Did anyone see what Netflix did last week after earnings? It went up 50% overnight! simply buying both call and put options playing a simple straddle strategy would have yielded HUGE returns, even with relatively little money at risk. There have been some amazing moves on earnings lately. Apple did the same thing, except it fell after earnings. Did anyone think we would see a $450 price? If I knew that we were going to get moves like this, believe me I would be involved betting on volatility.
So why are we seeing moves like this? Well...there are some signs that the retail investor is finally back! Etrade and TD Ameritrade reported that trading volumes were up about 15% in January. Coupled with news that equity mutual fund inflows were about 4 billion in the last couple months is a very good sign. Maybe we will finally get some moves now that Main Street is back in the markets.
I do feel bad though. If you missed this whole move and are deciding to invest in equities NOW you are very very late. Just another example of why investors should always stick to a disciplined strategy and hold over time. The old adage to buy low and sell high never fails.
How do you think Warren Buffet is feeling right now with his Bank of American warrant at a $7.40 strike price. He didn't catch the absolute low but he already is looking like a genius again! All he did was follow a very simple time tested strategy though.
Either way as a trader I am very happy to see the retail investor back. Here's hoping they don't get burned again.
Saturday, February 2, 2013
Tuesday, October 9, 2012
Alcoa Earnings, Sign of Good Things to Come?
Alcoa reported earnings today, and they came in above analyst expectations with a net profit of .03 cents without one time charges related to settlement of a lawsuit and environmental remediation, or a loss of .13 cents with the adjustments. Revenues also slightly beat expectations, coming in at $5.83 billion, above expectations of $5.56 billion.
Since Alcoa unofficially kicks off earnings season, and they are viewed as a barometer of the general state of the economy because aluminum is such a widely used input of production, some are claiming that this positive earnings beat means more good things to come.
I would caution against reading too far into this. First of all, without one time charge adjustments Alcoa is still doing significantly worse than they were during the same quarter last year. They reported a gain of $.15 per share last year, compared to $.03 this year.
They are saying this is related to softer aluminum prices having more to do with overcapacity in the system than a drop in demand, but they also said they are seeing a softening of demand in "some regions and end markets" and said that "China is the main driver for that." China is most important market for aluminum, because so much of the worlds manufacturing takes place in China. It is important to consider that a softening in the Chinese market has more to do with a domestic slowdown in China's economy. This in itself is a barometer of worldwide consumption, and we are not seeing strong numbers. Alcoa is expecting demand to pick up in the 4th quarter in China because of new Chinese stimulus, but this is a temporary boost at best.
Secondly Alcoa is famously a terrible predictor of future aluminum demand, so take their projections with a grain of salt. We are seeing slowdowns in the economies of China and Europe, and the US could certainly be affected.
Thirdly this argument of Alcoa being a bellwether is not accurate. While they are one piece of the puzzle, their companies earnings are impacted by firm level decisions, as well as the price of one particular commodity, aluminum, which while it is important is not the end all in economic analysis.
Also it is important to look at what happened to Alcoa's price after the market close. Initially we saw a lot of buying as the dreaded algorithms read the earnings beat before any human and placed large buy orders, but after the initial dust settled the "smart" money came in and sold the price down. This is a better indicator of what the street truly thinks of Alcoa's earnings beat. Similarly, the S&P 500 sold after hours. So i guess the street wasn't buying everything up on Alcoa's earnings.
The bottom line is while this is not a bad sign by any means, it really didn't give us any insight into where the stock market or the economy is headed in the near future. There is no trade in AA based on these earnings and there is no trade in the market based on them. Wait for a clearer picture from the other earnings this week.
Since Alcoa unofficially kicks off earnings season, and they are viewed as a barometer of the general state of the economy because aluminum is such a widely used input of production, some are claiming that this positive earnings beat means more good things to come.
I would caution against reading too far into this. First of all, without one time charge adjustments Alcoa is still doing significantly worse than they were during the same quarter last year. They reported a gain of $.15 per share last year, compared to $.03 this year.
