Good Time To Hedge Bullish Positions

Market Summary

A standard chart that we use to help confirm the overall market trend is the Momentum Factor ETF (MTUM) chart. Momentum Factor ETF is an investment that seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. This type of momentum fund is considered a reliable proxy for the general stock market trend. We prefer to use the Heikin-Ashi format to display the Momentum Factor ETF. Heikin-Ashi candlestick charts are designed to filter out volatility in an effort to better capture the true trend. The updated chart below shows that, technically the stock market remains extremely overbought. It might be difficult for the major indexes to keep pushing higher until the overbought condition is absorbed. Also the chart highlights that the technical momentum indicator is stuck in neutral even as stocks continue climbing higher on a wall of worry. Putting hedges in place to protect long bullish positions is smart move in case the market follows through on the overbought technical signal.

Below is the S&P Sector ETF graph highlighting performance results over the last month. You can see in the graph below how technology shares have been the outstanding performer. The major concern is that the market advance is not broad-based. Tech shares leading the market higher are not dragging along the other S&P sectors which might indicate underlying market weakness. The smart move is hedge long-term bullish trades to protect gains in the event of a market pullback.

By Gregory Clay

Investment Strategist

Click here to Connect on LinkedIn

gregoryclay@nellaadvisors.com

P.S. click on http://www.theoptionplayer.com/ to sign up for a free trading newsletter

Fed Inspired Risk On Trading

Market Summary

The rebound in stock prices and the new record highs set by the S&P 500 and the Dow Jones Industrials have had a positive impact on money managers. Other investors are encouraged by the sustained economic growth. A view that there is no viable alternative to stocks is contributing to the optimism. Giving reason for caution or pessimism is global economic uncertainty, the prevailing level of valuations and concern about corporate earnings growth. The presidential election and monetary policy are also impacting investor sentiment. Last week we reported "…The equity market is telling you the second quarter economy looks better than the first quarter," said Art Hogan, chief market strategist at Wunderlich Securities in New York. He said if earnings season, which begins in earnest next week, provides investors with a strong outlook; the S&P will likely break the record and has a chance at rallying from there. "The old high has been resistance and if you break it and see earnings growth and relatively good guidance, people will probably try to get in front of that," said Hogan…” In the 3^rd quarter graph below investors are trading “risk-on”, reversing the trend of buying safe-haven assets like gold and bonds and aggressively investing in all types of equities.

  

Trading Strategy

"The Fed is playing a huge part in this rally," says Sheraz Mian, head of research at Zacks Investment Research. Fears of a Brexit driven economic slowdown, which would put further pressure on earnings, have nevertheless (paradoxically) given investors a reason to buy stocks, Mian says. Investors would much rather buy high dividend paying stocks instead of continuing to hold U.S. government bonds paying historically-low interest rates. Over the next few weeks we will find out whether last week’s forecast comes to fruition when we stated “…According to the Stock Trader’s Almanac the average price tendency is for a summer sell-off that usually begins in mid-July and lasts until mid-October…Mid-July is also when we typically kick off earnings season, where a strong early month rally can fade…If this analysis plays out that might be another opportune time to bid on shares…” “We have had a really, really good week, and the market is getting tired,” said Mark Kepner, managing director of sales and trading at Themis Trading. “But bonds sold off a fair amount and the rally in stocks seems a bit long in the tooth. A pullback from here would not be surprising.”

By Gregory Clay

Trading Strategist

Investors Overreact To Brexit Vote

Market Summary

As we said last week “…Uncertainty about the Fed and Brexit will cap upside movement until there is clarity on both,” said Uri Landesman, president of Platinum Partners. Investors are nervous so the market is likely to remain depressed for now, he added…” MarketWatch.com reported how as global markets plunged in the aftermath of the victorious “leave” vote in the U.K.’s referendum on EU membership, investors rapidly adjusted their expectations for the Fed. Markets are now projecting that the central bank won’t raise U.S. rates until early 2018. What’s more, minorities of fed-funds futures traders are now betting that the U.S. central bank could actually cut interest rates at its next meeting, in July. “We walked in this morning and the probability of a rate cut at any of the upcoming meetings from July to November was at 15%,” said Anthony Valeri, investment strategist at LPL Financial.

Britain’s decision to exit the European Union in a referendum spread chaos through markets on Friday, but the shock isn’t likely to amount to echo the 2008 “Lehman moment” that left the global financial system on the brink of collapse. Britain’s Brexit vote does not require the government to pull the trigger immediately because the referendum is not legally binding. And just how long the U.K. might wait has grown as a key tactical debate in the few days since Thursday’s vote to leave the trading bloc.For the U.S. economy, the consequences of Brexit should be minimal, but it might not turn out that way. Policy makers and business leaders are subject to overreact to political issues. The real risk of Brexit is that emotion overwhelms fundamental logic, causing one irrational decision to beget another until we really do have the recession or growth slowdown that seemed implausible before the vote. In the chart below investors are trading “risk-off” assets during the current period of market uncertainty.

