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Saturday, October 31, 2009

Market Thought... same old

The market dynamic has NOT changed. IMO, this is a correction with the current dynamic. Since July (when the dollar collapsed from its support), imo, the market rally was a liquidity lead rally. This plays a major role in my current market view, and why I am playing the UUP and TBT. As such, the only thing that can de-rail this dynamic is a fundamental shift that will take dollars out of the system. We may get that, or a real threat of that, on Nov 4th via the Fed Meeting, but right now the market is not indicating that.

Regardless of my thesis, however, very real economic progress has taken place. This is why I am ultimately a bull, and certain stocks my seem like a good play at these levels. For instance GS, AAPL, BKE, PWR, NLC and F to name a few. (All oversold, and itching to be bought.)

Looking at the SP500, it is oversold and sitting on a support level.

Within this market decline, the 10yr yield went down, so this tells me the decline was not due to the anticipation of rising rates. Indicating the current dynamic is in play.



Now, combine that with the VIX. A huge spike is usually a buy signal to the market. (Keeping in mind, the VIX is not an investment, at best its a day trader tool to hedge the market, but its an indicator.) In a stable market, a VIX of low 30s is high.


So, the SP500 is at a support level, with a spike in market fear, and the liquidity in the market indicating it will remain (via the yield). I conclude this as being the 'same old', and merits stock purchases. Especially for large cash flow, lean, high growers like the names I indicated above.

Remember, the Fed Meeting is the wild card, but any liquidity to be removed from the market, IMO, is what can safely be removed not to hurt the economy.

Over the next few month, depending on what the Fed indicates, we maybe in a 'economic equation' shift where the dollar will stop declining in relation to an upward moving market, due to real economic growth and higher rates.

Friday, October 30, 2009

Trade - F

Ford is reporting on Monday, 11/2. I have used the recent consolidation in F to build a position. (I entered more today, increasing from the Wed purchase.)

Wednesday, October 28, 2009

Market Thought... consolidation

There is a consolidation taking place with the 10yr note. Previously I indicated if this was to happen I would look to get into the TBT.


The 10yr yield is coming down, and approaching its 38SMA, and stronger 3.33 support.



I will most likely use this decline to enter the TBT soon.

Also, this indication may suggest a market consolidation to which the SP 500 may bounce off the 62SMA support or the support around 1025-1030.


Right now, the clarity is on a bounce from the 62SMA for the SP500. IMO, this an opportunity to enter the UUP and TBT to play the dollar rally and higher market rates.


NOTE:
Hedging my market thesis, I also have long positions in NLC, just got a limit order executed for F, PWR and BKE. Also, if PWR see below 21 with this decline, I will enter a 'larger than initial' position as the SP500 approaches its 62SMA.

I am hard-pressed not to play AAPL or GS here for a bounce, but discipline holds me back.

NLC - nice quarter

What a great quarter. Growth is not there yet, but they are becoming lean and mean. Boosting their cash flow to a very impressive level. All this was done with a reduction of inventory by 17.5% from Dec 2008.

This is simply great.

When revenue growth kicks in (which management indicated it will start, especially in Asia, in Q4), the earnings power of this company will be very very nice.

Even with today's up move, NLC is still not overbought and I am hard pressed for reasons to sell into this strength.

As the market declines, I will be adding NLC into the intra-day weakness.

(The story here is not an economic sensitive story. Its a company turn around story, that will exponentially benefit as the economy turns.)

Tuesday, October 27, 2009

Market Thought... carry trade

After reading a few articles the other day, and watching Roubini on CNBC yesterday, I realized my thesis for the dollar rally is basically describing the 'dollar carry' trade, but not so elegantly. (But I was posting to prepare for it before everyone else :)

Anyway, I digress... saw this article on CNBC today, and it got me thinking. What would be the most severe impact if this unwind really swings in the other direction. A worst case scenario of sorts. After all, we have to keep ourselves a few steps of these so called 'experts', so we can beat them to the trade and ride their wave.

From what I can see, from a longer macro perspective of technicals, the possibility for the SP500 to reach around 950 is not out of the question.


I state this because 950 is a major support from this current market rally dynamic.


A look at closer more micro perspective indicates to me that there are multiple supports on the way to 950. One of which is very strong, the 320SMA. Still its around 950.




The red line, around July, is when the dollar started to collapse, and the market rallied due to it. So a bear can really argue that the true low from the carry trade to unwind is the low 900s on the SP500. But the strength and stability in earnings profits will prevent that.

Friday, October 23, 2009

Market Thought... cautious

I am being cautious here. The yield has breached a resistance point, and I am looking for the dollar to begin to rally. (This could also be a consequence of knowing the Fed will stop buying the notes.) Whatever the case, IMO, higher market rates will force their hand to raise the Fed fund rates.