They are saying this is related to softer aluminum prices having more to do with overcapacity in the system than a drop in demand, but they also said they are seeing a softening of demand in "some regions and end markets" and said that "China is the main driver for that." China is most important market for aluminum, because so much of the worlds manufacturing takes place in China. It is important to consider that a softening in the Chinese market has more to do with a domestic slowdown in China's economy. This in itself is a barometer of worldwide consumption, and we are not seeing strong numbers. Alcoa is expecting demand to pick up in the 4th quarter in China because of new Chinese stimulus, but this is a temporary boost at best.
Secondly Alcoa is famously a terrible predictor of future aluminum demand, so take their projections with a grain of salt. We are seeing slowdowns in the economies of China and Europe, and the US could certainly be affected.
Thirdly this argument of Alcoa being a bellwether is not accurate. While they are one piece of the puzzle, their companies earnings are impacted by firm level decisions, as well as the price of one particular commodity, aluminum, which while it is important is not the end all in economic analysis.
Also it is important to look at what happened to Alcoa's price after the market close. Initially we saw a lot of buying as the dreaded algorithms read the earnings beat before any human and placed large buy orders, but after the initial dust settled the "smart" money came in and sold the price down. This is a better indicator of what the street truly thinks of Alcoa's earnings beat. Similarly, the S&P 500 sold after hours. So i guess the street wasn't buying everything up on Alcoa's earnings.
The bottom line is while this is not a bad sign by any means, it really didn't give us any insight into where the stock market or the economy is headed in the near future. There is no trade in AA based on these earnings and there is no trade in the market based on them. Wait for a clearer picture from the other earnings this week.
Monday, October 8, 2012
Market Order
A market stock order is an aggressive order type which someone uses to instantly get their order filled, regardless of price. A market order will remove any posted liquidity at the national best bid or offer, and if there is not enough liquidity to completely fill the order, it will continue to remove liquidity from the next posted price level, and so on until the order is completely filled.
Someone who places a market order is typically not as price sensitive as someone who places limit orders, because a market order will transact wherever the closest liquidity is posted. The risk is that in a stock with a very thin book, or a low volume stock, this could mean that the price will slide significantly from where the latest orders were transacting, especially if the order is large.
The obvious advantage of the market order is speed. In a fast moving market a market order could get you the best possible price simply because the price will move away from a limit order too quickly before it is filled. The same principal applies when you have a stop order out, either for the purpose of locking in profits or controlling the amount of a loss. When the stop is triggered, normally a market order will be placed to exit the position as quickly as possible. This allows the placer to be assured that the order will be executed.
Market orders have their place in a traders repertoire, but it is essential to know how and when to use them to your advantage.
Someone who places a market order is typically not as price sensitive as someone who places limit orders, because a market order will transact wherever the closest liquidity is posted. The risk is that in a stock with a very thin book, or a low volume stock, this could mean that the price will slide significantly from where the latest orders were transacting, especially if the order is large.
The obvious advantage of the market order is speed. In a fast moving market a market order could get you the best possible price simply because the price will move away from a limit order too quickly before it is filled. The same principal applies when you have a stop order out, either for the purpose of locking in profits or controlling the amount of a loss. When the stop is triggered, normally a market order will be placed to exit the position as quickly as possible. This allows the placer to be assured that the order will be executed.
Market orders have their place in a traders repertoire, but it is essential to know how and when to use them to your advantage.
Wednesday, September 12, 2012
Bank Of America Breaks 9.00
Bank of America broke $9.00, and from the recent strength it has been displaying it looks destined for a meeting with the $10.00 mark. If you are a trader BAC HAS to be a stock on your radar. A large buyer was purchasing shares ALL day today. And if you are not a day trader you may not understand the significance of this, but for the traders with knowledge of how dark pools indicate direction, for 90% of the day today the buyer was buying the mids (in between the pennies) heavily in most major dark pools. I will explain later why this is so important.
Look at how the chart stepped up all day and held against every spy down tick, only to resume going up as traders took the price higher on the large buyer. It finished the day up .45 (5.24%).
