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Saturday, April 30, 2011

some thoughts... aapl, aol, ibm, pot, pbr

1 . AAPL - I am a pretty big fan of South Park and a big Apple-fanboy. Last weeks episode still made me piss my pants :)

Stock action should be interesting over the next few weeks now that the index re-adjustment is completed.  I still think there is plenty of growth in top and bottom line to easily justify a trailing PE of 18, Apple leadership does need to recognize better cash allocation.  Not because the street or some bullshit blogger (me :) wants them to, but because the situation makes a buyback in the company's favor. (I know they have an in-house former Goldman Investment banker, and hope he is at least suggesting it.)  Regardless, I will not consider selling AAPL until the 370s (at the least).

The longer-term trend suggests a steady move upward. IMO, the move may get toppy when the red line of the slow stoch pushed above 80.

2. AOL - I plan on selling AOL when the red line of the Slow Stoch approaches 80. This should correspond to the stock hitting the downward trend line near 22.


3. IBM - I am hoping end-of-day action on Friday leads to some pull back, despite my light entry. I will add a position below 170, and another if 168 is seen (or the 10SMA).

4. POT - I like POT, its the smell :) I will enter a position when the stock is between 53-54.

5. PBR - If Petrobras is forced to pay the $9.8B tax I will sell it, remove it from my watch list and use another stock as my oil play.  This smells like an attempt to use PBR like a piggy bank.  I already have a bad taste from the gov.-backed forced ousting of Vale's CEO (the CEO that made Vale what it is today).

I am a big fan of Brazil, their growing economy and prospect. But I do not like the increased level of interference. I just find it unacceptable. Because of this, I will not double down as I normally would have near 36. Now I am just waiting to see how this thing rides out. Kudos to the authorities for creating a new level of uncertainty that will further discount the stock. (If I have to sacrifice a position to enter another stock, now, PBR will be the first thing I sell.)

Friday, April 29, 2011

Google Docs is down... and IBM

Oh the dangers of the Cloud.  I was trying to access my Google docs files, particularly the 'forward PE' file, to make some adjustments to the IBM multiple, but low and behold, it is down. Luckily for me, the rough numbers are etched in my brain already.

Here is where I am going with this post...

Basically, at 172, IBM is now trading with a trailing PE of 14.5. However, and more fascinating to me, is that the computers (evidence being Yahoo Finance trailing PE) are not properly reflecting this. Which tells me the big boys and quants are willing to see the multiple expand past 14.5.  This suggests to me the market has now accepted IBM to have a larger multiple, and I think the 14.5 will be the low end. Historically, for a company like IBM and IBM itself, around 16 is the high end.

Before today, and as IBM approached 170, I sold off my entire IBM position while day trading this up move.  With the above thesis in play, I lightly re-entered via the 170 Oct calls.  I plan on holding these calls until a true trailing multiple of 16 is seen.  I will add aggressively on pullbacks, especially anything below 170.

Thursday, April 28, 2011

Market Thought... re-evaluation

I learned a lot trading. The two most important lessons were to 1. manage risk and 2. know when your wrong.

I have developed a pretty good trading methodology, and I do not hesitate to act when 'it' tells me to do something.  My safe guard to this lack of hesitation is that I always re-evaluate a thesis.  When a thesis is intact, I stay firm (most recent example being AAPL or IBM when it was cratering on a down grade).

But when a thesis is in question, I have to swallow my pride and re-adjust. (It doesn't happen much, but I have done it before.)

Up until April 18th, my Market Thought posts have been pretty dead on, and a contributor to this fact has been this chart:

The pattern was basically to short when the Vix, via the SP500 overlay, got too low.  This pattern has existed for a little over three years.  Because of this, I would give it more weight than other indicators, especially to manage risk.

The factors mentioned in the 'swimming in it' post, along with the Fed easing on QE, I thought the chart would still be in play. I later, tried to re-enforce the thesis with the 'cautious' post. But the market action is telling me I am wrong. The top end of the channel range melted through, and now a new support has developed.


