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Saturday, November 28, 2009

Market Thought... think

The more and more I hear the term 'Animal Spirits' the more and more I get annoyed by it. (Despite the fact that I utilize the psychology of the market to assess my view of it, and its the premise of my blog ;)

At the moment, I just think it is over played. We all know all markets are subject to wild swings, but the underlining assessment of an asset is based on value. period. Uncertainty allows for a mispricing of an asset. Depending on the level of uncertainty, the magnitude of mispricing is correlated.

So, will this Dubai thing cause AAPL or GOOG or retailer or countless other companies, to reduce their earnings potential, which during this last quarter many proved is very much intact?

I seriously doubt it.

It will most likely affect some European bank earnings, definitely some individual investors, and Industrials. But will the repricing of debts cause massive de-leveraging from hedge funds or individual investors, when we just went through a period of the greatest de-leveraging in 80yrs?

I seriously doubt it.

So we have a situation with Dubai that many think will be a catalyst, but the more I think about it the more I realize there is no domino. It is a catalyst to nothing.

Even if there is multiple situations where repricing of debt becomes wide spread, the credit holders are the fucked one taking in less money. (As they should be, this is the name of the game, if they don't like it, get out of the game.) If this did not come off the heals of a massive de-leveraging process I would think it can cause damage. But at the current moment, I do not think that is the case.

Thursday, November 26, 2009

Market Thought... oh boy

I'm gonna take a nice paper hit tomorrow. After buying GS a day before this news comes out, I so feel like the turkey :)

Dubai's situation is obviously taking down markets, and we are seeing it in translate in the futures market.

Anyway... enough bitching, and lets look at the situation.

The most telling aspect was the bond market. The bond markets were telegraphing 'something' over the past two weeks w/the short-term yields Treasuries going negative, and the 10yr yield declining. That 'something' was most likely 'Dubai'.

I think there will be a ton, a ton, of over-reactions regarding this. I will monitor tomorrow very closely, but from what I can tell I do not think there is a legitimate domino effect scenario from Dubai World wanting to reorganize its debts.

It is just like any other large company wanting to renegotiate, or going bankrupt. Obviously the ripple effect is there via the banks exposed to this mess, but their assets (other than real-estate) are real.

Out side of GS (what a pisser LOL), PWR, CHK and TBT; my cash position is still quite large (approximately 60%). Depending on the action, and certain price levels, tomorrow maybe my 'black friday' where I can buy up names I wanted to re-enter.

Will be looking at KMP, SQM, AAPL and GOOG, among others.

Selling PWR is a mistake

LinkThe US and China have committed to reducing their carbon emission. (article) The goals set out by the President means more alternative energy (AE) projects (via Wind, Solar or whatever) for the United States. PWR is at the heart of these projects.

With the credit market functioning again, AE projects will start up again, and PWR will have their hands full of projects to do.

An interesting aspect of the article that hit me hard was China's already built AE projects that do not contribute to electricity usage due to their location. This also is a problem for some US projects, but have not yet been built. China's current approach is to use Ultra-high-Voltage transmission lines, but I think a serious alternative to the UHV lines is American Semiconductor's (AMSC) superconductor electricity pipes. (see description)

In the States, I think AMSC will be used for projects far away from electricity users to connect to the grid closer to users, and PWR will be the contractors who will facilitate the building of the AE project, the pipe and connect it to the grid.

Those blindly selling PWR, and the chart indicates some idiot big boys are do just that, are making a huge short-sighted mistake here.

(I already own PWR at current prices, and will look to pick up AMSC when the technicals are to my liking.)

Happy Gobble-Gobble Day

Happy Thanksgiving everyone.

Wednesday, November 25, 2009

fyi... GS

I initiated the GS trade, but eased up on some of the purchased calls due to the equity purchase.

Will sell a Jan call when GS gets away from its very oversold condition, and enters an overbought condition. (Could be below 180 judging by today's action.)

