happen prior to open, but the Apple news is not until the afternoon (West Coast starts late - I don't know if the keynote will actually happen when the market is open, but knowing Jobs, it probably is) so this played in my mind about the strategy.

We may most likely have spilt news - good news from Apple and bad news for the tape. Trading different stocks and an index will hopefully address this. We shall see.

Staying Locked and Loaded

Don't bring a knife to a gun battle. This week is going to be wild with options expiration and the potential for major write-off news from Citigroup and other financials.

So what to do? Cash actually is sounding better and better. Even many stocks that may rebound from here have not established good bases from which to begin a solid uptrend. On the other hand, I think that shorting the market with these oversold conditions is just as risky.

The S&P Daily Chart is telling me that it will move up from here closer to its upward downtrend line before heading lower again. The oscillators and Bullish % Indexes are also showing a move back up. My "heading lower again" comment is only partially based on TA. The bottom put in last week lacked the "fear-based capitulation" that I like to see when bottoms are established, and suggests to me that this could be only an intermediate bottom. In addition, if the market is truly pricing in a recession and discounting forward earnings, a multiple contraction process typically takes longer to happen and usually means that we have more to go down (like another 6-8%).

Right now, I am busy thinking about what to do with my AAPL calls. They regained much of what they lost on Friday, but implied volatility is has been going lower all day causing premium loss. With CitiGroup and PPI to be reported tomorrow, I am openly questioning my strategy of holding AAPL calls into what could be a disastrous tape in the morning. I have 90 minutes to come up with a strategy.

Weekly Recap

We have been fighting the storm all week and I had great success holding the water back until Friday. With fingers in the dike and sandbags across the levee, I was feeling pretty good and started thinking that the storm had passed on Wednesday night. Unfortunately, we were just briefly within the eye of the hurricane with another encounter with the eyewall to occur.


Enough of the metaphor. Monday started out well. With the market in decline, and my portfolio mostly in cash, I dipped my toe into the water and added to my EGY and APPY long positions. At the same time I also added to my AMZN puts. APPY and EGY are defensive stocks that had moved below my buy point and Monday seemed like a good opportunity to get some more, however I remained convinced that the downturn would continue and adding to the short side was still safe.


Tuesday gave me some daytrading opportunities. I both bought and sold AMZN puts and AAPL calls when each stock gyrated wildly with the market. From a traders perspective, the changing intraday trends were easy to see on Tuesday. I ended the day where I started, with respect to my portfolio positions, but had a little more cash on-hand from the scalps scored during the day.


Wednesday morning started out ugly for the tape again. I started to unload some of my AMZN puts for a good profit thinking that this down move was getting long in the teeth. The oscillators were suggesting a near term bottom (either on Wednesday or Thursday) and it was getting too risky to stay short. I was also noticing throughout the day that some sectors (and some stocks) were bottoming sooner than others.


I have posted on numerous occasions that I was looking for another cheap entry for GRMN. Wednesday gave me that opportunity when an analyst downgraded the stock in a negative tape. When the stock went down intraday by more than 12%, I nibbled at some Feb75 calls. Later in the day, I also nibbled at some AAPL calls (thinking that the oversold condition was finally here) to begin a trade that attempts to play off MacWorld next week and Apple's earnings shortly after.


Wednesday saw that bounce and Thursday saw some follow through. Things were looking up although Thursday seemed touch and go for a while. I actually got head faked intraday and collared my AAPL call position with cheap January AAPL puts, only to have to cover this position for a small loss when the market turned up again. My GRMN position, however, more than made up for this mistake and portfolio looked great for the week.


I should have just sold everything then and there and taken a 3-day weekend, after being up 5.8% YTD within my trading account. Instead, I pressed the issue and bought another round of AAPL calls near close on Thursday to begin to set up the MacWorld trade, expecting a positive Friday from Apple even if the tape was soft.


I didn't expect the AMEX news and the negativity associated with it. I also kept my calls instead of covering at open thinking that the market was not yet ready to retest the low it just set on Wednesday. The levee broke and water from the storm went everywhere.


The good news is that I haven't yet lost the house. The portfolio is just under about where we started the week. The AAPL trade may still turn out. If not, then it was another major learning experience about greed.

