CBOE introduced the weekly options starting July 1st. I made a video at my trading club explaining how they work. Watch this and see how you can profit from it.

To learn more and get a full list of weekly options from CBOE. Click here.

Trade well!

Andy

Using options to trade into earning is one of my favorite strategy. With limited risk exposure, you can capture some amazing move using the power of options.

Here is a video I did for my trading club member explaining exactly what I look for to trade into LVS earning this week. I am re-posting here so you can also see some of things that I do and learn from it.

Last week, the market dropped below major support when the Unemployment Report was much worse than expected. Job losses were 100,000 more than analysts had expected and bulls finally threw in the towel. Since March, they have denounced the Unemployment Report claiming that it is a lagging piece of information.

Month-after-month, the news continued to disappoint and the unemployment rate has jumped in a parabolic manner. Weekly jobless claims have not subsided and traders have hawked the number each week in hopes of improvement. This morning, initial jobless claims dropped by 52,000 and it came in at 565,000. That is well below expectations of 605,000. Before we get too excited about this number, keep in mind that it spanned a holiday. Often, people will postpone filing for unemployment until after they return from vacation. Continuing claims increased by 159,000 to its highest level ever (6.88 million).

This morning, retailers posted weaker than expected monthly sales. Wet weather and rising gasoline prices contributed to the decline. People are concerned about their employment situation and they have cut back spending.

Next week, earnings season will begin. We will get a big dose of earnings from financial institutions during the next two weeks. The spread between the borrowing and lending rate has never been higher and banks are hanging on to toxic assets. Profits should be good since they aren’t taking write downs. However, I’m not expecting a big rally from this sector. Banks have issued a lot of stock and it will take many quarters of stellar performance to work off that supply. Toxic assets, commercial real estate loans and high credit card default rates will keep a lid on any financial sector rally.

The market will have to find strength from other sectors. Although 70% of all companies beat Q1 expectations, the market has rallied 40% off of its low and good results are priced in. We will see if companies can “beat” by a big enough margin to spark a rally.

Traders are carefully watching interest rates. This week, the Treasury issued $75 billion in longer-term bonds and the auctions were very well received. That has kept the market treading water.

A head and shoulders pattern has formed and early this week the neckline was broken when we traded below SPY 89. That price level also represents the 200-day moving average. As that support level gave way, the selling pressure increased and it looked like we could have a major decline this week. After the 10-year bond auction results were released Wednesday afternoon, the market rebounded. That rally has continued today. The Treasury has to finance its $2 trillion budget deficit and it will keep issuing new bonds every other week. That means bulls will continuously be dodging the interest rate bullet.

The tone for next week will be set Tuesday when Goldman Sachs, Johnson & Johnson and Intel release results. By comparison, economic releases are very light and the market will take its direction from corporate earnings. Interest rates have stabilized and earnings will determine the market’s direction. If the market declines, option expiration could have a negative influence since we are trading near a one-month low.

We are teetering on a breakdown and great results are all that can keep us from falling. I believe the market will drift lower during the rest of the summer, but I am not looking for a meltdown. Leverage has been removed from the market and we will not see anything close to the panic selling we witnessed last fall. The market should be able to find support around SPY 80-83.

This is the perfect time to trade relative strength and weakness. The market may not go anywhere, but individual stocks will be making considerable moves.

Hello everyone,

Just want to share a video with you guys on how I turned $5000 into more than $55,000 in just 38 days.

Click here to see the video

Enjoy!

Andy

 Last week the market staged a nice rally and it briefly poked
above the 100-day moving average--remarkably finding the silver lining in every
dismal economic report.

The Fed, Treasury, FASB and SEC have all been busy in the last month. Traders do not
want to go home short because they don't know what news might change the landscape
when they turn on their computers Monday morning. They didn't go home short today
and this rally lasted right into the close.

The Fed has lowered the Fed Funds Rate to zero and it plans to keep interest rates
low even if it means buying US Treasuries. The Treasury Department has been busy
with bailouts and stimulus plans of all sorts. Recently, they devised a plan to
purchase toxic assets from banks to free up capital. FASB relaxed mark to market
regulations and that instantly improved bank balance sheets. This week the SEC
reinstated the uptick rule and is considering other short-selling circuit breakers.

From the 12-year lows made a month ago, the market has rebounded sharply. In today's
chart you can see that it is above horizontal support and it has moved above the
100-day moving average. A new relative high has been established and each of the
pullbacks has been very short-lived. Bears are running for cover and a major short
squeeze is underway.

This rally will likely continue next week. Today, Wells Fargo surprised the everyone
by pre-announcing excellent earnings. The company estimated a $3 billion profit
during the first quarter of this year and it expects EPS of $.55. Next week, we will
hear from the strongest of financial stocks. Goldman Sachs, J.P. Morgan and General
Electric will release earnings. Goldman Sachs has a history of surprising to the
upside. J.P. Morgan has weathered the financial crisis better than any of the other
major banks. GE stated two weeks ago that if the Fed's 2009 economic forecast holds
true, GE Capital will make money this year. Any sustained rally must start with the
financial stocks.

