Added an AMZN Hedge

I bought AMZN May puts just OTM today near the open to hedge my portfolio for tomorrow. Specifically, I am trying to hedge my AAPL calls from the general market tape. The S&P has been struggling with breaking through and holding 1400 which is leading me to suspect that the market may give back a little this week (and use the Fed announcement as an excuse for profit taking).

AMZN has had trouble breaking through $85 and I took the chart to indicate that it had failed to break resistance there. I therefore thought that this overvalued stock may sell off anyway and the "pairs trade" with AAPL is a bonus.

Market at a Cross Road

Things are coming together, roads are merging, and it means something. What it means is something we are soon to find out. What am I talking about? I am talking about the direction of the market.

We are now at a major inflection point technically. The DOW has rebounded to around that 50% fib number from the high at the top of the recent trading range of 12,800 in the same location that a major trend line is placed. The market knows it, and whether we break beyond this range on volume and continue an uptrend that preserves a long term Bull Run, or whether we retest and expect another leg down into the bear morass may very well be decided in the short term (see chart).

Almost all the technical channels and indicators favor the bulls, but this is a news driven market and this can change in a New York minute. For me, I am betting LONG and I added to existing positions this week. I added (actually doubled) to my position in AAPY on Wednesday when the stock was trading below $4.00. It appears that news leaked out that APPY will have to wait a little longer for an FDA study to be completed (delaying a potential roll-out of their human appendicitis test by 4-5 months).

The damage to the stock was done before the company made that announcement. Seeing APPY as a long term bet, I felt that I could wait a little longer and doubled down at what I thought was a bargain after traders seemed to express disappointment. The stock has since rebounded some since the Board of Directors apparently agreed with me and announced a $5 million stock buy back because they believe the stock is undervalued.

I also have spent to week leveraging into a position in ATI. The announced earnings met what I was looking for from management and Pat Hassey (ATI CEO) was able to paint a more positive outlook for the company for the next year. I have continued to nibble at deep ITM calls with an October expiration all week.

I also doubled down on BOLT at $18.00 yesterday. The stock bounced off of resistance perfectly and is rebounding (see chart). I wanted to see that bottom before adding some more. A trader may have taken the bet off the table when BOLT failed to break out at $24.00, but because this is thinly traded, I felt an investor’s approach makes better sense. The double down will now essentially be for trading around a core position and I will be unloading some of my buys after the stock gets back into the $20’s again shortly.

I haven't added more to GRMN (I am already overloaded), but this week showed that the stock was building a base and putting in a series of higher lows. This is a kind of base that the stock needs at this point after a traumatic start to the year (see chart).

Finally, AAPL reported great earnings and appear to be executing exactly in accordance with their game plan. News headlines actually dubbed the AAPL economic outlook as “what recession?” This kind of positive momentum is great for the stock with the company now building towards an event driven cycle of new product releases for the rest of the year with some excitement being driven by the expected release of the iPhone 3G. I bought some May calls from AAPL just before earnings were released in what was an emotional purchase.

I haven't been posting as often as I used to. Hopefully, that will change some in the future, but my time commitments on other priorities have increased here in the short term.

Riding My Investments

Being in the saddle as a "long" requires patience. There is not point chasing the market with additional buys when you are already long unless you see good technical trends that give you a reason to average up. As traders, we are buying the momentum. As investors, we are buying the value and growth.

With my current portfolio being primarily about value, there is less to trade and less to write about. Since last Wednesday, I have basically been "minding my p's and q's" and sitting on a position that has been moving higher.

I have, however, been selling some into strength. This market will retrace, even to just take some profits, so I want to be sure to take some chips off the table. On Friday, I sold half my AAPL May calls and the rest of the May calls were sold when the stock hit $165.00 this morning. My April AAPL calls expired and exercised as well.

