The Dubai Daily

Good Morning Traders and Investors,

Regarding Dubai, UNLESS they default, I do not see this putting a stop to the upward momentum in the stock market. There, I said it and I believe it.

BUT, there are significant topics that COULD put a stop to our bullish equity markets:

• Unemployment - jobs report on Friday with a consensus of just over a drop of 100k
• Retail Sales - were you spending money this past Black Friday/Cyber Monday?
• Chart patterns - we have to continue making higher highs and higher lows to continue the trend. The high in $SPX has a high of 1115 - until we bust through and go higher, we may be beginning to fail. Until then though, it is an UPTREND
• International Relations - back in the news, but then again, isn't it always?
• The Dollar Trade - if international tensions do escalate and money flows back into the dollar, it could signal an equity reversal. Why?

Look at these charts - the relationship between a weak dollar and equity strength is very strong and if the opposite happens then we result in dollar strength and equity weakness. Over the past few weeks as the equity markets have gone relatively sideways, the dollar has seen strengthening and some may even say bottoming.







Now remember, the trend is still down in the USD, but as you can see in the majority of charts above, we are seeing sequence changes where the dollar is posting higher highs and higher lows against the cross pair. The only one that is in true continuation is the USD/CHF which hasn't showed signs of bottoming.

Does this temporary dollar strength give equity sellers a chance? Maybe, but be careful as the trend in equities is up. Credit spreads (bear calls) may be appropriate as your risk to reward is almost 1 to 1 or 1 to 2 - pretty good for a credit spread and if you can get a little time decay, this may be a nice trade depending on the index, etf or stock you choose.

Happy Trading and Be Environmentally Cool

BREAKOUT!!

Good Morning Traders and Investors,

As I mentioned last week in the monthly gathering of the Park City Taders and Investors, if equities continue to the upside, the dollar should continue to weaken.

The dollar trend is down, but it had a few trendlines, potential double bottoms forming, BUT, since last week, the equities are higher AND, da da da!!!! the dollar is weaker.

NOT every currency has gained significant ground, BUT in the charts above, the USD/JPY is at a critical level AND the EUR/USD did break out above that critical 1.5000 level.

Where to next? Rick Santelli of CNBC thinks the EUR/USD is headed to 1.5500, not a massive move given the explosions we have. If that is the case, that would give the $SPX another 30-80 points or so and get it closer to the 62% retracement of around 1150-1200

In the meantime, Gold is soaring towards 1200/oz and the markets just keep flying. Obviously the weak dollar is helping the markets and employers aren't being SCROOGES during the holidays - unemployment claims dropped - big time - the lowest since FEBRUARY!

The dollar is critical and without anyone rushing in to it, it seems the equities have more room to the upside.

Happy Trading and Be Environmentally Cool!

Yesterday's Selloff, Today's Continuation

Hello Traders and Investors,

Again, as mentioned, a pretty tough week to engage in heavy trading as volume is light.

Regarding investing, the price of protection has become VERY cheap, meaning buying puts to protect the portfolio are an inexpensive way to buy insurance.

Let's take VALE for instance - a commodity stock - and we all know how commodities have roared!

I pronounce this without the traditional soft A and "spanish e" but with a hard V-A-I-L - as in Vail - one of, if not the world's premier shussing place of ALL TIME!



VALE had an October 2007 high around 40 and an early 2009 low of around 10. Using Fibonacci's, VALE, now around 29 has rallied back to the 62% retracement. Selling covered calls at or above this 62% retracement is a very low risk trade AND you can bring in very high premiums (3% of the stock price in one month) if it fails at this critical level.

Now I know that many stocks have retraced more than 62% and that the economy is "firing on all cylinders" (Yeah Right!!) but let's be honest, if you owned this stock before the crash and/or bought in as it rallied up, you have PHENOMENAL GAINS!!!! Why wouldn't you use technical analysis to protect a very profitable position AND have the chance at generating income for very little risk.

Worst case scenarios
***The stock rallies and you get called away at 3%, keeping the stock appreciation and the 3% for selling the call
***You buy back the call you sold and roll it up and out - making back some or all of the loss you just took, but hey, the stock broke resistance.

Investors have to get over the idea of the "I lost on my covered call". Do the math - you sold an OTM option - you are net a winner with the stock appreciation AND you are going to sell another call to generate new income.

I call this, Keep it Simple Stupid!

Happy Trading and Be Environmentally Cool

Thin and Whippy

Good Morning Traders and Investors,

It is 14 degrees outside and the snow is LIGHT and FLUFFY - too bad we can't do anything with it as there isn't a base underneath!

If you are looking for trading opportunities this week, be careful as the base (volume) may not be support the moves that you see. This is typically a very light volume week, but moves can be exaggerated as volume is thin.

Not much data today, so it looks like at the onset, traders are trying to push the market higher. Tuesday and Wednesday present a SLEW of data, so there will be opportunities, but BE CAREFUL!!!!! One wrong trade and the moves may dry up and you are left with a bad week going into Turkey Day.

The psychology this week is trade, but trade with the throttle pulled back.

On the investment side - the trend remains the same - up - just keep an eye on the aforementioned economic calendar for clues to how the economy is plugging along.

Regarding Forex specific trades - one good opportunity is all that is needed to make for a good week - hopefully 2 or 3 come along, but forcing trades is out of the question! Until the dollar breaks out to the downside to continue its swoon, I think selling dollar dips at support/good locations is a decent trade. We may just get that trade today as the dollar is getting hammered in direct relation to higher equity futures.

Happy Trading and Be Environmentally Cool

Ho Hum into November Options Expiration

Good Morning Traders and Investors,

Futures were down about a 1/2 percent from yesterday's close, but alas, we opened pretty much flat and without any data ahead of a shortened week, the trading looks lackluster at best.

