Price Headley's Instablog

2013 Preakness Handicapping, Analysis & Picks From BigTrends.com

Fri, 17 May 2013 10:22:56 -0400

This Saturday is the Preakness at the Pimlico race track in Maryland, the 2nd leg of Horse Racing's Triple Crown. Orb took home the Kentucky Derby on a sloppy track. A big longshot, Golden Soul at 32-1, came in 2nd in the Derby, which messed up our projections a bit … as did the performance uncertainty of young horses on that muddy wet day - but still Price did have 2 of the Top 4 finishers, while Moby had 3 of the Top 4.

Currently, the weather projection for Baltimore on Saturday at race time is around a 50% chance of rain showers - hopefully it shouldn't be a major impact.

Here are our Preakness picks:

Price Headley, President & Founder of BigTrends.com and long association with the horse business:

Orb (Post Position 1) could well be the first Triple Crown winner in 35 years here especially in a fairly non-descript batch of 3 year olds this season. However, at even money, I think you have to wonder if perhaps he may not like the tighter turns at Pimlico and would prefer the extra distance at the Belmont in 3 more weeks. So if there's a race to play against him, this is it But I'll still include him in exotic boxes, and hope that the longer odds horses manage to get up for a better pay day.

MyLute (PP 5: 5-to-1) has shown some powerful speed ratings in his past 2 races and while 5th in the Derby was only beaten less than 4 total lengths in a sloppy track. On a fast surface at Pimlico he could prosper, especially under the guiding hands of jockey Rosie Napravnik. Rosie knows Pimlico well, having been a leading rider there. Should be coming on strong at the wire.

Will Take Charge (PP 7: 12-1) was way wide and had to check meaning he lost a lot of ground in the Derby. I think under jockey Mike Smith, he can get a piece of the exotics. A wildcard, but probably the best value bet in the race.

Departing (PP 4: 6-1) is a winner in 4 of his 5 starts, and should also like the fast track. Has a good closing kick so expect him to get up for a piece of the action as well.

Bets to consider:

$20 win on #5
$10 win on #7
$4 Exacta Box on 1,5,7
$2 Trifecta Box on 1,4,5,7

Moby Waller, Portfolio Manager at BigTrends.com and former CBOE Market Maker:

Orb seemed one of the 2 or 3 best horses going into the Derby, and he basically proved it convincingly in the Derby. The Preakness is the shortest race of the Triple Crown and normally is won by the best horses that can get to the front or stay near/a bit off the pace - the Derby and upcoming Belmont can provide more surprises and often better wagering opportunities than the Preakness.

We've seen many horses win the first 2 legs of the Triple Crown in the last 35 years since Affirmed was the last winner in 1978, and I think Orb will continue that trend in the Preakness. Also note that at least 1 "fresh" horse (one who didn't run in the Derby) has finished in the Top 3 in the Preakness consistently in recent years.

The battle is for 2nd, 3rd and 4th in my view - and as a likely even-money (or less) favorite, if Orb does come out on top the parimutual payouts won't be huge (especially when compared to the Derby). The likeliest longshot that can hit the board is Govenor Charlie in my analysis.

Here is my Top 4:

1st Orb (Post Position 1, 1-1 Morning Line Odds)
2nd Departing (PP 4, 6-1)
3rd Govenor Charlie (PP 8, 12-1)
4th MyLute (PP 5, 5-1)

Theoretical Bets:

$2 Exacta Box (1,4,5,8) = $24
$1 Trifecta Box (1,4,5,8) = $24
$10 Win/Place/Show on #8 = $30

Best of luck and enjoy the weekend!

BigTrends.com
1-800-244-8736

2013 Kentucky Derby Handicapping Analysis Picks From BigTrends.com

Fri, 03 May 2013 01:02:32 -0400

It's time for our annual KY Derby selections and commentary. Last year we were pretty dead on, hitting many horses that finished in-the-money in the Triple Crown Races (especially Price's picks).

