Option Investor
Market Updates

Things are starting to change

HAVING TROUBLE PRINTING?
Printer friendly version

Today's impressive selling in the Treasury markets now makes it imperative for traders and investors to understand and use some of the tools at your disposal. The selling in the Treasury MARKET is a near-term sign that the MARKET is further beginning to find the perceived "safety" of Treasuries less attractive and will begin looking elsewhere to begin putting some money to work.

However, long gone are the days like the late 1990's when investors shunned risk analysis and only looked toward reward. The MARKET is a different place today than it was a couple of years ago. The market environment is also different for bearish traders/investors that have recently been able to pick on stocks as they felt capital was limited as the bulk was stashed away in the perceived safety of Treasuries. Bears that were able to short strong stocks in a weaker market environment and find success simply due to a lack of cash flowing toward the stock market, may now find a different market environment beginning to develop.

What can take place right now is some good old-fashioned rotation. Many of our "bullish percent" indicators are now at "overbought" levels and risk for bulls on a broader scale is high. The key to for near-term bullish entry is to try and envision some more aggressive amounts of rotation.

For example. A stock like Dow component Boeing (NYSE:BA) $47.98 -3.77%.

Boeing (BA) - $1 box

I've put some hypothetical quotes on the above charts to try and envision what "smart money" may be thinking in regards to Boeing (NYSE:BA) $48.03 -3.67% after the stock traded $50 today. I was nowhere "smart enough" to pick the bottom in shares of BA at $30, but may have been smart enough to buy some renewed strength at the "triple-top" at $38. "Smart money" undoubtedly bought the stock at $30, and like most smart institutions may have added to their positions in the mid-to-high 30's and that demand created the nice triple-top buy signal back in December (red C).

Is Boeing (BA) the only game in town? Maybe its time to pay back our mutual fund shareholders with a nice little gain near $50 and look for another stocks that is going to offer some favorable upside and less downside risk. Diversify the holdings a bit, be smart, and take some profit off the table. After all, the Dow Industrials Bullish % ($BPINDU) is back near overbought levels and it might be wise to just turn into an "accumulator" of stock right now and begin drying out some powder.

For you and I

Most of us don't have the luxury of calling up the trading desk and telling the trader to "work me 500,000 shares at $29-$31 today." However, that doesn't mean we can't try and get inside the heads of some institutional traders/investors and try and see what they may have done, and then try and lay out a scenario for what they might be getting ready to do.

If you had a 750,000 share position in BA with a cost basis of $32.67, what might you be doing at current levels. What's your upside potential reward, and what's your downside risk. Are there any other stocks in your universe that may offer a more favorable risk/reward?

It's never certain what upside or downside remains in a stock, but if we think big (even though we may trade just 50 or 100 shares) then we put ourselves in the shoes of big money. Too often an individual will look at a bullish 50-share position in BA at $38 and say "at $48, I've only made $500." If you "think big" and say "from $38, I've got 250,000 shares and have profit of $2.5 million," then your thinking may change a bit as it relates to risk/reward.

Competition

Now bring in the "competition" factor that may indeed come from the cash coming out of the Treasury market. Some of this cash may have been hiding out in the bond market for the last 18- months or even longer. Where's it going to go?

Will "smart money" go after a stock like BA that has jumped nearly 31% since giving a triple-top buy signal? Or will it look elsewhere in other stocks giving triple-tops, bullish triangles or bearish signals reversed?

Check you books that you got from your annual subscriptions. Look for some chart patterns, check the relative strengths and understand the trends.

Just remember, it's a different market environment than that found in the late 1990's, and may well be a different market environment that that found in the past 2-years.

Jeff Bailey
Senior Market Technician
Option Investor

Intraday Update Archives