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Friday, December 31, 2010

To everyone...

Have a happy, healthy and prosperous new year!!!

cheers

Market Thought... consolidated?

When I look across the indexes, and various stocks I see an internal market that has somewhat consolidated.

Its weird. Or maybe we find ourselves in a scenario where everyone 'knows' something is going to happen, so that 'something' will not happen.

Throughout the week I kept hearing the chatter that the market will pull back in January. (I, for one, was/am holding this thesis.) But when everyone on CNBC agrees to the thesis, and I mean everyone, I have to re-question the thesis. (Despite the general bullish thesis on the market.)

My VIX/current-market-rally overlay chart saw a mini spike earlier this week. I thought the strength in the week would cause it to re-test the low, but it has not. IMO, this means too many players are betting the same way: protection for an early January pull back.

Basically, the chances of a pullback in early January have declined.

With that said, I am still protected, but with the addition of AAPL and ATI, I am not as protected. (And I am about to add to my AAPL call position if it keeps declining today.)

I was planning on adding to the protection when the VIX retests the lower line on this chart.

Thursday, December 30, 2010

new link... forward PE

At the top right corner I added a link to a forward PE analysis. (I got tired of continuously calculating it, so I created a spread sheet on it.) I will use it for stocks I can assess via PE. For now, I am using it for AAPL and IBM.

I use this concept as one way to gauge a base as to where the stock should be trading from one quarter forward.

For example, AAPL and IBM, when they report next quarter, their trailing PEs should stay around current levels. With that assumption, when they report next quarters earnings, the stock price should be at specific levels.

(I put it up there as a quick link for me to use and reference.)

some trades... ATI, PBR

I purchased common shares of ATI today. (I am not familiar with the way their options trade, so I stuck with the common shares.)


This is a play on the boom in aerospace manufacturing. Regardless on who makes the planes, the manufactures will need products from ATI. (see previous reference)

It has consolidated from a breakout, and I think now is a good initial entry point.

NOTE: To do this with ATI common, I decided to unload the position of PBR I wanted to around 38 to maintain a comfortable risk profile. PBR is currently trading in the mid 37s. To me, it is close enough. I still own a position PBR.

AAPL... quick trade

I have been purchasing some AAPL every time it tests its 10SMA, and then selling that position when it pops. (But keep a position until 330 or higher is seen.)

AAPL is now testing the 10SMA again, so I added a light day trading position.

Also, if AAPL breaks down from here, as it might with a potentially correcting market, the down side is fairly limited.

I think its down side would be correlated with AAPL's trailing PE. A trailing PE between 19-20 should be a low for AAPL's stock, which would correlate to a price between 318 to 330, when incorporating next quarter's results. So I will add if it breaks down to 320.

Wednesday, December 29, 2010

Technicals... PBR

The last few post on PBR I indicated I do not want to sell until 38, but for a fair analysis, 38 is not the first level of resistance. We are currently near the first true test for PBR.


The daily shows PBR is smack at the 200SMA, and the weekly indicates the next SMA resistance is at 36.97.

Due to the magnitude of 'overbought', and the potential resistance present, if anyone needed to sell PBR for portfolio reasons or conservative trading practices, now would be the time to do it.

I indicated I would wait to around 38 (which is the test of the 200SMA on the weekly), so I will wait.

Tuesday, December 28, 2010

smells funny

Back in mid November, Goldman Sachs issued a stock replacement strategy for some large tech stock. (link) Basically it was strategy to sell stocks, and replace the common with call options.

When I read about it that day, my ears peculated, cause IBM was one of the stocks highlighted by the report.

It caught my attention because the cynic in me always thinks of new risks. Goldman's call has been dead wrong because since their call, the lack of volatility has caused IBM's premium to get sucked away.

IMO, this smells funny.

I am a believer in the market's efficiency over the mid/long-term, but I know it can be grossly inefficient in the short-term. The inefficiency can be from many things, one of them being a pseudo manipulation.

