Archive for September, 2012

Do you use Simple Moving Averages (SMA), Exponential Moving Average (EMA), Moving Average Convergence Divergence (MACD), KDJ Indicator (KDJ), Relative Strength Index (RSI), William %R (W%R), Bias Ratio (BIAS), Bollinger Bands (BOLL), Fast Stochastic Oscillator (FSTO), Slow Stochastic Oscillator (SSTO), Community Channel Index (CCI), Volume Moving Average (VMA), Bollinger Bands, Ichimmoku Clouds, Keltner Channels, Parabolic SAR, Pivot Points, Price Channels, Volume by Price, Volume-weighted average price (VWAP), Zigzag, Accumulation Distrbution Line (ADL), Aroon, Average True Range (ATR), %B Indicators, Commodity Channel Index (CCI), Coppock Curve, Correlation Coefficient, Correlation Coefficient, Chaikin Money Flow, Chaikin Oscilator, Detrended Price Osciliator (DPO), Ease of Movement (EMV), Force Index, Know Sure Thing (KST), Mass Index, Money Flow Index (MFI), Negative Volume Index (NVI), On Balance Volume (OBV), Percentage Price Oscillator (PVO), Stockchart Technical Rank (SCTR), Slop, Standard Deviations, StochRSI, TRIX, Ultimate Oscillator, Vortex Index, William %R, Arm Index, Advance-Decline Line, Advance Decline Volume Line,  Bullish Percent Index, The High-Low Index, McClellan Oscillator, McClellan Summation Index, Net New Highs, Percent Above Moving Average, Put/Call Ratio, Record High % Index, Volatility Indices, or one of the several other thousands of man-made indicators?

Indicators are just that, indicators.

I’ll be the first to say that what you are looking for as a trader is a SLIGHT advantage, but if I was to provide you each of these numbers and an explanation for each of them (which I don’t know 80% of them), it would end in absolute chaos.

Far too often people back into their results.  If you use a handful of these indicators (say 10), odds are one of them will seem to have a very strong correlation to your results, until it doesn’t.

The amount of information overload is crazy. Call me lazy, but I think the people who try to follow all of these indicators are mentally insane.

I’ll stick to my range, P/E, revenues, margins, net incomes, and technical margins. I personally find moving averages to be close to worthless (but that is my opinion). But who knows, as I go down the rabbit hole, maybe I’ll do what most traders do.. find a few indicators I like and become completely closed minded.

All I know is that I’m up for the year a lot and I didn’t need the Force Index Indicator or Know Sure Thing (KST) to get here.

I’ll stick to my guns and my way of approaching a trade.

 

JCpenney’s is Doom (Symbol JCP), Short on JCP

Revenues, EPS, traffic, and gross margins are all down. I for one am short on JCP.

The “nay-sayers” will say that their restructuring deal was a four-year plan, but frankly I feel like the results should have been extremely more positive in the short-term to have any chance of bearing fruit long-term.

How bad is it? I would argue it’s really bad.

  • Revenues in Q3-2012 are down 22.6% from Q3-2011
  • Net income for Q3-2012 was -$147m versus +$14m in Q3-2011
  • Actual traffic in the store is down for a second consecutive quarter

I could go in to more detail about margins, but those numbers are enough alone to be justification of a short to me, but then again I’m bias. I hate J.C. Penney , Kohl’s, and Macy’s. We went through the cycle of coupons and discounts and now we are into reinventing ourselves similar to Target? I’m not buying it.

J.C. Penney is a dying company to me. Increased competition and what I would call the “dying age of the mall” will slowly push a lot of retailers out of the game. I admire J.C. Penney for trying the restructure, because honestly they didn’t have much choice if they wanted to continue long-term, but what exactly do they have going for them?

I would say the only thing that can save J.C. Penney now is quality of product. I’m not going to get into specific brands, but I believe J.C. Penney is still viewed as having higher quality than competitors like Walmart and Target. I’m not sure that will stand the test of time, but quality of product should Jcpenney’s future and things might get ugly when it comes to advertising (bashing competition or implying inferior competitors).

Then again, I just don’t think J.C. Penney  will focus on quality, and ultimately it will become a thing of the past. If I was long on retail, I would consider target (Symbol: TGT) if it got back down in mid to high 50’s. Although I personally hope target goes up, so I can short it on resistance. When it comes to Macy’s and Kohl’s, as much as I personally hate them both, their Year on Quarter revenues did not suffer like J.C. Penney’s. I view them as an avoid or potential short (again trading on resistance).

Could J.C. Penney rally? Of course, but I currently believe it is more likely to fail than succeed, and that is enough for me to take action. I can tell you one thing though, You won’t find me shopping there.

Disclaimer: Although I personally have taken a short position on JCP, my opinion and this article should not be used for any decision making of any kind. Always consult a professional before investing.

 

You want some extreme leverage? Well then look no further. Look into buying a Dow Jones Index ETF option.

Ever just want to buy or short the Dow Jones buy don’t have $13,000+? Well take a look at an ETF. Dow Jones Index ETFs, such as DIA are meant to act on a 1/100th scale. Therefore if the Dow Jones is 13,000, DIA would be $130.00 (give or take a little bit). Therefore if the Dow Jones goes up 100 points, you would get about a $1 appreciation (.769% return).

I did say extreme leverage didn’t I? Well that’s where the options come into play.