As I mentioned yesterday in "The Holiday Setup", bearish to neutral going into the holidays with tight stops, using the $SPX highs at $1120 as an exit strategy. This also provides the opportunity to "cover" your portfolio or at least "sleep at night" if you have covered calls and/or married puts.

I could sleep a lot better at night if there was snow in the forecast! I know it is early, but we only get 4 months of it, so let is snow December through March and I don't think anyone should complain.

Speaking of complaining, if you put $100.00 in your savings account one year ago and pulled it out exactly a year later, you would earn a quarter. A QUARTER! The dollar is weak, BUT it is showing signs of a bottom - I am not saying it has hit its lows, but from a traders perspective, look at it against the GPB - it has come back down below its breakout level. Against the EUR, it is sitting on a trendline connecting the lows of the upmove from MARCH. Same with the AUD and it already broke that trendline on the NZD. The USD/CAD broke that trendline and is now using it as SUPPORT! The CHF is on the trendline.

SO, does this signal a shorting opportunity in equities and a long opportunity in the dollar. If you are right, double gains, if wrong, small loss. That is what trading is all about!

Happy Trading and Be Environmentally Cool

Park City Trading/Investing Club and The Holiday Setup

Hello Traders and Investors,

A big thank you and congratulations are in order to the Park City Trading/Investing Club - we had close to twenty members (free membership) show up to discuss short and long term opportunities.

Now if we could see 20 inches on the ground of light, fluffy snow, we would be in business!!

The markets are "cooling off" as we head into options expiration tomorrow. After 9 months of consistent gains, I warned about increasing volatility (bear markets) heading into options expiration - will we finish the week down? It has been rare as options expiration week typically trades in the direction of the trend and the trend as we all know (whether we like it or not) has been up.

Economic data has been flat (see initial claims) and Philly Fed and some data has been weak - see housing data. After 8 of 9 higher closes in $SPX, maybe an oversold level going into the weekend and next week's Holiday is enough for bears to be in control for a little. BUT, as I have written, the trend is still UP until we have a failure in sequence.

The dollar is a little stronger (holding the lows and making higher lows or double tops/bottoms against most crosses - see USD/CAD, EUR/USD, NZD, USD

I would have to be bearish to neutral if I were carrying trades overnight and into the holiday week with stops at old highs in the $SPX

Happy Trading and Be Environmentally Cool

More of the Same

Good Morning Traders,

Just as the 10 day forecast is bleak for snow here in Park City, it looks like another week of options expiration will go out WITHOUT A BANG. I am still pricing in a slight chance of a severe market correction in a short time.

The reasons:

• Since March (9 months) we have been higher than the previous month and we have options expiring on Friday
  

• At option expiration volatility can pick up
  

• Cheap protection! Buying puts to protect your portfolio/positions are very, very CHEAP

The market has been steady and yesterday the $SPX hit a new high, breaking through key resistance at 1100.00. The trend is still in tact until we have a significant pullback and fail to make a new high (lower high or double top or other pattern) as there doesn't seem to be a fundamental shift in sentiment or policy (see Bernanke's comments yesterday).

We have retraced over 50% of the downmove starting in 2007 and with the current trend, a 62% retracement seems likely - putting the $SPX closer to 1200 - quite impressive if you remember where we were about a year ago. PANIC was in the streets.

Have fundamentals changed that much? Is it time to start taking profits off the table (see commodity gains such as VALE or tech gains such as AAPL!) and start to get a little bit neutral with good risk management? Many stocks have gained over 100% in less than a year!

Remember, any investment or trade needs to have reasons for entry, reasons for a stop/target and management throughout.

Happy Trading and Be Environmentally Cool

Soft Spoken Bernanke

Talk about accomodating, hopefully the skyrocketing markets are helping to put feet in sheets at our local resorts as we all have friends who make a living from the tourist market.

Well, Bernanke tried to act tough, but the markets aren't listening. The dollar continues to fall (after a VERY brief rally) while he spoke. Basically the tone is the same - accomodating policy - weak dollar ensues.

The $SPX broke through (before he spoke) the previous resistance level of 1100 and looks like it has a good chance of closing above it.

The bull market continues, commodities, retail, technology and even financial got a boost today, BUT what is your RISK TO REWARD if you are just entering now?

Make sure YOU have a solid trading plan that fits your timeline for your trading strategies.

Happy Trading and be Environmentally Cool

Let it Snow

The first real cold front of the year has hit Park City and the peaks are are full of cold smoke!
I don't think the snow will melt as it is due to stay cold over the next week and the days are getting shorter.

The Mountain Host department got together for the first time. As an outsider, it is good to see the comraderie and excitement that mid-November brings to the group. Another year is upon us, my first on the team.

As far as the markets go, the $SPX still has resistance at 1100.00. If you are protecting your portfolio or starting to enter bearish positions, this is the place to be short as your premiums are relatively large and your risk is low (creating a nice risk to reward if you are correct) and a small loss if we EXPLODE to the upside.

Speaking of exploding, the commodities are still roaring, but are we seeing double tops/failures? This seems to coincide with the DOLLAR setting higher lows against every major currency except the GBP.

The dollar weakness and equity strength has been a very interesting corrolation - if equities rally, it will be interesting to see if the dollar weakens as it is up against major trendlines (see USD/CAD) and possible double bottoms.

Does this mean equities are tiring at these elevated levels? If you are planning on a ski vacation to higher altitudes, make sure you get your pre-ski workouts in - anything you can do to combat the elevation changes will help (it just may not seem like it when you see the Local's out there!)

Happy Trading,
Brian