Trading Strategy

Last week’s analysis played out as exactly as advertised where we said “…An article published in MarketWatch.com reported on how the long-anticipated “Brexit” referendum on the U.K.’s membership in the European Union is set for Thursday. Polls released in recent weeks showed gathering support for the “leave” vote, an outcome that many economists say would spark widespread turmoil in global markets and possibly sink the U.K. into a recession...the week after Triple-Witching Day is horrendous. This week has experienced DJIA losses in 23 of the last 26 years with average losses of 1.1%. S&P 500 and NASDAQ have fared slightly better during the week after over the same 25 year span, declining 0.7% and 0.2% respectively on average…” We also said “…If the market does pull back, that might be a good opportunity to “buy the dip” with shares in the leading sectors…” Now the question is where will the market bottom out? The best bet is that investors overreacted to the Brexit vote and stocks will eventually bounce back, especially since some pundits believe there is a possibility the FOMC could lower rates at one of their upcoming meetings.

By Gregory Clay

Investment Strategist

Click here to Connect on LinkedIn

gregoryclay@nellaadvisors.com

P.S. click on http://www.theoptionplayer.com/ to sign up for a free trading newsletter

Why Investors Survey Signal New Market Highs

The American Association of Individual Investors (AAII) Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. The current survey result is for the week ending 05/25/2016. The AAII reports that the percentage of individual investors optimistic about short-term gains occurring in the stock market is at its lowest level in 11 years. At the same time, the percentage of investors describing their outlook as neutral is at its highest level in 16 years, according to the latest AAII Sentiment Survey. Optimism is below 20% and neutral sentiment is above 50% on the same week, for just the sixth time in the survey’s history. Bullish sentiment, expectations that stock prices will rise over the next six months, declined 1.6 percentage points to 17.8%. This is the lowest level of optimism recorded by the survey since April 14, 2005 (16.5%). It is also the 29th consecutive week and the 62nd out of the past 64 weeks that bullish sentiment has been below its historical average of 39.0%. Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, jumped 6.3 percentage points to 52.9%. Neutral sentiment was last higher on April 12, 1990 (56.0%). Neutral sentiment has now been above 40% for 12 consecutive weeks and above its historical average of 31% for 17 consecutive weeks, as well as for 69 out of the past 73 weeks. As a contrarian indicator the current AAII reading points to a continued short-term bounce toward the market highs.

 

The questions posed in an article published in the Reformed Broker is has the market corrected through time, rather than through price, enough to spark the next bull leg higher? Since the AAII Sentiment Survey started in June 1987, a neutral sentiment reading above 50% has only been recorded 28 times. Only six of those readings were recorded after 1989 (January 1991, July 1991, August 1994, February 2003, December 2015 and this week). The remaining 22 readings are all from the approximate two-year span of December 1987 through October 1989. On average, the S&P 500's 26- and 52-week returns following such occurrences were 8.4% and 20.5%, respectively. Even rarer is having bullish sentiment below 20% and neutral sentiment above 50% on the same week. This week is just the sixth time such a combination has happened. It previously occurred four times in 1988 and once in 1989. On average, the S&P 500's 26- and 52-week returns following those five occurrences were 11.2% and 25.7%, respectively.

By Gregory Clay

Investment Strategist

Click here to Connect on LinkedIn

gregoryclay@nellaadvisors.com

P.S. click on http://www.theoptionplayer.com/ to sign up for a free trading newsletter

Most Crucial Week Of Year For Stocks

Market Summary

http://www.theoptionplayer.com/

A standard chart that we use to help confirm the overall market trend is the Momentum Factor ETF (MTUM) chart. Momentum Factor ETF is an investment that seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. This type of momentum fund is considered a reliable proxy for the general stock market trend. We prefer to use the Heikin-Ashi format to display the Momentum Factor ETF. Heikin-Ashi candlestick charts are designed to filter out volatility in an effort to better capture the true trend. Last week we said, “…after recovering from the market bottom to start the fourth-quarter, the overall stock market has been contained inside a trading range… Expect this trend to continue until after the Federal Reserve interest rate decision in a few weeks…” Despite last week’s market pullback and Friday’s massive drop, you can see in the updated chart below how stocks remain in a long term trading range. However, as highlighted, technical indicators are signaling a market sell-off with momentum starting to turn bearish. Next week is absolutely critical with the Fed interest rate decision on Wednesday and triple-witching option expiration at weeks end. If the market follows up on last week’s downturn it jeopardizes the year-end price recovery.

  

As reported by the Bank of America, on June 29, 2006, the Federal Reserve did something it would not do again for (at least) nine and a half years: it hiked rates by 25 basis points, its 17th consecutive rate hike. Everyone knows what happened afterwards (approximately a year later the market topped out and then descended into a bear market). This coming Wednesday, the Fed is expected to do something it hasn't done for 3,457 days: hike interest rates, ending the longest period in US history (84 months) of zero interest rates. How has the world changed in the interim? Some quick observations from BofA: Back then US housing starts were booming (2¼ million per annum), a stock market bubble was taking place in Saudi Arabia, another one was forming in China, no one had heard of “Quantitative Easing” and there was no such thing as the iPhone. Today, US housing starts are moribund (around 1 million per annum), the Saudi’s credit rating has just been downgraded, Chinese debt deflation has reduced China’s “growth” opportunity set to babies, tourists & capital outflows, central banks have purchased a remarkable $12,400,000,000,000 of financial assets since Bear Stearns, and the iPhone now powers retail sales. And here is the biggest difference: back then total debt/GDP was 61%, with total debt just over $8 trillion. Now, it is 104%, with the total US debt just shy of $19 trillion.