Vaalco is Due to Report Well Spud Information

Vaalco (EGY) is due to report the outcome of recent drilling in the North Sea with a concession being drilled in partnership with Bow Valley Energy and Marathon Oil, so I expect some movement in the stock in the next week. Vaalco is not the operator on this well, but has a 25% interest.

Ed Ajootian provides an analysis of the company that is a must read and many of the reasons that I am long this stock.

Still Looking at ANSS

I have a New Year's Resolution that I am trying really hard to keep and that is "patience". I am still looking for am optimal entry point in the stock and I think it is coming soon.

The stock is still well within its multi-year channel and doesn't risk bouncing off the lower channel until $29.00. Right now, it is bouncing off the lower Bollinger, but showing no volume to the upside. Someone is defending the stock price (yesterday's volume was quite a distribution day) and I am glad it is not me.

With a 200-ma around $32.00, I have a price target to start nibbling at $34.00.

Investor's Business Daily did an article on Ansys yesterday that I thought was very well done (see article). It discussed the fact that 2/3's of ANSS revenue is generated overseas and that 2008 growth is still expected to be very robust. Undervalued is a word that comes to mind with this company at the moment.

Nice Bounce for GRMN

Some good news this morning for GRMN, which is having its first green day in 10. BMW selected Garmin to supply PND's for the new BMW 1-series and 3-series automobiles. This is right in Tom Tom's backyard and could be a very good deal (its second with BMW). The stock also received an upgrade from Morgan Stanley from underweight to equalweight, apparently on valuation.

I am still holding GRMN calls.

Trading without Trends

As the image says (it is hard to read), "There's something to be said for true losers. They're consistent to a degree that would suggest luck has little to do with it." I found myself getting too cute this morning. If you are trading you need a thesis and a trend.

My thesis for AAPL is MacWorld and that the stock will jump up on good news, so "stay long dummy" needs to be the theme for a couple more days. My fear was that the market would dive again today, so I dumbly saw the 10 AM rally as an opportunity to collar my AAPL calls. I bought Jan puts to place a collar in case this was another triple digit down day, but the price action in Apple was telling me different and I covered. Not a real costly mistake, but one that shouldn't have happened. You need a trend to trade, otherwise it is a complete guess.

Still basically with the same stuff this morning. I peeled off a few more GRMN calls this morning when the stock hit $79.00, and bought and then covered puts for a small, but dumb, loss.

Unless BB delivers bad news at 1 pm, the market seems to want to move up despite the retail sales silliness this morning. Of course, that is just a complete guess because intraday TA is telling me nothing at the moment.

Apple Macs in a Best Buy?

Larry Dignan posted a blog that Apple is set to sell its Mac computers in more than 500 Best Buy stores by February 2009. This is apparently a buzz story coming out of the Consumer Electronics Show this week.

His post, Best Buy to Double Apple Presence in Stores, concludes that this deal should be good for both Apple and Best Buy. I am not so sure. Yes, it is great for Best Buy. For Apple, I am slightly concerned that the company stands to potentially cannibalize its own retail outlets. Their stock price also commands a premium over others in the sector because of the brand and buzz that the company has created. The Apple Store is part of the Apple "experience".

All specialty retail (like the Apple Store) is often a great story until they stop growing. Will Apple be a victim of the monthly "same store sales" retail silliness? Probably not, but their current stores command a per square foot sales number that any other retailer in the world would sell their children for. Why mess with this?

On the other side of the argument, Best Buy currently sells more of Apple's iPods than anyone else. But a $400 consumer gadget and the Mac are very different. Is Best Buy going to also sell support contracts? How is that going to protect the Apple brand?

This is probably a "nit" in what is an incredible Apple story, but I do wonder how this part of the story plays out.

APPY Blog Post Worth Reading

Mike Havrilla (another blogger) is now following a 2nd small cap medical/pharma stock that I am an investor. ROCM was the first stock he has also been bullish on and Aspen BioPharma (APPY) is the second.

I first noticed Mike on the ROCM Investor Village Message Board where he shared out his notes and analyst report on ROCM (suggesting a 2008 price target of more than $25 a share).

Today, I noticed a blog listed on Seeking Alpha about Aspen's new innovative blood screening test for appendicitis called AppyScore (the reason I am an investor). I really can't say it any better than he can. He gives a great re-cap on the APPY story: AspenBio Pharma: Poised to Ascend New Heights

The VIX: Worth Considering

The volatility index, traded by the CBOE, is often a good traders reference point to compare what is happening in the options market against the equities market. The rule is that when you see differences in the VIX or VXN and the equities indexes, something has to give ground.

