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Tuesday, August 31, 2010

MF Global, big fan here

I am a big fan of MF global here (MF). Already doubled down on the position I purchased a few weeks back, at current levels.

MF got juicy again when Corzine started to clean house, as indicated via the last quarterly report. MF was always interesting with its position to take advantage from the fall out due to FinReg. Now the chart is tell me to buy.
Now looks to be a very interesting for an entry point. I already have it at current levels, so I am just waiting in case the 'what if' scenario plays out. If current levels break, I will double down at 6.

Monday, August 30, 2010

Market Thought... what if

Always gotta keep thinking...

In my previous posts, I have consistently been trying to highlight certain fundamental strengths of the market which do not merit a breakdown from the current trading dynamic. Unfortunately we must always think of the worst case scenarios. So, what if the current trading dynamic is lost?

When I look at this chart and combine it with known global growth rates, investor sentiment and lack of participation by the big-boys, I see a nice consolidation pattern with many many opportunities.

From a pure chartists perspective, if the trading dynamic fails, there is a lot of empty space until the 950 level.

Fundamentally (via BRIC growth rates, extremely low investor sentiment and complete lack of leverage in the equities market), I completely reject the principal of going to 950 or lower. I personally do not see the justification, hence will not understand where an appropriate entry point would be if the market breaks down. So I will not be able to actively trade the market if we break.

If the dynamic is broken, the VIX should begin to push upward. I will let the VIX guide me in my trade to go 'all-in'. The trigger will be with the VIX pushing near or north of 38. However, due to the lack of participation by the Big-Boys, the VIX may be muted, as there is nothing to protect. So another trigger may emerge. I will be paying close attention.

Just to be crystal clear, I do not think we break down. I am long right now with IBM as my largest position.

I am not in an 'all-in' portfolio position, as I was in July testing the 320SMA level, but still very exposed. If the market breaks down, I will lose money. But I am in the position to take advantage.

I will not hesitate to go all in.

Sunday, August 29, 2010

Market Thought... Robbin's Bears

Thanks to Friday's action, the SP500 is still trading in its March 2009 trading dynamic I pointed out in the Market Though post 'closer look'.

Since everyone and there mother are seemingly bears now, I figure I look at their argument much closer. The premise of the realistic bear argument (aka Robbin's Bears) is what was described by Tony Robbins via Youtube: 70% of the American economy is driven by consumers, and their level of consumption is in decline. There by causing the American economy to slow. Hence the markets will go down. (All other arguments are low-probability 'Lehman type' events that I think will not happen as central banks and governments will prevent due to the fragile nature of the recovery.)

Over the past few weeks the SP500 2011 estimates have been reduced. This giving legitimate justification for the market's decline in August. (see article) The SP500 went from an average $96 earnings estimate to $87 earnings estimate.

Historically, the SP500 trades between a PE of 12-17, 12 being very inexpensive while 17 is stretching valuations. For this exercise lets cap the top-end PE at 15. As per the $87 earning estimate the low end potential range for the SP500 is 1044 (87 x 12), while the high end is 1305 (87 x 15).

That does not seem so bad, but if we assume an even more bearish undertone and think the trailing PE of the SP500 will reach 10, then the market target is obviously 870. In my most humble unqualified opinion, a PE of 10 would completely negate the global growth story taking place with the BRIC countries and normal economic activity, even if there is low economic growth in America, Europe or Japan. Remember, low economic growth in Europe and Japan are baked into estimates, they have not been growing for quite sometime. So, the only adjustment is the US economy, and the American economy slowing down to 0-2% GDP growth does not merit an SP500 multiple of 10 when so many companies have high BRIC exposure.

I tried to pin-point exactly how many SP500 companies have a high % revenue/earnings exposure to BRIC, but could not find a definitive number. (I would have to pay for that type of info with no research team at my disposal.) BUT, the one thing I found VERY interesting was a 1yr and 8month SP500 chart over the BIK (ETF consisting of 40 large BRIC companies) chart.

To my complete surprise, the charts match up very nicely. (I was expecting the BIK to out perform somewhat.)

Basically, this chart tells me the SP500 is pretty connected to the BRIC economies.