 

Investment Analysis

Next week is absolutely critical for setting up how the stock market can be expected to perform for the year 2015. If the FOMC announces a rate hike on Wednesday as most pundits expect and signals that future rate hikes will be small and gradual, then that could cause stocks to pop. Investors may interpret the Fed's move as a sign that it is still confident about the economy and job market despite the worries about commodity prices and slowing economic growth overseas. "As long as the Fed hikes rates, there could be a relief rally," said Michael Arone, chief investment strategist with State Street Global Advisors. The S&P 500 and Nasdaq indexes have already fell more than 3% this month. Investors may be pushing the expected start of the Santa Claus rally earlier and earlier each year, similar to retailers putting out their Christmas merchandise the day after Halloween. But the market typically jumps higher at the end December after many traders start holiday vacation. Stocks can have exaggerated moves on low volume. "After the Fed meeting, a lot of big investors are off to St. Kitts or the slopes," Arone quipped. "There will be a lack of liquidity that could drive stocks higher." The chart below confirms that's exactly what happened last year. As noted in the weekly S&P 500 Index weekly chart below, stocks plunged at exactly this time last year, only to recover in the following weeks. If the market does not replicate last year’s behavior and bounce back after the FOMC meeting and option expiration next week that will jeopardize the major equity indexes positive gains for the year.

  

By Gregory Clay

Investment Strategist

Click here to Connect on LinkedIn

gregoryclay@theoptionplayer.com

P.S. click on http://www.theoptionplayer.com/ to sign up for a free trading newsletter

Grinding Higher on Low Volume & Low Volatility

Market Summary

http://www.theoptionplayer.com/

Deutsche Bank is out with a piece of research this weekend mentioning the fact that the S&P 500 has just broken a record high thanks to a median trailing PE ratio of over 18 – the highest we’ve seen since 2010. They note that this PE ratio is 12% above the long-term average going back to 1960. The forward PE of 17.3 times earnings expectations over the coming four quarters is 22% above the historical median. David Bianco attributes this, as almost all of us do, to the incredibly low yields on bonds and their effect on the equity risk premium. More interestingly, Bianco includes an acknowledgement that it has now been 916 days since the last 10% correction for the index, or 3.6 years (last October’s Ebola /ISIS sell-off was 9-and-change percent intra-day). We’ve not had even a 5% correction so far in 2015 despite a spate of elevated volatility earlier in the year.

$20 Billion in withdrawals from equity funds last month was the most since December of 2012. Both the Dow and the S&P hit new records this week, although they have traded in a narrow range and volumes have been subdued. Friday's dip left the Dow in the red. For the week, the Dow ended 0.2 percent lower and the S&P rose 0.20 percent. The Nasdaq added 0.8 percent for the week. Volume on U.S. stock markets has been below the month-to-date average for several sessions. On Friday, ahead of the Memorial Day long weekend, about 4.9 billion shares changed hands on U.S. exchanges, below the 6.2 billion average this month, according to BATS Global Markets.

Investment Analysis

Investors have enjoyed an extended period of low volatility and steady gains, but with the Fed on track to raise rates this year and major indexes near records, the market could get a bit choppier in coming weeks. “I think what Janet Yellen and all of the Fed officials have been doing is very carefully choreographing their move. I think this is probably the most telegraphed Fed liftoff in some time," said Bruce Zaro, chief technical strategist at Bolton Global Asset Management, "they're concerned about the markets' reaction."

In a thin volume-trading environment it’s safest to keep your own trading light, since even in a slow grind you can get some unpredictable moves. You don’t want to get caught on the wrong side. Knowing when not to trade is as important as knowing when to trade. In the chart below you can see how Technology, Materials and Financial stocks led the way the past month. These are large capitalization sectors that are benefiting from the weakened dollar. If you believe the dollar will remain subdued, bidding on strong stocks in these sectors is the way to go.

By Gregory Clay

Investment Strategist

Click here to Connect on LinkedIn

gregoryclay@theoptionplayer.com

P.S. click on http://www.theoptionplayer.com/ to sign up for a free trading newsletter

The 'New Normal' Leads Stocks Higher

Market Summary

A late Friday surge pushed the DOW Jones Industrial Average and S&P500 to close out the month of May at all-time highs. May was the best month for the stock market since February. The S&P 500 rose 2.1% for the month while the DOW gained .8% and the Nasdaq climbed 3.1%. The market trend is converting from neutral to moderately bullish.