First, we'll start off with an updated table of past Derby winners, their speed ratings and final tune-up race. Our analysis of past data indicates that horses with strong 100+ speed ratings in prep races have a better probability of winning the big race.

Derby Winner	BRIS Speed Rating	Last race (# weeks before Derby)
I'LL HAVE ANOTHER	95, 102	Santa Anita Derby (4 weeks)
ANIMAL KINGDOM	100, 89	Turfway Spiral (5 weeks, poly)
SUPER SAVER	92, 94	Arkansas Derby (3 weeks)
MINE THAT BIRD	96, 98	Sunland Derby (5 weeks)
BIG BROWN	106, 104	Florida Derby (5 weeks)
STREET SENSE	98, 101	Bluegrass Stakes (3 weeks, poly)
BARBARO	104, 104, 97, 97	Florida Derby (5 weeks)
GIACOMO	100, 96, 98, 96	Santa Anita Derby (4 weeks)
SMARTY JONES	105, 109, 101, 103	Arkansas Derby (3 weeks)
FUNNY CIDE	111, 103, 97	Wood Memorial (3 weeks)
WAR EMBLEM	109, 105, 88, 94	Illinois Derby (4 weeks)
MONARCHOS	108, 108, 106, 98	Wood Memorial (3 weeks)
FUSAICHI PEGASUS	110, 103, 100, 98	Wood Memorial (3 weeks)
CHARISMATIC	104, 94, 94, 94	Lexington (2 weeks)
REAL QUIET	107, 103, 73	Santa Anita Derby (4 weeks)
SILVER CHARM	102, 98, 105	Santa Anita Derby (4 weeks)
GRINDSTONE	101, 102, 93	Arkansas Derby (3 weeks)
THUNDER GULCH	98, 103, 106	Blue Grass (3 weeks)
GO FOR GIN	104, 105, 99, 100	Wood Memorial (3 weeks)
SEA HERO	96, 85, 77	Blue Grass (3 weeks)
LIL E. TEE	102, 96, 107, 100	Arkansas Derby (2 weeks)
STRIKE THE GOLD	109, 100, 99, 87	Blue Grass (3 weeks)
UNBRIDLED	108, 101, 104, 98	Blue Grass (3 weeks)

Price Headley, CEO of BigTrends.com:

The big wild card in the 2013 Run for the Roses will be the weather, as forecasts show an 80% chance of rain on Saturday in Louisville.
If it is muddy on the track I like to put a little back up money on the long shots of 33-1 or higher, which can save the day if the wet track muddies the current form.

My favorite in this year's race is Verrazano (Post Position 14, 4-1 odds). He's the second choice behind new darling Orb, but I like Verrazano's consistency, as he is the only horse with not just 2 but 3 straight speed ratings over 100. So I will key most of my bets around him.

The Derby usually favors closers and horses that want the extra ground. On that note here's my top challengers to Verrazano:

Normandy Invasion (PP 5, 12-1): Closing fast on Verrazano at the end of the Wood Memorial, he has also posted impressive workouts lately. The profile reminds me of the similar setup when I picked Funny Cide to win the Derby. Must use this one for exotics and saver win bets.

Revolutionary (PP 3. 10-1): Responded gamely to come back to win the Louisiana Derby. I like his heart.

Vyjack (PP 20, 15-1): It's hard to look past an undefeated colt with good speed. Breaking from the far outside is not harmful in a large field, the question is if he has staying power.

So my theoretical bets on a sample $100 model portfolio look like this:

$20 Win on 14
$10 Win on 5
$5 Exacta box 5,14
$5 Exacta box 14,20
$5 Exacta box 3,14
$1 Trifecta 14 with 5 with ALL
$1 Trifecta 5 with 14 with ALL

Moby Waller, Portfolio Manager & Analyst:

The 3 year old horses in this race haven't gone such a long distance before with such a large field. With the expected rain, it will be the tough horses with heart that will emerge - those that can run off the pace and/or closers. Therefore, I threw out what looks like the speed horses that are likely to fade late or get swallowed up by the pack - one of those wire-to-wire horses may end up proving it can run off the pace, but I'd rather select ones that have already proven they can.

