Each Wednesday we'll reach back into our 25-year archive of commentary by our founder, Jim Yates. Here's an excerpt from 1994's The Yates Guide to Profitable Options Investing:
The Zone system is based on an analysis of the deviation of a stock's price from it's trend. Zones are the six areas under a normal bell-shaped curve defined by standard deviations. Zone 1 represents the area that is between two and three standard deviations below the mean. Zone 6 is at the other extreme. Zones 1 and 6 are the farthest points from a stock's mean, or where it has historically migrated during reversion to the mean. The mean is the vertical line bisecting the normal curve and it's called the trend.
Because it's future distribution we're concerned about, the implied volatility for the stock is used to estimate that standard deviation. Implied volatility is the annualized standard deviation that justifies the current options price. This is a particularly important statistic because it's the only market-derivable statistic that represents a forecast of future price movements.
We use two time frames for analysis, 10 days and 90 days. There's nothing magical about these two time frames, they were chosen because they fit the profile of a short-term trader and options hedger.
In the process of the evaluation, each Zone is expanded to a 33-point scale. A stock that is at the three standard deviation limit, or Zones 1 and 6, could then be said to be either 99% oversold (Zone 1) or 99% overbought (Zone 6).
The beauty of the Zone system is that it's easy to use. By simply identifying which Zone a stock's in, you can formulate a strategy. Next week we'll describe a tool we've named the Options Strategy Spectrum. The similarity between the Options Strategy Spectrum and the normal distribution curve is no coincidence. They're the same, but we've broken down the bell curve into Zones that delineate which stock-and-options strategy is appropriate at the time. Zones 1, 2 and 3 are below the mean (or oversold), while Zones 4,5 and 6 are above the mean (or overbought).
The Zone system is simply another way of looking at the market, but from a risk perspective. One advantage of the system is that it allows direct comparison of the overall market, market sectors and individual stocks at the same time. Every market index, sector index and individual issue will visit each Zone over the course of time. When issues move to the extreme Zones, the probability is high that the next move will be back toward the mean, assuming the volatility estimate delivered by the market proves reliable.
The Zone system can be compared to a map. While a map may be of significant benefit in determining where you are headed, it's most important contribution is detailing where you are right now. If you don't know your current location, it's nearly impossible to locate the path to your desired destination.
Wednesday, August 8, 2007
Upset Stomach
The market is acting like it ate some bad sushi over the weekend. Things are jouncing up and down inside, when usually it's a smooth ride. You can pour some Pepto on the problem, but eventually it's going to have to be processed on out. You know how that goes. But then the market will feel all better, and we'll be rallying in the fourth quarter.
First we gotta get rid of this bug. We don't think it will end until the bond ETFs and the yield indexes move to extreme extremes, like Zone 8. Reason: The vehicles we use to follow these moves carry low trading volume, so their implied volatilities (IVs) are underestimated. Right now, bond ETFs -- which carry the more reliable IVs -- are less than one standard deviation above their 90-day means. Plenty of room to rise, which is bad news for the stock market.
"Rumors have been floating that many Wall Street firms have forged agreements not to mark down the value of securities on their balance sheets in order to cease further disruption and help smooth out their future earnings. Such action may give firms more time to work out bad debt or rejigger their portfolios, but only time will tell if that serves to solve the broader credit woes or will only result in magnifying the problem." -- Mark DeCambre, TheStreet.com
Interestingly, this was the last paragraph in the article. Yet it's the most important item. How could it possibly help? The problem is not going away. People will lose their homes, the banks will have to take them back. But even before all that happens, these bonds will be worthless. Remember, this is going to end with one of the biggest blowouts -- percentage wise -- of all times. Buy the stock market here at your own risk.
First we gotta get rid of this bug. We don't think it will end until the bond ETFs and the yield indexes move to extreme extremes, like Zone 8. Reason: The vehicles we use to follow these moves carry low trading volume, so their implied volatilities (IVs) are underestimated. Right now, bond ETFs -- which carry the more reliable IVs -- are less than one standard deviation above their 90-day means. Plenty of room to rise, which is bad news for the stock market.