We recently said “…investors fear has diminished to very low level, they have developed an appetite for risk…investors are moving out of the higher yielding utilities and Treasury bond sectors back into the high growth stocks like financials and technology…” You can call off the technology sector correction. In the beginning of March the tech-heavy Nasdaq 100 index dropped 7.50% over the next five weeks, but the index’s performance has actually caught up with the overall stock market. Including dividends, both the Nasdaq and general market are up approximately 4.3% on the year. Previous articles recommended identifying technology stocks you liked and bidding on shares that had dropped in price. The current bull market is officially the fifth longest on record and the graph below displays performance results over the past 30 trading days. After dragging stocks down in March and early April, the technology sector is now leading the market higher. Treasury bonds and real estate continue performing well as they have all year in a low interest rate environment.

   

Investor Analysis

Our previous comments about market action around Memorial Day, according to the Stock Trader’s Almanac “…the days after Memorial Day have been rather bullish. May was the best month from 1985 to 1997, some of this bullishness after Memorial Day can be attributed to the strength of the first two days of June…volume is often diminished and trading uninspired…” Last week was what some people refer to as a “thin to win” market rally because prices moved higher due to thin volume. Memorial Day officially kicked off the summer and last week’s volumes proved that point with the Dow seeing the lightest volume of the year. Expect the stocks prices to fluctuate between the current highs as resistance and moderate moves lower on lighter than normal volume as the markets settles into summer doldrums. While few people think stocks will go up indefinitely, there is a growing consensus that we’re in a new normal and part of that is extended long-term rallies. Everyone has their own market interpretation but two points are indisputable: 1) historically low rates and 2) the Fed is still providing liquidity through its bond buying programs. We live in an environment of stocks are the best game in town and big money knows it.

Both the DOW and S&P5 500 closed at the week at record highs. The Nasdaq moved up so rapidly that at this point you need to be careful when about entering long positions on tech stocks. Gold prices on Friday logged their lowest settlement in four months and suffered from their worst monthly decline this year as recent gains in equities lured investors away from the precious metal. “Gold has been trading in a compressing range since March with prices being supported by geopolitics, while the broad strength in stocks has kept pressure on precious metals,” said market analyst Tyler Richey.


Possible Strategy
Invest in the SPY ETF to take advantage of broad-based stock market gains. The SPY is an exchange-traded fund (ETF) managed to track the Standard & Poor's 500 Index (S&P 500). The investment seeks to provide investment results that, before expenses, generally correspond to the price and yield performance of the S&P 500 Index. By trading like a stock, the SPY has continuous liquidity, can be short sold, bought on margin, provide regular dividend payments and incur regular brokerage commissions when traded. The SPY is used by large institutions and traders as bets on the overall direction of the market. They are also used by individual investors who believe in passive management (index investing). In this respect, spiders compete directly with S&P 500 index funds.

Smart investors looking to benefit from the stock market recent price surge and limit the downside risk are stepping in to buy when prices pull back a bit so that they can get shares at a cheaper price. One theme that has been constant all year is investors waiting on price dips and then stepping in to bid the prices back up.

  

By Gregory Clay

P.S. click on http://www.theoptionplayer.com/ to sign up for a free option trading educational newsletter

Investors Are Still Biting

Market Summary

Investors are continuing to ‘buy the dips’ as they have been for the past few months which contribute to the current range-bound trading environment. Most of the major equity indexes basically finished the week flat, even though the DJIA and S&P500 managed to hit intraday all-time highs last week. The recent pattern has been investors cashing out gains at high prices, pushing prices down as shorts pile on; then buyers step in to buy the dips, pushing prices higher with a ‘short squeeze’. The smaller capitalization indexes are lagging the broader market as exhibited by the Russell 2000 being stuck below its 200-day SMA, a sign of weak momentum. Investors are concerned about weakness in small caps, biotech and technology sectors being a precursor to overall market losses.

Taking a gander at the year-to-date performance graph below, what is clear is that investors are seeking yield. Note the highest performing sectors are utilities, treasury bonds, and real estate which all provides high yields compared to all the other sectors. Investors are pouring money into U.S. Treasury bonds, considered the world's safest asset and they're loading up on dull, but reliable utility stocks. They are playing it safe by dumping holdings that would get hurt most from a stalled recovery, like stocks of retailers and risky small companies. This clearly confirms investors are nervous about the economy and eschewing high growth stocks in favor of capital preservation. The sector rotation continues from the riskier high-growth and momentum names to conservative high-yielding shares. Pimco's Bill Gross called this new secular investment theme "the new neutral". Gross expects slow economic growth and low real interest rates over the next five years, and this will fuel the hunt for yield.

Investor Analysis

In recent articles we discussed our forecast for stocks prices to nudge toward new highs and then drop back down to a support level in a trading range. As earnings season is winding down, the stock market avoided a broad-based selloff which is consistent with our expectation for continued range-bound trading. Looking under the hood of recent market action we can see sector rotation going on. It appears investors are stepping up to the plate and scooping up some of the high-flying stocks that have dropped in price. While it is still relatively risky to trade a lot of the ‘high momentum’ stocks, if there are shares you really like, it might be worth the risk to buy in if you are prepared to ride out future volatility. Any bullish trades need to be hedged for downside protection as the current bull market is getting tired and traders have become quicker on the trigger with bidding down prices. Market neutral portfolio positioning is currently the best trading strategy to take advantage of prices vacillating between recent highs and support levels.