It is just too convenient that a 'strangling-option-strategy' (at least that is what I call it), is fucking with Goldman's call. By sucking away call premiums, the pure-long call strategy is losing a ton of money, especially if in the Jan calls. (If you sold calls or puts, you would be making the lost premium.)

Leads to a ton of questions: Was the Goldman call the green light for the strategy? Are Goldman traders involved? Are the market makers facilitating the lack of movement? etc.

I am a guy who does not give a shit. I am a trader. I take advantage of these inefficiencies, so it is hard for me to get too pissed off, even though it is costing me right now. This is one of the reasons I was glad I pushed out my calls from Jan to April 2011. While funny activity can take hold within a low volume, lack of news environment, it will not last long.

It may last until the Jan 2011 options expire, or near that date, as the strangling unravels. But I will smile, if IBM produces some sort of news, to up their earnings profile or something that will fuck the strangling strategy and return the premium into the calls. The closer the year ends, and 4th quarter earnings are to be reported, this risk increases for the stranglers.

Or until some smart/independent-first-moving-heavy-handed mutual/hedge fund manager sees how consolidated it is, and how inexpensive it is, and starts buying a shit load of it in anticipation of the increased earnings profile, which can lead to multiple expansion.

Monday, December 27, 2010

oil's tight supply

The tight supply of oil is here again. I noticed this article last night, and it is making me question whether or not to sell a position in PBR at 35. (article)

If the demand is approaching the supply, crude will be past 100 throughout 2011, and that means PBR is very very inexpensive. PBR should be trading around 38-50 instead of current levels.

My portfolio risk tolerance is very tolerable right now, hence the addition of AXPW just now. If it remains, as I think it will. I will wait to sell a position of PBR at 38, and sell the rest above that level.

stop-start cars production announced!!!

Ford announced that their North American production for stop-start will begin in 2012. This is significant, and adds nice clarity for AXPW.ob. (Frankly, I am surprised at the market's inefficiency here, this is really good news for the stop-start technology.)

The PR focuses on Ford's engine, but the real challenge for stop-start is the battery. This is where Axion's PbC technology shines.

A lot of things can happen in a year, but the lottery ticket that is AXPW.ob, has just increased its large chance of success. (Albeit, it is still a lottery ticket, just not as much of one.)

update: I purchased another 1,000 share to take advantage, of what I think, is market inefficiency. (I only own 2,700 shares.)

Thursday, December 23, 2010

Cramer's take on IBM

Last night I noticed Cramer's bottom's-up approach to the Dow reaching 13,000. I agree with a lot of it.

He of course mentions IBM, and the one thing I just wanted to point out was that his eps-growth-est-to-PE does not make sense. He states:

17.IBM (:IBM) :When this company talked about lofty EPS for 2015, initially the street was skeptical especially after IBM reported a blah quarter soon after the expectations were laid out. I now think the company has $20 earnings per share capabilities out three years and that $13 is doable for 2011. You keep the multiple the same and you get a $169 stock. I think it does just that. This one's cheap, way too cheap and it will be cheap next year, too, but on a bigger earnings base which is how it can get to my price target.

Now, he is obviously being conservative here, as he should be. But if IBM grows EPS to 20 w/in 3yrs, they will have an EPS growth rate of +24%!

There is no way their multiple will stay at 13. Their trailing PE will start rising again to reflect the growth, and added revenue coming out of this consequence. (Think of IBM's multiple as a "U". They had years of multiple compression, they hit bottom, now they will see expansion.)

If we really want to get theoretical, as to what PE IBM will trade at with a growth rate of 24%, history will tell us. Over the last year IBM traded with a PE/EPS growth% ratio of around 30%. (ie trailing PE of 10/15% = 0.66) This being the widest margin. If we solve for X (.66 = X/24) the minimum expected multiple will lead IBM to have a trailing PE of 16.

Which means, IBM is more of a $200 stock over the next year.

Wednesday, December 22, 2010

protection

I increased my protection. We are in a pretty solid overbought conditions, and the VIX is very close to a rally low.

