My short MSFT 27.50 put from last month expired out of the money, so I've been looking at a point to get back into a longish position for MSFT.  This month the 27.50 strike is a little too close for comfort so I've been eyeing the $25.00 strike for April.  I like to buy/sell at extreme points and based on my technical analysis, a short term oversold condition seemed to be around the $28.00 mark.

I did some quick calcs and determined a decent credit for the $25.00 put at that level would be about 0.15.  I was filled this morning with the underlying around 28.05.

Will be eyeing some more put sales as we continue to go more towards the bottom end of the range I keep mentioning.

There has been a lot of hyper surrounding the actively managed ETF concept over the last 12 months.  It reached a fever pitch last summer, and then equities rolled over and the interest waned, but just a bit.  So after all of the regulatory fun stuff was done with, of all companies, Bear Stearns released the first actively managed ETF today.  The ETF, according to their website, holds "fixed income instruments, which involve special risks, like interest rate, credit and inflation risks".  Not my cup of tea, but interesting that the concept of actively managed ETFs are now a reality.

What was truly a surprise was the number of shares traded today.   A paltry 26,000 shares were exchanged.  By comparison or maybe it's no comparison, when GLD (streetTRACKS Gold Shares) opened up in November of 2004, it hit nearly 6 million shares on the first day.  This was another highly anticipated arrival that has been, well, a gold mine ever since.  I was expecting a little bit more bang.

YYY Details

The fund sports a low expense ratio of 0.35% and the yield is currently listed at 4.06%.  For detailed information and a prospectus, check out the page on Bear Stearns for the YYY.

Based on a tip from a RightEdge user (thanks Pete) who runs the RightEdge ATS group, I decided to code up a trading system he read about in the April edition of Active Trader.  The article is titled "The RSI High-Low Oscillator" by Active Trader Staff.  The parameters are as follows:

• Compute the RSI of the High.
• Compute the RSI of the Low.
• The oscillator is the difference.
• Compute the 100-bar EMA. 
   

Strategy:

Go long when the closing price is above the 100-bar EMA and the oscillator is above the previous reading for the first time (that is, the previous reading was lower than the reading that preceded it).
Go short on the opposite conditions.
No consecutive long or short trades.

The system showed pretty interesting results in the article according to Pete, however, it appears that both of our experiences prove otherwise.  This is a very unrefined system, so my expectations were a bit low.  That doesn't mean that this idea couldn't be refined to become profitable.  Keep in mind that this system is run against the ES which is the S&P 500 futures contract.  Futures are leveraged and as you probably know, leverage is a double edged sword.  I recommend downloading the trading system and giving it a whirl.  Maybe we can come up with some ideas to make it better.

The chart of oil last week looked like a blow off top to me.  Major advances followed by a big gap up that ended in a big black candle can indicate that buyers are running out of steam.  Naturally, I'm not one to step in front of a freight train, but it did seem awfully text book.  Couple this observation with yesterday's slide across the board in commodities and the idea of a trend change seems much more probable.

However, commodities have been a dead asset for the last 20 years leading up to 2001.  They've not even outpaced inflation.  If this were the end of the run and things were going to head back down, that would be a relatively short bull run.  The other possibility is that it can fluctuate violently and go nowhere or head slightly down like equities have been doing over the last 6-8 months.  Finally, this could just be a blip on the radar and may present a buying opportunity.

I've been long commodities via the DBC since the middle of last year and I'm up nicely even after yesterday's broad based sell off.  At this point, I'm neither planning to add to the holding or sell.  But the action is intriguing.

All right, it's fed day, so the markets are too wonky for me to watch.  I have tons of work to do, but needed a 5 minute break.  Someone pointed towards this link:

http://www.frbsf.org/education/activities/chairman/

It allows you to control monetary policy.  Of course, it's very simplistic, but who wants to have to think too much on a 5 minute break.  According to my first crack, I was a fed guru.  My final fed funds rate was 3%, Uemployment was 5% and inflation a paltry 0.69%.  Maybe I'll try it again, but hey, why ruin a great track record. 

So when do I get Benny's job?

Chime in with your score.

It was a short run, but it became very evident that the momentum strategy fund based on this post is not inline with my volatility tolerance.  According to the research, this strategy outperforms the major averages handily and can return around 20% per year.  The bottom line isn't the only line and when something claims these types of returns, you must look deeper into the risk.  Sharpe ratios, drawdown figures, exposure and more are all good ways to measure risk.  You start to get a feel for how a system may perform based on these figures, but it takes some time and some real time experience to see these numbers play out.  I really had no such numbers based on the article, so I took it to marketocracy.com for some real time results.