Look at how the chart stepped up all day and held against every spy down tick, only to resume going up as traders took the price higher on the large buyer. It finished the day up .45 (5.24%).
Tuesday, September 11, 2012
Spy Buys on Hope Of QE, Long Term Low Rates
The market went up today on expectations of further quantitative easing from the Fed this week, and expectations of an announcement that interest rates will remain near 0 into 2015. The market is also anticipating that Germany will approve the new stimulus program announced last week. Industrials led the market, as well as financials.
Monday, September 10, 2012
Think The Market Is Done Going Up? Think Again
Despite some serious issues facing the economy, the US stock markets continue to buy, and if you think they are done here think again. Markets closed above multi year highs on Friday, and it seems like no bad news it bad enough to hold us down. I would expect us to at least test all time highs, set in July of 2007 at 1555.20.
Banking stocks bought heavily last week as well, with big moves in Citigroup (C) and Bank of America (BAC) on news of Europe's bond buying program and optimism over an improving property market. It is tough to enter into a trade here, but we could see much higher prices in banking stocks before we get a pullback.
Europe's bond buying program does NOTHING to solve underlying economic issues, and there doesn't seem to be much reason to justify higher equity prices just because the ECB wants to act as a lower interest rate credit card to Europe's insolvent countries.
China continues to see slowing growth, and accelerating inflation is really putting them in a tough spot because they will have to be very careful starting any stimulus programs.
P/E levels in the overall market are above 13, which is at the high end of the post 2008 crisis range, though slightly lower than historical averages.
There seems to be very little reason to justify the market going much higher in the long run until underlying issues start to resolve, but everything the market is doing is pointing towards the short term upwards direction. It is hard to find a fundamental reason to buy into equities here, but with a lot of fund managers and retail investors alike missing the rally, and as all time highs approach, the only direction right now seems to be up. Here at Stocksgood we are really hoping for a sense to return to equities, but as of yet there are no signs of it in the way the market is trading. We recommend being careful, because as they say the market will only be buying until its not, but until we see a real reason in the way the market is trading NOT to be long, we will continue to hold a long bias.
Banking stocks bought heavily last week as well, with big moves in Citigroup (C) and Bank of America (BAC) on news of Europe's bond buying program and optimism over an improving property market. It is tough to enter into a trade here, but we could see much higher prices in banking stocks before we get a pullback.
Europe's bond buying program does NOTHING to solve underlying economic issues, and there doesn't seem to be much reason to justify higher equity prices just because the ECB wants to act as a lower interest rate credit card to Europe's insolvent countries.
China continues to see slowing growth, and accelerating inflation is really putting them in a tough spot because they will have to be very careful starting any stimulus programs.
P/E levels in the overall market are above 13, which is at the high end of the post 2008 crisis range, though slightly lower than historical averages.
There seems to be very little reason to justify the market going much higher in the long run until underlying issues start to resolve, but everything the market is doing is pointing towards the short term upwards direction. It is hard to find a fundamental reason to buy into equities here, but with a lot of fund managers and retail investors alike missing the rally, and as all time highs approach, the only direction right now seems to be up. Here at Stocksgood we are really hoping for a sense to return to equities, but as of yet there are no signs of it in the way the market is trading. We recommend being careful, because as they say the market will only be buying until its not, but until we see a real reason in the way the market is trading NOT to be long, we will continue to hold a long bias.
Friday, September 7, 2012
Nokia A Good Buy Here
Nokia sold of heavily yesterday, down 16%, and into this morning before recovering to end up 3% today. This is the chart from the last 5 days, where you can see how the selling finally hit a bottom this morning before buying back up.
Nokia began heavy selling yesterday during the unveiling of their new Lumia phones, both of which will run Windows 8 operating system. The selling was largely because Nokia failed to announce when the phone would be released, as investors worried that it would not be in time for this Christmas season. Nokia also failed to announce who the carriers of the new Lumia phones would be, and what markets exactly the phone will be distributed in. Also its a safe bet to say that a lot of speculators had crowded into the long prior to the announcement, and it was a case of selling the news, as there were no positive surprises.
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