Order Of Magnitude

A longer term pattern that may turn into a head and shoulders reversal on the AUD/USD currency swap.

Head of 0.940 to a neckline of 0.895 is about a 450 pips measure giving a target of 0.850  A stop could be placed at 0.9320 where a breach of the shoulders would invalidate the pattern, and honestly we'd feel a whole lot better getting out at 0.920 where there was more recent highs made.  Now on a closer timescale:

If price can get below and hold below 0.8840 then we'll enter a position so that a rise to 0.92 would at most deplete 10% of risk able capital.  Every standard lot of $100k you move, a pip will cost $10, so a move to our stops would cost $3600.  Remember to do your own research.

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Las Vegas Sands Near Term

Las Vegas Sands has been showing a pattern of higher highs and lows since early March, and a break above $8 would leave very little overhead resistance.

Las Vegas Sands Long Term

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Equivolume: SIRI

Sirius showed up on two bullish weekly scans this week.  Appears that it has been enjoying the ride up all equities have been experiencing.  Sirius rose to the top of our scans because on a percentage basis,  it is up by orders of magnitude from it's 0.05 Feb. low.  A very small speculative position is in our future, with a stop out at 0.30.

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Only four equities showed up on our bearish scanner, and two of the equities were in the field of Biotechnology. Amgen Inc. and Gilead Sciences Inc. have both exhibited price action pointing towards waning interest.

They produce the following charts:

Equivolume: AMGN

Equivolume: GILD

Support Resistance: AMGN

Support Resistance: GILD

GILD is a more favorable play for us, as it appears to have more solid support a little bit under the $44 level.  If a breach below these levels can be held, then look for a fall down to close to the $42 level.  We are going to limit loses with a stop to fill the short if the stock moves above recent highs.

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Currently, everything showing up on our mid-term scanners is showing the Dow, S&P and NASDAQ are headed downward over the medium and long term.

Being long helps you if it is ultra short real-estate, or the dow or S&P indicies.

If you are looking for an investment that doesn't involve intricate investment mechanics, we are looking at Freeport-McMoRan Copper and Gold, as well as the recently slaughtered Pothash Corporation of Saskatchewan.  Nibbling at these companies as long as you can afford it, may prove to be profitable on the long term.

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We feel that Interactive Brokers are hards down the best brokerage you can use as a personal investor in Canada.  Their a la carte approach to trading, news and data is appealing to those who count their dollars and cents.  Recently, however, because our entry targets have not been reached, we have been sitting on a lot of cash and not entering a lot of positions.  For those using IB in Canada, you can get your data and news covered, if you generate their cost in commissions.  Since we love our data fees, in January we came up almost $200 short, and had to pay out of pocket for data and news.  Not something that happens very often, and not something that we would like to repeat

As a result, we take a small portion of our holdings at IB, and put them to work in the currency markets.  We have never been successful at long term trading the currency markets, but short term, we can usually turn a small profit, or break even.  This is great, as a few hours of trading currency swaps can generate enough commission charges to pay our whole month of services.

Since the Fed is going to do something to the markets tomorrow, and the majority of participants are likely to get hurt, we decided to spend tonight trying to pull in a small profit on the Forex market.  The usual setup, is to drill down from long term to short term and determine price targets and ranges.  Most nights, after the preparation is done, the remainder of the evening is waiting for price to bounce off, or cross any of the targets that have been set.  Tonight was different, and instead of having to spend the evening waiting for something to happen, a lot of price targets were hit immediately.  We thought we'd share what we usually stare at while we are trading currency, here's a shot:

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Bullish

• Micron Technology.  Same plan as last week.
• Valero Energy.  Same plan as last week.

Skeptical

• Wyeth.  This drug manufacturer saw volume fly through the roof as everyone started telling the story of Pfizer wanting to pick the company up at a little over $50 a share.  Already the price has made a substantial move to the upside, and the deal currently is not concrete.  Front month options went crazy, and normally on this type of news we'd try to get some 2010 LEAPS at around $40 - $45, but our calculators all show uphill battles with too much risk.  Volatility is very high, so buying options right now is a bit crazy, and selling put contracts in this market environment may be an open invitation to pain.  If you eat risk for breakfast, going short a straddle at $45 strike expiring in Jan 2010 will net you $10.90 per share, and you'll be profitable if the price stays between $34.10 and $55.90.

Bearish

The financials, and related companies.  State Street got murdered last week, Capital One and American Express are starting to feel pain as consumers stop spending.  Most of our financial plays have netted copious amounts of money for us already this year.  Looking forward, one can argue that the bad stuff is already priced in, and that traders are actually overshooting to the downside.  We believe, however, that there is still a good scandal or two left out there.

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Tomorrow is bound to be an exciting day in US markets, as the 44th President gets sworn into office. Up in our northern land, the Toronto Stock exchange fell almost 79 points, which doesn't even add up to a whole percentage move. We ran our equities through the scanner, and found selection on both sides of the opinion spectrum.

Bullish

• Micron Technology -  This stock has been showing signs of higher highs and higher lows.  Strength in volume can be seen in the surges late in December and at the beginning of the year.  If it can break past the last high at $3.60, we're going to set our stops below the most recent lows around the $2.80 level.  At $4, we reset our stops to come out even on the entire transaction, and keep the upside target of $4.50

• Valero Energy - Doesn't have a whole lot of previous support or resistance around $26-27 dollars.  If the bulls can push the price over the more recent highs, they could get to $30.