"Rumors have been floating that many Wall Street firms have forged agreements not to mark down the value of securities on their balance sheets in order to cease further disruption and help smooth out their future earnings. Such action may give firms more time to work out bad debt or rejigger their portfolios, but only time will tell if that serves to solve the broader credit woes or will only result in magnifying the problem." -- Mark DeCambre, TheStreet.com
Interestingly, this was the last paragraph in the article. Yet it's the most important item. How could it possibly help? The problem is not going away. People will lose their homes, the banks will have to take them back. But even before all that happens, these bonds will be worthless. Remember, this is going to end with one of the biggest blowouts -- percentage wise -- of all times. Buy the stock market here at your own risk.
Tuesday, August 7, 2007
Options Tuesday -- The BuyWrite Is Back
One of the consequences of a market pullback is higher option implied volatility. The CBOE's measure, VIX, climbs dramatically during pullbacks. But the key is whether the increase in option implied volatility (IV) sticks when the market eases up a bit. This time, it has.
That makes the case for establishing buy/writes all the more compelling. We like to use the strategy on issues that have fallen into Zone 2 on a 90-day basis, and are near 100% oversold on a 10-day basis. We like to see the longer term Zone 2 reading -- more than one standard deviation below the mean -- because of the stock, and we like to see the shorter term, extremely oversold reading for the option we're selling. A washed out stock has a greater chance of reverting to the mean over time, and it's risk of falling is lower than a stock that has risen significantly over time. And when we see a washed out stock that gets that final, volatile push down to 100% oversold over the short term, we know that the IV we'll be selling (in the form of option premium) is the highest we're going to get for that particular issue.
For example, the 52-week range on the VIX is 9 to 26. Today the VIX traded between 24 and 21. The low for the range, 9.39 to be exact, came when the market was at its peak. That's a nearly three-fold increase, from top to bottom. When the market rallies and IV reaches its peak, that's the best time to buy puts. But we'll leave that for another Options Tuesday.
We like buy/writes on fundamental favorites from oversold sectors, such as retail, internet commerce and broker/dealer. Look for 15% called profit on trades of three or four months.
That makes the case for establishing buy/writes all the more compelling. We like to use the strategy on issues that have fallen into Zone 2 on a 90-day basis, and are near 100% oversold on a 10-day basis. We like to see the longer term Zone 2 reading -- more than one standard deviation below the mean -- because of the stock, and we like to see the shorter term, extremely oversold reading for the option we're selling. A washed out stock has a greater chance of reverting to the mean over time, and it's risk of falling is lower than a stock that has risen significantly over time. And when we see a washed out stock that gets that final, volatile push down to 100% oversold over the short term, we know that the IV we'll be selling (in the form of option premium) is the highest we're going to get for that particular issue.
For example, the 52-week range on the VIX is 9 to 26. Today the VIX traded between 24 and 21. The low for the range, 9.39 to be exact, came when the market was at its peak. That's a nearly three-fold increase, from top to bottom. When the market rallies and IV reaches its peak, that's the best time to buy puts. But we'll leave that for another Options Tuesday.
We like buy/writes on fundamental favorites from oversold sectors, such as retail, internet commerce and broker/dealer. Look for 15% called profit on trades of three or four months.
Monday, August 6, 2007
Illiquidity -- Another Name for Sell on the Bid
The malaise that's infected the housing market has found a new host -- the credit market. They're calling it "a lack of liquidity," but it's really just people putting off as long as possible the inevitable -- selling to the bidders. In Florida over the past six months, you could have sold your home if you had been willing to hit the bid. No longer. Like the junk-bond market this week, the bids have been pulled.
Today's rally in the financials appears unsustainable. Hard to believe that UBS analyst would upgrade Merrill Lynch. There are too many unknowns still out on the table to make that call. Unlike the debt and housing markets, there is plenty of liquidity in the stock market. Probably because they're trading stocks with other people's money. But we still think there will be plenty of spillover from the complete shutdown in the housing industry.
