StockOptionSystem Blog

“Your silent tents of green, we deck with
fragrant flowers; Yours has the suffering
been,The memory shall be ours.”

~Henry Wadsworth Longfellow

 God Bless Us All.

Bernard Baruch, a famous stock trader and advisor to several U.S. Presidents, once remarked, “Something about inside information degrades a man’s reasoning powers.”  The stock symbols may change but human nature does not which Baruch knew too well.  Since the guy rose from humble beginnings to make over $600 million in his day then it is worth contemplating.

I found myself last nite thinking this quote over and over again in my head and wondering why more people don’t think for themselves when it comes to something as important as their own money.  No thought or motivation occurs to educate themselves on how to invest or even how to spot people who know to invest.  Instead, more people rely on the opinions of advisors who often have little real experience investing or trading themselves.  These are the same people who when questioned on what to do in a Bear Market repeat the same “stay for the long haul, invest for the long term, buy and hold” ad nauseum.

Then, investors pull their money out right at the bottom of the market and then put it in CD’s at the bank which don’t earn anything because their gun-shy of being burned in the market again.  Oh, but if the brother-in-law has a stock tip which is a sure thing then they’ll be everything on black.

So, why am I ranting?  Better yet, what insight did I get after reading Baruch’s old notes the other night?  I’ll answer both.

One, because I want you to be smarter than what the rest of the dumbasses do like I detailed above. 

Next, I want you to also stop looking for the Holy Grail.  I have people always question me over and over again looking for some special insight into finding all the high-flying winners and avoid the losers but it doesn’t happen.  Special knowledge does exist but its often overlooked for something more to add to it.

There is always the guy that asks “Ok, I do this and then this, then this and that’s how its done, right?”  Wrong.  I give you the framework, the guideline but the market is too dynamic to be cookie cut the same way for every trade.

More than a year ago, I began recommending CLB, Core Laboratories.  It was a pure value play.  I knew it was a solid investment and started buying it at around $110 a share and scaled in as it fell while finally averaging my price at $77.  It fell to as low as $55 before coming back up.  Sure, I got sick seeing it fall but my reasoning told me that it was a solid business with no competition and a leader in its field.  Today, its trading at around $150 a share.

I experienced all the same emotions that every other investor felt but I had the knowledge to choose the right investments as well as know that what I knew really was the extra edge that’s needed to find winning investments and trades.  That’s what I want for you as well.

Stop looking for cookie cutter formulas that masqerade a the Holy Grail in trading.  You are your Holy Grail.

If you learn a setup that works in the stock market, swing trading, trading stocks, picking value stocks, or whatever then realize that you already have special knowledge that gives you an edge to succeed but the biggest edge you have in the market is yourself. 

So, once you have the tools then its time to get in the game and quit being distracted by nonsense to start making some money.

With the stock market taking off to the upside there are alot of stocks that are moving up through their 52 week high to make good candidates for any type of momentum stock trading.  Also, there alot of opportunities for online option trading as well so its important to have a good grasp of how the delta factors into any type of option directional strategy.

The delta is one of the “Greeks” or mathematical algorithms that reveal the intrinsic factors of a option derivative.  The delta reveals how the value of a particular option moves in tandem with its underlying security. 

When considering buying a call option or put option, you want to be sure that you try to purchase an option that has a delta reading as close to 1 as possible.  The reason for this is that indicates for every $1 the underlying instrument gains or loses the concurrent option will also move at the same value.

 For example, if a stock moves up a dollar and the call option you are trading on that stock has a delta of 1 then the value of your call option should increase a $1 as well.  This translates into $100=100 shares of stock controlled by your call option X $1 increase in value.

High flying momentum stocks can quickly accelerate out of a pullback or up through their all-time trading high.  Stocks like BIDU or AAPL, at the time of this writing, can increase as much as 10 to 30 points in a day so if your trading call options on these stocks then knowing how to select the options with high delta readings can magnify your returns big time.

There are several other Greek formulas to become familiar with but, for now, in trading options in directional moves work on locating and selecting the highest delta reading options that you can and you’ll experience bigger returns which translates into alot more money!

Good Trading

BIDU, AAPL, and GOOG have been primarily responsible for taking the stock market higher despite the abyssmal job market loss.

Apple Computers launch of the new Apple I-Pad shows that innovation is alive and well as well producing cool products that consumers will pay upwards of $500 and more.  I’ve had a position in Apple for awhile now and, as in the past, it has been a phenomenal stock to trade in years past.

