Saturday, December 5, 2009


If you had followed me at HOB, I made a decent profit on my GLD puts which I bought on Thursday. I went into Friday with 30% of my portfolio in GLD Jan 118/110 put spread and rest in cash. I closed all my GLD put spreads on Friday when GLD was trading at 115.64. I bought some index Jan put spreads on Friday when S&P was trading at 1115-1118.


1. Here is a perspective of the much talked about rectangle/box chart pattern that we are currently in (trading between 1087-1090 and 1111-1113):

In an uptrend, it could be bullish i.e., it can break above. However, the volume has been high on down days and low on up days within this rectangle pattern, which does not support the bullish breakout-

If we do end up breaking above, the target would be 1130-1140 (add the height of the rectangle to the upper trendline of the rectangle). Todays break above 1113 appears to be a fake out.

2. Thursday's and Friday's action were not bullish to me at all. "BAC repaying TARP" was rejected on Thursday and the better unemployment news was also rejected on Friday. On a closer look, the much touted rectangle/box trading pattern actually looks like an expanding wedge/megaphone/broadening formation. We could drop to 1092/1085/1072 next week and then stay flat or have a small rally into X-mas. I looked at the historic trading data between Dec 7th-Dec 25th from 1997-2008 and it suggests a small drop (2-3%) next week and flat to small rally (2-3%) into X-mas.

3. Gold dropped to 1140 during overnight trading on Thursday last week after the Dubai news but it recovered like SPX and rallied to 1225. However, it dropped to 1140's again during yesterday's regular trading session. The SPX low (after Dubai news) during Thanksgiving holiday was 1067 and I think we will see that level soon. Too many of us are expecting an X-mas rally and believe it is impossible for the markets to crash just before X-mas. Though I am not expecting a crash, I would not be surprised to see the gap at 1070 getting filled.

4. Bullish Scenario: There are no economic news on Mon and Tue. It will be easy for the crooks to take the tape higher on those days. Also all the indices formed an intra day double bottom on Friday, the target of which could be 1114-1115. If it is indeed a rectabgle chart pattern, the target upon a breakout would be 1130-1140.


1. AZO and SAFM- Tue BMO

2. LULU- Wed AMC

3. COST- Thu BMO

AZO: My thoughts on AZO-

AZO has around 4.5% short interest. It filled its gap at 152. Daily RSI is currently at 65. AZO still has room to run up to 160-162. Daily MACD is yet to show a bearish cross over.

In Summary, I have a NEUTRAL bias and my strategy is to buy both Dec 155/160 call spread and Dec 150/145 put spread.


I like LULU the most. LULU has 12% short interest and has the potential to move >10% after earnings.

BULLISH scenario:There is not much insider selling. They raised earnings forecast by 50%

BEARISH scenario- Looks like a bearish rising wedge with backtesting of the lower trendline.

My strategy is to place a straddle/strangle.



  1. Pra,

    I asked on HOB about GS earnings and longer for that matter, but no one replied???

    So, what are your thoughts on the Jan Buy the 180...sell the 185 VS? Db was hoovering around a buck today.

    I have to imagine that not only will GS beat, but the mkt will push them to new levels....would like your take on this please...

    you can reply to...r1200gsa1@gmail if you like...

    Cheers, Paul...flyboy

  2. Hi FB,

    GS will hit 200 by EOD Jan 2010 IMO. I was waiting for 158 and it turned around at 160. It could drop to 157-ish too before heading higher. So you could enter 50% now and another 50% if it drops to 157. Keep in mind the 180/185 VCS could drop to 0.25 if GS drops to 157. I would do 170/175 or 175/180 VCS instead. The 170/175 VCS has less risk and lower reward compared to the 175/180 and 180/185 VCS.

    Good Luck :-)

  3. Thank you Pra!

    I can't see them missing this earnings especially giving out 30 billion in bonus money to employee's...I would love to get in at 158-160, but not sure if that train will come back to the station?

    I'll look at the 170/175 tomorrow.