Colleagues have told us that the levels of fraud committed during the housing bubble are unimaginable, and will dwarf the long-forgotten savings-and-loan scandal. Last year, one-third of US mortgages were interest-only or payment-option ARM. Four years ago, these choices barely existed. You can only imagine the lies that were told, on both sides, to get people who weren't qualified into homes they couldn't afford. And now, with lending and credit standards being tightened, there is no one to sell these homes to except the bank.
We think there's more downside to come this month. Hold onto your puts.
Today's rally in the financials appears unsustainable. Hard to believe that UBS analyst would upgrade Merrill Lynch. There are too many unknowns still out on the table to make that call. Unlike the debt and housing markets, there is plenty of liquidity in the stock market. Probably because they're trading stocks with other people's money. But we still think there will be plenty of spillover from the complete shutdown in the housing industry.
Colleagues have told us that the levels of fraud committed during the housing bubble are unimaginable, and will dwarf the long-forgotten savings-and-loan scandal. Last year, one-third of US mortgages were interest-only or payment-option ARM. Four years ago, these choices barely existed. You can only imagine the lies that were told, on both sides, to get people who weren't qualified into homes they couldn't afford. And now, with lending and credit standards being tightened, there is no one to sell these homes to except the bank.
We think there's more downside to come this month. Hold onto your puts.
2007 -- So Far, So Good
It's been a good trading year for us so far. We caught the market peak in January and got out, then we jumped back in again after March. We got good and scared again heading into July, and now we're waiting for the perfect opportunity to get back in. We could buy now and profit this year, but we think the true Blue Light Specials haven't shown up just yet.
Overall this year, we've been buying the oils and selling the homebuilders. Our broker/dealer indicator has provided us with a couple of nice trading opportunities, and our bond indicators have kept us ahead of any major swings in the credit markets. You can't have a good opinion about where the market is headed next unless you have a good bond indicator, and ours is one of the best. We've also profited from trading the golds, one of the most volatile sectors around. Now we're looking at the biggest opportunity of the year, and we didn't have to suffer any losses on the way to the experience.
More specifically: We sold the broker/dealers in late Jan, then bought them back in mid-March for an 8% gain. We also went long at that point -- "Zone 1 for XBD" was the headline -- and carried our position until early June, we we said "We'd get out now." We took in 14% on that long trade. Turning short at the same time, we're up about 20% now. Soon we'll look to turn around again and go long the brokers. So far this year, we've made accumulated gains of about 42% on our broker/dealer recommendations.
Along with the broker/dealers. we look to the bond market to tell us where the stock market is headed. It's pretty simple: Yield indexes are liable to peak about the same time as the broker/dealers. The broker/dealer stocks just don't like strong bonds. Once the bonds peak again, the broker/dealers (and the yield indexes) will be free to rise again. That will start the rally that should take us through the end of the year.
Yields peaked in late January, then they bottomed in mid-March. Yields peaked again in late May, and here we are now. The market likes strong yields, but yields are still falling. When they turn, so will the market.
Economically, we're long the oils and short the homebuilders right now. That means we'll buy the oil when they get weak, but we won't short them when they get strong. And we'll short the homebuilders when they get strong, but we won't go long the builders when they're weak. (Although we might take one more stab at going long the builders soon, then get out earlier than usual.)
The long oil position has proved extremely profitable. The oil service stocks gained about 50% during their run from late January to late May. The big oils gained nearly 30% over that span. We got out after the market as a whole had turned down, but the oils were still going strong. Now we're looking at another wonderful opportunity, and we're just waiting to make the call.
We've done pretty well shorting the homebuilders, too. We made around 10% from January to April. But our current trade, which we're looking to close out soon, has the homebuilders down by 25% this time. Might be time to take our profits and run. Might even go long the homebuilders because the market is so wiped out, those guys will probably have a nice relief rally.