 BIDU, the Chinese internet company, is another company breaking ground in a market filled with young Chinese who hunger for information and new ways to connect with each other.  As more and more Chinese come online, its also a good time to look at companies in China that are helping building the infrastructure through a vast country offering skill and resources ast he Chinese come into the 21st century full force.  China is an amazing story to unfold for the world and stock traders can find amazing opportunties.  Keep China in mind in the years to come for new candidates for momentum trading and investing.

Google just keeps chugging along as the strategic thinkers in that company focus on their core principle of growing the most powerful search engine in the world.  Google keeps adding companies to its portfolio (media buying, YouTube.com, etc.) that add to its content base as well as profit streams to increase revenue.  In the 21st century, comglomerates are going to less influential versus companies that highly specialize in its industry.

With all this positive news, the job market in the U.S. continues to disappoint.  With unemployment stagnating at close to 10% its hard to feel good about a market recover that leaves job growth kicked to the curb.  Without new jobs taking hold and an government with an endless appetite for tax dollars it doesn’t take Nostradamus to read the tea leaves on what the future might hold if things don’t change.

It begs the question, “Who will buy all those new I-Pads with so many consumers out of work.”

Still, American resiliency is legendary and like an fan of the Rocky movies will tell you there is likely a comeback just around the corner.

Good Trading.

Hey Everyone,

Hope you all enjoyed the holidays.

Lots of stuff in the news but it looks like there may be a breakout in the major indexes in the mix.  The Chaikin indictor turned up signalling follow-through in a breakout as the market has been trading flat for the last several weeks.

CLB is making a run after a breakout and APPL looks like it wants to make a run but waiting for the Chaikin indicator to give us a confirmation of follow-through.

 Stay alert and always use stops!

 Best,

Good Trading,

Billy

Just a quick post to remind everyone that even though unemployment is at a heartbreaking 10.2% and the fact that the White House is full of it about overstating the job-creating effects of the stimulus that unemployment is a lagging indicator.  Now, I know that many who read this will want to beat me like Rodney King and feel justified in doing so because it sounds like I am dismissing the fact that millions of Americans are unemployed as well as hurting but I promise that is not the case.

I was not a fan of the stimulus (and am still not) and I hold to the belief that if we just let the market correct itself that we as a country would have the worst of this behind us already but the fact is that jobs are always the last to follow in a recovery.  The real hero of this recovery is still American innovation and tenacity coupled with a very resilient market overall.  As such, jobs will hopefully be around the corner soon provided there isn’t a Black Swan around the corner waiting to pounce.

The rally looks shaky to me.  Lots of distribution and volatility but, for now, the trend has resumed.  I am still cautious and would advise you to be so too as the leaders (GOOG, AAPL, BIDU, to name a few) are acting funny.  If you trade short-term then trade small and for God’s sake use stops.

This past Veteran’s Day stood out to me as a young woman I know made a rather insightful comment to me.  She had a friend killed in action 4 years ago and many more friends serving now (many who have received Purple Hearts or more) so this Veteran’s Day really was significant to her.  She told me that when she was a kid that she always thought of Veterans as “old people” but now they were her age or younger.

And then it hit me.

She was a 110% right and, in fact, that’s how I used to see it too……until I became a veteran myself during the Gulf War.

It left me wondering that how is with all the danger in the world does this country produce such magnificent men and women to volunteer for the military and literally put everything on the line in the name of freedom?  We are immensely blessed and indebted to these people.

Good Trading,

Billy

That is the question I find myself asking these days.

 Momentum is certainly to the upside as the uptrend is firmly intact but there are troubling aspects of the market that concern me.  Chiefly, distribution.

There are more distribution days adding up in the S&P and the rest of the stock market.  Yesterday, was a general distribution day that affected all segments of the market as well as the leadership.

As I have written here, when things have been too good for too long (such as the momentum run the market’s been on since bottoming in March) the Contrarian starts to come out in me and this is one of those times.

Distribution is spotted in the market, such as the S&P index which I weigh heavily in my analysis, when price action declines or stalls on higher than normal volume.  Distribution days that add up to around 5 or 6 distribution days within a 5 to 6 week period tell you that the market is in danger of declining.

Why?

Because price and volume have a unique relationship.  By that I mean that price/volume are like boyfriends/girlfriends or husband/wife.  The other’s moods tend to influence their partner.  If my wife is having a bad day it usually means that I am going to end up having a bad day and vice versa.

So, with price under distribution its only going to be a matter of time before the overal market begins to tank.  How bad?  Don’t know but I do know I will be looking for short-term shorting plays with options unless their is broad technical breakdown and then I will switch to an intermediate- to long-term Bear.

The Big Question is how do you play this in the meanwhile?  Tops in the market are notoriously hard to call so I would continue to play this to the upside but smaller and shorter price targets.  Look for breakouts as well as buy on the pullbacks when available.

