Get RSS Feed
2:30pm (EST)
After spending the first couple of hours in positive territory, the market has given up all of its gains as all three of the major indexes have turned negative. The S&P 500 is getting hitting the hardest as it is down nearly 1%, or 10 points, to 871.
Yesterday I explained how the S&P 500 rolled over and fell below its 200-day moving average. A closer look at the chart also reveals a head-and-shoulders pattern that has been penetrated. The full impact of last Thursday’s jobs losses is starting to set in and the bulls seem to be retreating. Talk about another stimulas package is also weighing on the market.
The PowerShares QQQ’s (QQQQ, $34.45, down $0.08) are trading lower and the July 36 puts (QQQSJ, $1.60, up $0.10) have traded to a high of $1.80 today. We could get a “dead-cat bounce” so be careful with these if you haven’t started taking profits. There may be more room for profits in these options but start putting stops in place.
American International Group (AIG, $12.88, down $0.87) is taking another pounding as it is down 7%. The July 18 puts (AIGSR, $5.75, up $1.15) opened at $4.80 while the July 15 puts (AIGSO, $3.20, up $0.67) opened at $2.80 have hit a low of $2.34. I have been mentioning the weakness in AIG and today was a good day to go out and make some money.
Amgen (AMGN, $59.98, up $7.75) just couldn’t make it past $61 which is what the chart showed us this morning but the July 60 calls (YAAGL, $1.25, up $1.21) are still up 3,000%. That was not a typo. These options closed at 4 cents yesterday and opened up at 60 cents. I mentioned these BEFORE the opening bell and they have hit a high of $1.80 today.
I’ll be back tonight with an update on Alcoa (AA, $9.18, down $0.23).
Rick Rouse
Rick@MomentumOptionsTrading.com
AIG Takes a Beatdown
Thursday, July 9th, 2009
8:30pm (EST)
One of my favorite trades is the “history repeats itself” trade. These are trades on stocks that you actively follow and you know how to play them on the way up AND on the way down.
One such trade that has fit that bill again is American International Group (AIG, $9.48, down $3.62). For those of you that have just signed on, AIG was a huge trade recommendation last year that returned our subscribers over 800% as the stock was one of the first in the financial sector to take a beating. That trade can be viewed by typing in AIG in the search box (to the right) and reading the past articles.
Folks, the point I’m trying to make is that were are showing you how to make money that will last you a lifetime. Hey, you will have to do something when you retire so why not learn how to make money instead of letting someone else manage your money? And why not learn the little tricks that can make you monster profits in a short amount of time?
There are a lot of ways you can go about trading but it really comes down to two types. Fundamental trading and chart trading. I do both which is why I talk about a trade AND talk about the chart. With charts, you learn support and resistance levels. With fundamentals, you go on what you know about the company and its products.
The AIG trade was ALL a fundamental trade but the chart showed the same breakdown that my buddy Mike Albright teaches. Man, I’m telling everyone now, you have to take his upcoming class this weekend. More on that in a minute.
When I told you last week about the reverse stock-split, I told you it would not be good for shareholders. Last week I did a couple of write-ups on AIG when the stock was at $18. The stock was at a $1 when the company did a 1-for-20 reverse and here is what I said before the holiday weekend:
“When a company does a reverse split, they normally don’t turn out to well, meaning, the fundamentals haven’t changed. If the fundamentals or outlook hasn’t changed, what makes the stock attractive?
I’m not sure if we get a repeat performance if and when they do list options on the stock again but there may be an opportunity down the road to make something on a stock worth much of nothing.” (END)
The point is when you see this in the FUTURE, remember the returns that put options can provide if a weak company does a REVERSE stock-split. Of course, nothing is a guarantee but more times than not in my 20 years of investing has a reverse stock-split meant good news for stockholders. There will come a time and these are the type of returns that can be made:
The July 18 puts (AIGSR, $7.25, up $1.15) opened at $4.80 yesterday and traded to a low of $3.50. Depending on where you got in most of you are looking at gains of 50%-70%. The July 15 puts (AIGSO, $5.80, up $3.06) could have been picked up for $2.80 and hit a low of $2.34 on Wednesday. If you got in under $3 then you are looking at triple-digit profits. I had mentioned to set a stop of $3.50 this morning but that was never in danger of being triggered as AIG folded like a cheap lawnchair.
Another way you could have played today’s action was this way. When the Blog was posted this morning at 10am, you could have taken a look at the July 10 puts (AIGSJ, $1.75, up $1.26) which opened at 65 cents. They closed at 50 cents yesterday. AIG got hammered from open to close and it clearly visible in the charts as well.
Now, another important lesson that you need to learn is when to take profits. I always target 100% return for every trade and try to keep losses at 50%. Once you get over 100%, roll your stops up. And if you are up over 100% before the weekend, at least take some off of the table. ANYTHING can happen over the weekend, good or bad, and a major news event could have a profound impact on your positions. You can still leave some open to take advantage of any further gains but you have to learn when a trade has run its course.
Keep an eye on AIG on Friday but remember these pointers.
Now, back to Mike Albright. I have been talking about the weekend webinar that he is hosting and here are a few more details. All you need is an internet connection and some speakers. Mike is going to be going over charting and he will show you exactly when to take trades. These trades are based on a “240 minute” chart which is what he wanted me to share with you tonight.
As we talked about his webinar, we also talked about the action in AIG today. I had explained to him the reasoning behind the trade (reverse stock-split) and he pulled up a chart. Bingo. He said the secret to calling big moves is what he is going to be teaching and AIG showed this big breakdown. Amazing. So we looked at another stock.
I told him about Amgen (AMGN, $58.13, down $1.37) and how the stock had jumped $8 yesterday and explained to him when I looked at a multi-year chart that resistance was at $61. I mentioned how if the stock could break through $61, it could make a run to $65. The stock made a high of $60.95 and broke down like a rented mule after peaking yesterday morning.
Mike also said it was clear on the charts where the volume and price action would have told him to short the stock right there yesterday. A quick way we could have played that would have been to use the July 60 puts (YAASL, $2.25, up $0.75) but I was looking for the breakout, not a breakdown.
The point is you can now learn both option trading methods. And when you combine the two you have the chance to find some MONSTER trades.
Mike has also informed me that if you cannot make the weekend webinar that he will be doing 3 night classes as a follow-up. These classes will be unique in that they may also offer trade picks.
I’m telling you, Mike and I work well together and you will enjoy his perspective on the market. He will show you how to short market tops and find exact entry and exit points much like I do but from a charting point of view.
Folks, if you ever wanted a simple, easy way to understand charting, you should really consider taking the course. He has also given the readers of the Blog a special rate which is dirt cheap when you really get down to it. However, you MUST sign-up before 1:30pm (EST) on Friday for the webinar and special rate.
To join us this weekend click here:
Thanks everybody and I’ll be back in the morning with an update.
Rick@MomentumOptionsTrading.com
Tags: AIG, Amgen, technical analysis
Posted in Company Commentary, Option Trades, Strategies, Trading Tips | No Comments »