Here's my projected Top 4 finishers:

Revolutionary (PP 3, 10-1)
Java's War (PP 19, 15-1)
Orb (PP 16, 7-2)
Normandy Invasion (PP 5, 12-1)

Live Longshots that can also hit the board (meaning top 4):

Vyjack (PP 20, 15-1)
Itsmyluckyday (PP 12, 15-1)

I think any of these 4 can win it, so I would be looking to do some Exacta and Trifecta boxes:

Theoretical bets:

$2 Exacta Box (3, 19, 16, 5) = $24
$1 Trifecta Box (3, 19, 16, 5) = $24
$0.10 Superfecta Box (3, 19, 16, 5, 20, 12) = $36
$0.10 Superfecta Box (16, 5, 15, 12, 14, 8) = $36

Good luck!
Price Headley,
BigTrends.com
1-800-244-8736

(click to enlarge)

The Biggest Pitfalls Rookie Option Traders Make

Thu, 06 Jan 2011 16:28:19 -0500

When an investor realizes the great leverage power of options and begins to dabble in them in their brokerage account or IRA, I've seen them make the same mistakes time and again.

I've been trading and analyzing options since the early-1990s and at BigTrends.com we've been educating and providing specific trade recommendations since 1999. So we've seen it all, and have learned the most common mistakes traders make and the best ways to avoid those and get an "edge" over the markets.

1st — Those who are new to options are immediately attracted to the very cheap "lottery ticket" type Out-of-The-Money (OTM) options.

By this we mean the options that are priced at 0.25 ($25) or below, for example. These are the OTM Calls and Puts that can potentially give very big gains, but have a low probability of success. These options tend to have a very low Delta (which is an Option Greek that can be interpreted as a probability of the option expiring In-The-Money (ITM)).

Additionally these options have no "intrinsic value" and are 100% "time premium" — so you will lose value on the them due to time decay as the clock ticks towards expiration. And you may also lose value due to decay in implied volatility (Vega option greek).

So we tend to prefer ITM options. These generally have a lesser amount of time premium & implied volatility built into them and have a higher Delta — so basically you normally get more "bang for the buck" with an In-The-Money option. Additionally your overall volatility should be less when trading these versus very cheap OTM options.

2nd — Traders enter positions without a gameplan, or specific targets and rules for taking profits and limiting losses.

Again, we've seen this time and again and all traders have done this at one time or another in their trading accounts. Letting a winning trade turn into a loser, or letting a small moderate loser become a big loser.

This comes down to discipline and having a organized set of rules. For example, if a trade doubles (goes up 100%), you may have a rule that you exit half of your position immediately, then you basically have a "free trade" on the remainder of your contracts.

You also could have specific targets for the underlying stock/ETF/security and when those are reached you exit part or all of your position, regardless of where the option price is. Another valuable strategy is to have a trailing stop-loss for winning positions, so that you can stay in the winners and let them run, but if it pulls back by a certain amount you still lock in your profits. Or you can have set rules such as taking partial profits at 25%, 50%, etc.

But the bottom line is that without having systems, rules, indicators, and discipline you are somewhat trading "blind".

And for the losing trades … we've all had them. First, I've learned through experience that the best trades tend to go your way quickly. If a "perfect" setup is just sitting there and not going your direction, it may be time to cut bait and move on to the next opportunity.

Next to the problem of "hope and wait" on losing trades (also known as "Hopeium"), this is how a small 15% or 20% loser can turn into a 50%, 75% or even 100% losing trade. And those can put a big damper on your portfolio and create a trading hole that you then have to dig out of.