Finally, we'd had nice success trading the golds. We made five buy recommendations, and only one sell. All five buys were in the same range, and we were never down by any significant amount. Gold stocks are terribly range bound, but there is so much interest in them that the range is gigantic. We can make profitable trades by buying anytime the stocks hit the bottom range and selling anytime the stocks hit the top range. So we'll keep adding to our positions each time the bottom is made, then sell them all out when we get that significant top
The significant top came on July 23, when we said that the gold stocks -- which had rallied -- were liable to pull back with the rest of the market. Gone are the days when gold stocks moved as a counterpoint to the rest of the market. Nowadays, gold stocks trade with the market more than they trade against it.
Overall this year, we've been buying the oils and selling the homebuilders. Our broker/dealer indicator has provided us with a couple of nice trading opportunities, and our bond indicators have kept us ahead of any major swings in the credit markets. You can't have a good opinion about where the market is headed next unless you have a good bond indicator, and ours is one of the best. We've also profited from trading the golds, one of the most volatile sectors around. Now we're looking at the biggest opportunity of the year, and we didn't have to suffer any losses on the way to the experience.
More specifically: We sold the broker/dealers in late Jan, then bought them back in mid-March for an 8% gain. We also went long at that point -- "Zone 1 for XBD" was the headline -- and carried our position until early June, we we said "We'd get out now." We took in 14% on that long trade. Turning short at the same time, we're up about 20% now. Soon we'll look to turn around again and go long the brokers. So far this year, we've made accumulated gains of about 42% on our broker/dealer recommendations.
Along with the broker/dealers. we look to the bond market to tell us where the stock market is headed. It's pretty simple: Yield indexes are liable to peak about the same time as the broker/dealers. The broker/dealer stocks just don't like strong bonds. Once the bonds peak again, the broker/dealers (and the yield indexes) will be free to rise again. That will start the rally that should take us through the end of the year.
Yields peaked in late January, then they bottomed in mid-March. Yields peaked again in late May, and here we are now. The market likes strong yields, but yields are still falling. When they turn, so will the market.
Economically, we're long the oils and short the homebuilders right now. That means we'll buy the oil when they get weak, but we won't short them when they get strong. And we'll short the homebuilders when they get strong, but we won't go long the builders when they're weak. (Although we might take one more stab at going long the builders soon, then get out earlier than usual.)
The long oil position has proved extremely profitable. The oil service stocks gained about 50% during their run from late January to late May. The big oils gained nearly 30% over that span. We got out after the market as a whole had turned down, but the oils were still going strong. Now we're looking at another wonderful opportunity, and we're just waiting to make the call.
We've done pretty well shorting the homebuilders, too. We made around 10% from January to April. But our current trade, which we're looking to close out soon, has the homebuilders down by 25% this time. Might be time to take our profits and run. Might even go long the homebuilders because the market is so wiped out, those guys will probably have a nice relief rally.
Finally, we'd had nice success trading the golds. We made five buy recommendations, and only one sell. All five buys were in the same range, and we were never down by any significant amount. Gold stocks are terribly range bound, but there is so much interest in them that the range is gigantic. We can make profitable trades by buying anytime the stocks hit the bottom range and selling anytime the stocks hit the top range. So we'll keep adding to our positions each time the bottom is made, then sell them all out when we get that significant top
The significant top came on July 23, when we said that the gold stocks -- which had rallied -- were liable to pull back with the rest of the market. Gone are the days when gold stocks moved as a counterpoint to the rest of the market. Nowadays, gold stocks trade with the market more than they trade against it.
Saturday, August 4, 2007
Broker/Dealers '07
We consider Broker/Dealer (XBD) our main market indicator. Wherever the market is heading, XBD moves there first. If XBD doesn't support a move by the rest of the market, something is wrong with the move.
Prior to this year, there were very few significant pullbacks by the XBD this century. Now that interest rates are back to normal, we're getting some significant rotation from the brokers.
In late January, XBD surged to new highs. There has been no value to shorting XBD when it moves to two standard deviations above its mean. Still, we noted the event by writing "Bonds continued to fall last week, with rates rising. Broker/Dealer (XBD) generally rallies along with rates, or opposite bonds. XBD fell just short of Zone 6 this time -- when was the last time that happened? The market is due for a correction, including a Zone 1 reading, and the first quarter of the year is a good time for it." At the time, Broker/Dealer (XBD) was trading at 254.
