17th day of $QQQ short term up-trend; SOCL–social media ETF

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

76%

I recently discovered the social media index ETF, SOCL.  This is a way to own a number of key social media companies.  I bought some and like the technical pattern. Here is a monthly chart of SOCL.

SOCLmonthly03052014

 

 

16th day of $QQQ short term up-trend; INVN, WWE–green line break-outs

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

76%

INVN flirted with a green line break-out on Tuesday on above average volume. Check out its daily graph.  INVN has an IBD composite rating of 93. Note the large up volume, black spikes.

INVNdaily03042014WWE also had a high volume green line break-out.

WWEdaily03042014

15th day of $QQQ short term up-trend; Relative strength in $AAPL, $TSLA, $IRBT, $MTRX and $SALE.

GMI

6/6

GMI-2

5/8

What is the GMI?
 

WORDEN T2108

67%

Stocks that rose during Monday’s sell-off are exhibiting great relative strength and may lead the market higher when it rebounds. AAPL and TSLA both advanced on Monday.  IRBT may have found support at its recent green line break-out. My perspicacious stock buddy, Judy, has been interested in IRBT for a long time. I own some IRBT and will hold it as long as it holds above its green line, around $40. (Click on chart to enlarge.)

IRBTdaily03032014MTRX hit a new high on Monday after holding its green line break-out. Note the huge volume spike when it first broke through its green line  (all-time high base). IBD composite rating: 91

MTRX03032014daily

SALE also held its green line on Monday.  IBD composite: 98.

SALEdaily03032014

 

14th day of QQQ short term up-trend; be careful

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

72%

The markets reversed strongly down on Friday as did many of the speculative stocks I watch. Friday was also a high volume down (distribution?) day for the QQQ.  The market averages have been advancing since they bounced on 2/5.  I would not be surprised to see some retracement as current  events in Ukraine provide a catalyst.  International markets are down Sunday night and gold is rallying (Yay!). I will not buy anything else now and will wait to see if the averages  bounce off of support. The QQQ might find support  around 87-88, where a lot of indicators are converging. Here is the daily GMMA chart of the QQQ. Note  all of the rising longer term (blue) averages in the 87-88 area. The market may get to climb a new wall of worry.

GMMAQQQdaily03022014

Meanwhile the GMI remains at 6 (of 6).  Remember, that I am a trend follower and exit after the trend has turned down.  I cannot catch the top. For now, all of my GMI indicators remain positive. Here is the GMI table.

GMI02282014

13th day of $QQQ short term up-trend;

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

70%

GMI remains at 6 (of 6).

 

12th day of $QQQ short term up-trend; $FLT breaks out of base

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

68%

It looks like FLT, a steady winner last year, has broken out of a twelve week consolidation. IBD gives FLT a Composite Rating of 98. Check out its weekly chart.

FLTweekly02262014

11th day of $QQQ short term up-trend

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

66%

GMI remains at 6 (of 6).

10th day of $QQQ short term up-trend

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

67%

The GMI remains at 6 (of 6) and on a Buy signal.

9th day of $QQQ short term up-trend; $GLD turning up? Writing calls on $GLD; $GMCR, $QCOR, $IRBT green line break-outs

GMI

6/6

GMI-2

7/8

What is the GMI?
 

WORDEN T2108

64%

I have told you that I have been writing weekly calls on my position in GLD. GLD is an ETF that owns gold.  I have been learning how to bring in a nice income by writing calls on GLD because gold seems to be turning up in a Stage 2 up-trend. Gold often reflects investor fears about the world situation in general and/or about currency inflation. It will be a while before we learn what is behind the apparent up-trend in gold.

Here is how I make money from my position in GLD.  GLD closed Friday at $127.58 per share. Weekly calls on GLD that expire next Friday, 2/28, with a strike price of 127.50 closed at 1.05 and with a  bid/ask spread of 1.01/1.05: Screen shot 2014-02-23 at 2.38.23 PM. For the purposes of this example, I can sell this call option, the right to buy 100 of my GLD shares from me at 127.50 per share for a price of about $1.01 per share.  In other words for every call I sell, some call buyer will pay me about $101 (call=100 shares x 1.01 per sh).  This a yield of 1.01/127.58= .79%, excluding commissions.  But wait, if I can repeat this each Friday, or 4 times in a month, that equals an expected return of 4 x .79= 3.17% for the month!  How would you like to make 3.17% each month on your investment?