As a broad oberservation, these are dark times economically and in the geopolitical sense.  I am not a pollyana nor am I a doomsayer but more of an realist with an upbeat attitude.  American power, at least in the short-term, is on the wane and stumbling under enormous debt.  While, as an American, it pains me to say this I am comforted that I believe it only to be temporary but frustrated that all of these bailouts are adding to our debt while not accomplishing very much.

The burst of momentum in the stock market was in large part due to the necessary and unfortunate layoff of so many people.  Business owners will often tell you that payroll is one of the biggest if not the biggest expenses they have.  Now, the current employees are working more to accomplish the same pace as they did with more staff while earnings are up to due to a savings in payroll.  I have long wondered when that cost savings benefit would run it’s course in the market and we may be seeing that reflected today with all the distribution taking place.

The good news is that as long as our politicians fight amongst themselves with all the issues at hand particularly healthcare, they will be less likely to meddle in the private sector.  Only good can come of this as private businesses emerge stronger as long as government meddling doesn’t cause another dip back into recession (let’s keep our fingers crossed).

As a side note, I have been reading more and more about the loss of American leadership in the global and economic arenas with some calling the US a declining power or a “Paper Tiger”.  At first, considering the present government in power, I think that would be a fair criticism at first blush.  But, the US government is not the American people and is usually comprised of Life’s underachievers and not indicative to the will and potential of the people they claim to represent.  Indeed, all the criticism from around the globe brings out the Contrarian in me again that serves to indicate that America will arise stronger than ever as she always does.

Our friends in Europe share a similar tale and, in some ways, have a bigger burden to carry but I am confident that each nation will emerge a vibrant and powerful country as they always were.  Many Americans accuse Europeans as being rather high on themselves and proud (isn’t that ironic?) but for those of us who have been to the many countries in Europe realize that Europeans have alot to be proud of.

Where lacking the miliatry dominance of the US it is apparent that Europe has tremendous “Soft Power” of a united EU that can dicate terms economically and diplomatically provided they have the will to do it.  The challenge for Europe in its current state is to coordinate and take into account all the competing interests that make up the European Union.  That is no small task to say the least.

Till next time, trade smart and use stops as these are interesting times.

 Good Trading,

Billy

BIDU is just broke through its upper trendline yesterday on a GAP on higher volume with excellent follow-through.

The market is in a confirmed up trend while still coming out of a short-term decline but now showing a bottom confirmed.

This could be the kick in the pants to go higher as leadership stocks start making new highs.

Great time to be a trader!

Good Trading,

Billy

Hey Stock Fans!

 Just a quick note to let you know that I have an article to be published in the September issue of Futures Magazine, a prominent publication for traders.  It will be on the news stands in September so keep an eye out.

 It will detail a concept I use to benefit from momentum, velocity, and compounding in your trading to give you a definable edge over the market.  The “Surfing the Momentum Wave” concept details the importance of integrating these principles with a sound approach and emphasizes the importance of using these principles together to get the most leverage for maximum effect.

The whole concept was borne out of the idea that I have seen alot of traders chase the illusive “perfect entry” and are frustrated that there timing isn’t better.  I think thats why alot of traders emphasize entries over any other component in their trading approach because it can be the most frustrating component and becomes an obsession for them.  I know it was for me for the first 10 years in this game.

Nothing costs me more money than getting really pissed off by missing an entry or having one go against me leaving me then to watch the damn stock take off only after I got stopped out.  Sure enough, I’d get so pissed that I wasn’t trading with my reasoning but with out-of-control emotion.  I was going to make that damned stock give me my money back plus some more.  I was going to show it there was only “one bear that shit in these woods” and that was me!

Now, if you’ve ever chased a trade with that type of mindset then you know the market will let you know who the real bear is.

So, one day, I was sitting on my porch frustrated at my poor ability to time my entries and then had a radical thought.  If I couldn’t get the right entry maybe the best thing was to let the entry come to me.

This formed the basis for the Surfing the Wave Concept.

Enjoy the article when it comes out and I’ll let you know when the September issue hits the stands!

If you want to read about it online you can check it out by clicking here.

Good Trading,

Billy W.

The markets have pulled back to their 200-day SMA and have been holding ground without giving up which is a bullish sign.

The most bullish index in the Nasdaq which had pulled back to its upward trendline for support and though RIMM gave up $4 the other day it didn’t keep the NAZ from posting a 20 point gain.

GOOG looks like its building another base and I’m seeing AAPL has pulled back to its small 40 Fib from the last leg of it’s run.

Stay tuned because I think its going to be an interesting week!

 Good Trading,

Billy W.