That leaves me with the only other trade (other than a 10 minute trade I will mention in the P.S.) that I have made over the last three trading days: I bought some deep ITM ATI calls (Oct65 calls). I bought a few on Friday as a marker and bought a few more today.

I think the stock is almost done going down and $70.00 will probably be its bottom (at worst) on the latest re-trace. Yes, this is the same stock that I was short just a week ago, but the thesis is very different. Back then I believed that the X for ATI rumor was bogus and that the stock had moved higher on no reason (which was a profitable trade and may have been correct). Now, I believe that ATI will, in fact, exceed their earnings expectations on Wednesday morning and that the market (for stainless steel) will be described as "firming". By buying deep ITM calls, I am able to invest in ATI with less cash while paying just a small premium over a fairly long time horizon.

On other stocks, those that follow charts are sure to notice the re-trace in BOLT that looks strongly like a "handle" in a cup-with-handle formation (chart). I made the decision to just hold my long position right through the re-trace, but I am watching the $21.00 price level very carefully. This stock is thinly traded so one would expect volatility, but I don't want to give all my profit away either.

APPY is also struggling while GRMN may have found a bottom. I am planning on sticking with both for now.

P.S. On Thursday night with five minutes left in the trading day, I got suddenly got nervous about not hedging anything ahead of GOOG's earnings. I settled on buying a few SPY puts. Then, at 4:04 pm, GOOG announced and I was immediately able to cover those puts - something I wasn't sure was possible. I knew that the SPY options desk stayed open slightly longer than the trading day, but my 4:05 pm execution of an options position was a first for me and something that I will remember. Covering then cost me a LOT less than if I had waited until the open.

Bottom Looks Better and Better

It is a little sloppy, but a technical bottom on a lot of charts are starting to look better and better. Yes, I have had a few drinks with dinner, but I have not lost my senses.

Consider exhibit #1. The COMPQ has been up 5 of the last 6 weeks (including this week), and the S&P and the DJI have been up 4 of the last 6 weeks. The bears can't deny those facts.

Exhibit #2 is that the VIX has broken down. The fear gauge is at its lowest level in 2008 (see chart). Everyone is seeing the same data and it is telling us that the credit crunch may be improving slightly and it is at least definitely not getting materially worse. Earnings have also recently taken a turn for the better, making folks on the sidelines think that they are missing out on something.

Exhibit # 3 is the COMPQ chart. This is a market that wants to run. The bottom was put in and retested and a cup and handle has been put in since the end of February on the daily chart.

Exhibit #4 is the transportation index (see chart). It broke out today and cleared major resistance. Transportation is often a bellweather for a major move up. Dow theory may live.

And finally, Exhibit #5 is the financials shown by the XLF (chart). It is possible to imagine a major rally without the homebuilders but impossible to imagine one without participation from the financials. A major test of the $24.30 area on the XLF was turned back this week AGAIN. This is proving to be a major firewall and leads me to get a little more bullish.

So I have been having a major discussion with folks on the TIE Message Board on InvestorVillage about the market's future and, just like the guests on CNBC, everyone has a different opinion. One camp believes that Bank earnings will take us another leg down. I believe that the psychology of the market has turned and that much of the bad news is priced in.

So far, the bank's earnings have not shaken this market. MER in the morning is key to determining where the market goes. If MER doesn't blow up, then whatever Citi does on Friday morning will seem like a Citi problem and not anything systemic. Another big day also puts us at the upper bound of the trading range we are in.

If we can hold it together through the week, then S&P 1400 by May 1st is looking very real as I predicted months ago.

Holding the Line

Smiles all around on the trading floor today and the market shrugs off the CPI and the Beige Book. The news is that earnings, at least today, don't look as bad as everyone feared.

I am not sure I am buying this mood shift yet, but the way that the market is reacting today is very encouraging. The market gapped up and then held the line all day long. It is the best kind of up move in my opinion. Traders were not trying to move (or where unable to move) the market to their advantage. The buying has also been steady and not rushed (intraday S&P chart). The VIX is also down to its lowest level of 2008 after breaking through a long term trend line (chart).