We are in very volatile times.  Folks who try to build their own portfolios may be second guessing themselves when it comes to adding to positions or building new positions.  With this uncertainty comes hesitation.  Should I buy the homebuilders, financials, quality blue chip stocks, volatile tech stocks, beaten down growth or value stocks today?  The right answer will present itself after you've hesitated and you end up chasing performance.

You may have noticed recently that I've been selling some puts.  I currently have some open short put positions in what I consider to be quality stocks and I'm searching for new items to sell puts against at least once a week.  Why am I doing this?  The simple answer is to buy long term holdings on what I feel at the time are "good" prices.  For example, I have a short put on GE @ 30.00.  I felt at the time that I sold this put that getting GE @ 30 - premium taken in would be a good buy.  It's easy to second guess yourself when the market gyrates like it has been.  Often times, if you look at a long term chart after hours, when the madness has died down, you can usually make a comfortable decision about where you'd like to own a stock.

I think this can help the psychological aspect if a stock plummets, takes off or sits still.  Why?  If a stock plummets and your short put is assigned, you own stock with a company you feel good about at a price you feel good about.  This doesn't mean it's the bottom of the stock.  Maybe you can sell some covered calls to generate some income if the stock is still correcting.  If the stock sits in a range, you've collected premium which is quite when a stock does nothing but you make a profit.  Finally, if the stock takes off and you're not assigned, you may feel that you haven't completely missed the boat.  After all, you did make the premium.  This may be relatively small compared to owning the stock, but you didn't completely miss out.  Plus you have the option of selling additional puts in hopes of catching the next "correction".

Let me be very clear here.  Sellings puts is not for everyone.  Theoretically, your reward is limited to the premium collected and your downside risk is if the stock moves to zero.  I'm not recommding that anyone sell puts today, I'm simply recommending that you add this "tool" to your portfolio building strategy.  It may be particularly helpful if you're having problems pulling the trigger.  Let me also mention that your risk is also the same if you own the stock outright.  Any stock can go to 0.

If the risk aspect bothers you, you can always consider a vertical spread where you sell the higher strike and buy a lower strike which caps your risk and lowers your reward.  It all depends on your outlook and risk tolerance.  If you've never sold a put before, I highly recommend that you do a vertical spread to cap your risk but understand how this position behaves.

A depressing headline today.  Why do people have such financial problems in this country?  Probably because they're taking a cue from their government.  Spend like there's no tomorrow.  There was really no chance that our government could show some restraint and get the financial house in order.  Sure, it will pass it off as necessary domestic programs or throw some "existing necessary programs need more funding or they'll go broke" fear, but the bottom line is, they've swindled you out of your hard earned money again.

The old saying from an unknown author goes:

"A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years.
Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage."

We keep inching closer and closer as we vote for the expansion of government.

This is no sensational revelation, but I thought I'd set the record straight on a few things I hear flying around with the masses.  The cost of gasoline is the headline commodity.  It's not quite as emotional as before, since the price hike has been gradual instead of dramatic (like after hurricane Katrina), but it's still a topic of conversation.  The two big arguments (mostly put forth by our clueless government) are "greedy hedge funds" which are driving up the price with reckless abandon or OPEC fixing the price to drain the Americans dry.  Neither one of these hold much water and here's why.  First, commodity prices are sky high across the board.  Wheat, corn, gold, silver, natty gas, etc are all trading at the upper end of ranges.  Can the hedge funds drive every commodity sky high and keep it that way?  No.  And if they could, why not do it with other things like the stock or bond market?  So, bunk.

The stories of a bottom forming are flowing in this morning after yesterday's surge to the upside.  Let's put this into perspective with a chart.

As I mentioned yesterday, this really just got us out of the extreme low end of the range.  We've poked our head out into the middle portion of the range.  One thing that doesn't look right to me is the volume data (this data is courtesy of Yahoo).  So I went around to various sources and confirmed my thought.  The volume here is not exactly right.

Why am I looking at volume?  Typically volume will surge when a trend is changing (in either direction).  It may or may not be confirmed by a "follow through" day that has high volume as well.  Yesterday's volume was nothing special.  The futures this morning indicate that we may have already run out of gas.

We'll see what happens, but this doesn't have the makings of a bottom to me.

Got some relief on some of the long positions today.  I think the couple short put positions I have on are now very likely to expire worthless (good).  Both MSFT and GE shot up 5+% with GE notching its biggest one day gain in 5 years.