By March 12, XBD had dropped to more than two standard deviations below its mean. That prompted us to devote our front page to the index, with the headline "Zone 1 for XBD." The index experienced a turnaround during the week before the XBD issue. In that issue, we wrote "...the index bottomed out at 69% oversold on a 90-day basis, and 143% oversold on a 10-day basis." The index had rallied at bit by the time we wrote that weekend, but on March 12 Broker/Dealer (XBD) was at 234.
Nearly three months later, it was time to get out. On June 4, we said "The DYR Phase Chart has resumed its march upward, and now stands at -53 in Zone 6. The yield indexes are in Zone 6 over both 10 and 90 days. Broker/Dealer (XBD) is one of the strongest sectors again. All is well with the market. We'd get out now. Sell in May and go away sounds about right." At the time, Broker/Dealer (XBD) was trading at 267.
Since XBD wasn't leading any rallies this year, we were worried. On July 16, we said "We're just waiting for Broker/Dealer (XBD) to start leading the market south. Notice that XBD -- Zone 4 over both 10 and 90 days -- has chosen not to participate in this most recent rally...One thing that could send XBD reeling is a rally in bonds. The financials usually do well when yields are rising, and it looks like the peak in yields has been reached for the short term. Keep a close eye." At the time, Broker/Dealer (XBD) was at 262.
A week later, we got the sign we were looking for. We titled our July 23 issue "Time For Puts." We said "Broker/Dealer (XBD) has broken down. As bond indexes have rallied back to 90-day neutral, the brokers have retreated down into Zone 3. Now XBD stands as one of the weakest sector indexes, over both 90 days and 10 days. We think the market follows the brokers. That means it's time to buy puts on the market and certain sectors." At the time, Broker/Dealer (XBD) was at 249.
We don't think XBD has bottomed yet. Should be soon. Right now, Broker/Dealer (XBD) is at 214. That's down 20% since we said to sell in May and go away.
Send us an email and we send you a report containing all our comments about Broker/Dealer (XBD) so far this year.
Prior to this year, there were very few significant pullbacks by the XBD this century. Now that interest rates are back to normal, we're getting some significant rotation from the brokers.
In late January, XBD surged to new highs. There has been no value to shorting XBD when it moves to two standard deviations above its mean. Still, we noted the event by writing "Bonds continued to fall last week, with rates rising. Broker/Dealer (XBD) generally rallies along with rates, or opposite bonds. XBD fell just short of Zone 6 this time -- when was the last time that happened? The market is due for a correction, including a Zone 1 reading, and the first quarter of the year is a good time for it." At the time, Broker/Dealer (XBD) was trading at 254.
By March 12, XBD had dropped to more than two standard deviations below its mean. That prompted us to devote our front page to the index, with the headline "Zone 1 for XBD." The index experienced a turnaround during the week before the XBD issue. In that issue, we wrote "...the index bottomed out at 69% oversold on a 90-day basis, and 143% oversold on a 10-day basis." The index had rallied at bit by the time we wrote that weekend, but on March 12 Broker/Dealer (XBD) was at 234.
Nearly three months later, it was time to get out. On June 4, we said "The DYR Phase Chart has resumed its march upward, and now stands at -53 in Zone 6. The yield indexes are in Zone 6 over both 10 and 90 days. Broker/Dealer (XBD) is one of the strongest sectors again. All is well with the market. We'd get out now. Sell in May and go away sounds about right." At the time, Broker/Dealer (XBD) was trading at 267.
Since XBD wasn't leading any rallies this year, we were worried. On July 16, we said "We're just waiting for Broker/Dealer (XBD) to start leading the market south. Notice that XBD -- Zone 4 over both 10 and 90 days -- has chosen not to participate in this most recent rally...One thing that could send XBD reeling is a rally in bonds. The financials usually do well when yields are rising, and it looks like the peak in yields has been reached for the short term. Keep a close eye." At the time, Broker/Dealer (XBD) was at 262.
