Facebook (FB) Readies for a Big Move

Before we get to Facebook (FB), we’re going to kick off the new week with a quick update on two trades that require your attention.

The first was opened on January 19th in a letter called Walking Through the Trade, where we openly defied the gold bulls and said the shine was about to come off.

Of course, we also walked the walk.

The trade had two parts – we bought a GLD PUT option and sold a bear CALL spread against it to take in some premium.

The details went like this –

We sold the April 123 CALLs for $4.40, bought the April 127 CALLs for $3.05, and earned for ourselves a $1.35 credit to offset the price of the April 116 PUTs, then trading for $2.17. Our total cost for the trade, therefore, was $0.82 (217 – 135) per trio traded.

We then took further action. Not immediately, but some three weeks later, in a letter called in Charting Gold to the Gutter we sold the PUT for $2.66. A week later, on the 16th of February we dumped the long side of the CALL spread for $0.75.

And last Friday, the short CALL expired worthless.

We’re now the proud parents of a very sizable take – $3.40 gross on $0.82 initially laid out – that’s 315% per trio traded, and we hope, hope, hope like a desert isle castaway that you loaded up big on this one.

SKIPPER-SAYS

The Kiss (KSS) of Wealth

Our next trade was launched just two weeks ago in a letter called Kohl’s, India – How to read the Stock Charts. It was two trades, in fact… but we’re concerned only with one of them, the now infamous Kohl’s initiative (NYSE:KSS).

You’ll remember that we were skeptical regarding Kohl’s continued rise. She had already ascended some 49% in the five months that preceded the trade, and it just didn’t look sustainable. We brought a number of other technical indications to prove that, despite the company’s strong growth prospects, the stock had gotten ahead of itself.

Look here –

KOHL-KSS-DOWNTURN

Our nailing the turn was heaven-sent – we got it to the day. And so we believe it’s now time to run home with a strong profit before the shares start dillying and dallying this way and that.

The details –

We advised you to sell the KSS May 80 CALLs for $2.20 each and today they’re selling for $0.45. Buy ‘em back and your take is 389% in two stinkin’ weeks! That’s 10,111% annualized and you’re a floater in the commode if you don’t close!

No picture available.

Thank gawd!

We now move on to our trade for the week.

But first, a brief preface.

We have to admit that this is by far the most difficult investment period we’ve known in our nearly thirty years of market watching. The reasons for it have been hashed out enough in these pages that you’re already aware of them – a) an unprecedented sea of liquidity, b) global debt levels without any visible horizon for repayment, c) corporate interventionist forces that stifle the free play of markets, and so on.

In short, the indicators that we habitually relied upon to forecast market direction are becoming less reliable by the day.

It’s for those reasons, probably, that we also hear an increasing number of voices from the investment world predicting cataclysm and gloom when the markets ultimately top and the proverbial manure hits the fan. It’s primarily the private hedge fund operators who are doing the talking. The big banks and brokerages prefer to remain hushed about what they see, for obvious reasons – no one wants to scare away his clients.

On the hedge fund side of the ledger, where more options exist to parlay a market slump into profits, the lads and lassies who operate these outfits also seek to make a name for themselves – they want to be the one who’s remembered as having called the ‘Facebook Market Top.’ Because that, too, is good for business.

For we who play the options game, however – scalping a few hundred percent here and there with smaller bets – it’s a market made in heaven… if we can correctly predict direction. And that, as we say, is becoming more and more of a challenge.

Because the market is very likely entering a more manic phase now, where even though the majority of vectors are pointing toward increases for the indexes, perhaps even twenty or thirty percent or more from current levels – those increases may not arrive before several steep plunges of some ten to twenty percent intervene to punctuate the rise.

To put it into practical terms, we could see Dow 21,000 to 23,000 before this is all through. But we may also see Dow 14,000 or 15,000 a couple of times on the way. It reminds us of the 1970’s, which looked like this –

1970-VOLATILITY-CHART

We don’t believe the volatility will last fifteen years, but our hunch is that approaching the finale there are going to be bumps and swoons and gyrations that leave everyone nauseous and blind to what’s coming next. It will be a schizophrenic market that will be impossible to call.

Until then, though, we still have a number of proprietary tools that appear to be working and altogether indicate that a rise is forthcoming – timed roughly to coincide with the middle of our current earnings season.

And with that in mind, we’re going to attempt a play on forthcoming results from a stock that’s due to announce this week.

Here’s a peek at the biggest S&P 500 companies about to announce –

APRIL-2015-EARNING-REPORTS

The standout winner in terms of both earnings and revenue beats, as well as the immediate one-day rise after earnings is spymaster Facebook Inc. (NASDAQ:FB), data collector extraordinaire and friend to big governments the world over. The world’s biggest time waster is set to announce after the close on Wednesday, and we expect a big move.

The data set above indicates the move could be higher. But the longer term chart below says we could have a tumble.

NYSE-FB-CHART

Here’s what that chart tells us, and how we’re going to play this…

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Recent weakness may or may not be a harbinger of a break below the lower edge of the wedge (in red), a move that could trigger an avalanche of selling. But if it is – as RSI (in blue) indicates, the best way to play it is with a speculative and cheap out-of-the-money PUT.

In fact, because we expect a big move, we’re going to go ‘cheap’ in both directions.

Wall Street Elite recommends you consider purchasing the FB May 29th 91 CALL for $0.71 and the FB May 29th 70 PUT for $0.65, for a total debit of $1.36.

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Recent weakness may or may not be a harbinger of a break below the lower edge of the wedge (in red), a move that could trigger an avalanche of selling. But if it is – as RSI (in blue) indicates, the best way to play it is with a speculative and cheap out-of-the-money PUT.

In fact, because we expect a big move, we’re going to go ‘cheap’ in both directions.

Wall Street Elite recommends you consider purchasing the FB May 29th 91 CALL for $0.71 and the FB May 29th 70 PUT for $0.65, for a total debit of $1.36.

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Mind those expiries!

With kind regards,

Hugh L. O’Haynew

See what people are saying...

  1. Jay Shah

    Hugh –

    i just went thru the article, and it seems like you are looking for a sharp market correction rather than a rally in the market which seems to contradict your previous views.

    someone from your company wrote an article a few weeks back whether they were expecting a significant UP move in the market and suggested to buy DIA calls. long term calls.

    also, some kind of Euphoria in the market before a top in the market.

    has your view changed since then? if so, any particular reason?

    Thanks.

    • Hugh L. O'Haynew

      Hi Jay,
      Nothing changed in our outlook, but always good to hear from you.
      The bull is alive. The above article merely states that the ride is going to get a lot bumpier soon.
      All the best,
      Hugh

  2. c amantea

    Where are you? When i don’t get my McAbby/O’Haynew weekly fix, I go into shakes, panic, and terminal capital loss. Where should I be looking for financial salvation? Are you still online?

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