By Gregory Clay

P.S. click on http://www.theoptionplayer.com/ to sign up for a free option trading educational newsletter

The SPY ETF (SPY) Is Flashing A Buy Signal

Market Summary

The stock market remains in a long term bullish trend as investors are discounting negative data and celebrating positive news. The market is always somewhat disconnected from Main Street and usually the market gets it right when reflecting future political and economic events in current prices. Investors don't believe that the Federal Reserve, White House and Congress are willing to take a chance on risking an economic downturn any time soon. The market for now is telling us that employment is growing at a decent pace in the private sector and the economy is actually improving.

Investor Analysis

With treasury bonds not supplying the returns investors want, investors have few options other than putting money into stocks. Take a look at the SPY ETF (Exchange Traded Fund) daily chart below. You can easily see how the SPY ETF has been in a bullish uptrend all year along with the broader stock market.

Possible Strategy

Invest in the SPY ETF to take advantage of broad-based stock market gains. The SPY is an exchange-traded fund (ETF) managed to track the Standard & Poor's 500 Index (S&P 500). The investment seeks to provide investment results that, before expenses, generally correspond to the price and yield performance of the S&P 500 Index. By trading like a stock, the SPY has continuous liquidity, can be short sold, bought on margin, provide regular dividend payments and incur regular brokerage commissions when traded. The SPY is used by large institutions and traders as bets on the overall direction of the market. They are also used by individual investors who believe in passive management (index investing). In this respect, spiders compete directly with S&P 500 index funds. 

Smart investors looking to benefit from the stock market recent price surge and limit the downside risk are stepping in to buy when prices pull back a bit so that they can get shares at a cheaper price. One theme that has been constant all year is investors waiting on price dips and then stepping in to bid the prices back up. As highlighted in the chart above, the major stock indexes are currently at a level where investors usually move in to buy.

  

By Gregory Clay

Now Might Be The Best Time to Buy Gold

Market Summary
Gold turned bearish last fall leading up to in the crash in the middle of April culminating in largest consecutive two-day price drop in decades for the precious metal. A pullback in gold prices was inevitable after it recently experienced the longest rally in almost a century. Gold stopped being considered the safe-haven investment it once was after prices fell when the euro currency almost collapsed last year. Typically, when the currency market goes into crisis mode, gold prices go up. Of course the news that billionaire investors George Soros and Louis Moore Bacon dumped holdings of gold products at the end of last year contributed the 'herd' mentality of investors stampeding to dump the precious metal.

The beginning of 2011 was the last time gold prices were as low as they have been lately and the price immediately surged higher to end that year at a multi-year high. Gold'srecent crash put smiles on the faces of many Middle East Indians as their fascination with the precious metal sparked a buying frenzy at the recent discount prices. Buying gold is more than just tradition in India, and the centuries-old custom of Indians to rely on the yellow to safeguard their wealth from generation to generation is undeniable. Anyone who follows gold knows that the Indian demand on the physical market is one of the strongest underlying foundations of the gold market. After prices bottomed out a few weeks ago gold has been rallying primarily due to surging demand for the actual metal rather than the investment funds that have become so popular with investors attempting to cash in on the surge in recent years. "Depressed price levels were perceived as an attractive entry point by physical buyers and bargain hunters," ETF Securities said. "The longer-term fundamentaloutlook for gold has not changed and appears robust in our view, despite the sharp falls seen in recent weeks."

 

Investor Analysis

As confirmed in the weekly chart above, after gold hit bottom a few weeks ago it has staged a comeback. Recent history, technical signals, and several investment analysts signal a bottom for the metal’s prices. If the signs are correct, now might be a low risk opportune time to buy to gold to catch the next bullish price surge.

Possible Strategy

Above a daily chart for the SPDR Gold Shares (GLD) exchange traded fund (ETF). GLD is a popular ETF investment that seeks to replicate the performance, net of expenses, of the price of gold bullion. Investors interested in participating in the gold market can buy into the actual GLD ETF. Or a more cost effective option might be to purchase GLD call options. Purchasing the July expiration GLD $145.00 strike price call option would cost approx. $4.00 per share (based on yesterday's close), but would generate gains the further gold moved higher prior to July 19^th. For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/

By Gregory Clay

Good Time To Buy A Little Gold

Market Summary

Gold crashed below its recent trading range to six-month lows as upbeat U.S. economic date has diminished the appeal of so called "safe-haven" investments. Of course the news that billionaire investors George Soros and Louis Moore Bacan dumped holdings of gold exchange-traded products contributed to the "herd" mentality of investors stampeding to dump the precious metal. The U.S. dollar is displaying strength compared to other currencies and this is pressuring commodity prices. However, technically, gold was severely oversold and the price should stay above the current level. As we can see in the GLD ETF daily chart below, the $152 support level has held up and the price has always recovered when it reached oversold levels.

Investor Analysis

As confirmed in the chart above, gold hit bottom last week but has staged a strong recovery over the past few days. Gold futures rebounded Monday from last week's selling to score their biggest gain of the month, as analysts say recent report hinted at a potential bottom for the metal's prices. Investors also are reconsidering gold's safe-have appeal after voting results from Italy's election and a rating downgrade on the United Kingdom.

