RealMoney's Best of Blogs

As always, RealMoney's bloggers were all over the market action this week, and we'd like to share the best of their recent commentary with readers of TheStreet.com. These posts best capture the intent of these blogs, which is to provide intelligent discussion on the issues each writer sees as most pressing that day.

Let's take a look at Rev Shark on keeping the proper perspective on the market, Steve Smith on options strategies for fall retail and Tony Crescenzi on how the rise in Japanese yields may affect U.S. Treasuries.

Click here for information on RealMoney.com, where you can see all the blogs -- and readers' comments -- in real time.

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Rev Shark's Blog: Watch the Big Picture
Originally published on 7/10/2007 at 8:11 a.m. EDT

What we see depends mainly on what we look for.
-- John Lubbock

Like the ancient Buddhist parable about blind men who confront an elephant, the way the market is perceived depends on which part of it you contemplate. If you just consider an elephant's leg you might think it is like a tree but if you consider just its trunk you might think it is like a snake.

In the stock market if you consider just the DJIA you will have one view of things, while your opinion may be quite different if you consider the Nasdaq 100 or momentum stocks or small-caps or some other subset or sector.

Many market players struggled with the market rally earlier this year and late last year because the groups they focused on where not leading the way they usually do. The IBD-100-type stocks, smaller-caps, semiconductors and the like were lagging, while DJIA-type stocks like Coca-Cola (KO Quote), Honeywell (HON Quote) and IBM (IBM Quote) were driving things higher.

There was much consternation among traders, and one of the consequences was that there was a very high level of skepticism about the market. Bearish sentiment stayed high as the major indices were hitting new highs, because many market players simply weren't involved in the stocks that were the strongest.

In the past couple weeks that has changed. We are now seeing what many consider to be the more traditional style of market strength with heavy momentum in IBD-type stocks, leadership from chips and technology and some big-moving small-caps. That is what anyone who has traded over the last decade has been used to seeing when the market is strong.

If you stuck with the mega-cap stocks that led us previously, you are likely feeling a bit left out, just like the smaller-cap momentum players were feeling left out earlier in the year.

The point here is that to excel in the market it is extremely important to have the right perspective. I struggled quite a bit when the mega-cap stocks were leading and found it quite difficult to embrace the different leadership. Now I am seeing a market that is much more suited for my style, but I'm sure that there are many out there who are finding this a more difficult environment.

If you know yourself and your style and are appreciative of how market leadership can ebb and flow, you have a much better chance of producing better results. The market is all about having the right perspective at the right time. Don't be overly rigid in the way you view this beast. It is quite easy to miss the bigger picture if you don't consider all the parts.

We have a soft open on the way as some negative comments from Home Depot(HD Quote) and Sears(SHLD Quote) are causing some problems. The market is technically extended and in need of a rest, so it doesn't take much news to trigger some selling. Fed head Ben Bernanke is making a speech this afternoon that many will be considering. Overseas markets were mixed. Gold is up and oil is down.

No positions.

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Steven Smith's Blog: A Way to Play the Fall Retail Season
Originally published on 7/13/2007 at 9:44 a.m. EDT

A day after retailers' shares rallied on strong same-store-sales numbers from the likes of Wal-Mart (WMT Quote), the government reported this morning that retail sales in June slipped 0.9%, far worse than the 0.1% decline expected.

From a trading standpoint, these mixed signals should provide a healthy debate and a two-sided market, with increased volatility across the sector. One way to play this might be calendar spreads -- that is, buying longer-dated calls, such as November, which will position you for the back-to-school fall fashion season, and selling short near-term options, such as July or August, whose implied volatility is relatively more expensive, as a means of reducing the position's overall cost.

For example, yesterday, shares of Abercrombie & Fitch (ANF Quote) gapped up some $5 to $75. This left a huge island on its chart, which is a bullish formation. But with resistance in place at $78, it may take a period of consolidation before the stock can rally much further in the near term. One might look at creating a calendar spread by purchasing the November $80 calls for $4 and simultaneously selling the August $80 calls for $1.25 -- for a net debit of $2.75 for the spread.

This position takes advantage of the accelerated time decay of the nearer-term August options sold short and becomes more bullish as the August expiration approaches. One of the drawbacks of this position is that profits begin to diminish if shares of Abercrombie move too quickly above $80 before expiration.

If both components of the calendar spread are in the money, each call will trade close to its intrinsic value, causing the value of the position to decline. However, the maximum loss is limited to the initial cost, which is $2.75 in this particular example.

One attractive variation on this type of calendar spread is to sell a vertical (bear) call spread that will allow for unlimited upside potential. For example, stick with buying the November $80 calls, but instead of just selling August $80 calls, consider selling the August $75/ $80 call spread for about a $2 net credit.

The key to using a spread is that you can sell twice as many credit spreads as longer-term calls that are purchased. For example, if you buy 10 November $80 calls, you can then sell 20 contracts of August $75/$80 spread.

This creates an even money position, meaning that if shares fall below $75 by the August expiration, those options will be worthless and no loss will be incurred. In fact, because the long November calls will still retain some premium, the position might even produce a small profit.

But the real key to this "covered" calendar is that once shares of Abercrombie & Fitch rise above $80, the position will be outright or net long 10 of the November calls, providing unlimited upside potential. An important point to be aware of is this position has a "dead zone," in which the graph of its profit profile takes a dip if the stock is just below $80 at the August expiration. But most likely, the loss of the short August spread will be offset by the gains in the long November calls. Also, the August credit spread creates the potential for an early assignment of the $75 calls sold short.

Those caveats aside, I think these are terrific low-risk strategies for establishing a longer-term bullish position with unlimited upside potential.

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Tony Crescenzi's Blog: Japanese Yields Rising
Originally published on 7/9/2007 at 11:14 a.m. EDT

Any discussion of the U.S. and world interest-rate environment must first start with a discussion of the interest-rate situation in Japan, given that Japan is the single largest holder of U.S. Treasury securities and its obvious impact on global rates.

In the current situation, Japanese rates are rising again, partly in response to rising stock prices in Japan, where shares reached a seven-year high overnight, and because there are widespread expectations for a third interest-rate increase from the Bank of Japan in August, with the first hike delivered a year ago.

As of the end of April, which was the last month for which data are available, Japan held $614.8 billion, about $200 billion more than China, and the largest portion of the $2.165 trillion in Treasuries held by foreign investors.

Interestingly, Japan's holdings topped out three years ago at around $700 billion, and since that time, U.S. rates have been slowly rising. It is probably no coincidence.

Overnight, with expectations for another rate hike in Japan once again on the rise, Japanese rates also rose, with the Japanese 10-year trading at about 1.95% for most of the session, not far from the eight-year high of 2% set last May. It seems likely Japan's 10-year will break that level, and depending on the timing and cause of the increase, it will probably have a negative impact on the U.S. Treasury market.