Tuesday, November 24, 2009

Trade - GS

I want to take on the following trade... its tricky, so don't do it if you don't know anything about options.

GS is so freaking attractive here it hurts. It is over sold, and nicely positioned. But the financials are consolidating here, and after their move I understand why. I like GS for the long-term as well, so I want to commit to buying the stock, and selling calls around the position.

I will buy 100 shares of GS tomorrow, pending on the morning's action the purchase will be before or after 10am. (I would preferably like to see GS break the 170 support, despite having Calls on GS, so I can make the purchase at mid/high 160.)

There is fairly solid support at 170, and I do not anticipate it breaking.

The chart in general looks fairly weak for GS. The weakness is obvious. It broke its SMA support weeks ago, and the SMAs are now acting as resistance. Despite this, I do not think it is the start of a downtrend. (There is just too much earnings power in this company.)

The Slow Stoch indicates it is oversold, and the DMI reveals the weakness is not that strong. Or at least not from blind selling (like PWR or CHK are experiencing). Basically the negativity is very controlled.

I already own Calls betting on a push upward from here, but I want to try a new income strategy from selling calls, and hopefully benefiting from a potential dividend increase.

If the markets rally by the end of the year, there is a very real possibility that GS can go to 185. So, I want to purchase 100 shares tomorrow, when it pushes to 180, sell a (one) 180 Jan 2010 Call.

Then let the stock and sold call run their course.

If the stock does not hold 180 by Jan 15 2010, the sold call premium is mine, and I do the same execution for the following month.

If the stock goes keeps rallying to 185 past Jan 15, I will be forced to sell the 100 share at 180.

(This isn't the typical strategy employed by option traders. Typically, with option strategies you would buy a long position, and hedge w/another at the same time. For instance, buy the 100 shares and sell a 175 Jan call right away. This protects against down side, but also limits your potential. I take a great deal of effort to minimize the probability of loss when entering a position, via the technicals, and would rather utilize the 'timing' aspect of the trade more efficiently. As described above.)

Boring Action

While the market has maintained a relatively high level, there have been stock that were thrown away.

CHK and PWR are examples of, IMO, big boys dumped for whatever reason. (Maybe they lost patience in the NatGas theme or Alternative Energy build out.) I think throwing these two stocks away is a mistake, and at current levels very attractive.

The market seems to just want to churn, but the potential upside would not surprise me. The churning aspect may come from the financials. Them breaking down does not seem likely, but them rallying hard from here is not likely either. They should be trade bound until the end of the year, but I do think they are at the low end of their trading range. A strategy that may pay out is buying the stock, and selling short-term calls against the position for income. I will do it with JPM, and will post what I do.

BKE - GS has them as a sell, and from what I figure it was due to margins topping out. I do not generally agree with the reason, but does suck away at the momentum of the stock, obviously. Right now it is trading near a support level, and already inexpensive. But if we take Goldman's report for what its worth, BKE should be trading at a depressed multiple due to the peek in margins.

However, despite the downgrade, trading for BKE over the years has been fairly consistent. The trailing PE usually has a peak trading range of 14-15, and the low end is around 10. (Meaning buy when the trailing PE is around 10.) Regardless, keep in mind, this is a slow and steady stock, whose management owns a lot of the company. They play for the long-term, and smart.

Monday, November 23, 2009

Market Thought... maybe, just maybe

The market might be able to move higher from here. During this unraveling of the credit bubble, the Vix has been trading at an elevated level since July 07 to present. The high in the Vix is obvious, but the low (in this elevated trading range) is not so obvious.

From the recent rally the low end was around 21-22, but if we were to take a step back, the low is lower.

