Daily Archives: December 21, 2012

The Only Way to Successfully Use Options Over the Long-Term

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Any time you make a bet with the best of it, where the odds are in your favor, you have earned something on that bet, whether you actually win or lose the bet. By the same token, when you make a bet with the worst of it, where the odds are not in your favor, you have lost something, whether you actually win or lose the bet.

-David Sklansky, The Theory of Poker

As I always say, investment success comes from process.

Let me explain.

Back in my early 30s when I was privileged to live in sunny Flagstaff, AZ, I would take the reasonably short drive to Las Vegas so that I could make one the best bets in the gaming world.

For those not familiar with the game of craps, the free odds bet placed behind an opening pass line bet carries no house edge. The casino makes no profit on this bet. This is the only bet you can make on a table game where the odds aren’t against you.

How can the casino make this bet available when they don’t make any money on it? Simple: Most players aren’t smart enough to make this bet.

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AAPL Monthly Sell Signals: 2 Down, 1 to Go

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As this monthly chart of the Big AAPL shows, there have been three
well defined primary uptrends (bull markets) in the stock over the last
14 years.  Each of those trend reversals were confirmed by three
criteria:

  1. A break below the primary uptrend line or a successful back test of the trendline following the breakdown.
  2. A bearish crossover on the MACD (as best viewed on the MACD histogram)
  3. A break (and close) below the 20 month exponential moving average.

AAPL monthly 2

As this chart illustrates, the first two criteria have been met and
currently, prices are sitting on the 20 ema but have yet to print a
monthly close below.  Coincidentally (or really not), a break below the
20 month ema would coincide with the critical support level that I’ve
been highlighting on the daily time frame. 

With just five trading
sessions left in the year, will Santa bring AAPL a gift and keep it
above that 20 ema by the close on Jan 31st or will he give AAPL a lump
of coal in its stocking, dragging the stock lower to close below that
level, thereby giving the stock it’s third and most likely final long-term sell
signal and confirmation of a new bear market in the world’s largest
publicly traded company?

Peering Over The Cliff (by Springheel Jack)

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I was writing a few weeks ago that it was all too easy to see a situation where the fiscal cliff was allowed to happen. The republicans could avoid agreeing to politically difficult tax rises, the democrats could blame the republicans for being too inflexible to compromise. An agreement early in the New Year could mitigate the effects with spending and tax cuts that eliminated most of the cliff and those tax cuts would henceforth be known as the Obama tax cuts. 

Over the last couple of weeks it seemed that nonetheless an agreement was likely, but this wasn't the case, as it seems that Boehner couldn't muster the votes yesterday for an agreement that included any tax increases at all. It seems equally unlikely that the democrats and Obama would allow any agreement that doesn't include tax increases, so it seems likely now that the fiscal cliff will be allowed to happen, and that negotiations in early 2013 will be about what will replace the fiscal cliff agreement. 

What does this mean for markets? A lot of uncertainty over the next couple of months, and it seems doubtful that the bullish looking setups here will survive that, but we'll see. (Editor's Note: I sure hope not).

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