Usually I would be selling long positions, as many position are overbought, but they are too inexpensive still. (Also, if a melt-up happens, these overbought positions will not matter. Since we are making rally highs, a melt up is very possible.)

I refuse to sell IBM below 150.

I refuse to sell AAPL below 330.

I refuse to sell PBR below 35 (one position). I would like to sell the second position at 38.

I would like to sell MF near 9.

Monday, December 20, 2010

Market Thought... control the fear

Today I kept seeing more and more articles regarding the low VIX and 'complacency'. Not to mention, new power players on wall street (that emerged strongly after the crisis then correctly turned bullish), Barry Ritholtz and Doug Kass, started to turn their backs onto the current market rally. Although Doug Kass incorrectly started getting bearish much sooner.

I am annoyed when these (and other) commentators are 'turning-their-back' because there is no legitimate reason to do so. On top of being contrarian for the sake of being contrarian, they will take a known issue, and try to justify why the market "should" go down. Instead, they should be assessing the validity of the reasons, but they do not. (Maybe because some 'technical trigger' is over powering their sense of judgement, I do not know.)

The other day I indicated to protect, but that does not mean I am turning my back on this market. I am as bullish as they come, and the fundamentalist in me thinks we have a multi-year bull market on our hands. (Hence the reason I have a 'timeless portfolio'. If I was not bullish on a multi-year thesis, I would not be executing such a strategy for a timeless portfolio!) Obviously I do not trade via multi-year, I am a multi - minute/hour/day/week/month trader.

This is why I assessed the fundamentals a few weeks back, in anticipation for this very moment via the Market Thought post 'maybe, maybe not'. (I did not include state and local gov. financial woes because actions were taken very early on, and this is a work in progress, not a turn-on-a-dime kind of a fix. But as I have already pointed out, many issues are exaggerated.)

The thought of protection (short-term market protection) was triggered by a technical signal, nothing more.

I did not sell any long position because the VIX can linger for a while before over-bought conditions, within the market, triggers a sell-off.

And if/when the market is too over extended, around 1290 before the next quarter earnings, I will start selling my longs and add to my market short. (Although selling a specific position, for me, is more dependent on the individual stock.)

I will be a buyer as things correct. (I highlighted potential market support via the market thought post 'recap'.)

Friday, December 17, 2010

Market Thought... protect

The first time I was able to observe my charts was a few minutes ago. I noticed a sizable decline in the VIX. So much so, that my trigger to protect has approached.


Today's move is a bit odd. There should be a stronger market push upward with such a Vix decline. This makes me think the decline could be to do re-pricing of the Vix index.

Regardless, I took on some protection via the SP500 127 Feb Puts. I did not sell any positions.

Thursday, December 16, 2010

Oh Oracle...

When I first saw the Press Release for Oracle's earnings, my original plan was going to write a post ripping into its claims, on server speed, and attempting to bracket HP in the same sentence with IBM. But I had to go to a Christmas party. Afterwards, I listened to the conference call, and noticed this nice summary excerpt provided by AllThingsD that gives a more realistic picture.

He gives credit to IBM, and the rest is sales talk.

The one thing Ellison conveniently forgot to mention was that HP's sucky inferior product sucks because the suckiness is a direct by-product of HP's former CEO, who is now Oracle's President Mark Hurd. The reason the product is inferior is sitting next to Ellison.

I personally view this as a dangerous thing for Oracle, but the market seems to like it the theatrical sales pitch.

some thoughts

First...

I bought PBR today. Not extremely optimal conditions, but a higher probability suggests the 20 SMA is acting as support. Along with its consolidated stance, via the oscillators, the conditions drove me to take took action. (I am prepared to add at the 32 support if need be.


Second... the lack of volatility within IBM has sucked/ing the premium out of the call options. Since Nov. it has seen a 4 point swing, but since December its swings are literally within 2 points. (This is my largest position, so I can't avoid noticing :)

Wednesday, December 15, 2010

Market Thought... patient

The market is still playing out the anticipated thesis. Here are a few updated charts to suggesting the thesis.