If this is true, why should the SPs500 trade at a multiple of 10, 11 or even 12? Why not 15 given the growth prospect via the consumer in BRIC?

This also adds fundamental support to not break from the SP500's current trading dynamic.

If anyone questions the relevancy in the BRIC economics go to the website, search for a company your interested in, and open their most recent 10-Q. Here is IBM's as an example. Do a 'control+F' (on the key board) to search the document for "BRIC", and you will be able to see for yourself the growth coming from BRIC.

I wish I was in the room with Robbin's Bears (or a high profile somebody with a realistic perspective) to shed a different light on their negativity before scaring the "uneducated".

Friday, August 27, 2010

GDP highlight

See the link for the breakdown of the GDP figures.

What I like are the Gross Private Domestic Investment figures. More specifically the Equipment and Software number of 24.9.

Just look at line 11 from the start of 2009-to-today.

It is really hard not to be extremely giddy about IBM here with these figures versus its current market multiple.

Thursday, August 26, 2010

Market Thought... Dear Tony Robbins

I was truly bothered after seeing his economic rants on Youtube (video part 1 and part 2). I mean why the hell is a guy who's objective in life is to bring mental clarity to people, yet his message in these videos are so obscure and vague, that only brings more confusion.

His rant bothered me so much that this post was originally going to start with this line (after a warning of crudeness, of course :)... "Yo, Tony, take a step back and FUCK YOUR OWN FACE!!!" (courtesy of Tropic Thunder, the movie:)

After days of thinking and pondering the whole economic situation (facilitated by the decline of the Treasury yields), as so often happens when at a market precipice, I have relaxed and no longer wanted to make an angry post. Especially since I think he does not mean to talk out of his ass, and is just trying to tell people to simply educate themselves.

The ultimate conclusion from his rant was to tell his followers that the markets would ultimately go down. What really bothered me about his message was that he articulated the opinions of others who apparently have a great grasp of the current economic climate, and while those opinions hold truths, there are levels of complexity that were completely ignored and masked by the phrases "do your own homework" or "educate yourself" or "i am not a financial adviser" or "i am not a trader". With these 'masks' there was also a large level of vagueness, suggesting this 'winter' (bad market) could come any day now, 3 or 6 months from now.

His rant omits the fact that the stock market is not a function of the economy. A stock is simply a piece of paper that gives ownership to a company. A company is valued on the premise of the amount of money the entity can generate. Since this paper is the ownership of the company, the paper has value.

The line items he points out are true. The best and most recent example is J. Crew giving their guidance today. While JCG beat, their guidance reflects the cautiousness of the consumer. But this is NOT new. Any company with direct dependence of the American consumer was and is in jeopardy. (You can bet your ass the J. Crew numbers will force downward revisions on estimates toward retail.)

There is no secret the US economy is slowing down. A new normal, I am sure one of his clients would say, maybe? :) There is also no secret Japan and Europe are in no better shape. So companies that are incubated within those countries are going to go through a patch of potentially stagnant earnings.

On the other hand, the global economy has new players, when combined, are major players. (As I highlighted in my 'think a little' post.) These players are growing, and the very items that Robbins states that make the US economy weak, make the BRIC countries strong. This makes companies like IBM, AAPL, CSCO and shit load of other SP500 companies with international exposure very interesting. (Especially if a company's product focuses on business, and businesses are not shy to spend right now or the product is in a league of its own.)

At the moment, the market is dealing with very interesting multiples. As JCG suggests, analysts will bring down earnings to companies too exposed to the US consumer. (This is what is to be expected when a GDP enters a stagnating environment.) BUT, J. Crew is no IBM or MCD, yet all stocks are being lumped in the same sinking boat.

Tony Robbins, you just helped you naive viewers to throw out the baby with the bath water, but its okay, I am sure they will "educate themselves" this time around.

Tuesday, August 24, 2010

Market Thought... closer look

Today pretty much painted all the individual stocks I chart in a negative light, with the exception of the utilities (ED) and KMP. (Before today some were already negative, others were holding on.) Because of this, I do not know what to make of the current market.

As a pure technician, the charts are obviously being negative. They trigger a sell, no question about it. But they have done this many times before, only to be met by violent up swings, simply because fundamentals matter.