This is further emphasized when valuations and individual stocks are taken into account. For instance, IBM is entering a new multiple trading range.  If IBM can enter a new trading dynamic, something I have been endlessly touting, so can the market.

I re-examined the Vix going back to its existence, and realized a statement of mine in the 'cautious' post is incorrect. I stated, "The Vix is a fairly complicated ratio of call/put SP500 options, but a ratio none-the-less. Prior to 2002 the Vix has historically bounced off the current level (around 16 as the low) and low 30s as the high.  Since it is a ratio, the pattern should remain intact, unless there is an external force corrupting the equation. (ie extreme complacency as seen in 2002-2007)"

I am not going to try to pretend to be an expert on the Vix and why it will act a certain way. But I think I understand patterns pretty well.  The entire Vix chart tells me the Vix can go to around 10 as a low end, regardless the reason.

The 'reason' may present itself later on, but I have to adjust to this new potential trading dynamic of a lower Vix.

some thoughts... LLNW, Market thesis

1. LLNW - Akami is taking a beating. Unless LLNW indicate otherwise on May 5th, they will reap the aftermath. If it wasn't for AKAM, LLNW was actually looking interesting. It broke from the Monday negativity, and looked like it wanted to go higher (if left on its own accord).  Below is a two day, 5min chart, highlighting the negativity of Monday, the early morning washout today and the shift in trend (near 1pm).




2. Market thesis - My current market thesis is obviously wrong. I am obviously missing something. I do not think the market is inefficient by moving up due to inexpensive levels. Maybe I am allowing specific data points and macro effects to corrupt my market thesis. I will have a detailed 're-evaluation' post tomorrow. I will swallow my mistake and eat my protection losses. I will cover all my market protection tomorrow because I do not have the proper basis for the protection. Instead of being protected, I will ease up on exposures that are very overbought.

Tuesday, April 26, 2011

Market Thought... cautious

I am cautious because I do not understand. Every time I do not understand, I force myself to think outside my 'box'.  My recent market posts have expressed this cautiousness because of VIX/SP500 overlay which shows a rally low for the VIX.  Despite my die-hard market bull thesis, the technical set up has historically merited caution, and for the most part, the caution is vindicated.

My dilemma is with properly interpreting the current action, along with mouth watering valuations of certain stocks.  Here in lies the contradiction, hence the dilemma.

The VIX is approaching levels not seen since the 2002-2007 rally.

For the most part, the VIX decline during the 2002-2007 rally, imo, was predicated by a false sense of security from the bullshit assets created by the investment banks.  Their eventual 30-1 leverage, and propping up a house-of-cards facilitated in an atypically inverted yield curve during a time of prosperity, creating a gross false sense of complacency.

The Vix is a fairly complicated ratio of call/put SP500 options, but a ratio none-the-less. Prior to 2002 the Vix has historically bounced off the current level (around 16 as the low) and low 30s as the high.  Since it is a ratio, the pattern should remain intact, unless there is an external force corrupting the equation. (ie extreme complacency as seen in 2002-2007)

At the moment, I do not know what could be corrupting the equation.  The few things I can think of are:

1. The ECB debt activity for the PIGS
2. The Fed with QE2
3. Inexpensive market valuation

But these things have been going on for some time now, and has not altered the VIX dynamic before. So why should it now, especially when the Fed is going to stop QE2 in about a month? And while I would love to use the inexpensive market valuation thesis, the Vix did not deviate from its pattern even during the earnings rush of the 2000 tech bubble, so why should it matter now?