As of today, DIA is 130.88 (the Dow Jones is 13,090). You can participate in all of the upward swing above $131 from now till Sept 22th, 2012 for about $1.40 a contract. Meaning that everything over $132.40 ($131 strike + $1.40 premium)  is a gain.

Scenario #1 – Dow Jones shoots up 400 points from now until Sept 22nd. Result: DIA ends up at 130.88 + 4.00 = $134.88. Strike price $131, resulting in $3.88. $3.88 – 1.40 (initial investment) = $2.48 / 1.40 = +177.14% in 14 trading days.
Scenario #2 – Dow Jones shoots up 200 points from now until Sept 22nd. Result: DIA ends up at 130.88 + 2.00 = $132.88. Strike price $131, resulting in $1.88. $1.88 – 1.40 (initial investment) = $0.48 / 1.40 = +34.28% in 14 trading days.
Scenario #3 – Dow Jones shoots up 100 points from now until Sept 22nd. Result: DIA ends up at 130.88 + 1.00 = $131.88. Strike price $131, resulting in $0.88. $0.88 – 1.40 (initial investment) = $-0.68 / 1.40 = -48.5% in 14 trading days.
Scenario #4 – Dow Jones doesn’t move or goes down by Sept 22nd – You lost it all, it’s a worthless option, -100% in 14 trading days.

Still not visualizing it? Take a look at the chart below.

Dow Jones Index ETF

 

Now instinctively you might look at that chart and think, The rewards outweigh the risks, why wouldn’t you just keep taking the chance at this? Because determining the probability of movement is next to impossible. For example (made up numbers):

So why invest in index ETFs? Well, I for one am considering taking a position on Tuesday to hedge. I am completely too long on my portfolio and need a little more hedging against a down market. I am considering taking a very small portion of my account ($500, about 4%) and putting into a leveraged Put option against the Dow Jones Index.

The theory is simple, if the market goes up my long options gain and my put option gets killed, but if the market goes down my put option goes crazy and mitigates my losses on my otherwise long portfolio. Although I am buying a very leveraged position, I am effectively hedging and “de-leveraging” my account.

This highly leveraged position is not for the light hearted though, you really are riding the lightning with these bad boys.

I will end on one final note. I wrote a long time ago about using option chains to see market sentiment, and this Dow Jones ETF option chain tells a story. It’s $3.50 more for a put than it is for a call for a long-term option (expiring Jan 18th, 2014). Now the stock is about $1 in the money, but $2.50 more for the put is substantially more. Even though there are some fundamental aspects to trading options that would justify a slightly higher put price than call price, it seems like there are more negative Nancy’s out there than positive Patty’s.

 

 

 

 

Buying Sterling Silver to Melt into Bullion

Believe it or not, buying sterling silver to melt into bullion is actually a thriving culture. With silver over $30 an ounce, it’s not a shock that people are out at thrift stores and estate sales looking for silver to scrap.

So whats the deal with Sterling silver?

Sterling silver is commonly 92.5% pure silver, and as such is marked with a “925” symbol on the piece. There are other purity silvers and it is common for them to be stamped with their purity, but there are some things to be warned about (covered later).

So how does this exactly work?

It’s actually fairly simple, and it should be considered how long coin minting has been in action.

Step #1 – Find a bunch of silver

Yard Sales, estate sales, thrift stores, or pawnshops. Anywhere you can find it a good price. Check the spot price via google finance or yahoo finance. Be sure to discount it for it’s purity (92.5% for example) and for your time. If you are paying 80% spot, it might not be worth your time unless you can get it in GIANT quantities. You are better offer looking for high margin but more infrequent transactions.

eBay sells a ton of scrap silver, but it’s rarely cheap enough to act on in my opinion. You maybe able to sneak a few deals out of it though.

Step #2 – Melt it down in a crucible with a torch or kiln furnace (Disclaimer: Never do either process ever. I am not advocating this processing, nor am I an expert in this field. Consult a professional and never attempt yourself.)

Melting Silver

Step #3 – Refine it with needed agents (borax is commonly used, again if you are serious about trying this, consult a professional.)

Step #4 – Poor it into a mold (typically graphite or stainsteel)

Step #5 – Polish it and sell/store it.

Yup it’s that blunt of a process. Now of course you can stamp your silver and even buy custom molds to add to the fun

What should I be warned about when Buying Sterling Silver to Melt into Bullion?

  • Markers marks for item #. You might see x869 and think it’s 86.9% pure, but it might be piece number 869.
  • Cement filled pieces. Yes that’s right, that 2lb candlestick is not solid silver! A cement polymer is often used to fill sterling silver.
  • Actually refining silver is a process that is probably best left to the experts, although that doesn’t stop a lot of people from trying.

But you know what? I don’t think all of this is worth the time.

The biggest reason why I don’t think it is worth the time, is that scrap silver sells for about 85% spot value on eBay. No crucibles, no molds, no energy costs, no borax, no misc tools. You just take your scrap sterling silver and presto, 85% spot. Ultimately I view this as a craft/hobby. If you enjoy making homemade bullion, then maybe it would be worth it. I am just doubtful that there is an actual financial net gain.

Final note, I think that because of silver prices.. quality sterling silver silverware is going to be more and more rare. I think you might get a better return just keeping full sets than melting them down. Hold on to that set, you will always have the option to melt it down later.

 

 

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