The thing is, we're still range bound.  We scooted to the top end of the range and then back to the extreme low point meaning we were bound to have a snap back.  I didn't predict (although I never predict) it would be this big in a single day.  But hey, you take what the market dishes out.

The headlines are chock full of "the market owns Ben" as well as how his actions are likely to effect the market moving forward.  I don't like what the fed is doing.  They're prolonging the inevitable, whatever that may be, and at the cost of rewarding bad behavior.  I still feel we're range bound within a slight downtrend.  I am prepared to open some bearish positions when the top of the range is seen again (somewhere around 12.3, 12.4K).

I haven't published the picks for this month yet, but I'll give you a preview, one of them is CMO.  As I mentioned I am easing into the picks this month in an effort to do some timed entries.  Well on Tuesday, CMO signaled a buy.  It looks like my timing was no match for what the market had to offer CMO.  The bad news was on TMA, but it spread and in sympathy CMO dropped 31% in a day.

The example here is that I can buy a stock, have it drop 31% in a day, and still sleep at night.  The other thing to take away from this is that the stock was researched and clearly showed some great potential given all known information and still got whacked.  One could argue that the financials and mortgage sectors are a bad place to be, and that would be a good point.  I was looking at the company individually and try to keep my sector speculation out of it.

So even the best researched stock and a company that seems to be a doing things right can still take a shellacking.

What do I do here?  Well the last thing I do is buy more.  What I will do is stick to my plan and hold this until the end of the month.  Maybe I'll have beanies and weenies for a few nights next week.

I'll be honest.  I've been a bit bored of the markets lately.  This nauseating range that I keep speaking of is now towards the lower end and what happens?  Well, it bounces back a bit.  I'm sure it will rattle around some more in the coming weeks or months.  The headline today "Rising crude, falling dollar rattle markets in early moves".  I think I could've went back in time two years and plucked the exact same thing.

The only thing keeping anything interesting for me is MSFT puts that were sold.  I sold 'em at the $27.50 strike, so they've been bouncing in and out of the money over the course of the week.  I'm torn as to whether or not I want to be assigned.  When it comes to range bound, MSFT has been dead money for over 5 years, maybe longer.  Why would I want to hold this?  I can sell calls or more puts as it rolls up and down.  It's a good way to make a few bucks when things are stuck.  Of course, it's a good way to lose a few bucks when the thing blasts off or takes a dive.

To keep things a bit more interesting, I'm applying some timing ideas to the stock picks.  I'm going to compare traditional buy and hold via the marketocracy page and the timing model using my real account.  Should make for some interesting results.

OK, no, I'm not one of those fly-by-night "predictors" on CNBC or Bulls and Bears, I'm relaying information from the great Warren Buffett.  In fact, I'm being even more conservative than the returns over the last century.  Not that this is some monumental mathematical feat, but it very succinctly shows the power of compound returns.  If the Dow were to return a tepid 5% until December 31st 2099, the Dow would read 1.5 million.  As you might imagine, the higher the return, the higher the number.  The average return over the last century was 5.9%.  Imagine if you reinvested your dividends on top of that!

Maybe this is what Warren was thinking about when he sold puts on major indexes to collect a 4.6 billion premium.  The puts are European exercise and expire in 2019 and 2027.

But that's why he's Warren Buffett and we're not.

A first time occurrence since I've been doing this.  Every single holding was a sell this month which means we have all new holdings for next month.  This only makes my broker happy.

Anyway, here's how things ended up this month.

Symbol	Opening Price	Last Week's Price	This Week's Price	P/L Week	P/L Total
ATVI	$25.87	$27.20	$27.08	-0.44%	4.68%
BYI	$47.64	$41.60	$38.02	-8.61%	-20.19%
CPRT	$40.88	$38.87	$41.02	5.53%	0.34%
DVD	$6.98	$6.98	$6.90	-1.15%	-1.15%
INTC	$20.30	$19.82	$20.02	1.01%	-1.38%
OII	$57.58	$62.24	$60.12	-3.41%	4.41%
PTEC	$15.06	$16.98	$16.57	-2.41%	10.03%
				-1.35%	-0.47%

Yesterday put us into the red for the month, otherwise we would've eeked out a gain.  We did significantly better than the major averages.  Here's how they ended up.

Indexes Month to Date
DJIA	S&P 500	Nasdaq
12650	1378	2389
12266	1330	2271
-3.04%	-3.48%	-4.94%