3:40 p.m. New York time

That wraps of trading for what proved to be a busy week. I’ll post my weekly discussion of economic reporting, The Week Ahead, on Saturday.

11:15 a.m. New York time

I have updated the STZ analysis with results.

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Today’s Book

Market Timing with Moving Averages

The Anatomy and Performance of Trading Rules

by Valeriy Zakamulin

Late Thursday evening I posted to Private Trader an essay on a significant moving average signal on the S&P 500. MAs (as we call them in the biz) are a fascinating tool, with a very long history dating well back into the era of manual calculation.

Zakamulin is a professor of finance at the University of Agder School of Business and Law, located in Norway. In his deep dive into the world of moving averages, he provides a foundation of rule-based market timing. 

More about the book

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10 a.m. New York time

I have exited STZ. At this time I anticipate no other trades today.

9:50 a.m. New York time

I intend to exit STZ today to avoid an ex-dividend on Monday, which increases the chance of assignment.

The one prospective trade coinciding with earnings PCG. With IV rank in the 3rd quintile, it’s not a serious choice, and I am laying it aside.

I posted an essay last night about a bear signal from a very slow-moving indicator that I’ve written about before: The I Hate Stocks trading indicator. It can be read here.

The status of my current options positions.

sym	option debit	share price	beyond profit zone	curr % max profit	net prft/shr $	option days left
EWZ	1.72	41.81	high	(100.0)	(0.86)	14
GILD	5.42	70.59		12.3	0.76	49
HON	5.99	145.35	low	5.5	0.35	14
JNJ	6.35	140.99	high	(13.4)	(0.75)	14
MCD	7.48	174.51	high	(20.6)	(1.28)	14
MSFT	7.44	107.13		13.5	1.16	49
PM	3.44	87.97		(0.3)	(0.01)	14
STZ	8.63	275.10	high	(2.7)	(0.23)	14
SPY	4.68	201.62		(10.9)	(0.46)	49
UPS	8.27	106.84		(0.9)	(0.07)	49
WBA	4.67	79.92	high	(31.2)	(1.11)	14

And of my shares positions.

sym	share price	net result %	net profit $	days held
AAPL	213.33	-4.7%	(10.63)	49
CHK	3.64	-9.0%	(0.36)	49
FXI	41.74	1.3%	0.53	49
SPXU	37.23	-8.2%	(3.33)	171
TSLA	345.72	13.4%	40.73	32

By Tim Bovee, Portland, Oregon, Nov. 2, 2018

Read More »

In 2013, I published an essay called “The I Hate Stocks Trading Plan“. It was aimed at my many friends who are buy-and-hold traders. Whatever the market does, they ride it up, they ride it down, they ride it back up, and they ride it back down again.

(Click on the title above to read it, or click here.)

That’s a lot of potential profit being chewed up by the bear markets.

The “I Hate Stocks” plan, as I presented it, is extremely conservative. It relies on the 12-month moving average — that’s right, “month”. The chart under this plan is checked once a month, on the last day. If it close above the 12-month moving average, then it is in a bull phase. If below, then it is in a bear phase.

It doesn’t happen often, but when it does, traders with skin in the game do well to take notice.

By this measure, the S&P 500 and it’s top index fund, SPY, entered signaled a bear market at the end of October. Here’s what it looks like on a five-year chart, where each bar covers a month. The yellow line is the 12-month simple moving average (“simple” means, no weighting in favor of the newer readings).

The 12-month moving average method won’t have you jumping in and out like a demented jackrabbit. It will, like all signals, occasionally give false alarms. But generally, a signal means that we’re in for a change in trend that will be with us for awhile — months, and maybe years.

The last time the S&P 500 gave such a bear signal was in August 2015. It moved back into a bull signal in March 2016. In both cases, the signal was read on the last day of the month.

That was a relatively short correction, a bit more than half a year. There’s no guarantee that they’ll all be that short.

The bear signal of late 2008 kicked off a bear market that lasted until mid-2009, and the market took years to really get going. It didn’t return to its prior levels until 2013, five years later.