This version of the chart suggests the market can rally to +1150 given the VIX declines to the high teens.
(The Vix is the moving Blue Line, the SP500 is the moving Black. The Dotted Red horizontal line is the very low-end for the Vix under the overlay chart condition, the Blue horizontal line is the low end Vix support so far for this current market rally. The Solid Red horizontal line is the top end resistance for the Vix.)
The Vix has entered its low end, and that would trigger some selling. I think a retest of the very low end is very possible.
I will let the pundits create a reason for the move upward ;), but the possibility of a push upward is not out of the question.

Sunday, November 22, 2009

Goldman Sachs

From envy-to-the whipping boy, quicker than I ever thought possible. The powerful institution teaches anyone willing to currently listen, that 'a-lack-of-hubris' is a strong component of success.

The year of the collapse was one of my most successful years as a trader. I did not indicate as such last year because I felt guilty. I could not bring myself to post about it simply because there was too much negativity all over the place. Too many people loosing too much money. This year, everyone, and their mother, benefited with the rising market, so I felt it was 'okay' to post my performance.

If I can understand this very simple principle, Goldman can definitely understand it. But, the real question is, can they act on the understanding of humility?

Right now, they are sucking wind. They are getting their ass' kick pretty badly, despite making money hand over fist. The worst, imo, is the "Goldman's Non-Apology" from the NYT. It just kicks them while they are down, probably breaking a few ribs :).

Make no mistake, I am a huge fan of Goldman, huge. But I am a bigger fan of what is going on around GS. While everyone is bitching and moaning, and watching Goldman scramble to find a strategic plan, it is showcasing the awesome power of a Democratic society. A society centered around 'debate', and regardless of how powerful you think you are, you realize you must always accommodate to the wishes of 'the-hand-that-feeds-you'.

I am currently long GS, and at the current level, it is a great entry point for long-term investors.

Thursday, November 19, 2009

Market Thought... still don't know

All I know is the fundamentals that fed the rally are still in place, and I am expecting a noticeable deceleration in jobless claims, that should translate to fuel real economic growth.

But there are some interesting plays, as I mentioned earlier in the day. Here are the charts:

CHK is too oversold, but the negativity is very blatant. I do not mind holding this, and if it continues lower I will enter another position between 20-22.

GS is around support, and since I am not expecting the market to completely break down I think GS will pop. I will most likely cover the trade between 178-180.

PWR is very very oversold, and in an obvious negative trend, but at the current level it is to interesting for me to ignore.

I will pick up some SQM at if it reaches its SMA support, around mid 38.


Utilized today's initial decline to buy some stocks, and placed a limit orders for others. Not everything is overpriced here.

For instance...

PWR - dropped too much for me to ignore.
CHK - dropped to a level that I really like technically, and i like the natgas story
GS - got in
SQM - waiting for mid 38. Really like the ag. story as well.

Wednesday, November 18, 2009

Market Thought... hmmm

The Baltic Dry Index is seeing some really nice strength over the past few weeks. This underpins real economic activity.

Then there is the rise in pretty much all the commodities (except for NatGas, which has been awesomely stable due to new supply). This could be due to true growth, or little growth w/ too many dollars casing few goods (stagflation).

Real economic growth, or stagflation, promote a scenario where rates should be rising. But instead the 10yr is seeing some fairly nice strength here. (which means rates are lower)

Where is this massive deflationary pressure, that all markets can ignore, except for the bond market?
Where and why is there such a huge demand for a bond yielding mid 3% when there are blatantly better returns elsewhere?

So many questions, and no real answers. I am left still wondering.

At the moment, the indicators are sending the signals that do not jive w/me. I fundamentally do not understand, so I have to sit back and observe until there is clarity. (how many times have you seen someone write that they do not know what is going on :)

Don't get me wrong, that will not stop me from trading individual stocks. For instance, GS is looking pretty interesting at the moment. But I am cautious overall until I figure out which market is correct. The lower rate in the 10yr is also taking place with a weaker to flat set of financials as well. (That correlation has not escaped me, and will give me an itchy trigger finger if I take on the 'long' GS trade.)

