Stock Duel!

With ease of accessbility to markets, also known as overcoming barriers to entry, new problems arise. If you had been invested in the ETF mirroring the daily price fluctuations(with a given margin of error stated in the prospectus) of the Nymex crude oil contract (CL) you would have underperformed your underlying by about 35%! Here is am image to show the ratio of the two.

Whether it’s the expensive rolling over of the contract due to the contango or anything else there is an alternative: trade on the Nymex. This has become increasingly easier over time with the simple tools provided by brokers such as IB which is also IPOing soon. Due diligence on daily price fluctuations and probabilities and a “behavioral” analysis of crude is necessary to be sure your trading is not being affected by noise and normal fluctuations.

here’s an update of the Dow30 calls stated at the beginning of the year.  We’ve been through some turmoil this year but there is much in store.

MMM: Short 78.35; Now at 76.83, +1.9% the maxdrawdown was not much, within range of -2% I believe and max unrealized profit at 7.3%.  I will maintain a short rating on this but if it goes back to -2% (over the 79.4 region I would cover and go long)

AA: Long 29.24; Now 34.87, +19.3% , max drawdown was 4.4% which was quickly reversed soon after the pick.  I will maintain a long position on this as it is one of the few long positions in this portfolio and it continues to be a strong performer.  Alcoa releasing earnings today.  Let’s see if they beat their 11% expectation earnings increase.

MO: Short 84.78.  A crude calculation for adjusting for the spinoff of Kraft yields my short at nearly $65.19 which in comparison to today’s price of $69.90 is lower resulting in a loss.  The market has blessed the spinoff with favorable share price increase I stand at a 4.71% loss on this trade.  I will actually change calls on this to a long. at this point.

AXP: Short 60.85; Currently 56.36 for +7.37%.  I maintain a short on this unless it goes over $58 at which point I will cover the short.

AIG: Short 71.67; Currently 67.23 for +6.2% on this trade.  I maintain short.

T: Short 34.98; Bad call shorting into a solid trend.  This yields -12.4%.  I will reverse position to long here.

BA: Short 88.76; Currently 90.03 so I’m losing 1.4% on this trade.  It’s been in a range between 85 and 91 so I’m not too concerned.  A short call spread would probably yield a profit on this with time decays. Short.

CAT: Short 60.59; This was a rough trade as the trend was down and it seems to have reversed soon after the call was made.  This trade is proving a 11.1% loss.  I will actually go long here.

C: Long 54.55; Another loser at -5.4%.  I maintain a long though.

KO: Long 48.38; Not too bad but took a while and a decent drawdown to get here.  Currentl 49.63 decent run after a drop to 45.  +2.6%.  Keep long

DD: Short 48.57; Big drawdown but now only a smaller loss.  I maintain short looks like a dome to be.  -2.3%.

XOM: Short 75.41; Small loss now, had significantly higher profits immediately after the call and also in the beginning of March.  I will maintain a short but if it goes over 78.75 I will go long.  -1.8%

GE: Short 37.57; Keep on short; +7.4%

GM: Short 29.42; Losing trade; was much worse at its  peak of 36.99.  It’s still idling and the future is not so clear.  Keep short I’d say. -8.7%

HPQ: Long 40.63;  The crash wiped out a lot of the gain but it’s staging a comeback
much like the rest of the market.  It seems to react fine, i maintain long. +1.7%

HD: Short 38.89; Keep short; +2.1%

HON: Long 44.63; Stay long; +5.6%

INTC: Short 20.08; now 20.10; Breakeven.  Stay short, if it goes to 20.50 then go long.

IBM: Short 95.25; Had a nice profit but rallied; reminds me of HPQ.  Staying short;-1.4% so far.

JNJ: Short 65.65; +6.1%.  Will stay short.

JPM: Short 47.89; -2.39%; staying short.

MCD: Short 43.57; -1%, going long here.

MRK: Short 42.83; -6.6%; staying short.

MSFT: Short 29.64; +3.6%; staying short.

PFE: Short 25.97; now 26, breakeven.

PG: Short 63.80; -.8%; staying short.

UTX: Short 62.56; -4%; staying short.

VZ: Short 36.55; -4%; going long.

WMT :Short 45.54; -6.7%; staying short.

DIS: Short 34.16; -2.2%; staying short.

Total for first quarter 2007: -0.43% while the Dow30 Long is up 0.8%.  Thus my picks are underperforming the
market by 1.23%.

The gate opens and here are my predictions for the Dow 30.  I will simply say long or short.  These are for the short term.  a few months or the first quarter.
MMM: Short 78.35

AA: Long 29.24

MO: Short 84.78

AXP: Short 60.85

AIG: Short 71.67

T: Short 34.98

BA: Short 88.76

CAT: Short 60.59

C: Long 54.55

KO: Long 48.38

DD: Short 48.57

XOM: Short 75.41

GE: Short 37.57

GM: Short 29.42

HPQ: Long 40.63

HD: Short 38.89

HON: Long 44.63

INTC: Short 20.08

IBM: Short 95.25

JNJ: Short 65.65

JPM: Short 47.89

MCD: Short 43.57

MRK: Short 42.83

MSFT: Short 29.64

PFE:    Short 25.97

PG: Short 63.80

UTX: Short 62.56

VZ: Short 36.55

WMT :Short 45.54

DIS: Short 34.16

Short away.  I will be selling calls.  Have a great new years.

