Is The Gold Bottom In ?

We have not seen these levels of sentiment since the bear market gold bottom more than two and a half years ago.  The gold bottom in fact may have occurred on the 19th of this month. It will be interesting to see if the lows get tested this week. Remember the longer the lows stay intact, the more likely that the intermediate bottom is in. Why? Well this intermediate cycle is long in the tooth as it is. We are well overdue an intermediate correction due to the last clear bottom taking place last December.

Sentiment & The Gold Bottom

Sentiment & The Gold Bottom

Aggressive traders could place stops below the lows last Thursday. Usually the thrust out of an intermediate bottom is very powerful. As mentioned, we have had multiple intermediate gold bottoms since December 2015 and none of them have retraced to sentiment levels this bearish. We have a daily swing in place. Honor stops though at all costs.

Honor Stops below Thursday's Gold Bottom lows

Honor Stops on Gold Bottom below Thursday’s lows

Posted in Gold | Tagged | Leave a comment

The Pitfalls Of The Poor Mans Covered Call




The Poor Mans Covered Call involves the buying of a LEAP call options and the frequent sale of short dated out of the money calls. Similar to a traditional covered call, the goal is income or cash flow. This also is a neutral to bullish strategy. Here though are some of the pitfalls of the Poor Mans Covered Call

  • Absence of Liquidity

Usually the spreads on long dated options can be really large. This is really noticeable in stocks with low liquidity. When the spread is too large, it just doesn’t make sense to try and take on the trade. The alternative is to move down closer to the share price. This though will reduce the delta which means the long call is not really a worthy stock substitution. Traditional covered all traders do not need to worry about these pitfalls.

  • Buying Theta

When one buys theta, the trade is against the clock. Obviously one does not have to worry about the “clock” when the trade goes in the right direction. However, it is when things go pear shaped when one has to think about selling or rolling the long dated call option. All options eventually end up worthless no matter how many years to expiration they may be. Again traditional stock holders do not have to worry about the time element here.

  • No Dividends In Poor Mans Covered Calls

When holding a long call for 2 years on end for example, one can’t collect dividend payments from the company. Dividend payments can reduce one’s cost basis if invested back into buying more shares. So one top of the time decay that eats into the option value every day, one also can’t collect dividends.

Summary

The only advantages which I can see from the Poor Mans Covered Call strategy are less capital requirements and the possibility of losing less if the share price falls off a cliff. The ends don’t justify the means here though. We recommend the traditional strategy. Low priced stocks which are undervalued, liquid and pay a dividend are the best stocks for traders to start using this strategy.

 

Posted in Trading | Tagged , , , , | 2 Comments

How To Stop Losing Money In Trading By Becoming Ultra Intentional




Many experienced traders will state that the article title is impossible to achieve. In fact, professional traders are only right just over half of the time but they still manage to make money. However for novice traders, getting one’s mindset down pat from the off is crucial in order to stop losing money in trading. Now of course, one is going to lose money. However desperately wanting not to can really help one’s progress especially in the early innings

Why do I say this ? Well when novice traders come into this game, one of the biggest things they have to learn is to control risk. If one though has been pre-wired or pre-trained to manage risk aggressively, then the odds are high that at least the trader in question wont lose his shirt in his first year or so of trading the markets. Anywhere near breaking even in the first year is an excellent start in my opinion. Its time to get intentional.

Trading Intenionality ( Stop Losing Money In Trading)

Its Time To Get Intentional !

Look how Warren Buffet puts it when he talks about debt for example. Just say a trader has $100,000 of debt at a 5% interest rate and comes to the markets with some capital wanting to trade.  If we are talking in real terms, the trader needs to make a 5% return on his money just to break even. Why? Because the trader could have used that trading money to pay down debt which would mean a guaranteed return on his capital. This example puts the whole idea of risk management into perspective. If you are going to trade, the number 1 rule has to be to protect the downside. To do this, we like to set up our trades with the following tailwinds. This gives us the maximum opportunity of success in order to stop losing money in trading.

  1. A Fundamentally Sound Stock With Preferably A Growing Dividend

So what is a stock which holds good fundamentals ? We like to look at the financials at least over the past decade. If we can see solid trends such as rising revenues, rising cash flows, rising margins and earnings, then this usually bodes well for the future. Many opportunities present themselves when a sound company for whatever reason announces one or two bad earnings reports.

Depending on the reasons, the market many times can take earnings misses and guidance cuts pretty badly which results in the stock tanking. Our portfolio may have plenty of positions which are under water at any given time. We do not panic. We know we have selected fundamentally sound companies at attractive valuations which grow their dividends. These characteristics all mitigate risk to the downside to some degree which is key.

Far too often we ignore the basics of trading and investing which is to buy low and sell high. By simply being as choosy as possible when selecting the investment, one immediately improves one’s probability of success on that given trade.

2. A Liquid Stock In The Event We Want To Use Derivatives

When the given stock has liquidity, it opens up the whole area of options. If one can get this strategy down pat, it will transform how you trade/invest if your goal is cash-flow. Selling puts and calls against long positions increases one’s probability of success for the following reason. When one sells a covered call, one is essentially getting paid for giving the call buyer the right to buy the stock off you at a determined strike price ( usually higher than the share price).