So limit your losses to small amounts. The goal in general is to have winning trades be 2x to 3x the size of losing trades, depending on the win/loss ratio of your strategy. Have rules and discipline in place on your option trades. For example, have a specific stop-loss, or a technical indicator that when violated gives an immediate exit on the position.

In general, having a clear trading plan with systems, rules, indicators and goals will provide more confident and successful trading results over the long run.

Trade Well,
Price Headley

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Fed Driven Rally Continues the Overextended Market - Weekly Market Outlook

Mon, 08 Nov 2010 09:28:34 -0500

Apparently the secret formula for bullishness is quantitative easing. Never mind the fact that the Fed's decision to (further) lower interest rates doesn't directly create jobs, nor does it prompt a bank to suddenly determine a potential borrower is more credit-worthy. The market just wanted to see evidence that the Fed was ahead of the curve, and Bernanke delivered. Boom - stocks gained 3.6% last week, most of it on Thursday.

But is there any longevity to the uptrend? Bluntly, you'd be hard-pressed to even call it a trend. It was more of a one-hit-wonder that just happened to drive the market further into an overbought situation. But hey, the market's rallied right through worse.

We'll look at the indices and odds below, right after a run-down of last week's and this week's economic data.

Economic Calendar

There's too much data from last week to look at all of it; we'll just hit the highlights, starting with personal income and personal spending. The former was down 0.1% for September, while the latter was up 0.2%. Correspondingly, consumer credit levels were up by $2.1 billion.... the first increase in many, many months. Back to the norm of "spend more than you make."

On the jobs front, the bigger trend showed marked improvement, even if the near-term trend slumped a bit over the last couple of weeks.

The ADP Employment Change of net +43K jobs coincided with the 151K increase in nonfarm payrolls for October...both well above expectations, and both the strongest showing in quite some time. Unemployment held steady at 9.6%.

More recently, the previous week's initial unemployment claims popped to 457K (which is in the middle of the recent range of readings), while ongoing claims from two weeks ago drifted a hair lower to 4.34 million. Despite the modest panic, the new claims level isn't all that remarkable.

The rest is cited on the table below.

Economic Calendar

As for the coming week, it should be much less hectic. Only a handful of numbers are in the cue, and none of them are earth-shattering. We won't even bother with a preview; just look at the lower half of the above calendar.

S&P 500

What is there to say about the S&P 500 (SPY) (SPX) that would mean much in the way of an outlook? Last week was all about the Federal Reserve inducing a rally. Fundamentals didn't matter. Earnings didn't matter. Technical momentum - or lack thereof - didn't matter. The market pretty much demanded Bernanke do something, and he obliged. The question from here is, how much mileage can stocks get out of what should largely be a pointless action (QE) from the Fed?

Unfortunately, the answer is "not much" if previous emotionally-driven rallies are any clue. At some point the market has to justify its value.

In any case, the gravy train may have already stopped, with the S&P 500 back at the upper Bollinger band (purple) that's been such a problem going as far back as early 2009.

On the other hand, we need to at least acknowledge that the upper band line isn't necessarily a bearish reversal point - it may only be the area where the incredible rally slows down.... like we saw in October.

Simultaneously, the VIX (VXX) (VXZ) stopped its downward move at its lower Bollinger band, suggesting confidence in the rally at this point is low.

So a pullback is in the cards? We're due a pullback, but we were due a pullback in late October and the S&P 500 continued to rally anyway. [As John Maynard Keynes said, "The market can stay irrational longer than you can stay solvent."] So, as for how to proceed from here...

The market is overextended now no matter what; look for a pullback to some degree early this week. How far? That depends.

Until the 20-day moving average line (blue) at 1185 - and rising - breaks down as support, there's no valid reason to assume the implosion is nigh. Of course, after the 16% runup since September's low, any implosion could be a hefty one when and if it gets rolling.

On the flipside, don't rule out more upside. If a small retreat can cool the rally off enough to bleed off some of this overbought pressure (a dip to the 20-day line would do the trick), the bulls could regroup and restart the uptrend pretty nicely.