Here’s a 20-year monthly chart of the S&P 500, again with monthly bars.

Note that under this plan, the trader won’t avoid all of the decline, but will escape most of it. And the trader will won’t catch all of rise, but will profit from most of it. Like all signals, the 12-month moving average is a lagging indicator. But even with the lag, used properly it increases profits.

Full disclosure: I don’t use the “I Hate Stocks Trading Plan” in my own trading. Truth is, I love stocks, especially in the form of their options, a derivative. Using stock options, I can make money in a downtrending market just as handily as I can make it in an uptrending market. And I trade often, almost every week, sometimes almost every day.

But when there’s a signal of this magnitude on the slow-moving 12-month moving average, I take notice. And the signal tells me to be extra-bearish and extra-cautious in my trading.

By Tim Bovee, Portland, Oregon, Nov. 1, 2018

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SPDR S&P 500 ETF (SPY)

I have entered a short bear vertical spread on SPY, using options that trade for the last time 50 days hence, on Dec. 21. The premium is a $4.22 credit and the stock at the time of entry was priced at $273.a8.

I made the decision to enter the trade in my account based on Elliott wave analysis. My count shows that the requirements have been met for a wave 2 upward correction at the Minute degree, and I anticipate the next move will be a wave 3 decline.

The profit zone for this position is $270.78 and below.

Read More »

3:30 p.m. New York time

I have updated the analyses for today’s four exits with results. They are AMGN, C, IBM and VNQI.

2:05 p.m. New York time

I’m passing on an SBUX earnings play without analysis. My structure would be an iron fly, and the at-the-money options strike prices are overly far from the stock price for my taste.

1:45 p.m. New York time

I have exited a position in AMGN to free up funds and entered a new position on SPY.

10:50 a.m. New York time

My exit orders on C, IBM and VNQI have been filled, each for a loss.

It looks to me as though SPY has completed the minimum requirement to consider Elliott wave 2 at the Minute degree {+1} to be complete, and that means it’s time to hop back in with a fresh position in order to catch wave 3 down. I shall enter a position today.

The SPY chart covers 30 days with 30-minute bars.

10:20 a.m. New York time

This is a day to clean holdings.

I have placed two exit orders, C because the stock goes ex-dividend on Friday and I don’t want to be assigned, which incurs fees, and IBM because it is significantly out of the money on the downside, and I would just as soon take the loss and free the money for other trades.

And I am exiting VNQI, a shares position, to free up cash.

I shall continue looking closely at SPY for a re-entry point.

 

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Today’s Book

The Behavioral Investor

by Daniel Crosby

Crosby, whose latest book ranks at the top of the Investment and Business sales chart, considers the role of psychology in what we traders do, placing and managing investments. 

The Behavioral Investor takes on a tour of human nature and then drills down to the specifics of how to construct a portfolio.

“Wealth, truly considered,” says the book description, “has at least as much to do with psychological as financial wellbeing.” It’s a book with ideas worth considering as we continue to improve our trading skills.

More about the book

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My best earnings prospect for the day is SBUX, with an implied volatility rank in the top percentile. I shall consider it for a trade, if I can find the cash. My trading account is almost entirely committed.

The other earnings possibilities for the day are:

1st quintile (81-100): AAPL, NWL, STX, WU and X

2nd quintile (61-80): BABA, CVX, DUK and MET

4th quintile (21-40): TTPH

A snapshot of my current options positions.

sym	option debit	share price	beyond profit zone	curr % max profit	net prft/shr $	option days left
AMGN	8.44	192.51		13.7	1.34	15
C	3.59	65.79	low	(4.1)	(0.14)	15
EWZ	1.28	40.66		(48.8)	(0.42)	15
GILD	5.52	69.07		10.7	0.66	50
HON	6.28	144.68	low	0.9	0.06	15
IBM	10.00	115.53	low	(47.3)	(3.21)	15
JNJ	6.04	140.85	high	(7.9)	(0.44)	15
MCD	7.71	176.00	high	(24.4)	(1.51)	15
MSFT	7.68	106.25		10.7	0.92	50
PM	3.64	88.66	high	(6.1)	(0.21)	15
STZ	9.48	199.60	low	(12.9)	(1.08)	15
UPS	8.82	106.89		(7.6)	(0.62)	50
WBA	4.71	80.18	high	(32.3)	(1.15)	15