At the moment, despite all the negativity, the SP500 has not broken down from the trading dynamic that began in March 2009. Rallies within this rally took place, as multiple supports (via SMAs) held since the start of this rally. Right now, the SP500 finds itself on the precipice, as it did in July.

IMO, this is confirmed when looking at the weekly and monthly SP500 charts.

When I listen to the chatter, it only indicates the continued bipolar nature of this market.

I like looking at a pretty picture of a nice round bottom of Mrs Market :), and listening to what the picture tell me. But I really love to listen to substance. Fundamentals matter, and I am sucker for things that matter.

Right now, I do not know which bipolar view will prevail.

(Although I did add to IBM today.)

Monday, August 23, 2010

Market Thought...

The title is blank on purpose. I have nothing to say because I already gave my two-cents (and still very much believe) in the 'think a little' Market Thought post.

I am a fan of Cramer tonight because I really like his rant about investor interest. (Lost Interest?) I think it hits the nail on the head, and is the very reason why price-to-earnings ratios are sooooooo low. Even for multi-nationals that are exposed to a growing global economy. Which means their eps growth will not be hit.

(I especially love his idea about the 401K. I personally do not have a 401k for the very reason that I can not create my own basket of stocks. It pisses me off that I do not get my company's contribution, but at the end of the day I out perform a 401k w/contributions.)

I see the frustration in friends and family when they ask me how my trading is doing, and astonished to hear I am doing 'pretty good'. (I am easy on the performance adjectives because I know its a tough tape for everyone, even though i am doing really well.)

My portfolios have declined with the current tape. Am I annoyed? Yeah. Does it make me lose interest? No. I have rebuilt a cash position on the way up. (Made no secret of the heavy long position on the way down as we previously tested the SP500 320SMA.) Didn't go short to protect the position I held on the way up, which has me annoyed, because I missed it. But now I am about to go heavy back into this market.


Because IBM trading at an 11.95 trailing PE, and forward PE of 10.23, while its projected to grow eps at 15%, with a very large chuck of its eps via virtualization/cloud computing and growing very nicely.

When I suggest a name like IBM to these frustrated people they look at me with a puzzled 'or u fucken serious' expression. They are frustrated as hell, yet winners are staring at them in the face, and they are too ill informed and not willing to except such truths. And then I wonder, who the fuck are these people depending as their financial advisers?!?

Anyway, I really do think the 'powers that be' NEED to listen to Cramer's rant.

Saturday, August 21, 2010

Market Thought... rules don't change

Rules are rules for a reason, rules do not change.

Bubbles are predicated because there is a mythical fascination that rules can be broken. Conspiracy theories aside, fundamentals matter.

While I view myself as a high frequency trader, with all the glory of being a momentum whore, I also read a shit load about what is going on in the world every day. And try to dig deep into subjects of interest (any everywhere I invest is a subject of interest). This deep knowledge is utilized to facilitate multi-day/week/month trades and high frequency trades.

For example, when oil was approaching 130-140 in 2008, there was a growing level of chatter that indicated the continuing rise in oil was not justified. A disconnect was building, and we started seeing investors justify the high price (and a continued rise in commodities in general) based on multi-year projections instead of the economic slow down we were seeing. A real demand once existed, but that 'real demand' got morphed into blind enthusiasm.

This disconnect is happening now in the 10yr - treasury. Others see this disconnect too, Doug Kass and Jeremy Siegel to name a few. Some of the chatter that I specifically remember is when bond bulls (ie Gary Shilling, at minute 17) indicate they are buying bonds for the asset appreciation value verse income.

Now, I am no expert in bonds, and as an investor I fully accept the fact that any investment vehicle will have asset appreciation or discounts, but bonds are specifically designed for income. (Although I know the size of the bond markets dwarf the equity markets, and asset appreciation trading takes place very frequently.) But asset appreciation of any investment vehicle must be predicated on a reason. I.E. A company has a high EPS growth rate, its valuation merits a higher multiple. Or bond yields go down when there is a deflation or deflationary threat.