Basically, something is not jiving here, and until it starts to make sense to me, I will remain cautious. Which means I will be making very short-term trades, while I wait for solid entry points (as mentioned in previous posts).  If individual stocks approach certain entry points, I will not hesitate to enter, but I will maintain a level of SPY Put protection if the VIX/SP500 condition persists.

fyi... axpw

I purchased AXPW.ob at 0.77. I currently hold 4,000 shares, and will maintain the position until a +200M market capitalization. (At which point I will begin actively trading a third of the stock.)

why i love IBM

Yes, I love the stock :)

They will buy back an additional $8B worth of the stock, and they just raised their dividend to 75cents. I really like how the company supports the stock. They will not buy it up at current levels, they will be buyers when it declines. (They know how to support their stock.)

IBM, imo, is still fairly inexpensive, but it is very overbought right now. I am looking to enter heavily again around the 10-20SMA.

Monday, April 25, 2011

some thoughts... aol, f

AOL - The other day I indicated I entered AOL. Its been on my radar ever since Tim Armstrong took it over. Since then, they have transitioned fairly nicely, and have been positioning themselves (I think) pretty well.

The one thing I am super curious about, but can not dig up any information on, is how their WOW.com (Groupon clone) is doing.  I am curious to know if they are leveraging the concept against mapquest or Patch or other subscription bases that they have with other local properties. (I look at Travelzoo and see how well they were able to leverage their travel subscription business to enter the local deals market.  The awesome execution is reflected in their reported numbers, and stock.)  I would love to see AOL execute with such a fashion, along their great brand strategy.

The entry point was guided by the chart. I think it is positioned to push higher toward 22-23.  (A continued push higher will be dictated on their execution.)


F -  I have been actively trading Ford since actively since their secondary at 4.15, and writing about it.  It is reporting before the bell, and it is interesting here.  I think they will have nice profitability due to the auto production issues, but how the market reacts will be interesting.

If the numbers are really good, and it sees a pop toward 17, I may unload some. (But I plan on maintaining a position for the future dividend announcement. The numbers suggest a +$1.0 within a year. If the street reacts poorly I do not think 14.50 will be breached, unless they are really bad.

axpw.ob

The stock got as low as 0.77, and my limit order did not get executed. I may have to settle for a higher price. I am hoping it settles around the current price for a few days/weeks, and will look to enter. (Preferably below 0.80.)

The more I read up on Lead-Acid batteries, along with the benefits of their cathode, the more I like its prospects to license or sell directly their cathode to the larger players or even get bought out. (Not just for the Stop-Start market, but for the industry as a whole.)  I do not know the exact figure, but USA for Lead Acid batteries are around 100M annually. This figure is not including grid-storage.

Saturday, April 23, 2011

Market Thought... update

As the effects of the earnings being to wind-down, the big-boys have a tendency of forgetting the healthy profits, and allow geo-political, macro-economic forces to corrupt their view of the market. This is why I still think the "swimming in it" post is in play.

Since the post, the macro conditions highlighted did not go away. They were simply ignored by the awesome earnings. However, European CDS rose quite a bit (Spain, Italy, Ireland, Greece, Portugal), and market complacency is setting in (even though some valuations are still pretty compelling).

The earnings rally has helped the SP500 push to its upper limit channel range, around 1340.

With last week's move, the VIX has collapsed. The collapse is in relation to the current rally's (since March 2009) trading dynamic.

With a lot of earnings coming in better than expected the market looks very inexpensive. The downside may be more limited then previously stated.  However support all depends on how severe the level of negativity becomes. The 1300 level may act as support, but I do not expect the 150SMA (via the daily) to be breached.

axpw.ob

With the current weakness of AXPW.ob I have been thinking about adding more to the position. The weekly chart indicates a band of support within the 0.7-0.8 range.

Since the 20 SMA has acted as support, I will place a limit order at 0.76 for 1300 more shares on Monday. (If the order is executed, I will have 4,000 shares.)