And my shares positions.

sym	share price	net result %	net profit $	days held
AAPL	218.24	-2.6%	(5.72)	48
CHK	3.54	-11.5%	(0.46)	48
FXI	40.27	-2.3%	(0.94)	48
SPXU	38.66	-4.7%	(1.90)	170
TSLA	342.48	12.3%	37.49	31
VNQI	53.86	-5.2%	(2.95)	49

By Tim Bovee, Portland, Oregon, Nov. 1, 2018

Read More »

12:15 p.m. New York time

I’ve exited AMGN in order to free up funds.

11:50 a.m. New York time

I found a few more earnings announcements that are due for potential action today, none of which I intend to trade. But for the sake of completeness, sorted by  they are:

2nd quintile (61-80): APA

3rd quintile (41-60): AIG, EXC

10:05 a.m. New York time.

SPY continues to rise in an Elliott wave analysis 2nd wave correction, as I continue to wait for the right time to re-enter my bear position.

There are only two prospective earnings plays on the calendar today, and I don’t care to trade with one. They DWDP, in the 1st quintile of its implied volatility rank (81-100) and PPL, in the 3rd quintile (41-60).

Bottom line: No trades in sight this morning.

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Today’s Book

Keeping At It

The Quest for Sound Money and Good Government

by Paul Volcker and Christine Harper

Paul Volcker took over as chairman of the Federal Reserve at a time when the economy was in trouble. The catch-phrase of the day was “stagflation” — high inflation combined with low growth.

It was a time when interest rates meant 20% and more, and inflation in that same range.

As the nation reeled from the Crash of 2008, Volcker was again pressed into service and played a key role in the remaking of the U.S. financial system after the crash.

In this book Volcker reviews his extraordinary career with lessons we can learn from. 

More about the book

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A snapshot of my options positions.

sym	option debit	share price	beyond profit zone	curr % max profit	net prft/shr $	option days left
AMGN	8.94	192.64		8.6	0.84	16
C	3.70	65.53	low	(7.2)	(0.25)	16
EWZ	1.11	40.05		(29.1)	(0.25)	16
GILD	5.54	69.87		10.4	0.64	51
HON	6.37	145.28	low	(0.5)	(0.03)	16
IBM	10.21	115.54	low	(50.4)	(3.42)	16
JNJ	6.54	140.62	high	(16.8)	(0.94)	16
MCD	8.46	178.00	high	(36.5)	(2.26)	16
MSFT	7.79	107.23		9.4	0.81	51
PM	3.61	87.78		(5.2)	(0.18)	16
STZ	8.80	201.23	low	(4.8)	(0.40)	16
UPS	8.04	108.46		2.0	0.16	51
WBA	4.28	78.19	high	(20.2)	(0.72)	16

And my shares positions.

sym	share price	net result %	net profit $	days held
AAPL	217.72	-2.8%	(6.24)	47
CHK	3.47	-13.3%	(0.53)	47
FXI	39.31	-4.6%	(1.91)	47
SPXU	38.71	-4.6%	(1.85)	169
TSLA	334.69	9.7%	29.70	30
VNQI	52.87	-6.9%	(3.94)	48

By Tim Bovee, Portland, Oregon, Oct. 31, 2018

Read More »

Amgen Inc. (AMGN)

Update 11/1/2018: I’ve exited AMGN for a profit, 15 days before the options expired. The exit came at 14.9% of maximum potential profit, lower than my normal 25%. My purpose was to free up funds for another purchase. 

I exited for a debit of $8.32, a $148 profit per contract, with the share price at $192.89, up $2.97 from entry.

Shares rose by 1.6% over my two-day holding period, or a +295% annual rate. The options position produced a 17.6% return for a +3,203% annual rate.

