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  • It Was Prudent To Be Cautious! 0 comments
    Apr 27, 2010 7:08 PM | about stocks: GLD, FAS, NFLX, MA, V, AXP, COF, BWLD, CLF, WLT

    We were on the cautious side last week as the market pushed higher.  In our Trading Room, I commented on Thursday last week:

    April 21, 2010 1:12 PM
    gold plays
    may be the best long plays right now...

    This weekend, in my Market Forecast, I said, "...if any unfavorable news come out of the financial sector, this market can still get a quick pullback."

    We have been on puts on FAS for a whole week.  To get some long exposure, we enter into gold because of the FOMC meeting coming up tomorrow.  Also, the thinking was that if the market pulls back, some money should get rotated into gold. 

    Today, as the market focused on the Goldman Sach's case and the Greek debt crisis, investors decided to cash out.  The selling momentum picked up as the day went.  We profitted on both long and short side trades.  Our longs in gold panned out, and, our shorts in financials and some over-bought stocks did well also:

    April 27, 2010
    12:41 | HappyTrading GLD ($114.60) Sold to Close 05C113 May 113 calls, at $3.05 +56%
    12:16 | HappyTrading GLD ($114.35) Sold to Close 05C113 May 113 calls, at $2.90 +49%
    09:17 | HappyTrading NFLX ($103.40) Sold to Close 05P105 May 105 puts, at $5.90 +31%
    09:13 | HappyTrading FAS ($100.70) Sold to Close 05P90 May 90 puts, at $4.50 +30%

    FAS continued to fall more and closed below $100.  We still hold a partial position on those 90 puts.  NFLX has risen a lot.  Yesterday, in the Trading Room, I said,

    April 26, 2010 12:42 PM
    technically speaking, this is completely maxed out: daily chart, weekly chart, monthly chart, quarterly chart. If the market rolls, NFLX should at least test $100

    We took an overnight +31% partial profit on our trade.  These NFLX May 105 puts have already risen to $6.6 at the close!  Gold was very strong and closed above $1170/ounce.  We also locked in some profits on GLD.

    The Dow was down 213.04 points (below 11,000!!); SPX fell 28.34 points; Nasdaq slumped 51.48 points:

    XLF (financials) stumbled 3.38% while HGX (housing) tumbled 5.29%.  Commodity sectors were mostly weak: XME (metals and mining) -4.34%; OIH (oil services) -3.89%; XLE (energy) -3.07%.  The exception was gold, as GLD (gold) added +1.67% and GDX (gold miners) advanced +0.31%.  FXI (Chinese ADRs) was down 3.83%.


    SPX fell 28.34 points to close at 1183.71, just above the 1180 level.  The MACD turned into a bearish crossover.


    Nasdaq slumped +51.48 points to close at 2471.47, below the 2500 level.  Its MACD also moved lower.

    Over the past few weeks, the market continued to push higher and higher.  I was becoming increasingly "shy" on the long side.  Today, it proves prudent to be cautious.  In one strike, SPX wiped out gains for the past 3 weeks!  Nasdaq held up a little better, back-paddling just 2 weeks.  Tomorrow, we'll hear from the Fed on its rates decision.  After falling so much today, I'd expect some buyers to come in for quick trades in the morning.  VIX jumped a whopping +30% today, closing at almost 23!  We'll likely see a volatile day tomorrow.  Most analysts are expecting the Fed to leave the rates at historic lows.  But, I think what happened today is only the 1st step of the pullback.  Too many stocks have risen too far in the past 3 months.

    After the market, BWLD fell more than 20% after reporting declining sales.  Tomorrow after the market, V will report.  Last week, AXP and COF both reported well.  However, going along with the market, both V and MA fell by 3.18% and 4.11%, respectively.  I think MA could be an interesting play after V's earnings, as it has room to move a lot in either direction.  Another interesting play is AIG.  AIG has fallen below $40 and looks like it could test $35 soon.  Coals should be watched carefully tomorrow, as CLF and WLT will deliver earnings after the market.

    Good night and HappyTrading! ™

    Disclosure: FAS: short; NFLX: short; GLD: long
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