When I look at the chart of the 10-yr treasury yield, and attempt to correlate the inflation numbers economic data is telling us, I scratch my head. I fully accept an aspect of our economy is in deflation (ie certain financial loans and labor costs, probably the biggest driver), but for the most part, almost every other day-to-day items are not. Throwing some common sense into the mix, let me say this, the 10-yr yield has entered crisis level yields. When I say crisis level, I say the world was literally on the brink of social chaos as the fabric that holds society together (ie the economy) received its largest ripping ever. Nothing was moving, nothing. I mean Mohamed El-Erian went on CNBC and told them that he told his wife to take out as much money from the ATM as she could!

So I ask, is the social fabric in the same kind of condition it was in 2008-2009?

There is a disconnect.

With respect to the market, I still very much believe in my 'think a little' post.

Thursday, August 19, 2010

Intel buying McAfee

Been trying to come to terms with this deal all day. The few benefits are below...

1. They purchased the company for approx. $7.5B in CASH.

2. The purchase price gave McAfee a forward PE of 16.

This is very consistent with the acquisitions we have been seeing with cash rich companies. And a very strong signal that all management teams are selling their companies for very reasonable valuations. (The large % differences seen via the market is the large disconnect between investors and management opinion. I think the management teams of the multiple players buying are correct.)

As far as synergies go within the business, I am not that savvy within the semi space to know how having McAfee in house benefits them. If they can now make air-tight security features via the combination, that would be great. I do know McAfee's margins will help Intel's balance sheet.

Most importantly, the above still indicates the market is very very discounted.

Wednesday, August 18, 2010

CHK is getting interesting again

The decline in NatGas and CHK is getting me interested in playing NatGas again. Because of the abundant supply of NatGas I, like every other player, thinks the price of the commodity will remain suppressed. This signals a trading range, and when the price is at its low-end, I get interested.

Here is the set up for NatGas:

The price can very well go below 4, especially as the summer comes to an end (ie no ACs turned on, so less electricity needed, so less NatGas used). But as it approaches the upward sloping line, it gets very interesting for an initial entry. (I like playing NatGas through CHK.)

A look at CHK suggests a potential drop breaching 20, and that is when I will enter.

Tuesday, August 17, 2010

Market Thought... 'rise up' (and intel)

Rise up Mr. Market, but I'm also referring to the song :)

Overall, there are some mixed signals, but the thesis remains. (For instance, as soon as we approached 1100, itchy trigger fingers took over.) The market is cheap, and looks to want to rise up.

I can see a retest of the 1150 level, but we will have to see how the trigger fingers handle themselves around 1130. (If the 10yr yield begins to break from its negative trend, I will gain more confidence in the 1150 level.)

On a side note, I wanted to mention INTC here. Too much negativity surrounding the name. The bearishness is well thought out. The 'peak margin-peak stock price' thesis is a frustrating one, and I completely disagree with this notion.

INTC stock peaked during this year prior Q1 results, when margins were around the mid/high 50s%. In Q2 margins were in the low 60s%, but the stock did not peak. So BAM!, theory disproved :)

But for all that negativity, the stock seems to really like its weekly 200SMA.

I am still a big fan of Intel. It may have peaked in 'this-or-that', but it generates a fuck load of cash, pays a better yield than the 10yr note and once people realize it is not about 'peak-this-or-that', and more about maintaining the projections it set up. Once the big boys realize this, the stock breaks from its long-term down trend and will hit 26.

Friday, August 13, 2010

Market Thought... think a little

I am tired of the played out 'American-economy-is-slowing-down' argument. Everyone and their money-making-pessimistic preaching mothers can see this.

The markets are very inexpensive here. Extremely inexpensive. The most prime example being AAPL. With a trailing PE of 18.75, and a forward PE of 14ish, while having in excess of +18% total organic eps growth. (That is cheaper than GOOG, and not even taking into account the $50 per share of cash AAPL has on hand.)

Then there is IBM. A company that hits its marks consistently, utilizes its cash very well, projecting 15% eps growth to 2015, yet is trading with a trailing PE of 12.08 and a forward PE of 10ish.

I can go on-and-on, using company after company, but people far smarter then me have extensively studied this, and they have come up with the same conclusion. (I've posted the link before.)

The market is CHEAP!

I know the counter argument, 'If America slows down, the world economy will crumble with it. So earnings in companies will decline. So the market will go down with earnings.'