The McClellan Oscillator is not screaming overbought and the current trading range indicates that we still have some upside. As a result, I have made the decision to not hedge my account today. A prudent move would be to buy some protective puts near close, however, the market is technically ready for a multi-day run.

The question, of course, is will earning results in the next 24 hours change the mood? My sense is that the leaks coming out of the financials have investors bracing for the worst, meaning to me that the upside trade is much better than the downside risk.

Tomorrow, I may kicking myself, but greed is taking over for this trader at the moment.

As a P.S., I am watching BOLT closely. It is approaching major resistance at $24.00 and failure to break out through $24 means that it may retrace. I will be taking some profits on BOLT is it doesn't break $24.00 ANSS is also moving nicely and AAPL is holding its own. I also think that GRMN is close to a bottom and I will add more once I see a bottom.

BOLT Breaks Out

The stock (BOLT) finally left its base around midday yesterday and, as of last night, looks poised to break through its upper resistance just shy of $21. This is major resistance, but BOLT's open this morning is encouraging.

The oil and gas services provider (seismic exploration) finally looks poised to retain some upward momentum (Daily chart). A good base was established around the $19.00 range and this will be an area where traders will place their stops.

If it breaks through $21.00, I plan on adding a little more expecting the stock to make a run at $24.00 (the next major resistance point). My core position was purchased at an average price of $15.85 so a 30% gain to-date is one of my bright spots in my portfolio in these challenging times.

Speaking of challenges, GRMN continues to slide. I added some more yesterday (deep ITM calls). The fundamentals scream bargain with the stock trading at less than 10 times 2008 earnings. The market will continue to be irrational with GRMN until the company proves that the consumer is not dead. It is my plan to wait out this irrational behavior. Fortunately, we only have another two weeks until earnings when the company can hopefully shed some light onto what the year will look like in terms of guidance.

Sell First, Ask Questions Later

With the news out of GE this morning, it was time to sell my May AAPL calls and get a little defensive shortly after open on the premise that the news of the earnings miss may turn out to be a multi-day trading event.

Now, at 11 AM, it is looking like the market is actually holding up fairly well, but the trend will probably be down all day today and into to Monday so there is no point in being in a hurry about getting back in.

My ATI puts have completely hedged my long positions and I am up for the day. I had to take some profits and I did peel a few off the table at $3.50 this morning, but the majority will be held until later this afternoon, when I plan to close out the position.

The GE news is hitting the market just when we were once again near the top of the trading range we have been traveling within for the last month, so the technical damage is still pretty reasonable. If I was to pick out stocks that would miss earnings badly, it would not have been GE, but I think that most people are expecting more misses like this and a lot is priced in. I still expect the market to stay in this trading range for another 2-4 weeks so I will still be selling the rallies and buying the dips.

ROCM Having a Good Week - Finally!

Rochester Medical may finally be catching some notice after closing at $12.50 today. Starting on April 1st, Medicare is implementing a new reimbursement policy covering the use of Intermittent Catheters. This has been expected for many months, but the news has finally allowed investors to react to "actionable" news.

The main policy change now allows an intermittent catheter user a maximum of 200 catheters per month instead of four catheters per month under previous policy. Rochester Medical put out a press release about this change, understanding that this was news. They believe this is a very positive change in helping reduce urinary tract infections and improving the quality of life for Intermittent Catheter users, which they manufacture and market.

This is a long term secular trend that should lead to increased sales in the US. Investors will now be waiting in anticipation of growth generated from a beefed up sales force - stay tuned, management needs to execute on this one. Regardless, this will add some relevance to this quarter's conference call.

On another note, I added some more deep ITM calls with GRMN today. The stock is now trading at 10x 2008 earnings and was down today on some poor results by Tom Tom. I truly believe that GRMN is severely undervalued at this point.