My friend AJ made an interesting comment about using the On Balance Volume indicator to raise question about my claim that instutitons had not been selling as retail had been buying for the first quarter of 2006. You can read more about OBV here.

First, I pulled up the daily and weekly charts of the 1yr $NYA and plotted the OBV. What I noticed was a difference of opinion based on which chart was used. The daily chart continued a bullish trend in the OBV but the weekly chart showed a divergence in price similar to the TRIN that I discussed in my previous article. Institutions deal in volumes that outweigh single day movements. In this case, I tend to believe that a weekly chart of volume v. price analysis is significantly more valuable to the chart analyst.

As you can see in THIS CHART there is significant divergence in the first quarter between the price activity and the On Balance Volume indicator. This was later followed by the CMF forming a lower high on the last up week in late April early May. The ideal result from these observations would have been to enter significant short positions following a breakdown/reconfirmation of the strict uptrend of the 2 quarters from Oct 05 to Apr/May 06. $NYA succumbed over 400 points since that point.

In review, I believe that following the OBV of weekly movements in an attempt to decrypt institutional activity may prove more fruitful than using daily charts. Using the TRIN together with OBV and other volume/direction indicators are quite informative. Furthermore, I would like to point out that these views have not been backtested so the expectancy of using such a method is not necessarily positive but it may provide future usefulness if observed again.

I decided to look at the TRIN so far this year and compare it with price activity of the NYSE Composite Index. Here is an annotated chart showing the details: Link

• note: NYSE Composite Index = $NYA

My first observation is the difference between the rise in the $NYA and the running average of the TRIN. We will recall that a TRIN over 1.0 indicates volume flowing through decreasing equities and a TRIN under 1.0 indicates volume flowing through rising equities. In the first quarter we see the TRIN 1, 2 and 3 week average running solidly above 1.0 whereas the index ran up 10%.

Many interpretations exist but one I will offer is that “smart” money or institutions which constitute the majority of the volume have been selling in this run-up while “retail” has been buying the apparent strength only to be left break-even for the year, if lucky.
Reflecting upon the period from April to May we note this was the period in the news where multi-year highs were being broken. Perhaps this is the index equivalent of a bump-and-run-formation.

This correction seems only logical. I will be looking at a broader perspective as well as looking for this situation in the past to determine if it can be replicated with any sort of confidence in the future. I am also interested in whether or not the sell-off will continue for any period of time or whether broad uptrending lines will be respected. Please leave any comments you may have on this analysis or suggestions/thoughts.

Further research to be done: Include analysis on $VIX and relate with Indices and TRIN, etc. Include other time periods as well as a 3-year analysis. Include analysis of weekly ticks instead of daily ticks.

In my opinion this technical bounce doesn’t carry much water. The stats are quite interesting though, the TRIN on the NYSE ended at 0.19. The QQQQubes were up 2.71%! and the volume for the $indu was significantly lower than the red days prior so with tomorrow’s options expiration I’m expecting a moderate day and possible small gains. I sold some calls on TIE playing tomorrow’s expiration. Seeing metals up 20% in 2 to 3 days is asking a little much as far as a healthy reversal is concerned. Whiplash tends to keep people out of the markets as they wait for more comforable settings.  To me it seems much of the options’ underlying movement occurred today. The $vix ended down 25.91% but still significantly high relative to the bull-run from a few weeks ago.

Frank and I have put off our virtual ETF but we promise we’ll get on this soon.

Within the next week, Razvan and I are going to reorganize stockduel. The new plan is to pick a small set of stocks and form something like a virtual ETF. We will be long and short stocks. Performance will be regularly tracked and this duel will be against the broad market indices. We would hold stocks for at least two weeks and stock/market coverage will be regular and consistent. More details will following within the next day or two.

The last two days have seen bullish sentiment on the US Dollar.  Is it oversold for the medium term?  As a fan of UJ I see the next major resistance at the 114 area at which case i’ll be watching fundamental news carefully to see if there will be another leg down.  Technically it is definitely oversold and due for a 2-3% retrace.  However this past week it’s already recovered 1.19%.  A change in speculation of change in fundamentals and a change in long/short-interest along with timing will determine a retrace or reversal.

Here is an article that just popped up on my screen.  I’ve been trend-trading the USD.JPY (or UJ for short).  Selling the Dollar (and buying Yen) at the upper resistance and covering half of the position halfway through the trend and the other half toward the bottom of the trend.  Shorting the Dollar is a nice bet because even if you mess up the entry the broad trend will “save” you as long as it doesn’t become oversold.  In this case a major move has been completed and we are still looking for direction.  The article above will explain further.

Options expiration on Friday; keep an eye on your positions and for pinning.  I’ve sold some DIA calls and those are well out of the money now.  That was a good call.  CPI and PPI are released as well as housing starts and building permits.  These all have the potential to influence but overall I get the feeling that this will be a whiplash week.  In fact, for the last week the $vix was up 22% where the majority of the move was Friday’s move of +13.6%.  The last move like this was in January and was followed by a week of solid gains.  The $indu is still sitting atop the previous high of 11335.0 and the $compq is sitting at it’s thrice reconfirmed support of mid 2200’s.  Currently the USD.JPY is trading at 109.51 which is a support level from August and September of last year.  This level provides for significant psychological importance.  Gold is also at 714.0 trading slightly lower than previous close.  $gold formed a doji and streetTRACKS ETF GLD formed double black candlesticks on Thursday and Friday after a gap open over the upper bollinger band.  I can’t help but feel this is technically overbought situation for commodities.