Possible Strategy

Above a daily chart for the SPDR Gold Shares (GLD) exchange traded fund (ETF). GLD is a popular ETF investment that seeks to replicate the performance, net of expenses, of the price of gold bullion. Investors interested in participating in the 'gold rush' can buy into the actual GLD ETF. Or a more cost effective option might be to purchase GLD call options. Purchasing the end-of-March Quarterly expiration GLD $154.00 strike price call option would cost approx. $3.00 per share (based on yesterday's close), but would generate gains the further gold moved higher prior to March 28^th. For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/

By Gregory Clay

Take Advantage of Bank of America (BAC) Price Move

Market Summary

Big banking stocks rallied hard last week with Bank of America (BAC) leading the way by soaring 9% for it best performance since September. Stocks around the globe and the euro were mostly lower on Monday, with investors cautious over whether Greece will receive emergency aid to keep it financially afloat and no signs of progress by U.S. lawmakers to avoid the U.S. "fiscal cliff." Without agreement by Congress and the White House, sharp tax increases and government spending cuts will take effect in 2013, raising the specter of stifling the fragile U.S. recovery and pushing Wall Street indexes to follow the global trend lower. BofA shares fell today in light of the onslaught of lawsuits related to the risky mortgage securities. This has resulted in huge litigation costs for the company, which will have a profound impact on its financials.

Investor Analysis

As mentioned above, Bank of America (BAC) shares benefited from the big stock market move during thanksgiving week. Note in the chart above that over the past month of so, when shares reach the current price traders usually start selling to drive the stock price back down. The largest equity options trade today was in Bank of America (BAC). Shares dropped 7 cents to $9.84 and were among 22 Dow Jones Industrial Index stocks to finish with losses.

Possible Strategy

Investors who want to take advantage of the downside price move could consider a simple strategy to profit from the Bank of America's possible move lower. For example, buying a BofA regular December expiration put option (NYSE: BAC). Purchasing a December $10 strike price BAC put contract (each contract is 100 shares of stock) would cost $.41 per share based on yesterday's close ($.41 X's 100 shares = $41 per contract), but would generate gains the further stock price dropped below $10 prior to December 21^st. For example, 10 BAC put contracts would cost an investor approx. $410 ($.41 X's 100 shares X's 10 put contracts). If before the expiration date the stock price drops back down to $9 as it has done recently, investors would double their money by cashing in ($10 strike price less $9 = $1.00 per share difference [$1 per share X's 100 shares X's 10 contracts = $1,000] minus the $410 cost = approx $590 profit.

For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/

By Gregory Clay

Presidential Election Pushes Gold (GLD) Prices Higher

Market Summary

Last week precious metals such as gold recorded a fourth consecutive weekly loss due to a favorable payroll report strengthening the U.S. dollar. A stronger dollar tends to pressure prices for dollar-denominated commodities such as gold since it makes them more expensive for holders of other currencies to buy. On Monday gold started rebounding and today gold and other precious metals advanced higher on the possibility of a Barack Obama victory in today's presidential election. The prospect of another four years for President Barack Obama is seen as bullish for the precious metal, said Brien Lundin, editor of Gold Newsletter. “The market perception is that Obama may pull it out,” Lundin said. Gold futures have been buoyed by the Federal Reserve’s ultra-easy monetary policy — which is expected to continue if President Obama is reelected. “The prime driver for gold and silver has been the prospect for monetary inflation and quantitative easing,” Lundin said. “So an Obama victory would support [the view] that these policies would continue unabated.” Slight weakness in the dollar also buoyed gold prices. 

Investor Analysis

As confirmed in the chart above, gold hit bottom last week but has staged a strong recovery over the past few days. The chance of a Mitt Romney presidential election win is viewed as a negative for gold. Traders appear to expect President Obama to prevail, if they are correct this should drive gold prices back up to the level prior to the presidential debates.

Possible Strategy

Above a daily chart for the SPDR Gold Shares (GLD) exchange traded fund (ETF). GLD is a popular ETF investment that seeks to replicate the performance, net of expenses, of the price of gold bullion. Investors interested in participating in the gold rebound can buy into the actual GLD ETF. Or a more cost effective option might be to purchase GLD call options. Purchasing the November expiration GLD $168.00 strike price call option would cost approx. $1.26 per share (based on yesterday's close), but would generate gains the further gold moved higher prior to November 17^th. For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/

By Gregory Clay

Option Play (GLD) For the Gold Rush

Market Summary

Last week, Fed Chairman Ben Bernanke gave a policy speech at Jackson Hole Wyoming that hinted at the inevitability of further quantitative easing (QE). Market action following Bernanke's comments suggest that traders don't anticipate the Fed will announce the next round of QE at their upcoming policy meeting in a few weeks, but expect the next program to start in the fall. Reacting to the expectation of more QE, the dollar plunged to its lowest level in three months on Friday based on anticipation that the Fed will probably flood the economy with even more dollars to purchase assets - this in turn will further drive down the value of the dollar. As a direct corollary to further quantitative easing debasing the dollar and Fed asset purchases, precious metals exploded after Bernanke's speech – a lower dollar equates to higher gold prices.

