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Alcoa Beats Earnings (NYSE: AA) - Using ETF's In The Rally - Mike Swanson (07/13/10)

Submitted by Mike Swanson on Tue, 2010-07-13 08:15.

Today earnings season is starting with a bang as Alcoa beat its earnings estimates after the close yesterday. Its stock is currently trading up 4% in pre-market action.

Traders have aggressively bid stocks up over the past two weeks and there is pure excitement in the air on CNBC this morning that more companies will beat estimates over the coming weeks.

The tone is buy now and be a part of it. Watch to find out what you might want to buy.

Two weeks ago people were worried about bear markets and technical indicators such as the “death cross,” but now those worries are all gone and people are now worried about missing out on more stock market gains instead of losing money.

Personally I have turned bearish on the market for the rest of the year and believe that this rally will be a good time to lighten up on positions and to go short if you want to make money, but a lot of people are skeptical of these views. This morning I got two emails from people disagreeing with me.

Historically the market tends to pop at the beginning of a quarterly earnings period and then top out in the first 3-10 days of the earnings season. Even in bull markets it usually peaks and corrects.

So I would not get too excited about earnings and would NOT buy a stock that gaps up on earnings news no matter how hard the analysts pound the table on buying.

I know that is hard for most people to do. They associate the stock market going up with making money and want to be a part of that. That's why rallies in bear markets just suck everyone in and people have such trouble using them to sell - especially when everyone on TV gets excited. It's just too hard for the average investor to go against what people on TV tell them to do and think. And as for people managing money they simply cannot afford to miss out.

But chasing news is not how you make money in the stock market. Traders buy the rumor and sell the news. Suckers see the news out, see a stock up 4%, and buy based on emotion - usually from the very traders who bought ahead of them or from smart money cashing out. News is used to sell the stock market to the average investor.

As you probably know I am working with Ike Iossif of Aegean Capital to put together a new options trading service. He is the best options trader I know and he plans on putting out a new options trading recommendation every 3-4 weeks.

What he buys options on are leveraged ETF’s, such as FAS, FAZ, SKF, EDC and so forth – buying calls and puts on them when he thinks they are in a position to make a big short-term move. Now if you aren’t interested in buying options you can use these recommendations to simply make a short-term trade using one of these ETF’s too.

Ike put together some info on this today you can read by going here:

http://www.optionsadvisoryreport.com/crnt_comp/etf/etf.htm

Not all of the links on the site are working yet, he is still has some finishing touches to make on it.

If you have not joined the free options trading notification list to receive his next trading update yet then: click here.

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Hello. My name is Mike Swanson. I’m the best-selling author of the book Strategic Stock Trading. In a former life I used to run a hedge fund from 2003 to 2006 that generated a return of over 78% during that time frame. In fact it was ranked in the top 35 out of 5,000 hedge funds in 2005.

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