Even with my thesis in play, I will probably not unload all my stocks. Will most likely keep BKE, PWR, UUP and any other stock that gets all of their revenue from the US. As I think the dollar is setting up for a rally.

Thursday, October 22, 2009

Trade - NLC

NLC looks interesting here, and I entered the name. Its consolidated, sitting on support and in an industry I really really like (clean water).


fyi... NLC reports next week. Can move the stock either way. If it rallies before earnings, I will most likely take profits. (But this is a name I like for the very long-term.)

Moody's... not so much of a hedge

Got to swallow this one. I indicated, in a previous 'Market Thought' post, I was playing MCO as a market hedge. Needless to say, it has not been working out... as a hedge or as a general trade.

MCO is still in its overall down trend, but areas to which I thought would not break upward with its overbought conditions, breached. (The box highlighted on the chart)

Basically, as a function of a market hedge it has failed me, and cost me.

I do not know if it has enough juice to break the negative trend, but with relatively favorable news regarding the credit rating agency bill Congress is voting on, it could move up.

Wednesday, October 21, 2009

Market Thought... ?

At the moment I am not getting clear signals. I keep hearing around 1100 is a strong SP500 resistance, but I do not know where this is coming from. (Literally I understand where it comes from via the charts, but the market dynamic is not the same as the previous year, let along 5 years ago, so I do not subscribe to it.)

My market thesis has not changed from before. I am waiting on the TNX to provide a hint as to what is going on. It is still stuck in resistance, and I do not think it has the juice to breach the negative trend line. Although it may breach the 62SMA in the next two weeks or so.


In the very short term, the market looks to want to consolidate a bit. The SP500 may see its 62SMA. With earnings out of the way (or an excuse to sell), and enough big boys believing 1100 is a resistance, the market may come in.



But for the mid term (ie until the end of the year), the pattern of the market should not change, unless there is a policy change from the Fed or Gov. that merits a destruction of the market uptrend.

So, if the market do decline in the next two weeks or so, I will be entering GS Jan call options. However, I am watching indicators that may suggest rate hikes very carefully, and act accordingly (as I stated in previous 'Market Thought' posts).

Tuesday, October 20, 2009

One word on Apple...

nice.

Nice report. Nice trading... just, nice :)

Needless to say, I took profits.

Monday, October 19, 2009

Playing AAPL

I will be playing Apple through earnings Monday. I currently have a position in AAPL call options due to last weeks decline. While, there has not been a heavy decline, the stock has consolidated, maintaining a tight range and still in its uptrend.


Below is how I will play AAPL Monday and Tuesday...

Monday:
1. If the stock declines Monday morning, I will add to my call position.

2. If the stock rise Monday morning, I will enter the report w/the position I currently have.

Tuesday:
1. If the stock declines after the report, IMO the most severe decline it will see is 175 to 180. (I am not expecting a breach of 180.) I will enter more long positions w/ a decline to 185 or so.

2. If the stock rises after the report, I will wait to unload the current position until the stock is overbought. (If the report is pretty good, I would not be surprised to see AAPL break 200.)

Wednesday, October 14, 2009

Market Thought... overbought

Overbought conditions are across the board. Its very impressive, especially with such a high momentum. Very few things are not, and those are the stocks that I have kept and am keeping an eye on. This includes BKE (added today, my chart was screwy yesterday but I doubled down on the correct support), SQM, PWR and Natural Gas is seeing its pull back.

Due to the capacity issue with Nat. Gas I was waiting for a collapse, most likely due to the physical dumping of the commodity causing the price to decline.


With this, I will probably play CHK before Thursday. (keep in mind I am becoming a dollar bull, but Nat Gas should not be moving w/the dollar at its price is locally placed, not like crude)

Because of the massive overbought conditions, I did start to protect myself via shorts on MCO (moody's). It is very overbought, considering its crapy situation, and hitting some major resistance. IMO, with a declining market, MCO's decline will be amplified. If the market goes up, MCO's upside should be muted here.



Now, with respect to the market, I am very close to go long the 'king' dollar. (stop laughing :)

I am not crazy, just like I was not crazy shorting the hell out of oil at 140, or selling my entire portfolio except the market short the Thursday before Lehman went under.

I will enter an initial position when the UUP hits around 22.25 due to its support.


I will then enter another position when the 10yr yield breaks the 62 sma upward, unload all call options, probably sell most of my stocks and start going short the market.

When the yield breaches 3.7 (the down trend), I will go very heavy the UUP and short the SP500 for the 'shock' play of rising rates.

If the yield decides to consolidate here, before breaking upward, I will enter a position in TBT. (but only if it consolidates at these levels)

Tuesday, October 13, 2009

Market Thought... what recession?