Thursday, April 21, 2011

IBM action

Nice action in IBM today, probably because of Amazon's cloud issues. With the major player down, I am sure the companies affected (ie Foursquare, Quara, etc) will be looking for back-ups. They may or may not switch providers, but this will expose them to the other offerings out there and some may find IBM's offering better. Basically, Amazon's fuck-up is free advertising for competing hosting services.

With today's pop, and my thesis on the market, I eased up on IBM. While still inexpensive, and I still very much like the name, it is overbought.

(PS... I have not unloaded AAPL. The valuation dislocation is too severe. Despite a potential weak market in the days/weeks a head, I think AAPL continues to climb toward the high 370s/380 level.  The move may especially take hold after April 29th, as the effect from the 'market mechanics' cease.)

Wednesday, April 20, 2011

AAPL

An obvious look at the weekly chart shows a stock in a routine consolidation. But a closer look at the chart indicates AAPL has not left the 320 level since October 2010. (Albeit, in Oct the 320 level was resistance, and a couple of days ago it was support.) 

Basically Apple was consolidating for 7 months.  A consolidation so severe, after today's numbers, Apple's businesses (ex-cash trailing PE) has a multiple of 13.5. (This takes into account a stock price of 354 via after hours, and the current cash position.)

Despite the awesome display of product and earnings growth, whose trends are still very much intact, Apple's product-lines have been given a multiple of 13.5!

This is changing, and the chart above suggests it.  Fortunately, the fundies support the move.

From a conservative perspective, with tomorrow's open, AAPL will resume its long-term uptrend, and the chart above indicates there is room to run.  Coincidentally this is corroborated by the fundamentals. For AAPL to have an ex-cash-trailing-PE of 15 the stock price has to be at 386.  Also, for AAPL to have a trailing PE of 18 (which is below the patterned 19-22 trailing PE) the stock has to be at 377.

If we are to assume AAPL starts to trade in its normal fashion, all signs point to 400.

oh Apple

Just to maintain an ex-cash trailing PE of 14.9 (which severely discounts the growth we are witnessing in their product and earnings) , after this monstrous beat, AAPL has to trade in the high 370s. (That number does not include Apple's new cash position. So a severely discounted stock price for AAPL should actually be higher.)

They simply crushed it. I do not see where a supply issue was evident within this quarter. Maybe it will show in the next quarter, with their guidance of 5.03 vs the street's 5.25.

AAPL just crushed the street's estimates by a over a dollar!

some action... SPY, IBM, DIS, AOL

Nice action today, thanks to the solid earnings.

1. I repositioned my market puts to the July 134 SPY Puts.

2. Actively trading IBM.  Super cheap, but that is all relative. I bought a bunch of calls in the AM, and sold a few just now into the after noon strength. Will maintain what I have now, or re-enter if it gets weaker. (I just worry about next week, the SPY-Vix overlay that I highlighted last week is present again. And as the fuel of strong earnings dissipates, the cautiousness highlighted in 'swimming in it' will persist.)

3. Sold DIS. (Will look to re-enter, but its at the resistance points I mentioned in 'my easter basket' post.)

4. I entered AOL. I am a fan of the technical set up. It looks to want to break out toward 22-23. More on this later.

Tuesday, April 19, 2011

IBM

With the after-hours weakness, I am looking to re-enter the IBM position I unloaded near 166.  I will add via the 160 Oct 2011 calls in the AM.

Hopefully I can get some below 162. If weakness persists, and it drifts toward high 150s/160, I will being to enter heavily.

IBM... nice

Rocked it.

Apples-to-apples EPS is the 2.31 figure.  Regardless, the numbers continue to support a multiple expansion between 14.5-16.

protected again

I added market (SPY) put protection.

Monday, April 18, 2011

Market Thought... swimming in it

The past few days were  a sea of negativity, and we were all swimming in it, especially for Europe. Here is a break down of the news flow:


1. a German official publicly saying that Greece will most likely have to restructure its debts. (This was prepping the market for a negative expectation in June. Hopefully Greece sells a lot of its 'private' assets to get their house in order.)