There are lots of good material to read about the VIX on the web (just creatively Google the Volatility Index), but there is a blog that I want to give a shout out to: http://vixandmore.blogspot.com/

The Vix and More, maintained by Bill Luby, often has me thinking about what it all means. His last post today (http://vixandmore.blogspot.com/2008/01/can-markets-bottom-without-vix-spike.html) discusses about whether the market can bottom without a VIX spike. This is something that perplexes traders and I am happy to see that Luby takes a crack at trying to explain it.

He may be wrong, but his research seems well thought out and I need to continue to think about how to apply his point.

Nice close today. I changed my mind and added to my AAPL calls a few minutes before close (Feb185's). I will sell some of this at open - I expect another round of enthusiasm in the morning that I want to sell into.

Taking some Profits on some Modest Trades

Somes bottom fishing panned out. I took off half of my GRMN calls from the table for a 75% gain. Can't be piggish here, the market can whipsaw. Holding some AAPL calls, but I didn't add as the stock went up (which I usually do). We need to be cautious here because that bounce didn't feel final.


However, I really want to be holding AAPL ahead of MacWorld next week. It is a trade I have been planing for months, although I heard yesterday that Fast Money is now also planning this trade. Oh well, that may still work out for me.

Picked up an Apple

Picked up a little AAPL call action again (Feb 175) a if crossed over positive again. If at first you don't succeed....


Tight, tight stops. No time to be more brave that necessary for some entertainment.

Don't Go in the Pool

Swimming is not safe yet. The market is up but most of my screen is red. Many of the market leaders are still bleeding and my indicators are telling me that this is not a bottom (pardon the pun).

The VIX is not yet screaming enough and a number of oscillators that I use still have readings above the August and November lows. It is now almost too risky to continue to short (I covered my AMZN puts) and too early to go long (I covered any AAPL long positions I had).

However, certain stocks will bottom before others do. When I see true fear in the tape of an individual stock, I do have a tendency to dip my toe into the water with call options. It needs to be a liquid stock to practice this, but GRMN is a prime example.

GRMN received a downgrade (from buy to hold) this morning and the stock has fallen this morning at open more than 10% on shear panic. This is the ninth down day in a row for GRMN and longs seem terrified. I, therefore, just dipped my toe in the water for some Feb75 calls for a trade.

We will bounce and GRMN will have great Q4 earnings. It is now getting silly.

Extreme caution today. I think a whipsaw or two is probable and a bounce is likely this week. Remember that the bounce needs to be broad based. The Nasdaq actually looks more oversold that the broad market, so they may lead us out.

Swing Trading

Adding more APV BQ (Apple Feb185 calls) and dumping more AMZN puts on the peaks and dips. This is just scalping some in this crazy market. I am not great at this and will probably sit on my hands the rest of the day.

Need to get off the swing.

Tug of War

A classic tug-of-war is not only going on in the trading pits, but also in my head. The market has not bottomed yet. It is technically broken and has to eventually go down under maximum fear to go up. At least that is what history tells us. The problem is that markets don't go down in a straight line and rallies happen.

The fear readings are acting funny. The VIX chart clearly looks like it will go higher (bearish), but it is currently not tracking the market well. The market internals are horrible with only a small amount of stock currently reflecting the daily close numbers from yesterday (for most longs, all they saw was a red screen yesterday afternoon even though the index was green).

My technical indicators are telling me that fear is still not pervasive enough to bottom and bounce effectively. So what to do? The market opened higher and I peeled back some of my AMZN puts to be safe. I also dipped my toe into AAPL calls long using AMZN as a hedge.

Do I sound crazy? Well, I certainly do feel it. Still in a lot of cash. A 1-2 day snap back is not unexpected, just unnerving as a short.

GRMN at CES

The CFO of Garmin just did a media spot on Fast Money this afternoon from the Consumer Electronics Show. They are busy innovating and developing new markets and new technology for the mass market.

All four traders thought there was more downside. Hee, Hee. The stock may go lower before I have to buy it back.