The spread between borrowing and lending rates has never been better and banks
should be making money hand over fist. Before we get too excited, it's important to
remember that massive write-downs lie ahead. It will take many years of
profitability to overcome the toxic assets they have created. Nevertheless, signs of
improvement are showing up and they are critical to the economy. Businesses might
finally regain much needed lines of credit.

Today's rally should continue right into the closing bell. This is clearly good news
and shorts are covering. The market is near a one-month high and option expiration
buy programs will add a bullish bias to the market next week. Bears don't dare to
short financial stocks ahead of earnings releases after Wells Fargo's announcement
today. If the momentum establishes itself early next week, I believe we could rally
up to SPY 92.

We will also hear from Intel, Google and Johnson & Johnson next week. Dismal
earnings are already factored into Intel's number and if anything, we could see a
rally in the stock on positive guidance. Google has been able to post good numbers
and we expect the same next week. Johnson & Johnson has been profitable, but shares
have been beaten down on concerns that healthcare reform will impact future income.
The actual release should be positive for the stock.

Next week is littered with economic releases. We don't want to downplay them, but
the market has been able to rally in the face of dire news. This morning, initial
jobless claims dropped 20,000 from last week's number. The unemployment rate
continues to climb and 5.83 million Americans continue to draw unemployment
benefits. This is the highest number ever. The market shrugged off weak durable
goods orders, a decline in GDP and a horrible Unemployment Report. There's no reason
to think that CPI, PPI, the Beige Book or the Philly Fed will be able to suppress
this rally next week.

This morning, retail sales also added fuel to the rally which is surprising because
there isn't much to cheer about. Many stores beat lowered estimates but the results
are still very weak.

This rally has legs and retail, restaurant and commodity stocks all look good.
However remember that this is a bear market rally and that you need to temper your
optimism. Our government is $11 trillion in debt and it has not started financing
the trillions of dollars it needs for the proposed bailouts and stimulus plans. The
unemployment rate continues to surge and we are not out of the woods. Trade this
rally, but be cautious and take profits!

To your success
Andy Huang

Here is my bold bullish play on AIG

American International Group, Inc., through its subsidiaries, provides insurance and financial services in the United States and internationally. It operates in four segments: General Insurance, Life Insurance and Retirement Services, Financial Services, and Asset Management. The General Insurance segment underwrites various business insurance products, including large commercial or industrial property insurance, excess liability, inland marine, environmental, workers compensation, and excess and umbrella coverages. This segment also offers various specialized forms of insurance, such as aviation, accident and health, equipment breakdown, directors and officers liability, difference-in-conditions, kidnap-ransom, export credit and political risk, and professional errors and omissions coverages. In addition, it provides property and casualty reinsurance products to insurers; automobile insurance products; residential mortgage guaranty insurance products; and second-lien and private student loan guaranty insurance products. The Life Insurance and Retirement Services segment offers individual and group life, payout annuities, endowment, and accident and health policies, as well as retirement savings products consisting of fixed and variable annuities. The Financial Services segment provides aircraft and equipment leasing, capital market transactions, consumer finance, and insurance premium financing. The Asset Management segment operations comprise investment-related services and investment products, including institutional and retail asset management, broker-dealer services, and spread-based investment products. The company was founded in 1967 and is based in New York, New York.

Today this stock has tanked on credit worries. In the last two days it has gone from $20 – $3. Bankrupcy is almost priced in.

Outlook This company is solvent (it can cover its debt obligations), it is simply ill-liquid. It has fantastic assets and it simply needs time – nothing else. If the Fed lets this company fail (and I am not pro-bailout for all of the others), panic will set-in.

They employ 116,000 people worldwide and it has over $1T in assets. With all that the Fed has done to avoid a financial crisis in the last year, a bridge loan seems like a slam dunk.

Tactic Buy AIG shares. They are trading for the price of an option. I believe the stock could rally to $10 or be worth $0. I see a 50:50 chance for either event and I am willing to risk $3 to make $7.

Buy and prosper! Happy Trading.

Andy

This past week the markets leaped in both directions and this time the volatility worked against us…

The only good thing you can say about getting stopped out is that our losses were limited and now we’re on the sidelines safely back in cash. If we are going to bet with the opportunity of winning the tide is occasionally going to go against us—the key is to learn and improve.

One of the things I’ve noticed is that trying to time a reversal—like this past week on the XLF and the USO–is much more demanding than just jumping on board an existing trend and riding it. However when your timing on the reversal works the rewards can be greater.

With two losses this past week it’s important that we get positioned for winners this coming week—which is why our two new plays have extremely high odds of making us money no matter which way the market goes. You’ll see what I mean when you take a look and I’m really excited to show them to you—but before we do let’s take a good peek at…

WHICH WAY THIS MARKET IS HEADED

As you can see we’ve got two different stories going on right now. The SP-500 is weighed down by the financial sector and the recent drop in oil prices has brought energy down as well. Energy and the financials are by far the two biggest groups in the SP-500.
The Nasdaq on the other hand rallied +30 points on Friday bouncing off of its new uptrend support line. This is a bullish chart even after the mid-week drops in AAPL, RIMM, GOOG—and those stocks have already started to recover.

