Rhody Trader

Well, AUD/USD has done some interesting things since my last look at it (AUD/USD: Look for Some Action Soon). I told you it was going to! (Same with GBP/USD – GBP/USD: Can You Say Consolidation?)

There was a little fake break higher as I’d expected. The bigger fake break was lower, though. It happened last week on the drop below 0.9350. Now the reversal higher is taking full force with the rate through 0.9600 and running.

Could this be a move to par? I don’t see any reason what not.

The GLD call worked out to perfection, though (Gold Looks Like It Should be Finding Support Soon). A couple weeks ago the market bottomed out right in the area I thought it would. Yesterday it crossed the $90 level which was my target for the rally. Today it’s running higher still. I can see $93 getting hit shortly.

I said NSIT could move down to $14 (NSIT Not a Buy Now, But Could be Soon). It did that and then some in the latter part of April. On a valuation basis there could be a buy argument made here, though earnings estimates have been lowered from where they were when first I looked at the stock.

I’m still waiting for LPHI (LPHI: Life Partners Could See 55 and Up) to do something.

Still waiting to see the S&P 500 do its interesting thing (Something Interesting is on the Way for the S&P 500).

I just had to get this out.

I’ve read a number of the Dirk Pitt novels written by Clive Cussler. I had a roommate who had a whole bunch of them. I was spending a couple hours a day on the train back then, so I was going through books very quickly. He let me read the ones he had, along with a bunch of Clancy and others in that action, espionage, adventure genre.

Until recently I hadn’t read a Cussler book in a long time – certainly more than 10 years. A few weeks back I read one for the first time – I think the first one ever written. It was fine, but nothing spectacular. I remembered Cussler’s style, but this one was from before he’d really refined it.

Cussler’s got a lot of books in print, and I’m a voracious reader, so I figured I’d give another book a shot. I picked up Night Probe and started reading it this week.

Wow!

This book hooked me really quick. I’m only a few chapters in, but every time I put it down I can’t wait to pick it back up again. And Dirk has yet to make more than a couple of quick appearances. Cussler has really got a nice little mystery going here.

I came across NVR this morning while flipping through some stock charts. As you can see by the daily below, it’s recently broken down below $600 area support.

OK, that’s not a huge deal. Sure, we could be looking at about a 10% drop down to the $520 support area from the March lows. Could be a decent swing trade short.

Here’s the really interesting part, though. The stock has traded at a PE of between 3 and 11 on a trailing basis over the last five years. Right now the trailing PE is about 8. On a forward basis, though, that PE is more like 15. That’s because estimates for earnings this year are in the $30s. In order for NVR to be stay within that PE range, it would have fall to about $400 by year-end.

This would be an awesome put play situation. Unfortunately, there aren’t any options on NVR so you can make that trade. You’d have to do a straight short.

Today was definitely an interesting one. Run it up. Run it down. End relatively little changed.

Yes, I made some money. I should have made more.

The main levels to watch at the start of the day were Friday’s point of control at 1422 and the 1431 level which goes back to a January failur point. The 1436 area was an important one over January 8/10 as well, and 1444 was a rejected peak area from near the start of the year.

I wanted to buy at 1422, but the market didn’t give me that entry. I then tried a tentative short near 1431 when it looked like the market might have stalled out, but obviously it kept going.  After it rallied through 1436, though, it couldn’t must enough punch to reach the 1444 area, so when I saw the momentum failing once more I got short.

Unfortunately, I got out when the market held up around 1431 again. Once more that level burned me. I could have made something close to another 10 points had I been more patient.

Euroseas (ESEA) is a stock I posted about a while back and one I’ve been playing myself. The stock has had a very nice run up in recent sessions – going from around $14 to over $17 in about a week. The stock has pushed through the latter level today on a combination of things. Firstly, the whole container shipping group is doing well. Second, the company announced an increase in the quarterly dividend. Third, the company announced the aquisition of a new ship which already has contracts locked in through 2011, and options for up to three more years.

I haven’t seen any updated analyst reports, but I’m sure those who cover the company will be redoing their estimates and target levels on the news. The new tanker will add several million in revenue, though I’m not sure what that’s going to mean in terms of profits to the bottom line. You have to figure, though, that the company wouldn’t have made the purchase if there wasn’t a profit benefit to be had.

Current FY08 forecasts are for $1.86 EPS. Price targets of $20 were previously made.

I’m up over 100% right now in my option position.

I was taking a look at the S&P this morning when I realized that the Bollinger Bands were getting rather narrow. That got me wondering how narrow the really were. The chart below is what I looked at to get a reference (click to see it full sized).

The middle area is of course price with the Bollinger Bands overlayed. It’s pretty easy to see how pinched they’ve become. The upper line is the Volatility Reference Indicator I developed a while back. It says that the Bands haven’t been this narrow for quite some time now. Bands this narrow mean we’re probably going to see a volatility expanion – most likely in the form of a major directional move – sometime soon.

In case you’re curious, the bottom plot is of an indicator called Trend Intensity. It’s a proprietary one we use where I work. Actually, before too long we might be making it available beyond just the subscribers to our services who normally are the only ones with access.

Today was fun! Lots of tradeable action in both directions. Actually, it was a lot like yesterday in terms of the way things played out.

The open was right in the are of 1410, so a bit above yesterday’s range. That put the market into the area of the thin value zone running up to around 1420 from last week when the highs were put in. As a result, we had 1406-07 as the lower reference point and 1423 as the rejection point above the market. In the morning the 1413 and 1418 levels – minor points of control from those thin value days – provided the brackets for what would eventually become the day’s main value zone.

Alas, I missed out on the fun of the rally.  I really should have gotten long when the market was down around 1410 to play the seemingly inevitable run up to 1420. I didn’t, though. That move back down, however, I did catch for a nice gain. Today’s action was in many ways the mirror of yesterday in that the market eventually back-filled the A period area that hadn’t been overlapped earlier in the day. That gave me a good idea how far the market could fall, and thus a good exit point.

I really couldn’t have nailed today’s range any better. Too bad I didn’t take a little better advantage trading it.

The market opened today on the high side of 1405 which put it a bit below the 1406/07 points of control from back on May 5th, above which the distribution got real stretched last week. On the downside was the 1396/97 combined points of control from Thursday and Monday. That provided a really nice range for the day.

When the market ran up to the upper bracket I took the short because the market wasn’t showing any underlying strength. I then was able to play the move down to the lower end of the range, picking up decent points. Unfortunately, I didn’t reverse at that low point and make some more nice points on the ride back up.

The start of today’s session was fairly predictable. The end, a bit less so. I was expecting a bit of backing and filling on a day that otherwise didn’t offer much to be excited about.

The market started off around 1390, which put it nicely between Friday’s 1388 point of control and the one at 1396 from Thursday. The other meaningful point of reference was 1400, above which prices were rejected on Thursday.

The market didn’t rally up toward 1396 right away, which is kind of what I expected. Instead it went the other way. It might not have nailed 1388 right on, but it didn’t go far enough lower to get one thinking a breakdown was happening either. In hindsight that was the buy point.

The market eventually did reach up and tag 1396. After a short pull-back, it then proceeded through. I tried a short, but obviously it didn’t work out. No worries. The 1400 level should still be resistance.  That it was, for a spell. Again a short didn’t work out. As the market demonstrated more strength than expected – or just a lack of sellers.

Getting out of the EUR/JPY short in expectation of being able to get back in at a higher level has ended up working out for me after all. I’ve been able to start rebuilding my position a couple hundred pips higher. I still like the scenario playing out for a run at least into the middle 150′s, if not the lower 150s in the weeks ahead.