Cam at the Close 2.6.12

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Range Resources closed above its 200-DMA for the first time in three weeks.  It closed up 2.75% to $60.82. The 50-dma is $61.48 and a break of that would serve as the next buy point. I am not sure how many people are aware but EOG Resources stands for, “Enron Oil and Gas”, which is my mind is pretty hilarious. EOG has showed incredible strength since it began rallying off of the October 4 lows. The stock cleared major resistance in the $108 area and looks like it will be a straight shot to $112. EOG closed up .90% to $110.04. So far the SPX move that we have seen since the start of the year has been the best start in 25 years. Crude oil was down today due to investor concern that Greece will not be able to avoid a default. I am surprised that markets are even responding to news about Greece at this point. The SPY is still showing resilience and maintaining a strong uptrend.

Trade of the Day (CEDC) 2.6.2012

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Reason I like this Trade: I like this trade when I saw a customer buy 1500 CEDC Feb 5 Calls for $.65 when the stock was trading $5.52.  CEDC disturbutes alcohol products in European countries.  I guess I should have bought these Calls as well, but I decided to sell the Puts for $.20 instead.  The stock has rallied $.40 to $5.92 and the Calls have outperformed the price of the Puts.  I will leave these Puts on until expiration, as I do not get “LONG” stock until CEDC sells off 20% in the next 9 trading days.  If you have any questions please email me at

UPDATE 2.7.2012 With the stock selling off $.20, these Puts are worth $.175.  The longer until expiration the less these Puts will be worth.  With the stock looking strong above $5, I will leave these Puts on until expiration, so I do not chop my P&L with commissions.

UPDATE 2.8.2012 With the stock rallying to $6 and I realize that I should have bought the Calls instead of selling the Puts.  These Puts are now worth $.10, but will leave them on until expiration, so I do not chop my P&L up with commissions.  Moving to the next trade

UPDATE 2.14.2012 With the stock raging abovew $6.25, these Puts are basically worthless, but no trade is a complete winner until it is closed, so waiting until Friday and will not be taking any of this position off until then.

UPDATE 2.16.2012 With these options expiring tomorrow, these will be worth zero and I turned a nice profit and moving on to the next trade.

Halftime Report for 2.6.2012

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In unusual activity we see a customer once again buy the DLPH March 30-35 Call Spread for $1.60 as this stock continues to see bullish order flow.  We also see a customer seller of about 5500 CIGX May 2.5 Calls from $.70 which is the bearish acitivity I have seen today.  In other bullish order flow, we saw a customer seller of SNTA August 5 Puts for $1.00 and a customer buyer of LPS Feb 19 Calls for $.90.  I always try not to overtrade, but when I get a good trade like CIGX I jump on board on a short position.  The rest of the afternoon might be slow, but I am always watching the unusual options activity for possible trades.  

From the Barbers's Chair 2.6.2012

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Of course the tough part is knowing when to switch trends. Wall Streeters use a million different indicators and ratios to try to figure this out, but as yet nobody has it down pat. Rather, all we can do is identify a major trend, and stay with it until is appears to be broken, and then move on. So what are the hot trends right now? What is going on out there that can make us some money? Market observers have commented on many trends that have been occurring for months. 

For example, one key trend has been the high correlation of asset classes over the past months. Historically, some assets classes—such as gold, various bonds, and certain commodities have been good hedges against stocks. They go up when stocks go down and vice-versa.  However, recently almost all assets classes have moved together—they go up together; they go down together. Is this trend continuing as we speak? Answer: uncertain. So far during 2012, certain market sectors (e.g. technology and banks), as well as bonds, haveclearly outperformed other investments (e.g. gold).  But whether the overall high correlation trend is broken remains uncertain. Another commonly discussed trend is the low volume in the markets and the vast amount of funds sitting on the sidelines. Certainly, these funds becoming more active could help the market. In the last few days, volume has moved up somewhat, but it is again uncertain how long the low-volume trend will last.

However, there is one key trend that has lasted for years, and for me is the most important trend to watch and to react to with your money. That trend has to do with action in the dollar. This dollar trend has been amazingly consistent over the past few months. Under this trend, there has been a very strong correlation between high markets and a weak dollar.  When the dollar is weak, markets go up.  When the dollar strengthens, markets go down.  This relationship has generally been holding true to form – day in and day out – month in and month out. This is the trend I am watching closest.Absent a Black Swan event, I believe that the markets will continue to do well as long as there is a weak dollar. While a strong dollar may be good for the US over the long term, a weak dollar helps stocks, gold, bonds, and commodities in the short term.  If the dollar strengthens, the markets may well act very negatively in response.Past trends are not necessarily indications of the future. However, investors disregard current trends at their peril. In my opinion, following a current trend is simply wise investing—until that trend changes course.  And right now the key trend out there is the weak dollar.  If this trend changes, my current bullish attitude will likely change very, very quickly. Please follow me on Twitter @USKOTM

Morning Rage 2.6.2012

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Some key European events that traders will be watching this week are German factory orders(December) on Mon and will be listening to the Eurogroup finance minister meetings.  Tuesday, Bernanke will testify before the budget committee and Merkel will speak regarding Europe’s fiscal future.
 In early morning trading, after 5 weeks of positive trading/strong macro data and the Dow making fresh 3 year highs the DJIA is down by 45 points and the S&P is down around 5 points. The VIX traded under  17 on Fri but closed near its highs after investors wanted cheap protection. Perhaps investors were seeking some cheap protection against a “Lehman-like” event.
If the 10 yr yield can trade comfortably above 2% and the Vix can trade under 20 I think the tape is set to trade much higher. Crude oil is trading around the 97$ level with a lot of risk premium still built in. Look for crude oil to go much lower unless some crazy geo-political news comes out of the middle east.