As reported in the NIA:

“This past weekend, the New York Times wrote a front page article about how hedge fund manager Anthony Ward, through his private investment fund Armajaro, has purchased enough cocoa to make five billion chocolate bars. Ward took delivery of 240,100 tonnes of cocoa, the biggest delivery in 14 years and about 7% of the world’s annual production of cocoa. Some are calling this an attempt to corner the cocoa market, similar to how the Hunt brothers tried to corner the silver market decades ago. Many people believe Ward is trying to create an artificial cocoa shortage in an attempt to artificially manipulate cocoa prices to the upside for his personal benefit and to the detriment of chocolate lovers everywhere.”

Based on the commentary of the prior post linking to Tyler’s Trading I have added my comments in this post.

I find that one could improve the results when the current price drifts away from the moving average.  In my thoughts why wait to give back some of your gains as the price moves back toward the moving average?

In the attached chart you can see the elevations where the price moved from the moving average.  A save play would be to liquidate 1/2 of your potion when the price exceeds around 5% from the price of the moving average.  This would allow you to lock in a good portion of your gains while a reversal in the trend is taking place.

Click here to access chart.

The below information was posted by Tyler Craig in his blog “Tyler’s Trading” and can be found by clicking the link.  I believe it is very informative.

“…the 50 MA is a tool of choice for many chartists in determining their outlook on the overall market as well as individual securities. Equipped with a few simple rules and my semi-adequate Excel spreadsheet skills I set out to determine whether or not this moving average is worth its weight or just another indicator cluttering up my chart. Before delving into the results, let’s first establish the gist of the trading plan.

1. Buy the SPY on a 1+% break above the 50 MA.
2. Sell short the SPY on a 1+% break below the 50 MA.

The graphic below displays the outcome of the trading system from 2000 to 2010.

The table is broken down to the 50 MA’s performance per year with both the best and worst years highlighted. Of the 71 buy/sell signals I found, 28 were winners and 43 were losers. At first blush, that doesn’t look so effective, however, it’s not just about number of wins versus number of losses. To gain a complete picture we must also take into consideration the average gains captured on the winning trades versus the average losses incurred on losing trades. Of the 28 winners, $7.61 was the average gain. Of the 43 losers, $2.12 was the average loss. Shown in this light, the trading system looks much more appealing.

Given that I did this by hand, I don’t doubt I may have missed a signal here or there or have a few errors in the numbers. Be that as it may, I’m confident it wouldn’t have changed the conclusions we can draw from this whole exercise. Tomorrow I’ll compare the best and worst performing years to hammer out a few strengths and weaknesses of using moving average signals.

The Dow hit a high in April (26th) and all the buzz was about how everything was looking up, the recovery was in process, and things would once again return making for a strong economy. Since then the government stimulus to jump start housing sales has ended, the disaster in Greece has made mainstream news, oil is all over the Gulf and making its way toard the east coast destroying Gulf jobs and tourism, and the Dow has plummeted over 700 points. That represents nearly $4 trillion in lost value. That figure doesn’t include the businesses in the Gulf that has been destroyed by the oil spill, the continued decline in real estate prices, and the number of empty buildings representing closed businesses. It is a time that everyone should prepare themselves and not just ride the flow. This wave could be a lot stronger then what most people think.

Last week was a positive week for traders with the Dow up 2.35%, S&P up 2.37%, and the Nasdaq up 2.95%. But the big question is, “What’s next?”

Well if we all knew that we would get rich. However, here is an interesting statistic. Remember we don’t trade off statistics, but non-the-less it is interesting:

According to the Stock Trader’s Almanac the week Dow,  after June Triple Witching,
was down 10 in a row and 17 of last 19

The market has done some profound and confusing things of late. From a technical standpoint there is no question that some key points of resistance has been broken through, given a bullish outlook for at least the short term. While the 60 minute chart on the S&P is very overbought we could see at least a temporary pullback to release some pressure.

The title of this is “mix emotions” because even though everything seems to point to an uprising, my gut tells me to be careful. Having said that let me qualify that statement. You can’t successfully trade off your gut. Even the Bible (book of Jeremiah) that your heart is deceitful above all things who can know it. So gut trading is not a good guide. However, for me…I think cash is the position right now until I get more comfortable with what is going to happen.

There is an old saying that I believe many overlook. It goes like this, “If you continue to do what you have always done, you’ll continue to get what you’ve always gotten. Is that what you want?”

While it is a fun saying the reality of life is that your life consist of the decisions you’ve made. If you don’t like where you are you are going to have to think differently. You are going to have to do things differently.

Most everyone want to better their life, but you cannot better your life doing the same thing because what you are doing is producing where you are currently. Whatever it is in your life you would like to change get a plan to do things different in order to produce the change you desire.

Before I tackle the title of this post it looks like I was right pertaining to my prior post. The market did not hold up and in the closing minutes of the trading day the market gave back it’s gains. This is the risk in today’s uncertain markets especially with the trend currently pointing south.

Today I find myself in a situation where every option trader finds themselves at one time or another. I have two Bear Call Option spreads that have worked out very well. These options are basically worthless now and I am only a little over a week before expiration. Should I close them out to avoid gamma risk or should I hold and let them expire worthless.

The obvious advantage of holding is to pick up the remaining $10 that sits in the trade and save on commissions. However, there is the strong possibility that the market will put me in its target and remind me that there is no such thing as a sure thing. There is always the risk of a run up during the next few days even though technically it does not seem possible. If that happens my ten cent options could exponentially grow to a buck or two cause me to give back my profits. Gamma is high on short term options therefore they can increase rapidly in price if the stock starts moving close to the money.

If I close the spread my commissions will be almost as much as the price which is also not good. Therefore, a nice and safe strategy is to only buy back the short option, which gives me my negative exposure. This leaves my long option open but cuts down my commission costs.

My long option is worth less than my short options so buying it back doesn’t make sense in this scenario. Instead, I will eliminate my risk while at the same time being able to ride the stock to the final days of expiration. If for some reason the market does make a made dash up I am in a position to profit from the gamma. The final word is, you’ve not secured your profits until you’ve secured your profits!

Mr. Bernanke spoke this morning with a positive tone of economic growth. The news has sent the Dow back over 10,000. The big question is “can it hold?” I would remain very cautious at this point, in fact I have taken a very speculative play on the QQQQ this morning benefiting from the uptick in the market. My play is that I have bought numerous deep OTM Puts in order to capture the potential of a big move. Will it work? Not if Bernanke’s right!

My opinion right now is that we play it cautious until we see what is going to happen. Gold continues to look real good!

For those who don’t understand the bailout process this short video will help clear things up for you.