  

Investor Analysis

Gold hit bottom this past May and prices moved higher in June. In subsequent months gold traded range-bound as inflation was subdued and the dollar was strong. A few weeks ago, concerns about rising interest rates and higher inflation pushed gold prices higher through the top of the trading range. As mentioned above, the Fed Chairman's speech set the tone for gold to explode back towards higher price levels set the end of last year – about the same time as the Fed did the previous version of QE.

Possible Strategy

Above a daily chart for the SPDR Gold Shares (GLD) exchange traded fund (ETF). GLD is a popular ETF investment that seeks to replicate the performance, net of expenses, of the price of gold bullion. Investors interested in participating in the 'gold rush' can buy into the actual GLD ETF. Or a more cost effective option might be to purchase GLD call options. Purchasing the October GLD $164.00 strike price call option would cost approx. $4.00 per share (based on yesterday's close), but would generate gains the further gold moved higher prior to October 19^th. For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/

By Gregory Clay

Cash In On Stocks Downward Move

Market Summary

What has to be a serious concern for the bulls is that most of the major indexes are selling off from 'triple-tops'. A triple-top is a pattern used by many technical analysts to predict a price reversal when the market is trending upward. The pattern is identified when prices create three peaks at virtually the same level (see stock chart below). The price pullback off resistance at the third peak is considered to be a sign that buyers have become exhausted. Trip-tops are considered more difficult to overcome compared to other topping patterns, requiring much more time and volume to reverse.

Also, most of the major indexes have sliced through their 20 and 50-day moving averages setting up prices to test the March/April lows – if stocks break below this level the longer term trend converts from bullish to bearish. As mentioned in recent articles, stocks are dropping and the current market pullback suggests that a trend reversal similar to the previous two years is underway.

  

Investor Analysis

Most of the major stock indexes are breaking down and until prices reverse course the near term trend is down.

Possible Strategy

http://investorreport.blogspot.com/2012/05/ride-s-500-index-downward-move.html#links

http://investorreport.blogspot.com/2012/04/how-to-play-dows-price-pullback.html#links

http://investorreport.blogspot.com/2012/04/how-to-play-s-500-downside-price-move.html#links

Above are links to recent articles the described three different trades that benefited from the current stock price pullback. Each of the trades is profitable and investors who followed the suggestions should close out these successful trades ASAP as May options expire this week.

Investors who want to trade on a further downside price move are considering a simple strategy to profit from the S&P 500's possible move lower. For example, buying a SPY ETF (Exchange Traded Fund) June expiration put option – SPY represents S&P 500 Index.  Purchasing the $133 strike price put would cost $3.00 per share (based on yesterday's close, but would generate gains the further S&P 500 dropped below $133 anytime prior to June 15th. For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/

By Gregory Clay

Ride the S&P 500 Index Downward Move

Market Summary

Three yellow vertical lines are highlighted in the S&P 500 Index weekly chart below. The first two yellow lines highlight the point where stock prices topped out in the spring of 2010 and 2011 culminating in price corrections. The third line marks this year where stocks prices have dropped and we may be in the process of another downturn that appears to happen this time every spring? Similar to what is happening with the DOW Jones Industrial Average, the current market pullback suggests that a trend reversal similar to the previous two years is underway. Another major worry for the bulls are the recent bearish distribution days (down days on higher than normal trading volume). Bearish distribution days indicate that money managers are looking for the opportunity to sell shares - which further pushes down prices.

Investor Analysis

Most of the major stock indexes are breaking down and until prices reverse course the near term trend is down.

Possible Strategy

If the stock prices do continue downward, smart investors are considering a simple strategy to profit from the S&P 500's possible move lower. For example, buying a SPY ETF (Exchange Traded Fund) May expiration put option – SPY represents S&P 500 Index.  Purchasing the $136 strike price put would cost $1.82 per share (based on yesterday's close, but would generate gains the further S&P 500 dropped below $136 anytime prior to May 18^th. For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/

By Gregory Clay

How to Play the DOW's Price Pullback

Market Summary

Three vertical lines are highlighted in the DOW Jones Industrial Average Index weekly chart below. The first two yellow lines highlight the point where stock prices topped out in the spring of 2010 and 2011 and culminated in price correction. The third line marks the current year where stocks prices have dropped and we may be in the initial stages of another downturn that appears to happen this time every spring? At this point the current market pullback suggests that prices may have topped out and a trend reversal similar to the previous two years stocks is starting. Another major worry for the bulls are the recent bearish distribution days (down days on higher than normal trading volume). Bearish distribution days indicate that money managers are looking for the opportunity to sell shares.

Investor Analysis

Most of the major stock indexes have broke down below their price support levels and the technical momentum indicators and oscillators are bearish. Until prices reverse course the near term trend is down.