The last thing the bulls want to see happen here, however, is for the market to pop even just moderately above the upper Bollinger band. Such a move could be interpreted as a blowoff top.... a last hurrah, of sorts. Be leery of such a move,

In the meantime, the market's in limbo. You may want to stay on the sidelines until we get a little more clarity.

S&P 500

Sector Performance

After a multi-week slump, financial stocks finally took off and led last week's gains. Given how badly they'd underperformed since mid-September, any marketwide bullish tide should continue to prove very fruitful for the group.

On the losing end of the spectrum were health care stocks, though they still ended the week with a small gain.

Sector Rank

Here's a look at how each sector has been accelerating or decelerating since the late-April top. The remaining upside for the financial sector is clear here. And, it's also clear with this graphic that telecom remains stretched thin.

Sector Comparison

Industry Performance

No major surprises here, considering the leading and lagging sectors. Banks blazed the trail for financials (XLF), and biotech pulled health care stocks lower.

That said, some of the best and worst from last week are newcomers... and made big reversals that may be the beginning of trade-worthy trends. Take the 13% pop from the construction materials group for instance, which is still one of the biggest losers from any prior timeframe. Conversely, broadcasting stocks finally got knocked off their bullish perch, yet still have plenty of room to slide lower.

Industry Rank

Earnings Calendar

You'll see a noticeable change in the length of the earnings calendars from this point on, indicating we're now past the heart of earnings season. There are still some game-changers in the lineup though.

As for how the market fared so far (with 80% of companies reporting), about 67% of companies topped their EPS estimates, and 61% beat their revenue estimates. That's pretty much the norm.

The most surprises came from the consumer discretionary and technology sectors. A full 82% of consumer discretionary stocks beat estimates, while more than 91% of technology companies topped last year's earnings.

Technology stocks (QQQQ) also saw the biggest revenue increases; 96% of these companies beat last year's comparable revenue levels. The financials generated the most beats of revenue estimates, with 87% of its stocks doing more sales than expected.

Here's what's in store for this week.

Earnings Calendar

Trade Well,
Price Headley

Disclosure: No positions.

Keep an Eye on the Euro

Fri, 02 Jul 2010 12:50:12 -0400

One of the key indicators I'm watching in this market is the Euro (in addition to bonds TLT, discussed here). I prefer to use the CurrencyShares Euro Trust (FXE) because it it is very liquid in both the underlying and its options.

The key here is that many hedge funds and institutions have "short Euro" plays on. When/if these begin to unwind or get reversed to the upside, we will see Euro buying and selling in assets such as Gold.

Recently the FXE has shown signs of life, see the chart below.

FXE Daily Chart

You can see the downtrend in place on the Daily chart since December 2009. However, we see some indications that the bounce in the Euro may have some legs. Percent R has crossed into clear bullish territory above 80 for the first time in this downtrend. Also, we are now 2 trading days above the 40 day exponential moving average (purple line). Previous rally attempts failed at this trendline and reversed lower, with a 1 day blip above in April. Closing above that ma today should be considered a confirmation, and the 40 day and 20 day exp moving averages should now act as support on pullbacks. They lie around 124 and 123 currently.

Disclosure: No positions.

Nasdaq Depth and Bollinger Bands is a Concern for the Rally

Tue, 30 Mar 2010 11:43:30 -0400

Weekly Market Outlook (Technical Analysis, Economic Calendar, Sector Performance):

We talked about this a week ago, and the idea gained some traction over the past five trading days. What’s that? Resistance at the upper 50-day Bollinger band (2 SDs). Though the NASDAQ gained 0.87% last week, it’s clear the rally is really struggling now.

In the meantime, the resistance line that stopped the December rally – and sent the composite from 2300 to 2125 by early February – is lined up with that upper Bollinger band to work on sending the market lower again. All of that shows up on the chart below.