1. SP500-Vix overlay, in relation to the current rally dynamic (starting on March 2009)


There is more complacency to go. The market's trading dynamic says so.

(Also, the VIX chart is not oversold, and does not suggest a spike. At least not yet.)

2. The 10yr chart. Does this chart look like the bond market is punishing or that US GDP is entering a growth of higher than 2-3%?


If I am wrong, so be it. But I will not hesitate to add on a decline that place sooner then my thesis indicates.

Tuesday, December 14, 2010

IBM is new tech

I got the sense from yesterday's technology report from Goldman (putting AAPL on the buy list, and HPQ on the sell list), that IBM was on the 'old' technology list, given the target price they gave. (The report's target price was 150, where as I think IBM will see and surpass 150 w/in the next three weeks.)

Anyone who views IBM as 'old' technology did not do a good job researching the company. The company is transitioning, and transitioning very well, but the aspects that are viewed as 'old' (best example is mainframes) is really not accurate. Large companies still need sophisticated mainframes, period. Only so much can go to the cloud, but it just so happens IBM is also a cloud play.

Regardless, the most obvious example of IBM as a leading technology company is Watson. The Jeopardy challenge should highlight IBM's edge to those too lazy to take the time to understand the company. (Warning, when you start digging in the company, it will be hard not to be impressed :)

Sunday, December 12, 2010

Market Thought... recap

Looks like there is gonna be a slow and steady climb, fitting into market valuation. The thesis remains from recent Market Thought posts 'conundrum' and 'normalcy'.

If we see a slow and steady climb, the previous SP500 resistance (1220-1225) should act as support.

Thursday, December 9, 2010

AAPL and IBM reminder

Seeing their 'blah' performance today, I just wanted to point out the obvious.

AAPL's year end estimate is 19.02. (They will most likely surpass this, but lets be conservative.) If you were to slap an 18 trailing PE (again, conservative thinking here) on the 19.02, AAPL will be trading at 342.

IBM's year end estimate is 11.44. If you were to slap a 13 trailing PE on the 11.44, IBM will be trading at 148.

No genius thinking needed to figure out my point...

The only thing needed to get these stocks higher is time. (No multiple expansion, no blow away earnings/guidance.) They just have to perform like they always do. Then the market will realize the above fact.

Wednesday, December 8, 2010

Timeless Portfolio update

In February I published 'Timeless Portfolio'. I keep the list via a shared Google Doc link to the upper right hand corner of this blog, under 'Links'.

I wanted to update the Portfolio by replacing NAT with BGCP because NAT has been seriously under performing the rest of the picks.

I will officially document 2010 performance on 12/31/2010, but NAT is now officially documented as a 5.9% decline. (When accounting for dividends.)

Here is a performance update on the rest of the portfolio w/today's closing price, including dividends:

KMP: +17%

BKE: +27%

IBM: +15.6%

F: 42.2%

NAT: -5.9%

Currently the portfolio is on track to do about 20% its first year. (Surpassing the high-end estimates. Guess I can be a relatively good long-term 'buy-and-hold' investor, so far ;)

What the???

Since 9:51am, the 140 April IBM Calls had an out of whack Bid/Ask ratio. The Bid is actually higher than the Ask. It is now 9:55am, and the Bid has ranged from 9.10 to 9.20 while the ask has stayed at 9.00.

Could be that the real-time ticker is frozen for the Ask, but everything else is working so I don't think that is it.

Just weird.

PS... IBM will have a year end eps of 11.44. With a conservative PE of 13, IBM will trade at 148.

(The market is so freaking undervalued.)

Tuesday, December 7, 2010

Market Thought... normalcy

The 10 yr pushed up today, despite the market loosing the floor at 2:50pm.

As I mentioned yesterday, 2010 SP500 earnings will be north of 86eps. The SP500 usually trades with a multiple of 15, putting a target of 1290 on the SP500. (I am also using 15 because end of the year we look forward to next year earnings potential. So the multiple should be higher, but I will settle with the historical average PE.)

