Saturday, February 24, 2007

Bottoms in IMCL and TMY

Towards the close on Friday IMCL pushed through some major resistance of a declining trend line that began last May. With a very large short interest in this stock and the impression that a bottom is in place, IMCL could make a big move up to at least test it's 200 dma currently around $32.50. The stock does not want to trade below very strong support just under $28 which places a nice safety net below. Also, with the stock just over $30, the March and April 30 calls are interesting.

Another nice looking bottom play is in the oil exploration company TMY. Energy is a very hot sector right now with oil having put in a bottom and this volatile stock has formed what looks to me like an adam and eve double bottom. Confirmation of the pattern will not come until the stock moves above 3.86 so I would wait for a break of that level to get real excited. The stock popped Friday on good volume after they announced completion of a new well.

Monday, February 19, 2007

Beautiful DTC Chart

This 6 month DTC chart is a perfect example of the natural beauty that you often see in a stock chart. This is a stock that showed up on my scan for new fifty two week highs on stocks with heavy option volume, in fact it was number one in this scan as of the close last Friday. What I see in this chart is a self similar pattern (not unlike a fractal) with the most recent breakout looking almost identical to a previous 13% move. This places the near term target at $11.09 which is quite a premium from the $9.19 close Friday. Other aspects of the chart look nice that can be seen highlighted in the chart below (click on it).
In particular, check out that volume. Over the last few weeks the volume expansion in DTC is staggering. This is a undeniable confirmation of the move's validity. While we are talking about volumes check out these unbelievable March option volumes on Friday. The open interest and volume in the $12.50 strikes definitely suggests it will head for that price. Wow, up.
This was the 50th post here at StockGeometry, thanks to the contributors (indigo, btb and namec) and the readers for your insight and support. So far I'm very happy with the way the blog has developed, cheers! -pythagoruz

Sunday, February 11, 2007

DDS / RTH & NDAQ for Options Expiry

To follow up on between the bar's well thought out and approriately timed comments about Dillards (DDS) last week I wanted to talk about the DDS chart and its relation to the Retail Holders ETF (Exchange Traded Fund) with ticker symbol RTH. The RTH is just an equity that represents a mix of retail stocks plus a small fee to Merril Lynch. It basically represents the combination of all the big department-type stores including stocks like Wallmart, Home Depot and Federated (Macy's) among others (but not DDS as far as I can tell). In any event read the previous post if you want to hear more about retail's fundamentals. I have above the DDS stock price divided by the RTH which is guaging DDS's performance relative to the RTH (the sector). Areas where this fraction rises is when DDS outperformed the retail sector and areas where is fell are when it underperformed the sector. What you see is similar but slightly different from the actual DDS chart, which in this case turns out to make a large difference in the message. Essentially, on this ratio DDS appears to be at very fierce resistance here with the 50 day moving average above along with the upper BB's which are flat. This compares with something of a cunfusing breakout on the real DDS chart. And from a longer term perspective the 50 and 200 dma's in this ratio chart have been important technically as seen above. Long story short, when we remove the recent boost in the entire sector from the DDS chart it looks more like DDS is rolling over than breaking out like the real chart might suggest. This of course lines up with the fundamentals which have been drastically under performing the sector.
Just to keep us focused on the real equities here, I have the 10 day hourly DDS and RTH charts side by side above. In the DDS chart I have drawn in approximately to the best I can the real 50 day moving average and the DDS/RTH ration 50 day moving average. You can see that now really would be a great time to get short and if you want to be more conservative expect and wait for DDS to break it's actual 50 dma at 34.60, but by then it should be moving fast and the 35 puts (March or Even Feb) will be significantly more expensive. On a side note the RTH looks ready for some downside anyways, look at that huge volume sell off a few hours before the close last Friday...

Now I know there are some readers who are here looking for an options play. Trading options just before expiration is a good way to lose alot of money real fast, but every trade has a winner and a loser so that means someone else is making a bunch of money real fast. Anyways, NDAQ jumps out as kind of a no brainer. Its all over the news this weekend that their bid for the London Stock Exchange failed. And NYSE (NYX) has been seeing downgrades lately over volume concerns weighing on the sector. Furthermore, NDAQ is the dog in the sector and the fact that it is trying to breakout now so late in the rally is suspect. But why this week? Well options expire Friday and max pain on NDAQ is 32.50... uhh yeah that is about 5 points lower. This is a no brainer short/put play up here above it's upper bollinger band in my humble opinion. At least to$ 35 by Friday. By the way, make sure you click on the images above to zoom in for a better look. And don't forget to sell those February options this week!! Questions and comments are most welcome!

Sunday, February 04, 2007

Trading MSFT Options

When I looked at the MSFT daily (above) this weekend I thought that it looked like it might be a good short if I was inclined. But I wouldn't be inclined to short MSFT for no other reason than it moves too slow. Of course you could trade it on the margin but I don't think you would be able to justify the interest. So, naturally I took a look at the options as they provide the most possible trading leverage.

It turned out that MSFT options looked like they might be great to trade with very low implied volatility and super small spreads. Almost every Feb and March option has a spread of .02 or less which means you don't have to take a big loss on the initial purchase and makes exiting comfortable and easy. I particularly like the March 30 puts and calls because MSFT has a major pivot price there from previous resistance and now its 50 dma at 35.03. I would expect MSFT to bounce off 30 before eventually breaking it but you just have to wait and see. On any break below 30 you can expect the premiums to rise with volatility (also thought of as "fear") As news becomes available on the success or failure of Vista the implied volatility can be expected to rise from historically lower levels especially if MSFT closes below major support at 30$. I definitely have a bearish feeling about Vista and MSFT in general near these highs, but I won't get all that excited until it breaks 30$. Even after it does, both the puts and calls should be great for intraday moves. Here's a look at the implied volatility on MSFT over the last year:
A brief word of caution, options are the easiest way to lose money in the market as the large majority of them expire worthless. Furthermore, I would expect the MSFT Feb 30 Puts and Calls to expire worthless as there is so much interest in them and maxpain currently lies at 30$. So trade them, but DO NOT HOLD THEM TILL EXPIRATION. I may try again later after the superbowl to complete this post, until then enjoy the game!

Update: Tues Feb 6th: Well MSFT didn't waste anytime breaking 30, in fact it opened below 30 on monday and was unable to retrive the 50 day moving average. While this is definately very bearish the stock has been falling much faster than it typically moves and so i would try playing bounces back towards 30 more so than further downside. I definately wouldn't expect it to close below its lower BB, currently at 29.52 but falling fast. As far as the options, they have been great. I was able to get +.07 on .54 with the March 30 calls yest and +.20 on .68 with the Feb 30 puts today. If your broker enables you to place option orders in .01 increments you need to check these things out, i haven't seen any other options like these. And the bid/offer sizes are huge, as high as 3k.

Thursday, February 01, 2007

Cup and Handle in IOTN

Update: Well that nice formation quickly took damage Friday with a bearish engulfing stick on massive volume. It was encouraging to see some capitulation near the end of day as the price dropped below 5$ and the volume surged. While it closed at 4.99 I would still consider IOTN in ok shape so long as it doesn't close any lower Monday. IOTN is a very tough and often disappointing stock to trade, you really have to have nerves of steal to make money on it. I added more calls on the dip below 5.