The bounce we saw at the beginning of last week can be attributed to relief that earnings have been better than expected–over 45% of the S&P has reported so far and 75% of those reporting beat estimates.

That is pretty good news on the surface but keep in mind earnings have still declined 17.8% for the quarter. And if you eliminate the energy sector earnings have fallen a very bearish 25.8% for the quarter.

And in spite of the rally in the XLF early last week the financial sector was expected to report an earnings decline of -60% but instead the bottom line dropped a mind-numbing 90%. Guidance has also been worse than normal with an almost unanimous view across all sectors that Q3 and Q4 will see lower profits. It is not surprising that the rebound failed on Thursday.

Lowered forward guidance brings into question the whole “the bottom is behind us” mentality that is currently keeping a bottom under share prices. Probably the biggest key is the labor market which so far has held up pretty well. We’ll get another look this Friday when the Labor Department reports on employment in July. In June, nonfarm payrolls fell 62,000, while the unemployment rate held at 5.5%.

Credit Suisse analysts expect a July decline in payroll jobs of 75,000. They forecast continued deterioration, and cited indicators such as a trend in initial jobless claims remaining at elevated levels and June’s decline in the ISM Non-Manufacturing Employment Index.

Plus the financials have not hit bottom regardless of any temporary jump in the XLF. S&P placed Fannie and Freddie on negative credit watch which is a pretty good indication they will lower their rating soon. With mortgages failing in record numbers Fannie has already raised $7 billion in capital and Freddie $5.5 billion. The government has pledged to help them and the Fed said it would open a special lending option to provide further support. Congress is expected to pass the housing bill including guarantees of up to $100 billion for the pair. Over the last year the government–along with Fannie and Freddie–have already put $1.43 billion of support into the mortgage market. As a result of the subprime crisis banks have already written off $880 billion and expectations are for that to climb to $1.5 trillion by the end of 2009—so by those estimates we’re little more than half-way through this mess.

One big indication that banks are still having problems is the Fed reported that bank borrowings at the discount window rose to an average of $16.38 billion per day in the latest week–the highest level ever. This is a strong indication banks simply cannot raise money in the private sector which means the credit markets are still locked up.

The Fed seized two more banks after the close on Friday and immediately sold them to Mutual of Omaha Bank. The two failing banks were the First National Bank of Nevada with assets of $3.4 billion and $3 billion in deposits. The second was First Heritage with assets of $254 million and $233 million in deposits. The FDIC said the estimated cost of the transactions to its insurance reserve account would be $862 million. Expect more bank failures to come.

In spite of a pretty serious situation there are signs of hope. The Durable Goods report for June rose by +0.8% when analysts were expecting a decline of -0.7%. This was the second month of positive growth. Unfilled orders also rose and the orders to shipments ratio is near its all time high. The inventory to shipments ratio is at its highest level since 2001. This was a very positive surprise.

Plus Consumer Sentiment for July spiked to 61.2 from June’s 56.4 reading–the first move higher since January. Analysts credited the tax rebate checks and a firming of home prices in many states. A reading of 61 is not great but it beat the tar out of expectations in the low 50s. Current conditions rose +6 points to 73.1 and expectations rose +4 points to 53.5. Inflation expectations remained high at 5.1% but appear to have eased somewhat from the first July reading at 5.3%.

The third positive report on Friday was the New Home Sales for June. New sales totaled 530,000 units–much better than the 501,000 analysts expected and better than the previously reported 512,000 in May. However, the Census Bureau revised the May numbers up to 530,000 as well as the April numbers to 540,000 from 520,000. This surprising improvement in sales was super news for a horribly beaten down sector. New home prices rose slightly to $237,871 from $231,087 in May for a +2.94% gain. Months of inventory decreased slightly to 10.0 from 10.4. Sales in the second quarter declined only 17% over Q1 compared to drops of nearly 40% in the prior three quarters.

The bottom line is we have data coming out heavily in both directions. If energy prices continue to slide for a few more weeks we could see more optimism in the consumer sector. However this economy is still in tough shape–the index of leading economic indicators, which attempts to forecast turning points in the economy–declined 0.1% in June with six out of the ten indicators falling. Until we see some growth this economy has not bottomed.

However the keys to market direction this week will still be earnings with nearly 750 companies reporting. This will be the heaviest week of the Q2 cycle although most of the largest companies have already reported. Earnings quality will continue to decline as we move farther into the cycle with the smaller companies reporting. This will also be a heavy week for energy earnings and those should be very strong.

So we’ve got the SP-500 looking bearish—although it may be helped by energy this week—and the Nasdaq looking bullish. The banks are still in trouble and crude has been falling—with so many counter-trends…

Trade with close stop next week everyone.

Andy Huang