These guys don't understand the technology and don't understand the advantages GRMN has over the competition. The stock is on sale and I am loving it. It is at my buy point, but I am now getting greedy and waiting for $81.00

Taking my Time

I was in no rush today. I saw today for what it was - a pathetic attempt at a bounce. I took my time, did other stuff, and added a few AMZN puts after the stock went over $90.00 early this afternoon and nibbled at some APPY and some EGY.

No rush to get long anything and no rush to sell my short position. The bottom is not in and my indicators are not yet screaming oversold.

The trend is down. Be safe.

Weekly Recap

To some this image is a major wall of worry. For others, this is a major surfing opportunity. All things considered, I had a good week doing some virtual "surfing".

I am slightly down for the week, but my portfolio doesn't look nearly as bad as the major index performance this week. Monday was a slow day (last day of 2007) and it ended with me buying a new stock - APPY. The position is still up for me at week's end because it is in a defensive sector.

I focused on some stocks that can be protected from a stock market re-pricing in advance of a recession. On Wednesday, I added EGY to my portfolio. Again, I think that energy is fairly insulated from a downturn, especially smaller E&P companies that live or die on finding oil. In their case, the opportunities look good for 2008.

By Thursday morning, I had gotten my hopes up. The selling for the week still looked like profit taking and disciplined and a better than expected jobs report could turn around what was a weak ISM number. The recession re-pricing of stocks could still be avoided.

The tape though was saying something different and I sold my PCP calls and bought some AMZN puts to get really defensive in advance of the jobs report. On Friday, however, all my hopes were dashed. The jobs report was simply horrible. I sold those stocks most vulnerable - AAPL (calls) and PCP at open. Both those stocks took a hit at open, but that loss was only a fraction of what would have been if I had held onto them all day.

I could tell that the big boys were selling every rally and I quickly jumped on board with additional AAPL and AMZN puts. I sold SIRO on a stop shortly into the morning and sold ANSS as well. Both are good stocks, but I wanted cash and believe that I can buy them lower in the next couple weeks.

The puts took the sting out of the morning's loss and I finished Friday at almost break even.

I made a few minor mistakes. For example, I sold AAPL puts to actually go long again when I was head faked into believing that the boyz would try to hold technical support, but I covered and went short again when I realized the mistake. But, all in all, I think the week was well played. Somebody please tell me the right surfing lingo to describe me hanging tough on some gnarly market waves.

Looking to buy puts on any significant rally (except Fed news) next week.

Why the Market is Really in Trouble

What an ugly start to the year. Some may want to start praying (it definitely wouldn't hurt). Some may just want to cry after another terrible week. The Nasdaq lost a whopping 6.3% for the week and blew out its November low, putting the Nasdaq in a bear stance.

The S&P blew out its 80-week moving average, an average that has held up over the last four+ years, and has signaled previous recessions. The DJI is only 75 points away from its November low and below the August close. The warning signs are all over the place and the trend is down.

Cash is king for risk adverse investors. If you don't want to go to cash for buy and hold or tax reasons, then at least spend some money to hedge your positions. Working the dark side can also be very profitable for cowboys like me. In my opinion, the market has another 10% down to go and that is assuming that the Fed will cut rates another 100 basis points. If they don't, then we could see years of churn and a situation most current investors have never seen.

Why am I so negative? Another 10% down? The Fed changes the dynamic, but they are behind the curve. So far, they have demonstrated that they are worried about the wrong thing - inflation. They failed to move aggressively in 2001 (when they did, it was too late) and they have possibly already missed the point of no return this time around.

Is it a recession? I really am not sure. Using traditional technical terms, I think not, but the stock market will react the same. It is currently pricing in a recession. My hope is that the Fed gets off its butt, realizes it, and gives us a V-bounce and not a slow painful churn.

Yes, the technical support broke down, but Technical Analysis in my opinion is only a tool and not gospel. The fundamental economic conditions are different that they were in February, August, and even November last year. Of all the economic data released by the Government, the jobs report is my #1 focus.

It is a trailing indicator (as compared to others), but there is usually enough uncertainty within the stock market that any correction is "under control" until jobs data show weakness. Good stocks (with volatility) usually hold up well against the other depressing data that are identified prior to an increase in the unemployment rate, thereby restraining major losses. However, when jobs go south, I head for the sidelines hedging against the worst.

