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  • The Green Bar of Death 1 comment
    Jul 29, 2009 7:15 AM | about stocks: ESEA, DRYS

     Yesterday I was going to write a short article about the "green bar of death" but didn't find the time. Where is this green bar? It is on the daily chart of DRYS. Take a look at the chart, and look at the days with the largest green bars. Then look what happened the days after that to the market. I'm saying that an outsized advance in DRYS has generally either called a halt to a market advance or marked the beginning of a market retreat. Yesterday DRYS had such a bar. That is one of the reasons I sold out most of my positions this morning. The Green Bar of Death had struck again.

    Of course, this verges on superstition. Or does it? Consider how new money finds its way into DRYS stock. It is apparent that DRYS does not lead market advances. Money flows into quality stocks first, and the market rises. What I think happens next is that as soon as significant profit taking begins, successful investors take money out of the leaders and put it into the second-best stocks, DRYS among them. The rise in DRYS then attracts the attention of speculator money, acting like a multiplier to the effect.
     

    Call me crazy if you want. Let's watch and see what happens.

    At this point, I'm in the unusual position of having taken profits in almost every position. I still have a few longer term holds (calls in OCNF, PRGN, EGLE, ESEA) and a bit of equity in ONAV.

    Eagle now is worth checking out. EGLE announces its earnings announcement 8-5 AMC. It is now trading at $6.05. The Sept 7.5 call is QEKIU which I am holding, and it is quite cheap. The payoff for that call, if EGLE beats earnings well, is large compared to the option premium, and it is a worthy trade to consider. The call QEKHA $5 Aug is the one for the earnings runup play, and sells for about $1.25. This would be the call to hold until about 10:30am on Aug 5, to maximize the return and minimize the risk. A combo play in which you hold both is also a possibility. The QEKIU is also the dividend-increase play because such an announcement would send the stock into the 8-9 dollar region immediately, but I do not count that as especially probable.

    In general, I feel we are in for some thrashing about. By that I mean some sudden declines, and repeated attacks on the 990 region, only to fall back. It is possible we will attack as many as 3 times. I figure it will eventually give way and we will get to 1100 but it could take 1-4 weeks. So, I am somewhat bearish. Given that, I took on a SPY bear call spread, a little one.

    Long SWGHV Aug 100.
    Short SWGHT Aug 98.

    This is a play to take when you believe that the market will struggle and either go down, or be limited in its upside movement. It is a fairly low risk play (compared to the extremely speculative option trading we do here most of the time), since you cannot lose more than $2 minus the difference in the option prices. I don't do this too often since my initial plans to hold such a position for weeks usually ends up changing and I liquidate it early. But so far I have almost always closed it for a profit - usually converting it to a long position by covering the short profitably. I don't consider myself to be an expert in spreads so be sure you understand the position yourself and agree with it before following me on one.

    Good luck!
    by Skymist

    Stocks: ESEA, DRYS
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  • TradingChief
    , contributor
    Comments (34) | Send Message
     
    Interesting theory on DRYS. We have a standing joke on the site that occasionally someone looks in the "hold" of the ship and yells "no cargo" and DRYS tanks, so we have always sold the pops but will spend more time looking at this relationship, very interesting.
    29 Jul 2009, 08:41 AM Reply Like
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