I also hung onto my ATI puts today. The market really didn't give me an opportunity to cover at open. The thesis is intact, and I intend to hold for now while also carefully watching any breakout above $86.00 which will chase me to the sidelines.

Betting Against ATI

On Friday, traders received a jolt in the early afternoon when a rumor went around that ATI was a buy-out candidate for US Steel (X). The stock, which gapped lower at open on a downgrade, moved from a $72.50 mark north towards $84.00 on the news with shorts fueling the rise on a squeeze.

When the stock hit $82.00, I bought April puts. These kind of rumors have been circulating within the industry for years without merit and an ATI for X deal just doesn't make sense. It was like Ford buying Land Rover - they are just different animals. ATI focuses on specialty metals, while X focuses on commodity steel and I see very little synergy between the two.

For an ATI shareholder, the specialty metals play would be lost within X, thereby limiting the upside of an investment. ATI management is also outstanding and I would find it challenging to bring this management into a combined concern.

This put play (see ATI chart) is not without major risk. The deal may not happen, making my thesis right, but an unsolicited offer can still be offered by X, making this play very risky. I do not have serious money on this bet, but a cool-off of the rumor on Monday has allowed my ATI trade to find dry land.

I see this trade as a 2-3 day play on a rumor that seems unlikely.

I made no other trades on Friday or Monday. AAPL, however, could use a rest at this point and I would be careful adding anything at this point.

GRMN Under Pressure

Just like the stock price, if I saw this guy on the street, I would also be a little apprehensive. Anyway, GRMN is having what we like to call a "distribution day". The following hit the wires this morning:

(9:02 AM ET) LONDON (MarketWatch) -- Shares of Garmin(GRMN, Trade ) dropped 10.5% in pre-open trade as Chief Financial Officer Kevin Rauckman told Reuters in an interview that first-quarter revenue is expected to drop between 40% and 50% from the previous quarter, when sales were boosted by holiday spending. Analysts polled by FactSet had forecast a 40% drop in first-quarter revenue on a sequential basis. Rauckman also was quoted as saying that margins will fall below 40% for the year. Shares in Garmin rival TomTom dropped 5.6% in Amsterdam.

As of 11:30 AM (EDT), the stock is down more than $2.50 and more than 16 million shares have traded hands. I think that Garmin has it's challenges, but I also think this whole thing is overdone. It is an investment and not a trade, so I am sticking with my long position. I had a stink bid in on GRMN two days ago but pulled it thinking it wouldn't get filled. It would have this morning and I would take that bet again right now.

However, my thinking has changed since Lenny Dykstra's article this morning about buying deep-in-the-money calls with Garmin. I think he is right. The premium is minimal with deep ITM calls, and October is far enough out for the stock to regain its mojo, while I don't need to tie up the capital to hold stock until October when I may exercise.

On further weakness, my plan is to double down with ITM calls on GRMN.

By the way, while traveling, I picked up XLF puts both on Tuesday afternoon and on Wednesday morning to hedge my position. I also let half my AAPL calls go this morning when the stock hit $150.00. The stock needs a rest and I wanted to book some profits. I am tired of giving money back as we sit in this trading range.

Traveling Again

I am sitting in an airport on another trip. I therefore sold my GS calls for a profit this morning on the opening strength knowing that I would not be able to babysit them for a couple of days. Everything else seems to be doing well and being long is paying off. GRMN is the only stock that I have a little concern about.

I am planning to trade around a core position on all my stocks this week until volume tells us which way the trend is going. I have another stink bid in for GRMN at $52.50, but otherwise, I am just planning on my AAPL calls finally breaking out (RIMM and their earnings will affect this big time) and my long positions to gradually appreciate as we roam around in this trading range.

By the way, I plan on exercising all my existing April AAPL calls. I also see that ANSS received an upgrade this morning and is bouncing back. Life is good.