SPY - Commentary 23 Jul 2010

SPY broke and more importantly closed above the mid-July high. If it remains above that level on Monday, I will abandon my bear position for now.

Cheers !

PersianCat

Citibank Play

I like the new Citibank - a bank which has promised not to be involved in proprietary trading and resume its role as a traditional bank. A traditional bank would not make humongous profits (and can lose humongous money too!) but it should make good profit and minimise itself from future financial meltdown. I have not invested in Citibank yet as I am closely monitoring the US govt sales of its shares in Citibank. Here are the current statistics (as at 23 July 2010):

• US govt received 7.7 billion shares of Citigroup common stock in 2009 when the Treasury exchanged the $25 billion in preferred stock it received in connection with Citigroup's participation in the TARP Capital Purchase Program. The exchange rate used in the conversion puts the government's cost at $3.25 per common share.
• The Treasury has already sold 2.6 billion Citigroup shares in two separate trading programs, grossing $10.5 billion in proceeds. The sales have brought the Treasury's stake in the bank down to 18% from a prior 27% level.
• The Treasury has authorized Morgan Stanley (MS), its sales agent, to sell an additional 1.5 billion Citigroup common shares.

Market participants have speculated that the U.S. Treasury would like to be fully exited from its stake in Citigroup by the end of the year.

Based on the US government's cost at $3.25 per common share, I believe that it would not sell below that price. That price (slightly above) is now my benchmark for consideration for investing (not trading). They are 3 good ways to play this game:

1. Buy the shares around $3.25 (around 50% Fibonacci level) or $3.65 (around 38.2% Fibonacci level)
2. Sell the $4 Put (a few months away). The idea is to collect the shares at $4 minus the Put option premium collected. If the options expires worthless, then collect the premium fully. This is one of Warren Buffet favourite strategies.
3. Buy the Call (preferably leaps)

Of the 3 ways above, I am more inclined for now, to play the Sell Put strategy.

[Update! - 8 Dec 2010. The government announced late on Monday that it was selling its remaining stake of 2.4 billion Citigroup shares, at a price of $4.35 per share, and booking a total profit of $12 billion. ]

Cheers !

PersianCat

SPY - Commentary 16 Jul 2010

The DOW, Nasdaq Composite and the S&P500 indices are all showing lower highs and lower lows since April 2010 highs. All three are showing a Head and Shoulder formation.

Since I like to play SPY (S&P500 ETF), I would like to discuss more of this. The major indices have somewhat similar pattern as SPY.

• Interestingly, SPY bounced off the 38.2% correction level (taken from the March 2009 Low to the April 2010 High) in its attempts to rally from that level.
• However, the rally tapered off and formed a new lower High last week.
• A Head and Shoulder formation is also formed. If this HnS formation run its full course, then the target would around $87.00, which also happened to be around the 68.2% Fibonacci Level. That is a massive $20 or so off its current price.

I have been shorting SPY on the rallies.

For the coming week, I am also monitoring the earnings results for GS and AAPL on Tuesday. They performance is likely to be market moving.

Cheers !

PersianCat