Bearish

We're watching wide targets on the financials.  Citigroup, Bank of America, Wells Fargo and JP Morgan all have incredibly high momentum scores, and all are at or already through recent levels of support/resistance.  If you can't sit in front of your trading platform all day, you can just play with the spider.

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The third week of the month is usually crazy, when short term pressures overwhelm logic and reason.  Our weekly scan produced an interesting gem: ProLogis.  Being as options expire this week, we found the bid/ask spread for the in-the-money $12.50 calls to be a bit out of the ordinary.  Examining the Equivolume:

It would appear that this REIT has been going for a bit of a run and big volume appears on the right kind of days.

Now for the 50-50.  We have an upward moving stock, that is due for a pullback, and in 5 trading days the options expire.  PLD has a 15 trading session average true range of $1.75, which is pretty large for a stock holding the Friday's end of day price of: $14.12. Yes, 12% of current trading price.

Now, if a covered call position could be entered under these conditions, you would lay out $1412 for 100 PLD shares, and then sell a single covered call at $12.50 strike for $2.50 a share, or $250 total.  If the price falls below the strike in the next 5 days, your cost basis is $10/share to offload, so we'll have a still profitable stop at $11.75 to exit the position.  If the equity remains above $12.50 until Friday, you'll get called away, along with all the fees that produces.  The only thing you get to take home is the premium.

So let's say your broker lets has a $10/transaction fee (hopefully you can do better).  Your initial outlay is $1412 (equity) + $10 (commision) - $250 (option premium) + $10 (another commision) = $1182 (total expenses).  You get called away, so you sell your stock for $1250 (minus $10 again, that broker!), and take home $1240.  That mean $68 dollars in your pocket, after fees, on an outlay of cash equal to $1182 (you'll lose way more in buying power) in 5 days, if the shares stay above $12.50. If they go under, get out, and keep whatever premium erosion you have accumulated at that point. So on the upside you can get 5.7% on your money in 5 days, and there is safety net down to $10 before you start to lose money.

If your greedy, or want to take on more risk.  The February call options have high volatility priced in.  Have a look at our premium chart:

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Trading on the market at this time, causes a great deal more pain than usual.  The VIX is still above 50, and it doesn't look like it will be coming down any time soon.  Scandals are popping up left and right, but on the positive side, we finally have some bullish finds in our equity screener that aren't just double leveraged short funds.  Here's what we found on both sides of the fight:

Bullish

• Ford - This one is dangerous.  The motor companies are all begging the government for money, and that external element is what brought this one onto the screener.  This trade just drips risk.  If the bailout happens, you can be sure that there will be a substantial jump for all three of the american based auto makers.  We're going to be picking up $3 Jan calls whenever we can get them sub $0.40.  The amount wagered is going to be small, and we'll accept their value heading right to zero.
• Delta Airlines -  Air carriers have been seeing their margins swell with the price of fuel dropping.  There appears to be a lot of overhead resistance between $11 and $12, but there appears to be a few buyers around $7.  Right now it appears to be in the middle of an upward channel, and we're going to try and catch an upward swing. We're going to keep an eye on it and buy in equal dollar values at $8, $7.50 and $7 with our stop at $6.  Target is $11.
• Bristol-Myers - Some dealings where the drug manufacturer picked up some new recipes, have pushed the companies price into an area congested with support and resistance.  Our stops were calculated at $20 but can't see this company moving above $24 in this market.  Since we can't get the risk-to-reward we want, we are going to sit this one out.
• Barrick Gold Corp - This company is obviously tied to the price of the commodity.  We feel that that with the US government printing money faster than it ever has, fundamentally the price of gold has a lot of upside.  With this Canadian company, we are placing stops at $26 and holding onto a target of $37.  We'll be entering this one on strength, and won't be buying in on a down day.

Bearish

• Activision Blizzard -  This equity has been trending downward since August, carving out lower highs and lower lows.  It has come up against solid support at $9, and if it breaks below, we're going short a parcel or two.  We'll have protective stops at $10 and start moving out of the position at $8 with a final downside target of $6.50
• Schlumberger Limited- The equivolume chart shows the downward trend the service company has had as the price of oil has dropped.  We are going to attempt to catch some swings, picking up short positions at $45, $47.50 and $50 with a stop a smidgen above $55.  Downward we'll fill half the short position upon returning to $40 where we will re-evaluate the position.
• Johnson & Johnson - the volatility on J&J is around 4.5% and the trend is clearly lower.  If price holds below $55 the company's next support levels are $52ish and then nothing until around $44.  Of course there will be retracements on the way down, and we understand that this market's volatility will most likely stop us out.  We'll look to enter if the price holds below $55, exiting half at $52.  Protective stop will be at $58, and we will be aiming for a $45 downward target.  We will also put on a time stop of 30 days, as J&J is a good long term company, and holding onto a short position against it is not safe.

We're looking to get into about 70/30 to 60/40 bearish to bullish as most likely this market is going to whipsaw around as holiday reports and government meddling play with prices.  Remember that these are just our plans for the upcoming week, as always do your due diligence on any trades you are planning to make.

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