The October jobs report was dismal, but there was a feeling that it would be revised (it was) and that it would spark the Fed to move aggressively (it didn't). I stayed with the market long through the November decline because I believed that the Fed would save the day with aggressive rate cuts. It killed my returns for the year and made a good year into an average year.

My current thinking is that we are looking at a stock market situation like what happened in 1990. The economic conditions are different, but it was the last serious housing recession that we went through and housing was the drag. Inventories are better than they were in 1991 and valuations and rates are better. This is all good news. I am not debating a recession (or lack of one). What I am focused on is the historical price action of the stock market during that timeframe.

Lets look at the stock market in 1990. An S&P monthly gives us some perspective:



The two downturns in October of 1989 and February of 1990 look very much like August and November of this year. The 80 week moving average (at 335) was undercut in August and the market went down another 10%. Let's look at the daily historical chart:



Bear runs are typically very steep (fear is very powerful) and a bottom was put in at 308 and was retested five weeks later. This test failed and the actual bottom was eventually put in at 295. Another retest happened 10 days later and the index put in a double bottom that held. It is worth noting that the market stayed below its 200-day ma for six months, but there were plenty of rallies throughout the process.

Those that bought and held theoretically didn't lose any money after six months, but the Fed got on the case and got aggressive. Without the Fed, the market may have had prolonged pain.

I think that today we are right at that point in August of 1990. We had a great run in the 1980's and the economic numbers were sliding, but the Fed reacted well and the pain for stocks was fairly shallow.

AMZN is Gonna See a Multiple Contraction

The company has not really added much lately to their bag-of-tricks. Their top line is growing at a decent clip, but the Law-of-Large-Numbers will catch up with the 100 multiple (trailing) on this stock.

Analysts are expecting an average growth rate of 25% over the next 5 years. That is assuming that the consumer continues to spend like we are in a major expansion. With a PEG of over 3.60, there are way too many "ifs" in the stock price and it is over extended.

I bought puts with AAPL on a daytrade today, but I don't make it a point to short stocks of good companies with an outstanding outlook, so I covered these puts at the close.

AMZN, on the other hand, had their holiday season grow by 20% year over year. That doesn't rate a 100 multiple. It doesn't rate a 50 multiple in a growing economy.

If there is multiple compression based on the economy, this stock is about to roll over. It is up 180% for 2007. I hope folks took profits - I added to my puts at close today.

The chart is interesting. Today may have formed an island reversal. Monday may confirm this. I am looking at the chart around $87.00. That is the trend line. I will add to my puts (actually start buying February strikes) below $87.00.

http://stockcharts.com/h-sc/ui?s=AMZN&p=D&b=4&g=0&id=p99117822189&a=126326587

Well That Didn't Work

Back to the dark side. Puts on Apple. Going, going, gone. We have market correction breakdown.

Interesting AAPL Program Buy Area

I have referenced on a number of occasions that AAPL has consistently retraced back to its 61.8% Fib number before bouncing again. This Fib number was $187.95 and the bounce happened at $188.00. I went long AAPL Jan190 calls in the last 20 minutes, hoping that the bulls can put something together this afternoon. This has a tight stop, but AAPL is being defended and my AMZN puts still hedge this.

Covered AAPL Puts

Covered the AAPL puts (short daytrade), added to my AMZN puts and was stopped out of SIRO (wanted to keep those profits).

The market is taking an intraday lunch break. The battle resumes at 2 pm.

Sold More

Dumped ANSS and placed a stop on SIRO. Added some AAPL puts when the stock price was at $191.00. No reason to be long at the moment against this trend.

To the Sidelines

I went to the sidelines with my AAPL calls and sold my PCP long position. I didn't want to have any call options when the trend is down and I needed to sell PCP to raise cash (and take the long term gain).

Most of my other plays are fairly defensive and my AMZN puts are still in place. I need to see a definitive trend here before going short. I am watching the XLF (hit its November low at open) and the S&P which is holding onto 1429 at the moment. A good defense is being put up against a major "head-shot" attack by the bears.

I have no idea who will win. Time for the sidelines. Jobs is a big deal and the bulls thesis is shot to pieces. Now all they have is the Fed for the moment and nobody is home.

Eyeing GRMN Again

Garmin's stock price has been down 5 days in a row, having closed at $89.65, and is starting to look like a bargain. I have been hoping for $85.00 as a good entry point, but I may now be getting greedy.