That was the argument for the second quarter, and since this argument was completely disproved, I guess it is now being pushed to the 2nd half of the year? (Despite the fact that the only major company telling us anything of this nature was Cisco. But even Chambers stated that they will still meet there earnings projections regardless of the bumpiness.)

Here is where I lose sight of the 'counter argument': Calculating the BRIC countries GDP (figures are 2009 est via World Factbook), I arrive at a total GDP of $16.49T. This $16.49T is growing thanks to the early innings of consumerism taking hold in all the countries. Its also larger then the USA and EU GDP. (USA being at $14.26T and EU being at apprx. 16.4T)

So, if the USA and EU economies are simply sluggish and grow at 1%, and if the BRIC countries are still growing, the accumulating effect is a growing global economy. Since AAPL, IBM, GS, INTC, GOOG, or any other company with large international exposure, are all exposed to that growth, their EPS will grow. (As they all keep proving, with McDonalds being the prime example.)

This concept is so completely lost by many of the big boys, it truly boggles my mind. The big boys have 'de-risked' so much, that they are barely in the game, hence we have these price-to-earnings ratios that are awesomely mouth watering.

Okay, so that is my 'think a little' rant :), here is a look at the potential short-term market action. A few scenarios I see potentially playing out:

The SP 500 re-tests the 320SMA. Considering the negativity, this is reasonable.

I do not think we re-test the low 1000s because there is no threat of country default right now.

The other scenario is that we bounce from here. The weekly indicates support, while the 10yr treasury is very overbought (yield being oversold).

I have made no secret that I have accumulated more AAPL and IBM, in case we bounce from here. But I will load up if the SP500 retest the 320SMA.

Take note: IBM purchase of Unica

This purchase indicates how disgustingly under priced stocks really are, especially in relation to being a growth entity.

The purchase price makes a ton of sense when looking at Unica's growth. The added bonus is the synergies that will take place.

At least management teams understand the inefficiency of the markets right now.

Thursday, August 12, 2010

some trades... IBM, AAPL

IBM - If IBM is down tomorrow, I will add. If it goes to 125-126, I will add more.

(I added heavy after they reported, and have been slowly unloading as it approached 132. Still very much exposed, and now will begin to add.)

AAPL - I added today in the AM with the declining market. Its trailing PE is still in the 18s. Have people forgotten that they still will unveil the iPhone for Verizon? That is a growth driver. Regardless of VZ, anyone expecting the iPhone growth to mature anytime soon, just do a channel check. You still need to go on a wait list to get the thing! (Not gonna post a chart on AAPL, don't think its relevant right now, but the weekly is nice.

Wednesday, August 11, 2010

Market Thought... night and day

I felt like singing the song through out the day. Bullish on Monday, now the world is about to end on Wednesday night.

Cisco missed Rev, and management offered a gloomy preception, but its trading at with a forward PE of 13. That is 13. So lets sell the fuck out of it, and declare the world is about to end.

Get a grip. Get a grip.

Whatever the case, all I can do is control the actions I take. I am looking for the market to test the 320SMA with this negativity now.

Thanks to CSCO, the market should see this tomorrow.

Just on a side note, did anyone realize AAPL is now trading with a trailing PE of 18? Really, Really. They are making like a billion dollars every other day, and they have a PE of 18.

1 thing I do not understand

The Fed. Reserve indicated they will use the proceeds of the MBS program to purchase treasuries.

I have been thinking about this since I heard it. Combed the media outlets last night, to get multiple opinions on it, but I am still scratching my head.

In the current environment, I just do not see the need for them to do this. There has been healthy demand for US treasuries, I do not see why they would add on-top of the already excess demand. (Or even create more demand by making that statement.)

Ben B. is not a stupid man. Especially after his first few months in the head of the Fed. Everything they do is calculated, and has a purpose. IMO, he has earned that reputation since taking leadership of this crisis.

So why would they make a statement like that?

missed the short

Seeing the action, I obviously missed the short-term short opportunity. If I did have a short I would be capturing the profits in the short, and going long certain names like AAPL (which I added this morning, and prepared to add if it goes to 245-250).

Tuesday, August 10, 2010

Whiteny Tilson is the man

He starts buying up BP when everyone, and their mother, is bashing the hell out of the name. (He was one of the reasons I bought BP.)

