Chart of the Night – GME

I will be watching [[GME]] tomorrow as it’s a approaching resistance at $45.75:

The stock is neither oversold or overbought, and while it’s momentum is very much negative, a potential reversal may be in the works (the plus & minus lines starting to converge on the DMI).

The immediate trend is bullish, yet it has not broken the longer term downtrend nor the aforementioned resistance. Should it accomplish both of those (aka. close above $46), it has room to move up to $49, which the next resistance level. Entering this trade @ $46 with a 1:3 risk:reward ratio, a stop should be set at $45.

On the bearish side, entering @ $45, a similar 3 point move is possible, with a lot more if support at $42 is broken.

One thing to consider, since we’re not sure on either direction, is a vertical option spread. Since my initial bet here is bearish, I would look at buying 45. Puts, while selling 40. Puts at the same time (of same expiration). [For example!]

If the trade goes my way, the 45. Puts will increase in value faster than the 40. Puts. While this limits reward, the major benefit is limited risk: if the trade goes against me, the short puts will hedge the position (up to a certain point).

UPDATE:

What’s working:  [[BWLD]], [[GME]], [[PBR]], [[VLCM]] puts.

What’s not:  [[BIDU]] puts; any and all calls, ex.: [[ALK]], [[DRYS]].  Hindsight says I’m an idiot for not selling those yesterday, especially DRYS after a big move like that.

The market, [[ABK]], and Charlie G all got smacked down today, right about the time the Chelsea boys in blue schooled their Greek opponents (highlights). Coincidence? I think not.

Seriously though…did anyone actually expect Gasparino to be right about the bailout? Before you buy the next hype from CNBC & Gasparino, look to ‘The Fly‘ for some real analysis.

DP Buys:

• [[ALK]] calls – limit order filled @ $24 (uptrend support). Was looking dodgy, until news hit of the latest round of [[DAL]] – [[NWA]] merger discussions. Those 2 ripped about 10% and the rest of the sector followed.
• [[APH]] calls – was undecided whether this had broken or held support @ $36. Placed bullish bet above the prior 2 days’ highs; filled at $37.
  • Both ALK & APH were July Calls, in an effort to avoid getting stopped out during these wild intra-day swings we’ve been having (lower deltas than March/April options).
• [[DRYS]] – held support yesterday, bought Mar 70. Calls at the open.

DP Sells:

• As detailed before, dumped both [[AGU]] & [[LM]] puts. I might have gotten faked out of LM, but it did fail to make a new low today, while taking out the past 2 days’ highs…signs of strength, usually.

Bullish: [[ALK]], [[AUXL]], [[DRYS]], [[KG]], [[MON]], [[PCLN]], [[RIMM]]

Bearish: [[PBR]], [[STRA]]

Undecided: [[APH]]

And some links:

• A few more ideas, from the Option Addict.
• RC likes solar burritos for breakfast.
• Brett Favre retires!
• These people have way too much time on their hands.
• Dayumn… (NSFW)

UPDATE: As mentioned yesterday, [[LM]] was looking relatively strong. It got an upgrade this morning, so I dumped the puts at the open, booking some profits along the way.

UPDATE II: Also got rid of [[AGU]] puts.

UPDATE III:  [[DRYS]] = superbueno!

Personally, I’m getting a little tired of Gasparino’s parlor trick; and even more tired of the markets’ response to it. I am starting to wonder how much [[ABK]] is paying that man to spread the same rumour over and over. But whatever, the late-day rally, possibly extending to tomorrow, gives yet another opportunity to get short.

One thing to keep an eye out for, however, is potential strength in tech, following Cisco CEO John Chambers’ upbeat outlook on his company’s and the overall economy’s prospects. His negative comments back in early November correctly signaled the current downtrend. Could his positive comments now turn the tide the other way? Many have partially credited today’s rally to his comments.

Anyway…kind of a slow trading day, personally. I was looking to get some cash working, but I gaged the market wrong last night when I thought it had a decent chance to go up. I was not fast enough in the morning to flip things around, thus only initiated 2 new positions:

• March 25. Puts in [[BWLD]] – had strong support at $23. My initial bet was long, but the short side risk could be managed just as well.
• March 270. Puts in [[BIDU]] – identified the ideal entry at $245. Instead of sticking to the plan, I bought early, at $240. Even after today’s gain (putting me at -10%), it’s still in a downtrend, so I’m holding, with the standard 30% trailing stop.

My other open positions fared well, although [[LM]] is looking a bit ‘stronger’, so those puts may have to be sold tomorrow.

Oh…and does anybody know what happened to Yahoo‘s charts between 11am-12pm today? It’s like they took a lunch break a la Hong Kong.

[youtube:http://www.youtube.com/watch?v=wsio3uDnwm4 450 300]

Futures are flat, despite…

• …oil hitting true record highs
• …Intel lowering profit margin guidance (mainly due to NAND flash),
• …atrocious sales numbers for trucks & SUVs.

Perhaps indicative of a bounce, one of the dead-cat variety. In light of that, I’m looking at potential calls in [[ALK]], [[AUXL]], [[BWLD]], [[DRYS]], [[GME]], [[ITC]], [[MON]]. Some of these probably won’t play nice with high oil prices… I like BWLD the best:

UPDATE:  Apparently it was way too late at night when I made this post.  So disregard all the long picks.  (Although futures were indeed flat at one point – when everybody else was sleeping!)  As RC points it out, we’re racing to Zero.  Short [[BIDU]] & [[BWLD]].