An article this evening by the Street.com's reporter, Priya Ganapati, is quoting a number of Garmin Analysts saying that the stock is currently undervalued given the fundamentals. (See Article: http://www.thestreet.com/_yahoo/newsanalysis/techstockupdate/10396915.html) Shhh! This was supposed to be a secret!

I may have to break discipline tomorrow morning to catch the ask price at what I think is a good value. The problem, however, is the jobs report.

The jobs report can ignite the market or kill it. Being on the sidelines this evening with this stock play is the right move, but when is a good entry point tomorrow? Here lies the problem. Past positive jobs reports have sparked the futures and the open bid, but often failed to hold. On the other hand, if the report is negative, I am fairly certain that the market will go lower and stay lower, meaning that I will have plenty of time to buy anything.

I may have to rely on gut instinct and the pricing action after 10 AM. Let's hope that gut instinct is a little better than my PCP sell move this morning.

BTJ Moves to Nasdaq

A poorly keep secret, but I finally just read on the wire that BTJ is moving from the AMEX to the Nasdaq on January 15th under the call sign "BOLT".

News must have leaked out this morning explaining a lot of the 8% gain today.

BTJ is Breaking Out

You win some and you lose some. Today, I sold my PCP calls way too early, missing a move up that I really don't understand. Anyway, my long position in PCP appreciates it.

With BTJ, however, the move is not unexpected, but it is still exciting to watch. I was a little concerned about a minot head & shoulders at $40.25, but the stock broke through on volume.

As I am writing this, the stock just busted through $41.22 (the next resistance level). If it can close above this level, we should have some smooth sailing to $46.00 as it breaks through a symetrical triangle pattern.

http://stockcharts.com/h-sc/ui?s=BTJ&p=D&b=5&g=0&id=p54933814669&a=117769534

Added some AMZN Puts

I added some short term AMZN Jan95 puts this morning to try to hedge my AAPL calls with a pairs style trade. I am getting slightly conservative with my options positions going into tomorrow's jobs report. I think that AMZN is overvalued and I think AAPL is undervalued, but they seem to move in a similar direction when the market is reacting to general trading conditions like economic data. This is a short term hedge and I will cover one side or the other tomorrow morning.

Sold my PCP Calls

I sold my PCP calls. I had re-established those calls on a stock downturn hoping for a quick snapback. Now, I was just hoping for the stock to go up. Hope is not a thesis and I sold them on this morning's strength for a very small profit. I needed some cash to protect against tomorrow's jobs report and this does the trick. If PCP's technicals get in a good place, then I may put on those calls again, but it is better safe than sorry.

A Glimmer of Hope

The market has been down as much as 2% today, but all I see is a ray of sunshine. Why so optimistic? Well this is a short term prediction, but I am still smiling.

I have been bantering all day on the TIE Message Board about some technical indicators and the performance of certain stocks that encourage me. The market is still range bound and, when viewed with a more long-term perspective and combined with some short term indicators, the results are encouraging to me.

Very briefly, here are seven reasons to be hopeful. This is what I am seeing:

1. Today's sell-off looks organized. The selling was in waves and coordinated. The footprints were noticeable and it is something that I have less fear about.
2. The S&P and XLF held up really well under pressure today. The Nasdaq and the DJI fell, but the XLF and S&P held key support levels. The other indexes fell harder because they could without additional technical damage. The XLF bounced off $28.31, a retest area set in December that confirmed the November bottom. The S&P has major support at 1430 and some secondary support at 1440.
3. Some of my stocks were up in this tape. ROCM was the big winner today (Up 6.5% percent), but BTJ was also up and EGY finished above where I bought it. I was also pleased with PCP (which I keep thinking about selling) and AAPL which showed good bounce-back under some pressure.
4. The Options Pit is calling a bottom. Not the most reliable indicator, but I haven't seen the CPCE have a higher put/call ratio since the August bottom.
5. The Yen is on an unsustainable path with the Dollar. The currency has taken off at a rate that has to subside. The appreciation is fairly dramatic at a rate seen in August and November. It is now far enough away from its moving average that a pull back should be expected creating a tailwind for stocks.
6. The Fed minutes seem more Aggressive with Rates than the Orginal Statement. The market came off its low enough to absorb this news. On the surface it sounds bad that the Fed is alarmed enough to potentially cut rates further aggressively, but I would be more worried about the alternative.
7. The TRIN is signalling a bottom. Again, not enough data to confirm, but it is reaching the same highs seen in August and December.