Possible Strategy

If the stock prices do continue downward, some investors are considering a simple strategy to profit from the DOW's possible move lower. For example, buying a DIA ETF (Exchange Traded Fund) May expiration put option – DIA represents DOW Jones Industrial Average.  Purchasing the $129 strike price put would cost $2.23 per share (based on yesterday's close, but would generate gains the further DOW dropped below $129 anytime prior to May 18^th. For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/

By Gregory Clay

How to Play the S&P 500 Downside Price Move

Market Summary

Three vertical lines are highlighted in the S&P 500 Index weekly chart below. The first two yellow lines highlight the point where stock prices topped out in the spring of 2010 and 2011 and culminated in price downturns. The third line marks the current year where stocks prices have dropped and we may be in the initial stages of another downturn that appears to happen this time every spring? At this point the current market pullback suggests that prices may have topped out and a trend reversal similar to the previous two years may be starting? Another major worry for the bulls are the recent bearish distribution days (down days on higher than normal trading volume). Bearish distribution days indicate that money managers are looking for the opportunity to sell shares.

  

Investor Analysis

Most of the major stock indexes are breaking down below their price support levels and the technical momentum indicators and oscillators are turning bearish. Until prices reverse course the near term trend is down.

Possible Strategy

If the stock prices do continue to pull back, some investors are considering debit spread strategies to profit from the S&P 500's possible move lower. For example, trading a SPY ETF (Exchange Traded Fund) May option expiration long $137 strike price put/short $134 strike put debit spread would cost .81  per share (based on yesterday's close – buy the $137 put @$1.12 and sell the 134 @ .31), but would generate $2.19 per share profit if the SPY dropped below $134 anytime prior to May 18^th (calculated as $137 minus $134 = $3.00 credit, less the .81 debit to buy the spread) For an explanation on the basics of option trading and description of how the trade is set up go to http://www.theoptionplayer.com/strategies/

By Gregory Clay

Good Opportunity to Play the S&P 500

Market Summary

For only the second time this year the S&P 500 index recorded a 1% loss for the day. Traders reacted to the latest concerns related to European debt and monetary policy in the U.S. As confirmed in the SPY 60 min chart below, the benchmark S&P 500 index has fallen in eight of the past 12 trading sessions, dropping below its 14-day moving average for the first time in a month. Traders appear to be turned off by comments in the recently released Fed meeting minutes questioning the need for further quantitative easing (QE)/ Investors have become intoxicated with easy money from the fed which has been a major impetus driving the stock market for the past few years. Without QE, it is questionable whether the economy can grow much more without government intervention.

Investor Analysis

Note in the chart above how recently, every time the S&P 500 index pulled back to its current level, prices recovered soon after. Now might be a good opportunity to purchase some shares at a good price as the current pullback will alleviate overbought conditions, and it is reasonable to expect prices recover again as the first quarter earning season progresses.

Possible Strategy

Investors can take advantage of the opportunity to play a price recovery with  an April option trade. For example trading a SPY ETF April option expiration long $138 strike price call/short $141 strike call debit spread would cost $1.82 per share (based on yesterday's close – buy the $138@2.78 and sell the $141@ .96), but would generate $1.18 per share profit if the SPY gets back above $141 prior to April 20^th (calculated as $141 minus $138 = $3.00 credit, less the $1.82 debit to buy the spread) For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/option-basics/

By Gregory Clay

Low Risk S&P 500 April Expiration Option Trade

Market Summary

Stock prices across the board continue to climb higher as more buyers are coming off the sidelines and bidding up prices. As confirmed in the daily SPY chart directly below, most of the major stock indexes have exceeded their multi-year highs from last summer. Stocks may be taking a breather and consolidating gains generated over the past month or so. This is generally considered a bullish sign as stock prices usually continue in the direction of the trend after consolidating.

Investor Analysis

It looks likely that stock prices should push higher in the near term. Looking at the SPY daily chart above will confirm that since the beginning of the year, stocks have 'bulled' higher with nary a pause. Prices have consolidated a bit over the past few weeks, but from a technical perspective this should be considered bullish. Price consolidation usually helps alleviate overbought or oversold conditions, and prices are usually expected to move in the direction of the current trend after the consolidation ends.

Possible Strategy

The February 27^th Investor Report said "... As the bullish move continues, some investors are considering debit spread strategies to profit from the S&P 500's possible move higher. For example, trading a SPY March option expiration long 136, short 139 debit spread would cost $1.60 per share (based on yesterday's close – buy the 136 @2.40 and sell the 139 for .80), but would generate $1.40 profit if the SPY rose above $139 prior to March 16^th (calculated as 134 minus 131 = $3.00 credit, less the $1.60 debit to buy the spread) " As expected, stock prices moved higher and the value of suggested option trade increased to the maximum profit prior to the March expiration. Investors can take advantage of the continued bullish trend with a similar trade for April, for example trading a SPY ETF April option expiration long $143 strike price call/short $140 strike call debit spread would cost $1.44 per share (based on yesterday's close – buy the $140@2.27 and sell the $143@ .83), but would generate $1.56 per share profit if the SPY rose above $143 prior to April 20^th (calculated as $143 minus $140 = $3.00 credit, less the $1.44debit to buy the spread) For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/option-basics/

By Gregory Clay