While anything can and will happen, this is the point where the market’s odd start to work against it. Yes, there’s the possibility the NASDAQ could overcome the odds and hurdle both ceilings. And "the trend is your friend" -- we've definitely made more bullish trades than bearish recently in our Option Trading. But…

Nasdaq Composite Daily Chart

Market Depth:

Though the market is up for the last two weeks, the engine’s running on fumes. Why do we say that? Though stock values are higher, the amount of buying has fallen off. Simultaneously, the degree of selling volume has grown over the last two weeks. The analysis is simply referred to as ‘depth’.

On the chart of the NASDAQ Composite below, we’ve plotted the NASDAQ’s ‘up’ volume and the NASDAQ’s ‘down’ volume on a daily basis. Those are the pale, thin lines on the chart…. light green is bullish, and pale red (pink) is bearish.

Since the daily data is too erratic to use, we’ve also plotted moving average lines on top of those tow pieces of data. They are the bolder, thick lines, intended to show more of the actual trend.

Now, here’s the clue…two weeks ago, daily bullish volume for the NASDAQ exchange was averaging 1.4 billion shares, while the average bearish volume per day was scoring around 750 million. As of Friday, bullish volume came in at an average of 1.14 billion, and the daily bearish volume average was 1.12 billion shares. Yes, that’s still enough to be net bullish, but that underlying trend is one that should alarm the bulls – it’s on the verge of tipping bearishly (as is the market).

We’ll continue to monitor this data and its day to day changes, though we’ll also add these undertow clues are right more often than not…. and they’re early, as we saw in January.

Nasdaq Composite Up and Down Volume Chart

Economic Calendar:

Although a light week in terms of the quantity of economic news to work through, the weight carried by the data we did get was more than modest.

The biggest news was on the real estate front. Existing home sales held steady in February, around 5 million, while new home sales hit another multi-year low – again – at 308,000. Both were basically in line with estimates.

Although the disappointing new home sales number is far from encouraging, considering that more than 90% of the housing market’s sales come from existing home sales, the flattened existing home sales figure suggests we’re seeing the market basically hold up. Not so. Don’t forget, the existing home sales level has been falling too, peaking at 6.8 million in November. Factoring in that home priced edged lower again as well; it’s hard to say the real estate market is improving by any stretch of the imagination.

That’s not to say the stock market can’t fully recover without an accompanying rebound in the real estate market, but it sure doesn’t help.

New and ongoing unemployment claims also fell a tad, and were a split decision compared to forecasts. We’d consider both to be uneventful last week.

And finally, Q4-2009’s GDP figure was finalized…. and adjusted downward from 5.9% (annualized) to 5.6%. From this point forward, GDP growth should be less impressive, as the year-over-year comparables are a much higher bar to hurdle. Plus, the second year of any recovery period is rarely as brisk as the first year. So, don’t be disappointed by what’s apt to appear as a slowing economy.

Sector Performance:

The consumer discretionary stocks came out on top last week – a trend that’s actually been developing for quite some time. While we’re still mixed messages on the status of consumers, the market is largely betting that all these companies are making a revival. Not so. Pick and choose wisely within the group, as consumers are still fickle – though decisive – about the ‘wants’ they splurge on.

Financials and technology are also still on their romp… surprise, surprise. Energy and utilities are still dragging the bottom; neither are total shocks.

That said, bear in mind it doesn’t always pay to chase the hottest group, nor does it pay to avoid the weakest group. Things change. This ranking is only one aspect of what should be a multi-faceted tend-spotting process.

Industry Performance:

It’s been a while since we added an individual industry ranking, so here’s an updated list.

Though it’s not always this clean, this time around it’s very easy to see which industry trends below are driving the sector trends above. Consumer electronics and vacation travel are boosting the consumer discretionary sector, while coal and energy services are dragging down the energy sector. The strength in drugs and the weakness managed care are likely to be post-healthcare-reform volatility.

As before, be smart about how you interpret the data, but the numbers don’t lie.

Disclosure: No positions.