A week later, we got the sign we were looking for. We titled our July 23 issue "Time For Puts." We said "Broker/Dealer (XBD) has broken down. As bond indexes have rallied back to 90-day neutral, the brokers have retreated down into Zone 3. Now XBD stands as one of the weakest sector indexes, over both 90 days and 10 days. We think the market follows the brokers. That means it's time to buy puts on the market and certain sectors." At the time, Broker/Dealer (XBD) was at 249.
We don't think XBD has bottomed yet. Should be soon. Right now, Broker/Dealer (XBD) is at 214. That's down 20% since we said to sell in May and go away.
Send us an email and we send you a report containing all our comments about Broker/Dealer (XBD) so far this year.
Bonds '07
We watch for bond ETFs and yield indexes to reach opposite extremes around the same time. Yield indexes tend to max out further from their respective means than do bond ETFs. When bond-and-yield extremes are reached, the market is about to change direction.
This year, we've had two full reversals from the bonds and yields. On January 29 we noted that bond ETFs were more than two standard deviations below their respective means, while yield indexes were more than three standard deviations above their respective means. We said "So it appears the bonds are reaching extremes. Further moves into the extreme Zones by yields and bonds could translate into serious losses for the market this week." At the time, the 30-Year Bond (TLT) ETF was at 86.91, while the 10-Year Interest Rate (TNX) index was at 48.79.
The turnaround happened quickly, so that reversion to the mean was already under way by weekend comment time. But the DYR Report on March 12 clearly detailed a serious reversal in the bond ETFs (now heading down again) and yield indexes (now heading up again) that happened during trading the previous Friday. At the time, 30-Year Bond (TLT) was at 89.4, while the 10-Year Interest Rate (TNX) was at 45.89.
The first move sent TLT (bonds) up 3%, while TNX (yields) dropped by 5%. Those are big moves for the bond-and-yield issues. Hard to trade, but they move markets.
The second reversal triggered the current market downdraft. On May 29, we said "The interest-rate indexes may have peaked last week too. All three durations are near 100% overbought over both 10 and 90 days. We've seen them higher before, but not with this much unity. Time to sell." At the time, 30-Year Bond (TLT) was at 86.43 while 10-Year Interest Rate(TNX) was at 48.61.
Extremes -- at the bottom for yield indexes and at the top for bond ETFs -- have not been reached yet for this cycle. This week, 30-Year Bond (TLT) is at 87.25, while 10-Year Interest Rate (TNX) is at 47.
This year, we've had two full reversals from the bonds and yields. On January 29 we noted that bond ETFs were more than two standard deviations below their respective means, while yield indexes were more than three standard deviations above their respective means. We said "So it appears the bonds are reaching extremes. Further moves into the extreme Zones by yields and bonds could translate into serious losses for the market this week." At the time, the 30-Year Bond (TLT) ETF was at 86.91, while the 10-Year Interest Rate (TNX) index was at 48.79.
The turnaround happened quickly, so that reversion to the mean was already under way by weekend comment time. But the DYR Report on March 12 clearly detailed a serious reversal in the bond ETFs (now heading down again) and yield indexes (now heading up again) that happened during trading the previous Friday. At the time, 30-Year Bond (TLT) was at 89.4, while the 10-Year Interest Rate (TNX) was at 45.89.
The first move sent TLT (bonds) up 3%, while TNX (yields) dropped by 5%. Those are big moves for the bond-and-yield issues. Hard to trade, but they move markets.
The second reversal triggered the current market downdraft. On May 29, we said "The interest-rate indexes may have peaked last week too. All three durations are near 100% overbought over both 10 and 90 days. We've seen them higher before, but not with this much unity. Time to sell." At the time, 30-Year Bond (TLT) was at 86.43 while 10-Year Interest Rate(TNX) was at 48.61.
Extremes -- at the bottom for yield indexes and at the top for bond ETFs -- have not been reached yet for this cycle. This week, 30-Year Bond (TLT) is at 87.25, while 10-Year Interest Rate (TNX) is at 47.
Housing '07
We're prepared to sell the Housing (HGX) index when it rallies to an extreme. We don't care to own it during rallies, because we think the trend is down.