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I have entered a short iron fly spread on AMGN, using options that trade for the last time 17 days hence, on Nov. 16. The premium is a $9.78 credit and the stock at the time of entry was priced at $189.92.

The position is timed to coincide with an earnings announcement, on Tuesday, Oct. 30, after the closing bell.

The profit zone for this position is between $199.78 on the upside and $184.78 on the downside.

Read More »

2:25 p.m. New York time

SPY has bounced off of the low set on Monday. It could be the beginning of the 2nd wave p at the Minute degree, or not. In any case, I’m not trading back in today.

12:20 p.m. New York time

I have entered a short iron fly position on AMGN. I chose the earlier expiration date, Nov. 16, in order to make funds available quickly for future trades during the earnings season.

11:10 a.m. New York time.

I’ll be taking a close look at SPY today. My initial sense is that it has finished a wave 1 down and is moving into a 2nd wave correction, but I want to dive into the chart to get a sense of when I should re-enter.

Today’s earnings play is a choice between AMGN and BIDU. Both are in the top quintile of their respective implied volatility rating. AMGN has more than double the market capitalization of BIDU. Therefore, AMGN is my choice. Analysis and possibly a trade to come.

The other prospects, grouped by implied volatility rank quintile, are:

1st quintile (81-100): GM, BAX, ALL, APC, EA, YUM and ZEN

2nd quintile (61-80): MOS and BGFV

3rd quintile: (41-60): PEG, UAA and UA

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Today’s Book

The Fifth Risk

by Michael Lewis

Now #5 on the Amazon Charts in its 2nd week on the list. A new book by the financial writer who always finds new, and often surprising, insights into the world of money and systems.

In The Fifth Risk, Lewis dives into the most contentious issue of our times, the functioning of government in a time of attack and change.

He asks, What are the consequences of handing government over to people who have no idea how it works.

The New York Times calls it his “most ambitious and important book”. Quartz says that it is a “spellbinding, alarming analysis of the most serious threats to Americans’ safety happening now from inside the U.S. government.

More about the book

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A snapshot of my options positions.

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	3.94	64.17	(14.2)	(0.49)	17
EWZ	0.91	39.65	(5.8)	(0.05)	17
GILD	5.84	71.44	5.5	0.34	52
HON	7.15	141.91	(12.8)	(0.81)	17
IBM	10.18	116.86	(49.9)	(3.39)	17
JNJ	6.04	139.40	(7.9)	(0.44)	17
MCD	7.73	176.55	(24.7)	(1.53)	17
MSFT	8.20	102.62	4.7	0.40	52
PM	4.31	91.27	(25.7)	(0.88)	17
STZ	10.05	198.26	(19.6)	(1.65)	17
UPS	9.15	106.27	(11.6)	(0.95)	52
WBA	3.92	76.96	(10.1)	(0.36)	17

And my shares positions.

sym	share price	net result %	net profit $	days held
AAPL	213.37	-4.7%	(10.59)	46
CHK	3.25	-18.8%	(0.75)	46
FXI	38.61	-6.3%	(2.61)	46
SPXU	41.67	2.7%	1.11	168
TSLA	332.98	9.2%	27.99	29
VNQI	52.73	-7.2%	(4.08)	47

By Tim Bovee, Portland, Oregon, Oct. 30, 2018

Read More »

11:50 a.m. New York time

And in rechecking AMGN’s earnings publication date, I find that the date is now Tuesday, Oct. 30, after the closing bell. So AMGN will be a trade for tomorrow, not today. I plan no trades today.

11:45 a.m. New York time

I’ve made my decision on today’s earnings play, and have chosen AMGN. It’s average post-earnings move is about half that of the alternative trade, FB. And FB is more prone to moves based on news reports and commentary, compared to AMGN.

11:15 a.m. New York time.

I’m looking at the two prospective earnings plays today the tech sector’s FB and AMGN from the health care sector, Both are in the top quintile of their respective implied volatility. I shall make a decision and post an analysis shortly.