2. The rise of the 'nationalists' (aka extremely right-wing, boarder-line prejudice, isolationists) in Finland. This has me a bit concerned on the geopolitical front. (We have all learned about how carried away Europeans can get earlier this century.)  But this could also hit the bailout strategy, which would have obvious negative consequences in Europe.

3. China Sovereign Wealth Fund head said the global economy will slow down or even enter a recession in 2012.  I do not think he realized how interesting those words are.  The only time the global economy actually showed a slight decline, for the last 20years or so, was during the credit crisis. Is he inferring another one? Or was he being a sensationalist?  Probably the latter, but regardless, the words cause uncertainty.

4. The SP500 put the US debt on negative watch.

5. The US needs to raise the debt ceiling or catastrophe will occur, as Geithner put it on the Sunday morning shows.

A slow down from the emerging economies does not merit a market free fall. A slow down is the natural progression of a growing economy.  The emerging markets need their currencies and rates to rise to reflect their growth, in turn slowing down their growth. (Which will tame their inflation.)  The emerging markets are already at that stage.

Markets are predicated on profits, and companies will still have healthy profits as countries control their economic growth.  But the sea of negativity highlighted above may cause concern, and drive the SP500 to re-test the 1260 level.

The 1260 level is a fairly strong support level. It is the level we bounced off of from the 'nuclear meltdown' threat, and is near the 150SMA, which has acted as support in the past.

Of the above issues, if the US does not raise the debt ceiling or the EU bailout is not allowed to continue, a global recession will take place, and the SP 500 will eventually test 1150-1200, if not lower.  But I think the US congress will realize they need to do the right thing and raise the ceiling, then work on serious budget cuts. Or the European right-wingers will see that EU countries are making progress with the bailout, and that it should continue until the little PIGies economic houses are in order.

my easter basket

Here are the stocks I am waiting for, out side of the usual and already mentioned names (ie AAPL, IBM, GOOG etc)...

ATI - With market weakness, I would like to grab some between 62-64. It looks really nice right not, and 64 may not break due the SMA trend. But with a lowering tide, I am hoping the market allows ATI to trade closer to 62. (Looking to sell around 66-67, for the trade.)

DIS - Been waiting for a while on this one. I just really like the brand, and current leadership. It has entered an area technically that I really like, while being oversold. The valuation is pretty good too. Since Jan 2011, and before the credit crisis, it has consistently traded with a trailing PE around 19.  The patterned suggests DIS should be trading around 42-43, and if they issue a really good report, they can see 47 and maintain a trailing PE of 20.  (I bought it today as it approached 40.55, and will look to sell around 43. Or ride it out as they report.)

ITRI - A pure play on the smart-grid, via the meter side. They have seen a tremendous multiple contraction.  A lot of that is due to the slow adoption via the States, but that will change once a standard is developed.  Talks started in Feb.  I am waiting 51-52 to enter. (The chart is not pretty here, and I will be actively trading it. But for the 'buy-hold' types, this puppy will be higher 1-2yrs out after standards are established and smart-grid adoption kicks into high gear.)

LLNW - It has shown very good strength these past few trading days, including today. I thought a weak market would allow me to enter around 6.75 via an exaggerated decline from its SMA support. But not yet. Keeping a close eye it. (Sell around 7.50, for the trade.)

MF - I am waiting to enter around 8.10. (Sell around 8.8-9, for the trade.)

PBR - I want to add at 36. I was very tempted to add today. (This position I will look to sell around low 39. Will maintain the current position until after they announce a gas price hike.)

POT - Looking to enter POT around 51-52.

weird action... aapl

Either something just happened to Steve Jobs that has not be announced to the public yet or AAPL is bottoming today. (I'm thinking the latter.)

covered Puts

With a +20% rise in the VIX, I covered the market Puts.  Looking for various entry points on many stocks. I will have a post detailing these stocks later today or tonight. (If I have time in the day, I will compile it.)