Then some guy writes an article on why he was wrong in, titled 'Why Whitney Tilson is Wrong About BP'. I rarely expect one of the big-boys to respond to such articles, but he is human after all.

Tilson responds in the comments section pretty much saying, in the most elegant and political way: stop being scared bitches, under stand the real reasons cause you all got it wrong from day one.

(Unfortunately I didn't participate in BP's ascent due to other risk/reward opportunities, to which treated me very nicely. Hence no regrets.)

Sunday, August 8, 2010

Market Thought... still waiting

Still waiting to take out real market protection. As my 'tell' to complacency is a chart I have frequently posted (but not in a while).

The general pattern here is fairly obvious. The focus is the blue-overlay line (the VIX) in relation to the SP500.

The pattern here to short the market (or protect) when the blue-overlay is at the low end touching the lowest blue horizontal line, while going heavy short when touching the lowest dotted red horizontal line.

The blue-overlay is approaching the lowest blue horizontal line, and when that happens I will take on a few SP500 115 Oct puts. (If it the lowest dotted line is achieved I will add to the protection.)

The only thing that will make me hesitate on market protection is if we start to see better than expected job numbers. IMO, that will unleash a torrent of money itching to get into this market, and start raising stock prices to more normal levels.

Friday, August 6, 2010

Employment Data... its not that bad

Do not listen to the head lines, especially the head line number, and see for yourself. (see breakdown, straight from the BLS)

Although the private jobs number was less than consensus (I believe it was around +80k, but the actual was +71k.), considering it is July (with July and August being the seasonally weak months) the increase is pretty good.

The good part of this report is not in the head lines. The hidden number is $772.58. This is the average weekly earnings. For this seasonally weak month, to get an increase from June, IMO, is quite good.

Today's numbers are not that bad. Still shows demand for employment hours.

Thursday, August 5, 2010

Market Thought... up or down

Tomorrow should be interesting, as the market awaits the jobs number tomorrow. Especially if the jobs number is now a leading indicator. (And based on how many people have put this number on a pedestal, it definitely seems like a leading indicator now.)

When I look at the fundies (bottom-up valuation of key individual names) and the technicals, I do not see a market that is driven by optimism or euphoria.

The SP500 rallied from its low nicely because it was unjustly put there. Now it has a series of resistance points above its current level, but it is not as overbought as one would think. The oscillators (at least the ones I follow) simply do not suggest it.

On a weak jobs number, the market may very well retest the 320SMA. On a stronger jobs number, it may very well test 1150, if not higher. (It should not re-test the 1020 low because there is no longer a fear of Europe or China collapsing.)


The stock closed in a bullish position. Regardless of how the market reacts over the next few days, I will look to add on weakness. (I just do not know if we will see any until 9ish)

interested in MF Global, again

A few factors are making me take interest in MF Global again.

1. A nice quarterly report. This report highlights the shift Corzine is making within the company.

2. FinReg was passed, and every large bank will be forced to slim down. Bank of America already announced a $500B asset sale program.

Here is where I think Corzine will really shine. With his contacts in the business and knowledge of what to do with these assets.

3. With an improving cash flow, their book value can be reflected within their stock price. A simple back of the hand calculation puts their book value around $11. (47.8B-46.2B/133.9M)

4. If today's move can be sustained, the technicals will look very bullish, albeit over extended. (But the fundies presented above merit a continued rally in the stock.)

Keep in mind, Corzine's pay out calls for MF stock to be over $9. Below the 9 level his cash out is out of the money.

fyi - i purchased this morning.

Monday, August 2, 2010

Market Thought... protection, but not yet

When I look at the SP500 chart, the desire to sell or take protection is just glaring at you via the 150 and 200 SMAs.

But, IMO, the time to take that protection, was when I posted about it during the recent test of the SMAs. Now we have a scenario, where the market should break these SMAs.

This would be consistent with the emerging markets. The general basket via the ADRE, and then more specifically via Brazil via the EWZ.

Never hurts to take profits, but there seems to be more juice to this market move.

I will look to add 115 SPY Sept put protection with the SP 500 around 1150. (This should be when certain technical conditions of the VIX line up to merit protection. But I will post the set up when the time comes.)