The other prospects, grouped by implied volatility rank quintile, are:

1st quintile (81-100): ARNC, CAKE, DOD, MAS, RIG

2nd quintile (61-80): MDLZ, PFE

3rd quintile: (41-60): KO

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• Today’s Book

Crises of the Republic

Lying in Politics, Civil Disobedience, On Violence, Thoughts on Politics and Revolution

by Hannah Arendt

Truth be told, I spent much of the weekend obsessing about the violence that seems to be a dominant theme in American politics in 2018. The unsuccessful mail-bomb attempts and the synagogue murders on the weekend were the most visible manifestations. 

My evening video viewing helped frame my understanding, as I binge-watched the historical Babylon Berlin for a second time on Netflix, binge-watched  the fanciful Season 3 of The Man in the High Castle on Amazon Prime, and binge-read the many all-too-real news stories in the New York Times and Washington Post and elsewhere about the American violence.

But ultimately, streaming TV series weren’t enough. And so i turned to the thinker whose work has perhaps done the most to shed a harsh and revealing light on totalitarianism and how it comes into being. I shall tackle her masterwork The Origins of Totalitarianism later, after the heavy work of earnings season is done, but for now I’m focusing on four essays whose titles suggest our political world of 2018: About lies, protests, violence and revolution. Salient topics for our age.

As goes our politics, so goes our markets. I consider this book to be reading in support of my trading.

More about the book

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A snapshot of my options positions.

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	3.66	65.56	(6.1)	(0.21)	18
EWZ	1.35	40.65	(57.0)	(0.49)	18
GILD	5.58	71.34	9.7	0.60	53
HON	6.21	145.38	2.1	0.13	18
IBM	10.13	122.81	(49.2)	(3.34)	18
JNJ	5.74	138.65	(2.5)	(0.14)	18
MCD	7.34	175.05	(18.4)	(1.14)	18
MSFT	7.91	107.15	8.0	0.69	53
PM	3.84	89.50	(12.0)	(0.41)	18
STZ	6.53	210.43	22.3	1.87	18
UPS	8.68	107.32	(5.9)	(0.48)	53
WBA	3.96	77.33	(11.2)	(0.40)	18

And my shares positions.

sym	share price	net result %	net profit $	days held
AAPL	218.57	-2.4%	(5.39)	45
CHK	3.88	-3.0%	(0.12)	45
FXI	38.96	-5.5%	(2.25)	45
SPXU	39.82	-1.8%	(0.74)	167
TSLA	342.06	12.2%	37.07	28
VNQI	53.26	-6.2%	(3.55)	46

By Tim Bovee, Portland, Oregon, Oct. 29, 2018

Read More »

Do you ever get the impression that the economic reports cycle is much like the phases of the Moon? We drift along with a scattering of reports, sheeding little light on the market landscape, except perhaps for the laggard GDP, but generally a yawn. Half moon. New moon. Half moon again.

And then, bang!. The employment situation report shines out like a glorious full moon, dispelling the shadows and revealing contours of the economy. Market writers stretch their fingers as they sit at their keyboards, first to speculate on the impact of the new numbers, and then to describe the actual impact, which is often something entirely different. Employment week is the best week of the month, in my book.

And it has arrived, like the glorious full moon. The employment situation report will be published on Friday at 8:30 a.m. New York time, preceded by the usual private sector preview compiled by a payroll management company, the ADP employment report on Wednesday at 8:15 a.m.

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Today’s Book:

The Alchemy of Finance

By George Soros

George Soros has made headlines of late as the target of a domestic terrorist, a wannabe mail bomber. Before that he periodically made headlines as one of President Trump’s rhetorical bugbears, the so-called mastermind behind the Democratic Party’s efforts to roll back Trumpism.

But far before the hyper-politicized headlines of the moment, Soros was known as one of the most successful investors in the world, an immigrant who grew up in Nazi-occupied Hungary and eventually made his way to America, where by applying his energy, logic and wits, he grew his holdings to a net worth of $8 billion, and that’s what’s left over after he donated $18 billion to charity.

