Friday, March 17, 2006

Aiming At April

Expiration is almost over and unless you're still playing ping pong around the pinned strikes (I see NEM, WTW, APC in our book rubber-glued to round numbers) you should be considering the next long (5 week) expiration cycle.

On the broad index level, the Nasdaq is still in a range sitting right at its 50 day MA. Notably, the 50 day MA is flat as a pancake (it has been for almost two months now), which leads me to have absolutely no view on this index. If I were to bet money on it today, I'd sell a strangle. However, there are better plays out there.

The S&P and Dow Jones broke out to significant highs and that is generally considered bullish. However, I am far from being convinced. If S&P is to sustain its advance it will need the Nasdaq to support it. That has not occured and that's why I advised out fund to keep OEX April 590 puts that we've been buying on the way up. Keep in mind that I am not calling for a reversal here. I am just observing that the index will turn lower if it is to successfully realize its plans to move significantly higher. (it must get worse before it gets better, if at all)

Now, here are my thoughts on the sector level:
  • Metal Miners are taking the spotlight today (I am surprised that PD is above 75). In the very short term (next few days) I expect prices to turn lower with implied vol remaining at these (healthy) levels. We're buying CLF and PD puts on the way up and are looking to sell OTM call verticals.
  • Oil spot is currently in a neutral position with the spot having spent the necessary time to consolidate after its relentless move from top of January. I am bearish on Oil all over again but I'd like to see June contract to break below 64 before any money is committed.
  • Gold spot is at a major inflection point of 560 (June contract) and any reversal to the downside will be considered bearish. Watch NEM and AU for action on Monday as their moves after pin release will be indicative of the future direction.
  • Housing has posted a major retracement and I strongly believe that this is a rare opportunity to sell call premium. KBH, CTX, RYL are the short vehicles of choice. Any prices higher will trigger our call sales. Yes, I am a bear :)
  • Semiconductors have been abysmal and the bounce from their oversold levels (circa 3/10) was not the type of money maker I really expected. Regardless, I am still not a bear on the SOX though and I feel that SOX 455-460 level will hold (sell put verticals) even in face of the S&P and the Nasdaq potentially heading lower. Granted, the sector is a clear underperformer. But the cynic in me likes it for that.
  • Retailers are range bound on the longer term scale, but the latest breakout in RTH through 98 tells me there is a catalyst that should move the sector higher. Dips will be buyable and the strategy here is to get long RTH calls on dips and sell put premium on individual issues.
Other sectors we'll be watching are Defense, Biotech, Brokers and Hotels. I'll be sure to cover them in the near future - assuming actionable events take place.

Have fun cotra-hour and enjoy the weekend!

Cheers,
/Dmitry

5 Comments:

At 3:16 PM, Anonymous Anonymous said...

HOW DID YOU END UP TRADING OUT OF YOUR SHORT OEX MARCH 590/595 CALL SPREAD?

 
At 3:16 PM, Anonymous Anonymous said...

HOW DID YOU END UP TRADING OUT OF YOUR SHORT OEX MARCH 590/595 CALL SPREAD?

 
At 10:36 AM, Blogger Dmitry said...

We didn't trade out of it - simply took the loss as it came.

Cheers,
/Dmitry

 
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At 10:17 PM, Blogger Emini Day Trader said...

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