This year we've recommended shorting housing twice. The first time we recommended shorting the index twice in three weeks, first on January 22 -- "Housing (HGX) is up near Zone 6, where it's a sell now" -- around 239, and two week later on February 5 -- "Housing (HGX) has hit Zone 6 over both 10 and 90 days" -- at 255. The buy-back recommendation for those two shorts came on April 9 -- "Housing (HCX) remains in Zone 1" -- with HGX at 218, which represented declines of 9% and 14%.
The second time we sold HGX was on June 21, when the headline of the DYR Report was "Start Buying Puts." We said "...we'd short Housing (HGX) again while it's around 90-day neutral. When we do make it back to Zone 1 this year, we think the housing stocks will be the downside leader." At the time, HGX was trading at 232.
The buy-back recommendation hasn't been made yet. On July 23 we said "The real-estate indexes, Dow Jones REIT (DJR) and Housing (HGX), are about halfway through Zone 2 and on their way to Zone 1." At the time, HGX was trading at 208, down about 10% since the short.
Going into this week, HGX stands at 175. That's down about 25% since the short.
Send us an email and we'll email you our special report containing all the quotes this year in the DYR Report that pertain to housing.
This year we've recommended shorting housing twice. The first time we recommended shorting the index twice in three weeks, first on January 22 -- "Housing (HGX) is up near Zone 6, where it's a sell now" -- around 239, and two week later on February 5 -- "Housing (HGX) has hit Zone 6 over both 10 and 90 days" -- at 255. The buy-back recommendation for those two shorts came on April 9 -- "Housing (HCX) remains in Zone 1" -- with HGX at 218, which represented declines of 9% and 14%.
The second time we sold HGX was on June 21, when the headline of the DYR Report was "Start Buying Puts." We said "...we'd short Housing (HGX) again while it's around 90-day neutral. When we do make it back to Zone 1 this year, we think the housing stocks will be the downside leader." At the time, HGX was trading at 232.
The buy-back recommendation hasn't been made yet. On July 23 we said "The real-estate indexes, Dow Jones REIT (DJR) and Housing (HGX), are about halfway through Zone 2 and on their way to Zone 1." At the time, HGX was trading at 208, down about 10% since the short.
Going into this week, HGX stands at 175. That's down about 25% since the short.
Send us an email and we'll email you our special report containing all the quotes this year in the DYR Report that pertain to housing.
Golds '07
We want to buy gold stocls when they're more than two standard devaitions below thier respective 90-day means, and sell them when they're two standard deviations above their respective means. We like gold, so we might even buy at one standard deviation below the mean.
We talked about buying the Gold/Silver (XAU) index around 135 a number of times this year. When we said it was time to take profits, the index was around 158. That's 15% to 20% profit, on each purchase we made.
Here are the five long XAU recommendations we've made so far this year:
-- On January 8, we said "..if you didn't get long when Gold/Silver (XAU) slid through 90-day neutral last week, now's a good time." At the time, XAU was at 133.
-- On March 19, we said "Is this the time to buy gold stocks again? We say yes." At the time, XAU was at 133.
-- On May 7, we said "The golds are the weakest group overall -- that's where we'd look for bargains now." At the time, XAU was at 142.
-- On May 14, we said "Gold/Silver (XAU) looks like a good buy here." At the time, XAU was at 140.
-- On May 29, we said "...it's time to take another stab at the gold indexes. The market is turning and Gold/Silver (XAU) has hit Zone 2. Time to buy." At the time, XAU was at 136.
Here's our only sell recommendation this year:
-- On July 23, we said "...it's time to take profits on Gold/Silver (XAU). The index is in Zone 6, just barely, over both 90-days and 10-days. It's hard to see the dollar falling lower. If the market tanks, golds will fall too." At the time, XAU was at 158.
Send us an email and we'll send you a report that includes all the comments we've made about the golds this year.
We talked about buying the Gold/Silver (XAU) index around 135 a number of times this year. When we said it was time to take profits, the index was around 158. That's 15% to 20% profit, on each purchase we made.