Monday, November 16, 2009

Market Thought... contradiction

There is a contradiction today. The market is up nicely, but the 10yr is up nicely too. To me, that makes no sense at this economic juncture.

The push into treasuries suggests a weak economy, but the rise in everything else suggests a stronger economy. Which is it?

Real economic growth sparks higher rates. That is a constant, unless there is a deflationary aspect that can cap the rates. However, at the moment, I do not see a deflationary aspect of the economy. Housing has stabilized, commodities are up and so are credit pricing. The only deflationary aspect to this economy is the lack of credit expansion, but I would not assume it to be a real deflationary threat given the commodity prices are up so much. (It is putting a pause on our economy growth, but not causing deflation.)

I am uncomfortable with this contradiction. It does not make sense to me. I will evaluate potential reasons, in order to re-adjust my thesis, but the reasons have to be pretty solid. (Right now I think the 10yr is still being bought by the Fed, which could be causing the imbalance.)

Looking at the recent rise in the Baltic Dry Index, I want to say the bond market is off. More on this later, w/charts. Assuming conditions remain.

Thursday, November 12, 2009

Market Thought... relentless

The market hit its resistance, and now the obvious question becomes, 'do we keep going down or break through the highs?'

The SP500 looks to want to consolidate to around 1075. At that point, observing the continued liquidity, the market may bounce around a tight band until the end of the year, and a full break down should not take place. If it breaks upward, I will be expecting limited upside from 1100. (hence my 'prudence' post)

An indicator to this is Oil. I do not think crude will break the low 70s, let alone 75, and this should add support to the overall market. (just like the financials were an indicator of weakness for the market the other day)

If crude is to see mid/low 70s, I will play it via PBR. (PBR may see around 47 at that point.)

With the consolidating market GS should retest 175, coming off of its SMA resistance.

Depending on how the market, and GS, acts around 175, I will enter 170 Jan 09 calls.

Keep in mind, any trades I take on from now to the end of year, has no illusions of grandeur attached to them. (unless other wise stated) When the move is made, I will bounce from the trade.

Tuesday, November 10, 2009

Market Thought... prudence

Everywhere I read or hear today market gurus are indicating "the market will continue to rally simply because the big boys are lagging and need to purchase stock." I am not an insider, so I do not know the dynamic of the structured 'money management' game, so this could be true. But I do know this, every time I hear bullshit like this, I want to sell into the strength.

Think about what this means for a minute. It means no smart person in the game can think of a fundamentally good reason for the markets to rally, so they are using the dynamic of the biz to justify a higher price. To me it is troubling, and increases the risk to trading this market.

Yet the market finds itself in a scenario of lower risk. The VIX continues to decline to the lower end of its current trading band.

When the VIX spiked I stated to buy the market, and I am happy I was right. But the move has now been made.

The SP500 is approaching 1100 again, and prudence simply dictates to take profits or protect. (I chose profits this go around.)

The SP500 is getting overbought as well. Along with overbought individual names, like AAPL and GOOG. In fact the few market leaders that are not overbought are the financials (even GS).

The financials are in an interesting situation. Despite the market hitting new highs, they are at a point of resistance. They will either break out or ride a negative trend. (The negative trend is fundamentally supported by the new accounting rule that will bring off-balance sheet assets to be accounted for by Jan 21st, i think.)

The overall set up has not sold me on the concept of 'the market will go up, just because'.

I would protect any dividend /long-term holding via selling Calls against the position, and have been selling my trades. And depending on the action w/the banks and market tomorrow, I may short the market for a trade.

One trade I will consistently take on however, is the TBT. The Fed will continue to issue more paper, and every time it does the rates rise. And they rise to a higher high. The Fed will no long participate in the auctions, and this will put upward pressure on rates. For this trade I take my ques from the 10yr yield. It is near support, worthy of an initial position.

The rate may move to the upper resistance of the negative trend line. If it keeps going lower, I will add to the TBT but I do not think the SMA's or the mid 3.3% support line will be broken downward.