Intel and CSX hit home runs. A clear showcase of strength, and the futures are reacting to them.

If this earning season continues down this path of strong beats, my thesis from my previous 'Market Thought... be prepared.' post is very relevant, and I am paying close attention.

Trade - BKE

Just an FYI... BKE has been taken down today. The only reason it went down was due to the special dividend pay day. (Purely for technical reasons.)

I purchased here for the trade. It usually bounces off the 20 sma while in a strong rally.


BKE has been issuing consistent special dividends for some time. So much so, that BKE dishes out about 7% a year annually. It should be no surprise as this company has such a high ownership by insiders.
Based on the frequency of special dividends, BKE should be valued more appropriately. But instead, it consistently trades between a trailing PE of 10-17. For a stock that typically yields 7%, and grows as nicely as BKE does, the multiple is simply too low. (But I am no crusader, just pointing out the patterns.)

Trade - GS

Everyone and their mother (via the media outlets) are distributing the amazing, ground breaking story that the bearish of the bearish has down graded her only 'buy' rated stock... GS.


Why is this so worthy of mass distribution is beyond me. Since it does not makes sense to me, I used this to enter Jan call option in GS.


GS is the direct beneficiary of a stable bullish market. High frequency computer trading does extremely well in the current environment we are and were in. So I am a believer in the whisper numbers of +5.00 eps for the quarter. (Not to mention the other positive points on the quarter regarding fixed income, that she herself mentions.)


Due to the perceived negativity, GS is now nicely consolidated and currently maintaining its high momentum uptrend via the 14 sma.




If the 14 sma is broken, GS will need to break the 175 level (IMO) to truly have a break down. However, I do not think it will break the 28 sma. I am actually having a hard time seeing it break the 14 sma due to the belief in the whisper numbers.

Saturday, October 10, 2009

Trade - MHS

MHS looks interesting for an entry here. The fundies are solid, and the technicals are triggering the entry. MHS is bouncing off support, consolidated and looks to be resuming its uptrend. (And I know its one of Cramer's favorites.)


I will like to enter a position sometime on Monday.

Thursday, October 8, 2009

Market Thought... be prepared.

Be prepared. The bull market is not over, but the Fed will start to raise rates. And judging by the global economic activity, they will do it sooner-rather-than-later.

The 'tells' for me will be the TNX. When I see it move past its 62 SMA I will begin to reposition for the 'shock' of aggressive rate hikes.





For the short-term, the dynamic of the 10yr yield and the market has shifted to reflect the market goes up, as the yield comes down. IMO, this should not be. The correlation will reverse when the Fed starts to raise rates, but the market will feel a shock first.

That is why when I see the possibility of rising rates, I will be short the SP500 and long the dollar via the UUP.

The dollar may have a bit more to decline, but I will enter around high 21. There appears to be a support at that mark.



I am not taking on these trades now. The TNX and UUP will act as triggers, but I will not hesitate to take them when my indicators tell me to. (These will be trades for the 'shock' to come from the aggressive rate hikes, we were told are coming.)

Wednesday, October 7, 2009

VRSK... oh so interesting

I really really like the name... Even at 28. IMO, anyone selling is very short sighted.

Everyone and their mother can read the basic description, so I am not going to regurgitate the obvious, and only mention key points.

Aspects of the biz model that I like:

1. Profitable

2. Subscription base - provides a great positive cash flow from pretty much every major insurer in the country.

3. Transactional base - a growing (and contributing around 28% of revenue since June 2009) aspect of the biz that will keep growing very nicely, IMO. This aspect includes:

a. fraud detection for individual mortgage application (huge prospects)
b. property specific rating and underwriting info on commercial building
...etc

Observations via the numbers going back the last 8 quarters:

1. Current (US based) Risk Assessment revenues looks to be flat-lined.

2. Decision Analytics, at worst increasing in a nice strong consistent linear fashion, and at best looks to be starting a slight parabolic move upward.

3. Because Decision Analytics is about 49% of revenue, it is the driver in revenue growth.

4. The growth in the expenses is very choppy, although the trend is clearly up. For now management seems to be doing a good job in maintaining them.

Growth Opportunities:

1. International market - they highlighted Germany as an example.

2. Mortgages - lenders are obvious customers, and they indicated 950 banks already are. Now imagine for a second that investors of MBS' actually did their own homework (or the lenders themselves did the homework) to see which applicant is a default risk via their analytics. (Remember this aspect is transactional base.) The investors would no longer rely on Credit Rating Agencies on the pooled security because they would know exactly what level of risk is involved, AT THE INDIVIDUAL LEVEL, of the MBS. (bye-bye rating agencies) Using Verisk allows the level of transparency needed within the securitization market.