Here are the five long XAU recommendations we've made so far this year:
-- On January 8, we said "..if you didn't get long when Gold/Silver (XAU) slid through 90-day neutral last week, now's a good time." At the time, XAU was at 133.
-- On March 19, we said "Is this the time to buy gold stocks again? We say yes." At the time, XAU was at 133.
-- On May 7, we said "The golds are the weakest group overall -- that's where we'd look for bargains now." At the time, XAU was at 142.
-- On May 14, we said "Gold/Silver (XAU) looks like a good buy here." At the time, XAU was at 140.
-- On May 29, we said "...it's time to take another stab at the gold indexes. The market is turning and Gold/Silver (XAU) has hit Zone 2. Time to buy." At the time, XAU was at 136.
Here's our only sell recommendation this year:
-- On July 23, we said "...it's time to take profits on Gold/Silver (XAU). The index is in Zone 6, just barely, over both 90-days and 10-days. It's hard to see the dollar falling lower. If the market tanks, golds will fall too." At the time, XAU was at 158.
Send us an email and we'll send you a report that includes all the comments we've made about the golds this year.
Oils '07
We like the oils when they move one standard deviation below their respective 90-day means. We don't want to wait until they move two standard deviations below their respective means -- if they do, we'll buy more. We'll sell only once these issues move significantly beyond two standard deviations above their mean prices.
If you bought the oils when we said to in January, you would have made 50% on oil service and 27% on large oils by the time we said to get out in late June.
We saw a great opportunity to get into the oil issues back on January 16. In fact, that week's issue of the DYR Report was titled "Oil Opportunity." We said: "The rotation out of oils and into techs has been almost too perfect. Nasdaq 100 (NDX) has rallied back into Zone 5 as the oil service indexes have slipped into Zone 2. Both groups are due for a little reversion to the mean. But we'd buy the oils before we'd sell the techs." More: "Three months ago, the DYR Oil Sectors also made Zone 2. Two months later, those DYR Sectors were solidly in Zone 6." At the time, the Oil (XOI) index was at 1,11o and the Oil Service (OSX) index was at 185.
We noted the strength in the oils as the year progressed, but we didn't really issue a sell signal until the entire stock market turned down in June. On June 25, we wrote: "All of the broad-based indexes have pulled back into Zone 4. The oil indexes remain in Zone 6. Gas prices have declined recently. If the oils pull back too, we'd buy them again at 90-day neutral. There's still a war in Iraq. But the market has rallied right along with the oils, so we'd expect it to pull back with them as well." At the time, Oil (XOI) was at 1,412 and Oil Service (OSX) was at 278.
The gain in XOI was 27% and the gain in OSX was 50%. Send us an email and we'll send you a report that contains all of our comments about the oils so far this year.
If you bought the oils when we said to in January, you would have made 50% on oil service and 27% on large oils by the time we said to get out in late June.
We saw a great opportunity to get into the oil issues back on January 16. In fact, that week's issue of the DYR Report was titled "Oil Opportunity." We said: "The rotation out of oils and into techs has been almost too perfect. Nasdaq 100 (NDX) has rallied back into Zone 5 as the oil service indexes have slipped into Zone 2. Both groups are due for a little reversion to the mean. But we'd buy the oils before we'd sell the techs." More: "Three months ago, the DYR Oil Sectors also made Zone 2. Two months later, those DYR Sectors were solidly in Zone 6." At the time, the Oil (XOI) index was at 1,11o and the Oil Service (OSX) index was at 185.
We noted the strength in the oils as the year progressed, but we didn't really issue a sell signal until the entire stock market turned down in June. On June 25, we wrote: "All of the broad-based indexes have pulled back into Zone 4. The oil indexes remain in Zone 6. Gas prices have declined recently. If the oils pull back too, we'd buy them again at 90-day neutral. There's still a war in Iraq. But the market has rallied right along with the oils, so we'd expect it to pull back with them as well." At the time, Oil (XOI) was at 1,412 and Oil Service (OSX) was at 278.
The gain in XOI was 27% and the gain in OSX was 50%. Send us an email and we'll send you a report that contains all of our comments about the oils so far this year.
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