Monday, November 9, 2009


The only measure of my performance that I closely pay attention to is whether or not my portfolio value is higher after a series of trades I make. (seriously)

The other day I was at a wedding, and a friend asks me how well I am doing. On a 'rate of return basis' I can not answer that question off the top of my head. Instead I can only qualify it by saying I am doing 'great'.

The reply I got from 'great' was... 'well, how can you not be doing great in this environment'. This obviously does not take into account the many many hours I put into this game, and the fact that money is made from understanding the dynamic of the market. Not simply if the market is up or down. (Although I am very sure my friend's intent was not to insult me.)

The convo got me thinking about the quantitative aspect of my performance since I consistently started trading the way I am trading (post DNDN 'initial' collapse, May 2007).

Basically, since May 2007-to-current portfolio value, the gain is (via two accounts)...

+324% and +276%.

(Ultimately the gain means nothing. Traders are only as good as the last trade, hence my strong belief in the first sentence of this post.)

heads up...

Sold off on a bunch of stuff. Across the board things are getting overbought.

Profits are just too good to pass up here. (If your not willing to sell for profits, an initial position in the SPY 110 jan Put Options would not be a bad idea.)


Today I am sad and angry. You see the inefficiencies of large corporations head on when layoffs take place.

I was not laid-off, but two of my former bosses were. These individuals are smart and very capable, and taught me a lot about being a good leader.

For all the bitching corporate America does regarding not having qualified engineers, today angers me about it. One of them is a part of the Army Core of Engineers. Recently spending 2 years in Afghanistan helping with the rebuilding effort over there.

The man is a hero, extremely intelligent, and a very capable leader, so what does one of the largest companies in the world decide to do... get rid of the talent.

Large corporations are stupid because they rely on inefficient measuring tactics. On top of which, the decision makers are ignorant middle management who are only focused on their specific job function.

Where are the people or metric to measure quality people in one area that obviously can not use the qualified people, to replace the unqualified people in other areas.

Large corporations have a great talent pool at their feet, yet they do not utilize it properly. That is a shame. Their is no reason why they have to be stupid. But a CEO, and senior management, have to be willing to challenge their middle management to keep the best people through the entire company, not just the individual group.

Obviously today (along with previous layoffs I witnessed) showed me that problem is too difficult to be entertained, but I do not see an attempt to solve it. Which is truly sad and stupid.

Saturday, November 7, 2009

Market Thought... tired

While waiting to see how the market should react over the next few months via the equation it will follow, the market will continue to act like a market. Moving up and down, having intra-thesis moves.

At the moment the market seems tired. It is approaching resistance, and VIX eased up quite a bit.

Within the SP500 potential resistance is obvious, but the 'tired' comes into play with the Slow Stoch and CCI. The Slow Stoch is getting overbought as the CCI is not, and I interpret that as weakness.

To add support to that, is the VIX. It is approaching the low end support.

The VIX looks to want to get lower, which could suggest the market stays at these levels or rises some more.

At the moment I am not acting on this, except for selling holdings into the current strength.

I will short the spy via Jan Put options when/if the VIX approaches 22 or so. Or when I feel the market is simply too exhausted for its current move.

Thursday, November 5, 2009

Market Thought... evaluating

The other day I indicated a new equation maybe in the works regarding the market. Currently, I feel there is a liquidity driven rally thanks to low rates and the dollar decline. The other day anomalies took place (highlighted in the 'new equation?' post) that puts to question the liquidity equation. However, there was no fundamental change to suggest the liquidity equation is altering.

A few things can change the equation, create an inflection point and force Fed action...

1. real economic growth by the US economy (that would spark higher market rates, higher dollar and higher equity markets)

2. stagflation (that would spark higher market rates, weak dollar and sideways-to-poor equity markets)

The other day, #2 was playing out, however one day does not make a trend. As such, we are at a point where data points need to be observed and evaluated. But observing the scenario, one can understand why I am a fan of TBT.