So, what are the risks?  On the next Friday, I get to decide what to do based on GLD’s current price.  IF GLD is below 127.50 (the strike price of the calls I sold) the person who bought my calls will not use the call to buy my shares from me because he can go into the open market and buy GLD for less than 127.50. Thus the calls I sold expire worthless and I just pocket the money I earned from selling them.  As long as GLD does not fall a lot in the week, I do not care because I simply turn around and sell again a new call on my shares at a new strike price to earn more income.  If GLD were to plummet in one week, however, the premium or”rent” I took in will not cover the decline in price of my shares.  That is the main risk. On the other hand, I rely on my technical analysis skills to alert me to the possibility that GLD is turning down.

If , however, on next Friday, GLD is trading above 127.50, I can just buy back the calls I sold.  I do not mind paying more than I sold them  because on the last day of trading before their expiration, the price of my GLD goes up and converges with the price of the option.  Thus if GLD is trading at $130, the call to buy the stock at 127.50 will be trading close to $2.50 (130-127.5).  I still get to pocket the time premium from selling my original options and can repeat the entire process over again for the next week.  If GLD closes the week at $130, I turn around and sell new calls with a strike price of $130 or $130.50.   I know some of this is difficult to understand.  If you want to learn more about the process of selling covered calls, read Alan Ellman’s books listed to the right if this post.   You may also come to our joint AAII DC Metro workshop next July. Click here for Alan’s website.

If you can’t wait, I will attempt to explain this example mathematically.  I buy GLD at a current cost of $127.58. I sell the 127.50 weekly call option for 1.01 per share.  Time value of call= 1.01 – (the true value of the option if it were exercised today, 127.58-127.50=.08)  =  (1.01-.08)= .93.  Thus the most I can gain from this trade is the .93 per share time value. If, for example,  GLD were selling at $130 next Friday near expiration, the options I sold will be worth (130-127.5)= 2.50 per share.  So maybe I could buy them back around $2.52 per share.  Thus, I bought GLD shares at 127.58 and sold the call at 1.01 and bought each back at 2.52:  Net cost of my GLD shares= 127.58-1.01 + 2.52 = 129.09 per share.  My stock cost me a net of 129.09 but GLD is now selling at 130.00, so I have a profit of .91 per share, excluding commissions (the original time value of .93 – the extra .02 time value it cost me to buy back my calls). This trade would yield me $91 for each call sold or a weekly per share yield of .91/127.58= .71% or about 2.9% per month, excluding trading costs.

I do not sell covered calls on growth stocks because if the stock takes off, my gain is capped by the strike price of the calls I sold.  If the strike price is 150 and the stock goes to $200 I have to deliver my shares to the call buyer at $150 per share.  This is a reasonable risk for me to take for GLD but not for rocket stocks that can gap up huge. Let me know if you found this example useful……

Here is a weekly chart of GLD.  Looks like the beginning of a Stage 2 up-trend.

GLDweekly02232014

The GMI (see table below)  remains at 6 (of 6).  I am therefore looking at growth stocks. GMCR, a stock I first wrote about in 2009 when it broke to an all-time high, has just broken out of a new green line base to an all-time high. Check out its monthly chart.

GMCRMONTHLY02232014As has QCOR.  Check out this weekly chart.

QCORweekly02232014

IRBT, a stock Judy has been talking about for a long time, also broke out last week. Check out this weekly chart. I like the large volume spikes.

IRBTweekly02232014

Meanwhile, QQQ remains in a beautiful RWB rocket pattern. Tech stocks rock!!!!!

QQQGMMA02232014

This up-trend is reflected in the GMI stats:

GMI02212014

 

 

 

$PCYC–cup and handle break-out?

Chart of PCYC looks like a major break-out coming this morning. Judy has been talking about PCYC for some time.

PCYC02212014



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