Q's Corner

[Mark Politi]

Aloha,

For anyone following the Q's there certainly wasn't anything even remotely resembling a second day confirmation to the downside today.  It's approximately 3:00 PM Eastern Time as of this writing so there's still a little time left before the market closes.  There's still an outside chance today that the Q's could hit the $31.68 high of Feb 10, which is the peak of a double top resistance with the Jan 6 high of $31.63.  As I mentioned yesterday, it will be interesting to see if the Q's have enough legs to blast through this level of resistance and form a new leg to the plus side.  Since January 09, the Q's have formed a perfect "W" pattern.  If it breaks through resistance, it is not unusual for the last leg of the W to extend significantly higher than the middle of the W before retracing or reversing direction.  With one more day left in the trading week tomorrow and next week will be somewhat telling.  As always, remember that news overrides all else.  The current rally has been rather steep in its forming and reached these highs in a shorter time than it took to fall from the peak of the last rally.  Also keep in mind that we are still very much in an overall bear market and could very well see a 50 % retracement or a reversal based on any number of negative factors.  I agree with the info that Arnold posted the other day that there will be more downside yet to come before we recover and it's going to take more than just a few months to pull out of this recession. 

 

As an aside, it seems like Obama and his administration are really trying to play down the recession and play up plans to fix the country's economy.  So far, the broader market has responded very favorably to nearly every bit of good news, and almost dismissing much of the bad news.  However, as most of Obama's speeches report what he plans to do, future tense, it will take time to implement those plans ans so there are no substantive results by which to measure the success of those plans.  Certainly, the incessant printing of billions of new dollars by the Treasury is not healthy and there are many economists who warn that bankruptcy is not such a far fetched possibility.  If Obama's new policies work and we survive this recession, the bulls will come out stronger than ever.  If it doesn't work at all, or not as well as Obama says it will, the recession could very well be extended or worse, we go bankrupt, in which case, the bears will be in control for a long time.   

 

Happy trading and aloha for now,

Mark

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Arnold Kameda]

Excellent commentary Mark! Thanks for that. I think you're ready to publish your own newsletter and charge a fee for it! By the way, since you've been a successful trader, do you mind sharing your favorite trading strategies in Bull and Bear markets? (Vertical spreads, iron condor, butterflies, plain old call/puts or regular equities?). It'll be interesting to know what has worked for you. Thanks again for authoring and sharing.
Arnold

[Mark Politi]

Thanks Arn.  Don't worry.  I'm still making mistakes, but that's only because I sometimes break the rules, and when I do, ...... DUUUUUUHHHHH... !!!  

 

Eventually, I would like to broaden my experience and learn the ins and outs of writing covered calls, but for now, I'm only buying puts and calls just to increase my confidence.  

 

I'm keeping my trading as simple as possible.  Ideally, I watch the charts for support and resistance and then wait for second day confirmations with movement continuing in the desired direction before entering a trade.  While knowing when to get into a trade, it's exiting that is the most critical part of trading.  It is the exit that dictates whether you have made money or lost money.  Everyone needs to devise their own exit plan, i.e., decide how much money they want to make with each trade and then set alerts or trailing stops once they have reached their target.  They also need to identify how much they are willing to lose and if that limit is reached, be disciplined enough to never hesitate to pull the trigger to exit the position and take a small loss rather than continuing to wait for it to "come back" and end up taking a huge loss.  Now if only I could do exactly what I just wrote, I'd be a much more profitable trader myself.  : )   

 

As for the Q's today, it did not touch the $31.68 resistance mark set in January but it did reach a high of $31.46 and closed just .07 down from that.  All indeces were up today and it seems like positive news continues to trickle out and the market reacts strongly to it.  As for the technicals on the Q's, I'm waiting to see what's going to happen here at the top of the last leg of the W.  This market is very fragile and naturally it WANTS to go up, which is why I think people are buying into Obama's plans.  However, at the first sign of trouble, we could see another serious market decline.  With unemployment continuiing to rise and the next batch of ARM mortages ready to re-set in April, there could be another new wave of forclosures to hit the housing and banking industries.  My personal opinion is that Obama knows this and is doing his best to pre-empt those events with the constant barrage of upbeat news to offset what could be the next big drop in the market.  It just all adds up to a lot of uncertainty.  There is one thing that is certain though, and that is something is going to happen soon with the Q's because we are RIGHT AT RESISTANCE.   In addition, seven of the top 10 companies most heavily weighted in the Q's have earnings announcements coming up from April 14 through April 23.  They are: Intel INTC April 14; Gilead Sciences GILD and Google GOOG April 16; Qualcomm QCOM April 22; Apple AAPL Microsoft MSFT and Amgen Inc AMGN April 23.  So there is a lot of Q's stuff coming up within the next few weeks. 

 

I like trading the Q's because it doesn't exhibit extreme volatility.  The reason there aren't such wild price swings is because it is an ETF which means it is comprised of many different companies, in this case, 100 companies.  The options are also relatively inexpensive.  After a while of watching the Q's, Darlene says you get to "know" them and how they might react to certain events.   

 

What's the consensus of the group about how the market closes out the week?  Profit taking?  Sustained upward move?  Retracement or reversal?   

 

Happy trading and aloha for now,

Mark    

 

 

[Arnold Kameda]

Mark,
Well I should have guessed by now that you're a Darlene QQQQ player! I think your strategy makes perfect sense to trade options with an EFT, especially the Q's. I've noticed that options spreads are much lower thanks to the large volume of option traders and as you say, the Q's are not as volative. You've sparked my interest in them.
Mahalo for sharing... Talk to you all later, I've got to take my daughter to a late lunch and an outing.
Arn