I am very cash heavy right now, AAPL being my largest position. (With IBM's approach of 166-167, I unloaded some, as I indicated I would. I will re-enter heavily on weakness.)

Saturday, April 16, 2011

examining a trade... AAPL

I have made no secret that AAPL's poor performance has been fucking with my portfolio over the past two weeks.  The only time it was up meaningfully since the beginning of April was when the SP500 was down.

Here is a break down of the examination:

A. Fundamentals - "Fundamentals" is a loaded word with a ton of subjectivity, but an objective look gives an objective perspective. The fundamentals look at the current valuations (ie numbers), product/earnings growth trends and company leadership. Then, an assessment as to how the growth trends and management are being discounted via the numbers

1. the numbers

a. trailing PE - over the past few years AAPL's trailing PE has been shrinking. This is obvious, and expected given the level of growth and increasing size of the company. Over the last few months the trailing PE ranged from 19 to 23. (Conservatively, I have used the PE of 19 to be my valuation guide.)

The current trailing PE is 18.27 with a stock price of 327.46

b. forward trailing PE - when AAPL reports on thurs, they are estimated to produce $5.35eps. Looking a head a few days, and factoring in the 5.35, the trailing PE after Thursday (assuming a stock price of 327) will be 16.41.

Basically, the market is saying AAPL, as an overall company, will have an earnings growth rate of 16.41%. (This is below consensus analyst expectation of a 5yr +20% growth rate.  Analyst expectations mean shit to me, but it just so happens that the evaluation of Apple products jive well with the expectations. This will be explained under 'product trends'. )

c. ex-cash trailing PE - this metric is used to assess the valuation placed on the underlining businesses of the company.  A high cash position can lead to a higher trailing PE because the underlining businesses are assigned a PE more inline with industry and peers.

As of 04/15/2011 via the 10Q on file, Apple's cash position (short and long term securities) totaled $59,707 billion. With a total shareholder count of 921.6M, the cash-per-share is $64.79.  With a stock price of $327, the ex-cash trailing PE is 14.65. (Basically, the street is valuing Apple's businesses with a growth rate of 14.65%.)

If we conservatively assume that Apple will show an increase cash position of $10b on Thursday (as last quarter's increase was +$13b), the cash-per-share will be at apprx.  $75. With a stock price of $327, the PE placed on the businesses will be approximately 14.05.

The numbers above are meaningless until they are compared to the growth trends...

2. earnings/product growth trends

a. The 5-year projected earnings growth for Apples is at 20.78%.

We all know analyst expectations are bullshit. Although Wall Street analysts are kept in check by the really good 'amateur-blogger' analysts that provide fairly accurate assessments. This competition and continued risk of humiliation from the bloggers keep the professionals fairly honest.

These expectations can be used as a basis, but I continuously monitor web-chatter to ensure these expectations are being met.

b. media/web chatter regarding product demand

1. verizon iPhone - iPhone out selling Android in Feb; confirmation of iPhone out selling Android

2. computer demand - nice demand for the MacAir; IDC and Gartner have a 8-9% increase in Mac sales while the general PC industry consolidates (one of the most significant piece of information that may have AAPL beat estimates);

3. smartphone growth - the market will continue to grow, +50% this year. (While iPhone adaption will indicate a clear slow-down in acceleration, healthy growth in the over all market is unquestionably present with Verizon adoption and general market growth.)

4. corporate demand - an indication of the corporate demand for the iPad 2 was this article highlighting European companies delaying their paperless boardrooms until they got the iPad. (Since the iPad was introduced, corporations have been seeking and adopting the device. Analysts are predicting some 45M to be sold this year!)

c. product evolution  (for future growth based on the current chatter)

1. App/Mac Store - iTunes - The Mac Store is seeing a significant revenue generator for developers, with the average top selling price of $11.21 and Apple gets 30%. Subscriptions are gaining traction amongst publishers. (This is a low margin business for Apple, but the scale will become meaningful to the bottom line. Think Walmart, low margin but a shit load of profits.  With the subscription model now in place, this growth will soon become meaningful.)