Remember that I said "glimmer of hope". That is all I have at the moment, but it was enough to keep buying today. There are a few more oscillators that need to turn before we start calling bottoms here, but 2008 is not yet doomed even if a one day down record was shattered today.

SIRO Upgraded by Street

The Street.com upgraded Sirona Dental from a sell to a hold this afternoon. The ratings are fairly new for the financial news outlet and seem very backwards looking but their comments included the following:

"The company's fourth-quarter revenue rose by 31.3% compared with the same period last year, outperforming the industry average of 2.8%. Sirona Dental swung to fourth-quarter earnings of 93 cents per share compared with a loss of three cents a share in the same period last year, continuing a year-long pattern of earnings growth. We feel this trend will continue."

Looking at Medical Device Companies is by Design

I also just added Hansen Medical (HNSN) to my watch list list. As the market continues to be tough, I am looking for more defensive plays that still have the ability to provide explosive growth. A lot of the management from HNSN came over from Intuitive and their story looks good for 2008.

HNSN joins APPY, SIRO, and ROCM as stocks in the general medical/healthcare sectors that look attrative to me.

Garmin Hit by CIBC

CIBC put out a report that dampens some of the good news that is expected about Christmas sales for the company this morning causing the stock to sell off on the news. They lowered their 2008 revenue and earnings projections for GRMN and I expect a couple of days of selling.

This may be considered, by some, as a deceleration of earnings growth and the stock may be under pressure for a while. This is why GRMN is a hold for me, but it will become compelling for me at their 200-ma ($85.00) and I may have to pick some up before I planned.

Added Another Spec Play

A day after I wrote about my plays for 2008, I go a different direction! I added some Vaalco Energy (EGY) this morning. This is stock that I considered adding to my list yesterday, but I am loathe to recommend it because I lost my shirt on this stock in 2007. I started buying EGY at $7.00 as an investment and watched it move (in horror) below $4.00 before popping up to give me an exit point.

Vaalco has been a "one-trick pony" with E&P operations based mostly in Gabon, Africa. They are well financed (a lot of cash on hand) and 2008 was always going to be the year when the company hit a few new wells and got away from relying on one major well. I expected 2007 to be an "investment" year with a stock price lead up to this year when they hit a concession in the North Sea, hit with an on-land concession in Gabon and finished the process of exploring in Angola.

It didn't work out that way, but the thesis is still intact. I picked some up at $4.58 and will add a little more on any weakness hoping to recover a little pride and some pocket money in the coming months.

Happy New Year

Happy New Year everyone! I thought that I would post what I am thinking about the stocks I watch and own. Here are my plays going into 2008:

Long Plays for 2008

Apple (AAPL). Up more than 130% in 2007, AAPL may potentially repeat their 2007 performance in 2008. The Law of Large Numbers makes it more difficult, but the new technology and new markets that they are entering and being successful with is exciting. Their brand, the buzz, and their growth rate will continue to command a 50 PE throughout 2008. I am currently trading calls with AAPL short term, trying to take advantage of a potential January lift in their stock price prior to MacWorld. On any market correction, I plan to reenter AAPL long for 2008. MacWorld on January 15th will give us a glimpse about where the company is planning to go.

Bolt Technology (BTJ). A marine seismic equipment manufacturer for Oil and Gas companies, BTJ is a microcap that should enjoy a banner year in 2008. Bolt got ahead of itself last summer and is just now getting its feet underneath itself again. Investor’s Business Daily pumped the stock price and momentum investors piled in early last year, however, the IBD noise should be behind us and earnings should continue to accelerate as oil becomes harder and harder to find. I am currently long BTJ and expect the stock to be above $50 by early summer.

Ansys (ANSS). A maker of engineering simulation software, this company has almost doubled in 2007, but 2008 may be a better year. This company has outstanding growth and outperformed quarterly on a consistent basis. I am currently long ANSS as an investment and will add on any major dip. This is not a rocket stock, but a steady performer - worthy of some IRA investment capital as well.