Soros is the American dream come true.

As traders — all politics set aside — it is that success that we look to in our never-ending quest to learn how to trade better. Soros in 2007 wrote a book about finance and the new trends he sees shaping the core of our global economy. He updated the book in 2015 in light of the collapse known as the Great Recession, with a forward by another voice worth listening to, former Fed Chair Paul Volcker, who in the early 1980s painfully but successfully wrung runaway inflation out of the American economy.

The Wall Street Journal in a review described Soros’ book this way: “An extraordinary … inside look into the decision-making process of the most successful money manager of our time. Fantastic.” I couldn’t have said it better myself.

More about the book.

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Employment week always brings a cluster of major reports, and this week is no exception.

Look for personal income and outlays on Monday at 8:30 a.m., the Institute of Supply Management manufacturing index on Thursday at 10 a.m. and international trade on Friday at 8:30 a.m.

Read More »

3:30 p.m. New York time

SPY has began its 2nd wave rise, as the Elliott wave count suggested it. I count it as an A wave within the 2nd wave. The best tactic would be to enter my bear position during the C wave. I shall be keeping a close on eye on it.

I shall post my weekly discussion of economic reporting, “The Week Ahead”, on Saturday.

11:25 a.m. New York time

Using Elliott wave analysis, by my count SPY continues to work its way down the final wave within the 1st wave of Minute degree {+1}. Once that is complete, then I would expect a 2nd wave to the upside, most like in the form of a Zig-Zag, to be followed by a sharp decline, a 3rd wave, to the downside.

I plan to enter SPY at some point in the 2nd wave.

The SPY chart covers 30 days with 30-minute bars.

9:50 a.m. New York time

I have two potential earnings plays in my pool this morning, and both have market capitalizations that are a bit lower than I like. I prefer to trade market caps of $100 million and greater, although I will sometimes go below that minimum in order to, for example, add a sector that I don’t yet have in my mix.

The two are CL and GT, each with implied volatility ranks in the 2nd percentile (61-80).

Also this morning, I shall take a look at the Elliott wave analysis of SPY to determine whether to re-enter my bear position.

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• Today’s Book

Option Volatility and Pricing

Advanced Trading Strategies and Techniques

by Sheldon Natenberg

This is the best book about how options work. It’s the book that taught me the most as I developed my trading style. It has made an invaluable contribution to my trading.

Writing with the clarity of an expert, Natenberg carries the reader of the foundations of option theory through hedging and volatility, risk analysis, position management and much more.

The author, Sheldon Natenberg, is a veteran market maker of both of equity options on the Chicago Board Options Exchange and commodity options on the Chicago Board of Trade.

He is presently on the training staff of the CBOE.

His book is always close at hand every day that I trade.

More about the book

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Here’s where my options positions stand this morning.

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	4.03	4.24	(16.8)	(0.58)	21
EWZ	1.04	39.48	(20.9)	(0.18)	21
GILD	5.75	67.82	7.0	0.43	56
HON	6.80	147.21	(7.3)	(0.46)	21
IBM	9.83	125.60	(44.8)	(3.04)	21
JNJ	5.88	138.11	(5.0)	(0.28)	21
MCD	7.24	174.05	(16.8)	(1.04)	21
MSFT	8.04	107.47	6.5	0.56	56
PM	4.39	89.85	(28.0)	(0.96)	21
STZ	6.45	209.58	23.2	1.95	21
UPS	9.05	106.34	(10.4)	(0.85)	56
WBA	3.54	75.31	0.6	0.02	21

And my shares positions.

sym	share price	net result %	net profit $	days held
AAPL	217.48	-2.9%	(6.48)	42
CHK	3.78	-5.5%	(0.22)	42
FXI	39.06	-5.2%	(2.15)	42
SPXU	41.14	1.4%	0.58	164
TSLA	317.86	4.2%	12.87	25
VNQI	52.79	-7.1%	(4.02)	43

By Tim Bovee, Portland, Oregon, Oct. 26, 2018

Read More »