2011 SP 500 earnings will be around 93-94 eps. A multiple of 14-15 will give an SP500 trading range of 1,302 - 1,395.

So, if the market consolidates this go around, I will be a buyer.

Monday, December 6, 2010

Market Thought... conundrum

There is a consistent theme across many of the +150 charts I follow, overbought. But the 2010 SP500 earnings will be +86. Slap a 14-15 multiple on the earnings, and we have a market range of 1,204-1,290.

Here is my conundrum. The conservative technical trader would sell due to the overbought conditions. But the fundamental trader/investor can not sell due to the inexpensive level.

So my compromise was to transition from Jan 2011 calls to Apr 2011 calls, and continue to wait for until the VIX hits the 2010 low before selling and adding SPY put protection.

Sunday, December 5, 2010

Kindler quits

Talk about unexpected. The CEO and Chairman of the largest pharmaceutical company in the world, Pfizer, Jeff Kindler announced an immediate retirement.

I can certainly speculate endlessly about this, ranging from:

He quit because he feared the market effect of the potentially non-productive short-term pipeline.

or

The board let him go because within in 5yrs the stock went from a high of 23 to 17. A 26% decline. (The further one goes back, the uglier it gets.)

Having a lot of cash, and a very nice cash flow, can fog up an investor's judgment quite a bit. Pfizer bought Wyeth to make up for its potential cash-flow issue due to patent expiration. Instead of innovating itself out of their hole, they took a strategy out of their predictive play book. Acquire, and reduce. (Anyone that has studied these types of M&As can attest that 'acquiring and reducing expenses' is not an efficient strategy.)

The problem with certain acquisitions is that they do not work when both companies are projected to lose a substantial amount of revenue w/in the next 1-2yrs. Synergies will simply not cover high revenue losses, especially biotech/pharma synergies. (This is simply fact, and the nature of the specific-product-dependent driven pharma business.)

There is no question Pfizer is an efficiently run company, and I am sure Kindler facilitated in creating the efficiency, but it has been lacking the proper strategic vision. Unfortunately, under Kindler's leadership, the company has talked a big game, but its actions were not innovative and seriously questionable.

Friday, December 3, 2010

Jobs...

Non Farm Payrolls are pretty shitty. Really no sugar-coating it. The Employment Situation was about 100K below estimates.

Looking at the break down, the employment situation is still relatively healthy with respect to the valuation of this market. (take a look at the link)

Break down:

- I am pretty surprised by the 28k loss in retail, especially in this time of year.

- Temp employment is up from the previous two months, which is a good sign.

- Ave. weekly hours worked is flat from previous month. Could be due to the holidays, not sure. So I will rate it a neutral at best.

- Ave. weekly earnings is still growing month over month. This is good. (Albeit not at the pace we have seen from previous months, but growth none-the-less.)

This report is so-so. It certainly does not merit the SP500 breaking the 1220 resistance today. The report merits a pull back in the market.

A pull back to which I will be adding positions I day-traded around. I will re-enter IBM 140 Apr 2011 calls, look to re-enter AAPL 300 Apr 2011 calls, AXP and others.

Wednesday, December 1, 2010

Market Thought... stay calm

Bears are fucked.

First, really really good economic data came out today, again.

Second, Goldman raised their GDP estimate to 2.7% for 2011. (Which should mean the 10yr yield trades around 3.7ish. IMO, further enforcing my thesis that with a 10yr above 3 will bring an SP500 w/a more normalized PE. Which means IBM is disturbingly inexpensive.)

Third, today's move was technically nice. The really really nice economic data allowed for the SP500 to melt through multiple SMA's. (These SMA's were giving many many wall street chartists heart burn, but no heart burn from this pseudo chartist/fundies whore ;)

PS: Don't get me wrong, if you would like to take profits, take them. But my thesis is very much in tact. (fundies, technicals)

Prediction...

The perception of the dollar strength will morph from 'flight to safety' (due to Europe and war) to US economic strength.

(I have always had the perception of the latter, but once the majority of the street traders realize this, it will further facilitate a more normalized PE for the SP 500, along with the rise in the 10yr.)