For the record, observing the current economic data I believe #1 is in our future, but ultimately I trade on the what the indicators are telling me. Hence the need for the evaluation.

HEADS UP: Today UUP went up pretty nicely, despite the fact that the dollar index ($DXY) was flat. Obviously that caused me to question the move. Suffice it to say, the move is artificial. Share of the ETF can not be issued, as they have run out, this will cause the UUP to move at a premium to the index. Because of this I will sell it tomorrow. Once they issue more, the premium will be lost and the value will decline. DO NOT BUY THE UUP until the bank can issue more shares, so it can track the index appropriately.

Perspective - BKE

BKE reported a same store sales number that was 1% lower than the Street estimate. 4.3% vs. 5.3%.

For this, the stock is down around 10%!! This massive decline, from such a small miss, while its forward PE is around 11.

Basically this very reasonably valued company just lost about $154M in market cap because it was shy 1% of the Street's estimates, which equates to about $5-6M in sales in Oct.

Something just does not add up. IMO, the market is incorrect here, so I added at these prices.

Wednesday, November 4, 2009

Market Thought... new equation?

The Fed vote said it all. Unanimous to keep rates low. So much for the rhetoric about rising rates. Wonder why the WSJ even allows Fed Governors to write op-ed pieces, when the governors themselves do not practice what they preach.

Fundamentally, nothing has changed. The low rate liquidity that has been driving this rally is still very much in play. (The unanimous vote is what is really bothering me.) There is no indication from the Fed that they will do anything regarding the excess liquidity, despite the positive data that is being seen. (CSCO's report is simply too telling.)

One market indication that I found interesting today was that the 10yr note declined, causing the yield to rise.

Granted the trend of the yield is still negative, but the fact that it went up today, imo, means something. The 'reflation' is kicking in, and the bond market seems to want to anticipate the inflation.

Along with the dollar decline, the market acted like crap after the decision. The combo troubles me.

The rise in the 10yr yield, while liquidity is everywhere (with the dollar falling) and the equity market now sluggish, to me signals a market (bond, equity and forex) about to get hit by inflation. (Equity markets do not like this type of inflation... aka stagflation)

With this scenario, IMO, the TBT is still the play.

If the new equation takes hold, ultimately the bond markets will force the hand of the Fed, and they will have to raise rates. Similar to what Volker did in the late 70s.

IMO, this delays the dollar rally, and takes Roubini's threat of the dollar carry trade unwinding off the table. (Although holding some UUP would not be a bad idea for a hedge, in case something triggers the carry trade unwind.)

Tuesday, November 3, 2009

Market Thought... same thought

My previous thought (Market Thought... same old) is the same. Still waiting on the Fed statement/decision. While waiting, however, some interesting plays are developing.

Look at AAPL and GS. They are oversold, and, IMO, when they decline to their lower end support, they want to be purchased.

I would love to see AAPL hit 180, but I do not think it will happen. Regardless 185 looks good for an initial position. (or at least a day trade... to buy on the dip and sell on the intra-day rally)

Similar situation with GS. I am waiting to purchase around 165. (i day traded it the other day when it approached 164, and plan on doing it continuously if I can)

Regardless of the day trading, everyone and their mother knows these stocks and companies are solid, and merit a higher stock price. Start to take advantage w/initial positions, if not in them already.

Monday, November 2, 2009

Trade - CHK

Nat. Gas is getting interesting again. With the recent consolidation in the commodity, the equity names came down. In particular, CHK has entered a level and state of consolidation that caught my eye.

CHK is oversold around support, and even if it breaks down at current levels, fundamentally it is worth over $24/share.

Nat. Gas may decline some more, and may continue to bring down the related equities.

Irrespective however, CHK merits an initial position at this point. And I will probably enter a position in the AM tomorrow.