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Salvador N. Lara's  Instablog

Salvador N. Lara
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Salvador has a finance degree from Cal Poly, is a member of MENSA, and is an Options Trader. Focus primarily on stock market indices, bonds, currencies, and liquid commodities primarily through ETFs and Options on Futures. Research includes fundamental and technical analysis. Salvador believes... More
My company:
SL Trading Group
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  • 96.67% Of Dow Jones Stocks Are Above Their 50 Day Moving Average

    The chart above shows how high relative to the mean the market is. The Dow only has 30 stocks that represent the overall economy in the US and world because of their global reach. 96.67% are have been above their 50 day moving average. What most often happens when the markets has this condition is a "reversal to the mean" or, in other words, some sort of a price correction.

    Current stock prices are definitely not at a "bottom" as seen by the chart indicator and nominal prices.

    While shorting can be tempting, it can also be wildly financially risky and expensive. One strategy that might make sense to certain investors is selling option call spreads against the market that are "at the money" and higher. For those who have long positions, selling calls against positions may help act as a buffer against price drops. However, a simple stop loss order might also help reduce price risk. Any particular idea may not be suitable for all investors, so make sure you stick to any long terms strategic plan you have in place.

    *This post is merely in observation to be shared for educational purposes. Not a recommendation to buy or sell. The stock market, futures, and options have financial risk of loss.

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

    Tags: DIA
    Feb 13 3:11 PM | Link | Comment!
  • Has The Sell Off Started Led By The Dow?
    While Apple (aapl) shares have lead the Nasdaq to a 20.6% gain year to date, the rest of the broader market has not been as strong. Now low volatility and high prices make the market environment ripe for bears to take shots on the short side using various option strategies that limit risk but allow room for opportunity. The only problem is deciding when to pull the trigger.

    One way to hear the "message of the market" is to observe the different indices to compare the price action among them. When one index begins to move before another, we might be observing a glimpse of something that is starting to happen. While not always a guarantee, most of the major changes in direction are lead by a single index later to be followed by the rest. If the divergence is not caused by a short term lag or single stock price divergence, the leading index should be observed and respected as an indication of a change in sentiment or trend.

    Therefore, we come to the following chart of the S&P 500 futures daily charts compared to the Dow Jones futures daily chart below. Observable in the charts is that the Dow is starting to return to its mean ahead of the broader S&P500. For the past week, the S&P is about flat while the Dow is already down about 0.7%. These indices should be watched and the relationship should continue to be observed as they might be trying to tell us that momentum is shifting.

    sp vs dow

    After a fast run up, we would expect sideways distribution in prices for some time before a correction in prices. The market typically has 4 stages: Rise, Top distribition, Correction, Bottom distribution. In this case, while sudden correction can happen unannounced, we may be entering a sideways phase where prices oscillate in a range until a new catalyst takes to market higher or lower.

    For more information, I can be reached at 1-650-364-8400 or by emailing snlara@sltradinggroup.com

    *Not a recommendation to buy or sell. Options and futures are risky and can cause substantial financial loss. Options and Futures are not appropriate for every investor. Past performance is not indicative of future results. Speak to your registered financial representative before investing.

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

    Tags: DIA, DIA, SPY, AAPL, VXX
    Mar 21 2:17 PM | Link | Comment!
  • 80% Of Stocks Are Now Over Their 200 Day Moving Average.
    $SPY: 80% of stocks are now over their 200 day moving average. $$Posted: February 8, 2012
    Tickers: (NYSEARCA:SPY)
    By Salvador N. Lara

    As a measure of breadth, the 200 day moving average gives us an indication of how strong or weak the overall stock market is and also measures the momentum of stocks compared to past prices. Typically, the 200 day moving average is a very wide ranging moving average and will be a less volatile indicator. The message that the indicator communicates is more significant than that of a shorter average like the 50 day moving average. When the market is weak, this indicator shows that few stocks are above their moving average and therefore below their trend and possibly imply that stocks may worth accumulating at the discounted prices. When the market is very strong, many stocks will be above their 200 day moving average and might signal that stocks are no longer discounted and may even be near or above fair values.

    Currently, we have a high reading, which makes sense given the steady rising prices and lack of volatility so far in 2012.

    80% of stocks in the S&P 500 are now above their 200 day moving averages

    What makes the current reading worth noting is that the measure of 80% had appeared very quickly when compared to how low the same indicator was a few months ago. The same indicator gave a very weak reading in the low teens only a few months ago, making the reading of 80% of stocks above their 200 day moving average an impressive stat when considering how violently we have reached it.

    3 years of the percentage of stocks above their 200 day moving average

    Given the sharp rise of this measure of stocks compared to their 200 day moving average, from nearly only 10% of stocks above their 200 day moving average to now 80%, this is very impressive and somewhat astonishing for this indicator. It is especially astonishing because the percentage nearly doubled in the last month in January 2012.

    Tags: SPY, Options
    Feb 08 9:17 PM | Link | Comment!
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