Garmin (GRMN). Garmin finally brought GPS technology in force to the consumer market in 2007. Last year, the company proved to the world that personal navigation devices are a “must have” component and just about every device that the company produced was bought. I expect 2008 to be another blockbuster year and plan to be long GRMN on any major pull back. The Tom Tom price war on devices in late 2007 and the bidding war to buy TeleAtlas proved too much for the stock this fall and it is well off its high set in late October. I expect the stock to move lower on a “sell-the-news” type scenario after Q4 earnings are announced and I think that I may be able to pick up GRMN cheaper in March.

Precision CastParts (PCP). PCP has been a double for me over the last 13 months and 2008 may be another good year for the company as the Aerospace cycle continues to roar. I am currently long PCP, but looking to significantly lighten up as soon as later this week. My core position went “long term” at the end of November and I have been holding off in selling the stock for tax reasons. The AMT is just too painful and my tax bill didn’t need any more Capital Gains. While I really don’t often worry about taxes, I was confident that the stock would maintain its pricing power and I still expect PCP to hit $155-160 fairly soon. For 2008, however, I expect PCP stock appreciation to slow down and I plan to trade the stock instead of investing in it, buying PCP options on major dips. The company has solid management and they may come up with a way to grow further (so I don’t want to walk away) but my money will start to move elsewhere towards returns that are better.

Rochester Medical (ROCM). I have posted a number of reasons why I think that ROCM may be a stock that will be a rocket once they get noticed. This play is a speculative investment, but I believe that the stock’s fair value is above $30 going forward. I expect some January effect price action from this stock this month. Hopefully, $13.00 is in sight in the next 30 days. The lawsuit, medicare changes, an increased sales force and the possibility of M&A makes this stock a potential big winner in 2008.

Sirona Dental (SIRO). This company has some amazing technology that is changing the way that dentists provide dental health analysis. It is a best of breed play in a defensive sector and I am very bullish about SIRO long term, but the company’s earnings are very lumpy and the stock is thinly traded, making it a good swing trade. I am a buyer of SIRO under $30 and a seller of the stock above $42. I wouldn’t chase this one. The stock keeps giving us a buy opportunity as they try to broaden their client base and consistently execute.

Aspen Bio-Pharma (APPY). A new purchase for me and something that will require a little more research. The company may have a major home run with an appendicitis blood test (a first of its kind) that will help doctors screen for this condition. The company is looking for final approval from the FDA and this test could become a staple requirement for every doctor that encounter patients with appendicitis-like symptoms. I am riding this stock until $12.00 and will then reassess.

Stocks to Watch for 2008

Goldman Sachs (GS). The smartest guys on Wall Street will eventually be a buy again. The short term, however, may be very painful. I plan to watch this stock through April with the potential of buying calls for a late summer and 2nd half of 2008 run. GS is traditionally a 2nd half stock, having their best earnings during the 2nd half of each year. The subprime mess affected this theory this year, but I expect it to work itself out in the next 4-6 months.

Under Armour (UA). This is a great company in a very tough neighborhood. The entire retail sector is under siege with the threat of a recession on investor’s minds and currently owning anything in the sector doesn’t make sense early this year. I plan to watch the sector and will enter UA when I start seeing some accumulation. The insider selling is another problem, but hopefully a hiccup in a long term run. Every six year old I see on the soccer field is wearing Under Armour gear. The company just needs to execute their growth strategy and manage their inventory - the buzz is definitely there.

Greatbatch (GB). 2008 may be the year for software, batteries and this company. GB has not executed well, but the stock is oversold and in a dead zone after poor earnings. I expect the stock to rebound later in the year and I plan to potentially trade the company technically. The chart is ugly, but no good news is currently priced into the stock. They just need to execute.

Stocks to Short for 2008

Titanium Metals (TIE). Titanium prices have fallen off as supply has come on line and I expect pricing weakness throughout the 1st half of 2008. I will be looking to short TIE, RTI and/or ATI at good entry points until the pricing situation changes for the better. They missed earning during Q3 and the stock moved more than 5% on the news. I am expecting the company to miss Q4 earnings as well and plan to buy puts prior to the announcement for a trade.

Amazon (AMZN). This is a hated stock with a huge short interest and it is for good reason – the multiple and expectations are unrealistic. This will be a play for me as a short when I believe the market may be in correction.