Everett's Financial Blog

Starting in 2012, incandescent bulbs will no longer be sold in the US. This means that LED lighting manufacturers like CREE will benefit from this and the stock will also become more closely linked to the consumer staples sector.

It’s currently in free fall after lowering guidance for the this next quarter. I’m looking for support, but don’t really see any until the 35 level where it had a break out last fall. That’s about $15 lower than where it closed today.

Additionally, some analysts are saying that the estimates are still too high for the next couple quarters, because the estimates were boosted too much in excitement from growth in its LCD backlighting segment.

I’m neutral on this one until we get closer to 2012. The market will lead reality by about 6 months, so I’m looking towards next summer before getting long on CREE.

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If we can continue pushing higher tomorrow in equities, I’m hoping the price of gold will continue to fall. If it the GLD gets under 121, I’ll open a position there. Historically, there’s an 8% rise in the price of gold, mostly in the second half of the month, as the Chinese and Indian wedding seasons get underway.

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We’re approaching resistance levels on the S&P and I’d expect this rally off of the August 1040 bottom to start losing some steam at 1109, 1115 and 1120.

I’m have a sell order in on JPM to bring that back to a normal sized position. I don’t think it will trigger today, but possibly tomorrow. Depending on how the chart looks, I may clear out of the position altogether, so that I can buy the XLF.

I am pretty close to my cost basis on ISRG and am debating whether or not to clear out of the position completely. I was trading strictly off the charts and had made a mistake jumping into it, because there wasn’t any near term support below. There isn’t much upside resistance anywhere near here that I can see either though. I’m torn on this one and may end up shedding just half my position.

I’m still watching DECK carefully here. The fundamentals are good, but the volume is so thin, meaning institutional buyers (and fortunately, sellers) are not participating. I think I might just roll out of my Dec ’10 options and hang on to the March ’11 ones.

Stay tuned. Things are about to get interesting again.

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I’m a pretty big fan of buying deep in the money calls that are about a half year from expiration. It’s a good way to juice your returns on high growth stocks.

I’m currently looking into what is called an options strangle as well for core positions that I would want to trade around. The basic principle is to sell a call option above where the stock is currently trading and selling a put option below where the stock is currently trading. If the price rises, you are forced to sell your stock at the strike price. If the price falls, you are forced to buy the stock at the strike price.

Thinking about this, I would sell the call a certain percentage above where it’s currently trading where I’d feel happy about locking in that gain. I would sell the put below a support level, where I’d be happy to build a position. A prime candidate for this strategy may be a stock like MO where I want to sit around and collect a dividend on it and would build a larger position if it fell to a certain level. If the stock was called away and I still wanted to own it, I could always just go onto the open market and purchase those shares back. The only loss is the transaction fee on the sale and the subsequent purchase.

Where I’m a bit uncomfortable about this is that a stock could be put to me when some bad news has come out and I really don’t want to own it, because the stock is in freefall. Imagine if in April you had owned BP, which had a nice dividend at the time, and employed this strategy.

The flip side to this is to just sell the covered call, so that you don’t have to worry about a bad stock being put to you. The only downside there is that it could blow through the strike price and you don’t participate in any of that upside above the strike.

Looking at a straight covered call strategy on MO, I would sell it around 26. Unfortunately, the closest that I can find is the October 25s, which are selling for 0.01 right now. That would be a $1 sale per contract. Unfortunately, the trade commission is about $10, so you are sitting on a net loss of $9 on that trade.

I’m going to have to keep looking to see if there’s actually a core holding with an options price next month that is moderately attractive.

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I’m bracing myself for the market’s reaction to an Obama speech and the Fed’s beige book numbers, both coming in the next 5 minutes. We’ve had a good run up today, but have been giving back some of the gains in the last hour.

I’m watching the levels that we’re at and it’s not time to pare back on gains, even though they’ve been great this month. I’m waiting for us to get closer to 1150 on the S&P to start selling. I’d like to think that a good message from the president can help us break out of our range, but I suspect that we won’t until after the November elections or until we get more clarity on which party will control what.

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On strong up days in the middle of a trading range, I like to take a look at the portfolio and see where I can start to trim positions and what I would buy on pullbacks.

As we close in on the top of the trading range, I think I’ll be making the following changes to the portfolio:

• Trim JPM to right size the position. I am currently overweight. I might even close out my JPM position and wait to buy the XLF, financial ETF, on a pullback.
• Trim ISRG on any whiff of weakness. I don’t like its chart, but the rising tide is lifting all stocks right now.
• Trim DECK options. I’ll probably close out the Dec ’10 options and let the March ’11 ones run, until the stock meets resistance.
• Trim AAPL Jan ’11 options. This one is is a tough one, because I honestly believe it can run to 300 by the end of the year. It’s just irresponsible though to stay so heavily overweighted in this stock though. I still have April ’11 options and common stock as well to stay exposed to this winner.

If we get a pullback, I’m going to be looking to make these changes:

• Rebuild the BIDU position as it nears its 50 day moving average. (There isn’t a price target on this, because as the indicator implies the average moves over time.) It has been showing strength every time the stock approaches the 50 day moving average and bounces off of it.
• Add to my CAT position to finish building it up.
• Add more high yielding dividend stocks like KMP or NLY. If MO or VOD get hit really hard, I’ll continue building my positions in those two names, which have been doing great this year.
• Look for an entry point in CMG or CRM.

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With today’s gains on better than expected jobs numbers, we’re closing in on the 200 day moving average for the S&P, which is around 1116. That’s about 1.6% from where we’re currently standing.

We haven’t been north of that line for a significant amount of time since May, so I’m going to be watching moves around it closely.

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Today we closed above the S&P’s 50 day moving average of about 1081. If the markets hold above it on tomorrow’s jobs numbers this would be a bullish signal and then the next point of resistance will be around 1116, which is the 200 day moving average and the June highs.

The big money is back from vacation next week and will be looking to put money to work one way or another, so I suspect a directional move next month will be strong in either direction.

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We rallied yesterday off of the China PMI numbers and it looks like we’re lifting a bit again today. Tomorrow is all about the payroll numbers, so we’ll need to see if the rally will continue or if we’ll head back to the lower end of the range.

I don’t see any buying or selling opportunities in this middle range right now, so I’m on the sidelines until we move decidedly towards one end of the range or another.

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The S&P broke through the 1050 support level and closed at 1049. I wouldn’t be surprised to see more selling tomorrow, unless there’s some macroeconomic news to give us a reason to rally.

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