One can go a step further by buying back the call (for a profit) before it expires. This makes sense in a lot of covered call trades. For example if a call loses 60 to 70% of its value ( stock price decline) but still has plenty of time before it expires, there is no point in waiting until expiration to make full profit. Take it off for profit while one has it and then sell more calls once the share price recovers. This way, one can sell calls multiple times in the same expiration cycle which drastically increases one’s probability of success.

When a stock has liquidity, earnings plays for examples really come into play as a way of improving probability of success. By selling premium just before a company announces, one can pocket decent premium due to inflated volatility (fear) which all goes towards improving that initial cost basis. When there is no liquidity, trading options on the underlyings just doesn’t make sense. Why? Because when the spreads are too wide, the fills one gets can be disastrous which are obviously not conducive to profitable trading.

Summary On How To Stop Losing Money In Trading

Its all about intentionality and doing everything with a purpose. The next time you pull the trigger on a long trade with sizable capital, remember Buffet’s example on debt. Any extra payments towards debt gives one a guaranteed return. Nothing is guaranteed in the trading world which is why one must be ultra-careful in both idea generation and risk management. Anything else is just fools play which will result in the market spitting you out in no time. Stop losing money in trading. Start getting ultra intentional.

 

 

 

 

 

Posted in Trading | Tagged , | Leave a comment

Intermediate Low Not In Yet For Gold




Gold (NYSE:GLD) suffered its biggest loss today (15th of June) for more than a year. It looks like the recent dollar strength has finally caught up with the yellow metal. There was basically two options that Gold had I felt before the FOMC meeting announced yesterday. Basically, I thought we would either revisit and breach the lows we hit in May ( Just over $1280 an ounce) or we would rally on the news meaning that in all probability the intermediate low was in.

Technically We Remain In An Uptrend

Today’s move would have caught a lot of gold bugs by surprise especially considering how silver finished yesterday. The move below $1,280 today in gold means we are still in an intermediate decline. Considering though the higher lows pattern of gold, I don’t see the $1,240 level being breached. Around this level, gold completed its last intermediate cycle low and as the chart illustrates above, the previous intermediate low in July of last year was a higher low compared to the previous intermediate low.

Suffice to say, there is no reason to believe the higher lows will not continue. Why? Well I maintain the higher high gold printed in April of this year is significant as it confirmed the bullish trend. Therefore gold bugs need to be patient this week coming and wait for a swing to take place before adding or scaling into a long position.

In hindsight though, we just didn’t get our V shape snap back rally out of those May lows. V shape rallies as we can see in the first chart are indicative of an intermediate cycle starting. The down-day today though is going to set the stage for a powerful snap-back rally – something that again was amiss on the 16th of May.

Gold failed to deliver a V shaped rally out of its May Lows

No V Shaped Rally In Gold Out Of May Lows

Sentiment Needs To Drop More

The updated long term sentiment reading in gold is indicating that we may still have some more downside next week. We use sentiment as a contrary indicator especially when it gets down to ultra pessimistic levels. This means we could have a trip to the $1,240 range and this is what gold bugs need to expect next week.

Sentiment in gold to drop next week to print intermediate low

Long term sentiment in gold may have a bit to go

Source : Sentimentrader.com

Therefore although days like today (15th) can make a gold bug feel like throwing in the towel, we actually need big down-days in order to reset sentiment and get rid of the loose hands. If one is already long (large position), I would advise to turn off the machine and ignore the price over the next week or so. If one is long with a small position, one could use this intermediate decline as an opportunity to double down. Emotions can run havoc in intermediate declines. However, these 3 points should demonstrate that a buying opportunity may be right around the corner.

  • We are in the timing band for an intermediate low. The last ICL took place last December so our ICL should take place any day now
  • Sentiment (although having increased since mid-May) is closing down on levels which are indicative of intermediate lows
  • The weekly technicals such as the slow stochastics are heavily oversold.

Gold’s Weekly Stochastics Are Oversold

The wrong decision would be to bail from this market next week especially if you see other markets like the stock market rising aggressively. One needs to buy into weakness and sell into strength. I expect a weak bounce at the start f the week maybe followed by further losses. The key here is to wait for a swing. Let the market do what it needs to do to flush out the weak hands. Good luck.

 

Posted in Gold | Tagged , | Leave a comment

Walmart Still Looks Cheap




Shares due a bounce. Sentiment too pessimistic in WMT

Posted in Walmart | Tagged | 4 Comments

Federated Investors – Bounce To Upside ?

Federated Investors – Daily Swing Low

Posted in Federated Investors | Tagged | Leave a comment

Biotech : Still Attractive For A Swing Play

Technicals At Depressed Levels

Another Weekly Swing Is Close At Hand

Posted in Biotech, Trading | Tagged | Leave a comment

Earnings Don’t Pay Dividends – Cash Does

Posted in Hormel Foods | Tagged | Leave a comment

Rules Of Engagement : Massive Theta Decay = Leverage

Posted in Trading | Leave a comment

Buy Back Stock Or Use Cash To Invest In Business ?

Posted in Hormel Foods | Tagged | Leave a comment