Like Reebok? Here’s How To Trade It
“Ohhh beeehave”….Meaning
Iraq, not Mr. Powers, or the ETFs, as
market participants have their eyes and ears tuned into radio Baghdad, and all
things considered, the ETFs’ action was very constructive. The markets gapped
lower off the opening bell, mainly due to investor concern over a weaker-than-expected employment report.
Friday’s opening set the stage for an amazing prat
fall, the kind Chevy Chase used to do on SNL. Chevy used to perform some classic
lunges on stage, and then proceed to get up and walk away unscathed. The
similarities are uncanny. Today’s market prat fall was the same type of
theatrical event, as the markets recovered promptly from their opening
freefalls, and by the closing act all three (SPYs, DIAs, and QQQs) finished
in the plus column. It wasn’t a perfect performance as there were many twists
and turns during the show, and attendance (volume) was light, but maybe they’ll
perfect it for the next performance.
In their persistence to hurt the majority (those
without a trading plan in place), the ETFs managed to take out my channel lines
that I constructed so carefully on my charts. I hate when they do that, but what
would really hurt (like the majority) is if I had blindly bought off of those
levels without confirmation. When we last left off I was
“anticipating” my signals for entry. Thankfully, because of my trading
rules (strategy), confirmation was still only in my mind, and not on my trading
sheets.
As I said, the indices destroyed my channel lines, but I’m ready to accept
this over a forced shelling out from the ol’ wallet because I couldn’t follow my
rules. This discipline also afforded me the opportunity to put a little back on
the table. Friday’s ensuing price and volume patterns in the ETFs and
volatility indices were the first signs that I saw which gave me the confidence
to finally ante up. Place your bets, ladies and gentlemen.
The
volatility indices
(
$VXN |
Quote |
Chart |
News |
PowerRating) and
(
$VIX |
Quote |
Chart |
News |
PowerRating) were both down today, producing
further confirmation in the form of multiple CVR Buy Signals. The
VXN was particularly telling, as it could not make a higher high on the daily
chart, in the midst of this morning’s “prat fall” by the ETFs. This
index had already notched 10 straight sessions of higher highs. “Hello, Mr.
Fear and Loathing….mind if I show you the way out?” Have a good
weekend.
Points of Significance:
| Volatility Index |
Close | Net Change |
Signals/Direction | % Above/Below 10 Day Moving Average |
Significance |
| VIX | 32.68 | Down -1.60 |
CVR1,2 Buy |
7% Above |
Not at Extreme |
| VXN | 52.28 | Down -1.88 | CVR2,3 Buy |
4.72% Above | Not at Extreme |
Abnormal Options Volume — This list
includes both percentage movers that are normally associated with an increase in
options activity, as well as stocks that have unusually high activity,
reflecting increased speculation of a potential price move.
| Name | Symbol | Net % Change |
Volume | Avg. Volume |
| Semiconductor HOLDR |
SMH |
0.0% |
47730 | 23011 |
| Starbucks. | SBUX |
+3% |
17350 | 2329 |
Stocks With Spikes in Implied
Volatility — Stocks with Increases and Decreases in implied
volatility compared to previous day. Candidates are then screened qualitatively.
These lists represent those issues that carry a blend of liquidity and/or
technical setups that might deserve further notice.
Spike Up
| Name | Symbol | IV | Previous IV |
High IV |
Low IV |
| *Reebok | RBK |
37.1 | 34.0 | 57.6 |
32.7 |
| F5 Networks |
FFIV | 84.7 | 72.9 | 127.2 | 77.2 |
*Reebok is
a great example of why it pays to look at options rather than stock when
considering to establish a position. “IF” as a trader you happened to
like this price pattern and decided to go long, (anticipating a breakout), the
Dec 27.5 Calls are priced .10 to .35 over parity, depending on the exchange.
Most likely it would trade .30 cents over (1% roughly), enabling a
“synthetic long” stock position for 2 weeks. The prudent man would
surely like this kind of protection (1/10 the capital at stake) in today’s
market climate. This is not a recommendation to buy Reebok options, rather it is
a wakeup call to look before you trade, and give
yourself the best opportunities available.
Spike Down
| Name | Symbol | IV | Previous IV |
High IV |
Low IV |
| Qualcomm | QCOM |
51.4 | 56.3 | 82.6 |
52.0 |
| Merrill Lynch |
MER |
41.2 | 45.6 | 62.7 | 32.6 |
Please use stops on every trade!