Conclusion:

I like the name. It has a steady consistent nature, but the potential to be a disruptor to the securitization business (on the lender and investor side) is what can really drive the stock exponentially. But that aspect is a 'wait and see'. Remember, I am no fan of the Rating Agencies, and there is a very real push by institutional investors to get away from using them.

Verisk (VRSK)... very interesting

I bought VRSK today at low 28.

I did a quick back of the envelope calculation, and its pricey. But I am expecting these type of companies to get a lot, if not all, of the business that use to go to the rating agencies. (For anyone that understands this company already probably thinks that is a stupid comment, but I will explain in a post later on in the day that will fully look at the companies numbers and potential.)

Just wanted to give a quick heads up, in case anyone is interested in looking at the name before it continues to run up.

Tuesday, October 6, 2009

Oil... changing its tune

Without the market declining, oil should not break down further. About a week and a half ago, the oil charts (along w/the supply picture) seemed as it oil may test the low 60s/high 50s. However, the set up is different today. Especially when we factor in the commodity push via the Australian rate hike, and the continued weakness of the dollar. With this fundamental back drop, the chart set up looks very interesting. Interesting enough to so that the 75 resistance is challenged.



IMO, the best way to play the potential push upward is, my favorite, PBR. PBR also looks interesting, as it appear to be breaking out on the upside, and the DMI looks to be forming a pretty bullish set up.



Tomorrow there is the weekly Oil report, and that could change the fundamental view yet again. But, overall, things generally look bullish right now for oil.

Market Thought... dollar

Article is out speaking to a 'secret talk' to replace the dollar as Oil's main currency. (article) That will hurt, but obviously the market likes it (based purely on economic equations).

However, the Australian's already started raising rates, we will too but not yet. Once the 10yr yield surpasses the 'golden ratio' SMAs, I will probably sell every long position and wait to go short the market.

My thesis on the market has not changed since the past few posts:

contradictions - speaks to when to be cautious of rates going up; volume and 'a theory on jobs'

For the record, if the dollar looses its status as the world currency, I think the emerging market economies are making a huge mistake. Seriously, it is like the child telling the parent what to do. The world needs a reserve currency. There has never been an experiment to have a 'basket of currencies' act as a world reserve. It will need to be tested first. (Will the speed of global trade allow for such a mechanism? I think it adds too many moving parts, and leaves the global economy more vulnerable.)

If this is true, I see far too many ripple effects regarding this. It will hurt America in the short-run, but we are a resource rich nation that knows how to adapt very well. Ultimately it will hurt the emerging markets the most.

They take for granted the role we have played in their level of growth. And when the Fed starts raising our rates, and the dollar starts to strengthen as our economy starts to grow, the children will be put back in their place.

Friday, October 2, 2009

Market Thought... a theory on 'jobs'

The employment number in the US is irrelevant. How is that for a theory? It pretty much flies in the face of Cramer's argument (which I am sure is backed up by a bunch of talented hedge fund friends having the same view), along with Mohamed El-Erian (whos opinion I listen to).

The countries out side of the mature economies, while their unemployment levels are high, their job growth is high as well. Within the global economy, the lack of jobs in the US, are being filled by the job growth from the emerging economies.

Companies that rely on local economies (i.e. the home builders, retail), and holders of US credit card debt, will feel the high US unemployment rate. But global companies will not feel it as much. While Ford will not be able to sell as many cars in the North America, its pretty much kicking ass and taking names else where.

If I were an economist, or a man with time to research the detailed numbers on this issue, I would look how the creation of a larger middle class in BRIC, offsets a relatively high US unemployment.

And I understand how the rest of the world is leveraged to the US consumer, but with the massive stimulus packages in the BRIC countries (thanks to their massive surpluses, especially China), they are de-leveraging from the US consumer in a big way.

So few industries are purely local anymore, IMO, its hard to rest everything on 'jobs'.

Thursday, October 1, 2009

Market Thought... volume

Technically speaking I have seen chatter that the reduction in volume for this rally is indicative of a false rally. IMO, that is bullshit, at least for this particular market rally.

We entered a period of an unprecedented market collapse, and de-leveraging that would force market volumes to be much higher than even above normal scenarios. As the market/economy stabilized, and forced de-leveraging ended, volumes naturally reduced.


The chart says it all. Volume was higher during the collapse, and was higher for the rally, investors just have to factor out the forced de-leveraging volume on the way down. IMO, that volume is false, and give the wrong impression that this rally is predicated on low volume. When in fact, looking before the market collapse, this clearly not the case.



In my humble opinion, start entering 'initial' level positions. We should trade sideways for a few weeks, but the trick is to buy at the low end of the channel trading.