MA | AKS | GOOG | SKF

Three caught my eye today (MA, AKS, GOOG).
MA looks like it would be much more comfortable at 120


AKS short at 7.50


GOOG possible bounce before further breakdown



Though close, SKF has not yet trigged a short signal.

Setups

The following are several low risk setups worth considering for a short-term trade:

AKS


TXN


GLW


GNK


STX


RS


TIE


AAPL


PG


LLL


GOOG


BIDU

AKS - more overhead resistance

UPDATE: RC just brought to my attention the higher than usual call volume in AKS today (thank you). Looks to be due to rumors of a merger. I'm not a huge fan of trying to interpret option volume as I often find it misleading; however, I'm also not a fan of taking on unecessary risk. There's too many other setups out there without having this monkey wrench thrown into the mix. Please feel free to ignore this inadequately researched setup.

AKS

Running Out of Room

IWM, as well as SPY and QQQQ continue to remain perfectly inside of its descending triangle...but not for long. It's running out of room and will resolve itself next week (expiration week). I've been looking at some reasonably prices debit/butterfly spreads and will post, if any present an attractive risk/reward ratio.

Some I'm looking at involve ICE, AAPL, GS, OIH, PFE, BMY, AKS, the list goes on and on and all candidates have a common characteristic: overhead resistance is substantial. Bounces and oversold rallies aside, I will continue to favor the downside until given a reason not to.

IWM

Managing Risk with Ratio Spreads

The market is starting to make higher lows and may be showing signs of making a base...at least a temporary one. Ratio spreads may be appropriate in this environment if the following describes you:
You don't want to miss a move upward but think one is coming
Downside risk still makes you nervous
You don't think the market will explode higher

If in fact a short/intermediate term base is forming in the market, consider ratio spreads to profit from it. Below are three examples, based on your risk profile.

This example uses AKS but the strategies can be applied broadly. Firstly, start with a realistic price target. I think by November expiration, AKS could move to the 17ish range but overhead resistance will kick in around 20 (assuming AKS moves up at all!)



















Low Risk (limited, known risk / limited, known profit)
In this example the most you can lose is $180 and the most you can make is $570
This strategy is a Bull Call Spread (you're bullish and it uses calls...if the lexicon is hard to keep straight) but will help illustrate how ratio spreads can be used to adjust your risk/reward.















Medium Risk (opportunity for big profits / unlimited risk)
The risk is technically unlimited with ratio spreads since it does involve the use of naked calls; however, in this example, AKS would have to get above 28 before you started losing some serious money. It's definitely possible but not probabilistic. Plus, the most you can lose to the downside is $195 and if, in fact, AKS moves up moderately, you can make as much as $1,055.















High Risk (the riskiest of the three examples - you won't lose a dime as long as AKS stays under 20 and it has the potential to return some big profits)
If you have high convictions about resistance at 20, consider a higher risk ratio spread. Here, downside risk is zero - you actually get paid $200 to put the trade on. You can make up to $1,475, if AKS moves up moderately (to the 17ish area) but on a move above 20 is where you will get hurt.














Ratio spreads can be a great tool in a time like this. You can see from these examples that it is a constant trade off between how much the ratio spread costs and your chance of success and your upside breakeven point - so a trade calculator as used above is invaluable.

Always make sure you understand the unlimited risk to the upside and continue to be aware of most options currently having a bid/ask that you could drive a bus through. If the spreads are wide, look elsewhere.

Taking it

A lot of stocks rolled over and broke support today...and from sectors you might not expect (ag, steel, coal, energy, etc). Hopefully none of these moves ruined your weekend plans and you'll be able to find a way to profit from them. I will likely sit tomorrow out in protest of this obnoxiously choppy market but I am seeing a lot of nice setups for next week.


Steel and Coal stocks all took in on the chin while breaking through significant levels of support
--> X, AKS, ACI, BTU


Possible longs (as always use tight stops)
--> RIG (yes, this is the whole list)


Possible shorts (same)
--> ICE, GNK, AA, POT, MON, MOS, UNP (...finally UNP)


Watchlist (these may yet require a bounce or a pullback before taking action)
--> MA, VIX, CME, NMX


Have a great July 4th weekend! With this year's undisclosed destination, I will see if I can snap another award winning photograph - just like the one I took last year: Click HERE to see it.

If I ever get tired of raping and pillaging the options market maybe I can just fall back on my photography skillz.

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OptionSpot

Triangles

For a precursor on triangles, click here.


AKS - ascending triangle

CELG - symmetrical triangle

MMM - descending triangle










Trading for a Living
Valid breakouts occur during the first two thirds of a triangle. It is better not to trade breakouts from the last third of a triangle. If prices stagnate all the way into the apex, they are likely to remain flat. A triangle is like a fight between two tired boxers who keep leaning on each other. An early breakout shows that one of the fighters is stronger. If prices stay within a triangle all the way into the apex, that shows that both boxers are exhausted and no trend is likely to emerge.

Patience

Fortunately I have the luxury of not having to be in the market every day...because most of the charts I'm coming across look like shit.

Remember, Chuck Norris doesn't sleep..... he waits.

Here are a few thoughts that should be self explanatory:

AKS

CELG

COF

FTK

GNK

GOOG

NMX

RIG

SMH

USO

VIX

X

SPY



Trading for a Living
A trendline is not a glass floor under the market - one crack and it is
gone. It is more like a fence that bulls or bears can lean on. They can even
violate it a bit without toppling it, the way animals shake a fence. A trendline
break is valid only if prices close on the other side of a trendline.

Playing both sides

Consensus is calling for sideways action in the broad markets (138-145 for SPY, 46-51 for QQQQ) for the next few weeks but that doesn't mean you have to sit on the sidelines. I still like the idea of selling OTM credit spreads on SPY and ETFs, for example, but there are a lot of other opportunities out there on individual stocks. Here are a few thoughts for the short-term...

Apache Corp (APA) - breakout
Devon Energy (DVN) - breakout
AK Steel Corp (AKS) - breakout / recent bounce off 20 day MA
Research in Motion (RIMM) - breakout, possible consolidation before heading higher
Apple Inc (AAPL) - pullback / found support at 20 day MA
Halliburton Inc (HAL) - breakout
Exxon Mobil (XOM) - ascending triangle




Valero (VLO) - in a downtrend / overbought
Lehman Bros (LEH) - breakdown
Dryships (DRYS) - broke trendline / look to the 20 day MA for support - still very strong, just got overextended.







I like AAPLs chances of revisiting 200 by Q3. Consider picking up some OTM OCT Calls.