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Option Addict

The first hit is always on the house.

The Request Line is Open

Have a chart? Stock idea? Post it. I’ll kick out some technical feedback.

I’m looking for ideas myself for the Weekly Watchlist this weekend. Submit some ideas, let’s see what you got.

Hit me up.

 

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Reader Request: Gold Miners

Moving forward I will randomly select topic requests from reader requests and work up some analysis. Tonight’s topic: Gold Miners.

For the record, I am and have been avoiding the metals and all things related. I have however acknowledged that on a long term time horizon, the best case scenario for the miners would be to see the metals move down to new lows while the miners do not. That seems to be setting up as we speak.

For long term analysis I follow point and figure charts religiously. Take a quick look at the bullish percent chart for the miners: $BPGDM.

bpgdm

This means that well over 90% of the miners are on a sell signal using PnF charts. While not actionable, this has been the case all year. It is an oversold signal of sorts.

I have been all out bearish on the metals for quite some time. In fact, I have long term target prices for Gold at $900, and Silver at $13. Below you’ll see how the metals left very thin volume structure down below, and how a lot of unfortunate longs are in from horrible prices. The type of stuff crashes are made from.gold0613

I do however like the miners paired against a short position in the metals. The spread is actually starting to look profitable. And over the last decade, this trade has been totally non-profitable.

Here is the spread between a LONG GDX, SHORT GLD position. If you are unfamiliar with “pairs” trading, you would take an equal dollar amount invested in both sides of this trade, and then earn the spread between the two. That spread is starting to appreciate in value lately.

gdxgld

Bottom line, while I have little interest in shiny stuff here, I believe that moving forward, should Gold prices tumble, the miners will hold up a little better than Gold. Should Gold prices rally, the miners will outperform. Perfect environment for a pairs trade.

I like the set-up in the GDX, but would also consider NEM, GOLD, or NG.

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Still the Right Idea

I might have got a little too hung up on the numbers, but the strucure here is what I was trying to point out. In the end, it still looks right.

sentimentcycle

30 minute SPX chart.

spx0613

We’ll spend some time at 1650. A close above that value is very bullish. The Russell closed right at that same line in the sand, which is 990.

Last, but not least, don’t bet against an oversold McClellan.

nymo0613

Epic day guys. Way to stick it out.

OA

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OA Buy: SOHU

China stocks didn’t go down much yesterday. Now, they’ve sat out the rally.

Long Jun 65 calls.

Tomorrow, when nobody wants to chase stuff higher, these stocks will look mighty attractive.

Other considerations: SINA, CYOU, QIHU, etc.

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When All Else Fails, Buy GS

Yesterdays long in GS, the +10% move in IQNT, along with an opening purchase of BIDU is getting me slowly on track today. I have a lot of ground to cover and it is already Thursday.

Charts that I am watching here include AIG, QIHU, DDD, CYOU, PCLN, AMZN.

I will keep slowly working into a few longs, especially as conditions strengthen. Very short time frames here.

More later.

OA

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Ready for Whatever

While I’ve hustled to scale out of longs over the last few weeks, I find myself starting off the month in the hole.

I gave back last weeks gains and then some. Total about 6%, which means I have work to do. I haven’t had a week like this since April.

Anyway, about the market…

The 1622 didn’t hold. As it pertains to corrections and the sentiment cycle we are using, recent highs and lows matter. Numbers, not so much. As I mentioned, these are always easier to call with the luxury of hindsight. However, since my money doesn’t work that way I try to use my best judgment in the moment to avoid portfolio calamity.

Here are the things I am concerned most about at the moment.

The VIX saw its highest close since February
Market breadth has been awful
The $NYMO closed at -97
Indices approaching Thursday’s low

While increased volatility like this disrupts the option market, we’re now at the tipping point which suggests a weaker market could go significantly lower. If rally attempts continue to fail, I will bet against a small basket of stocks for another 60-70 SPX points.

However, rather than start here, in the hole, I will simply sit back and wait for strength. Ready for anything at this point.

OA

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