2. NFC - Near Field Communication embedded within the iPhone 5. Apple will be able to leverage their iTunes billing system to create a payment system. Their approach is still very unclear. We do not know if they will simply utilize the credit card system (lower margins) or create a PayPal approach (higher margins). Regardless of the approach, with 10s of millions of iPhones worldwide, this will be a low margin, but highly profitable business via the huge scale. (There are hurdles to this, like having the NFC tech implanted within the retailers and the banks playing along, but recent chatter has the banks playing along.) 

3. tv (consumer and enterprise) - The TV chatter is getting louder. If we are simply to assume Apple will combine the AppleTV box with a television, and sell it, that alone is entering a $100B market, and that is the obvious evolution, especially for the consumer market. (Which is not bad, and could provide really nice growth prospects combining the subscription iTunes model and video rentals.) But Apple is rarely obvious.  When I think of the iPad, I think of a mini TV people can interact with.  When I think of the 'concept of the iPad'+'AppleTV' equals a 56in interactive computer that people can use as a TV.  People's living room may not need the interactive functionality, but corporate conference room most definitely will utilize a concept like this to substitute a whiteboard.

There are other things, but those things do not produce sizable or legitimate chatter to incorporate into a realistic analysis.

3. management

As all humans do, the fact remains, Steve Jobs will eventually pass away. But the one thing that strikes out at me when I look at the information above, these trends are not dependent on one man. Apple has a very strong bench, and many who were inspired by the philosophy of Steve Jobs.  These trends will continue to exist for a few years so long as the company's culture is intact. (Anyone attempting to profit from the death of any person does not deserve my respect, and I say 'fuck you' to them.)

Conclusion to the Fundamentals - When I take a step back, and observe the potential macro-growth of the businesses and the demand of the products, I have a very very hard time attempting to justify an ex-cash trailing PE of 14.65 on Apple's businesses.  When I then look at the current growth of their products, in relation to the demand and market growth, and the potential of the relatively known aspects of the new product lines, I have a really really hard time justifying a trailing PE of 16.41 for the company.

The growth and demand does not merit a multiple contraction yet. The macro trend simply does not support a multiple contraction.  Apple's businesses (ex-cash trailing PE) deserve a multiple closer to their growth rate, which is closer to 20 verse 14.  But conservatively speaking, Apple at least deserves the trailing PE to reflect the growth of the company, which is around 19-20.

(AAPL can not be compared to its peers for valuation. Apple is benefiting from a contraction of Window based systems (97% to about 50%). So that means MSFT, DELL, HP, Nokia etc all deserve lower multiples reflecting this contraction.)

B. Mechanics of the Market


In early April, the Nasdaq announced the re-balancing of the Qs. With this announcement, AAPL started to see heavy pressure. The actual re-balancing will take place on April 29th, but the bigger issues are the 'dumb' fund managers or index funds that mimic the Qs. (I have seen numbers between 2-3 thousand funds that mimic the Qs.) This produces a shit-load of selling pressure.

I have evaluated every intraday chart since April 1st. For the most part, AAPL trends similarly to the SP500, but there are times were they clearly diverge, and I believe them to be funds unloading based on their indexing of the Qs. (April 12th and 13this the are the only days I do not see a clear forced or automated selling.)

Overall Conclusion

The market is never perfect. Inefficiencies always exist, but eventually the market removes these inefficiencies. There is an obvious and artificial selling pressure based on the mechanics of mimicking an index. (I do not know how these fund managers are still employed, but the fact remains this dynamic is taking place.) IMO, this re-balancing, along with market weakness, is causing a severe inefficiency.

I do not see a justifiable reason as to why the market would give AAPL a severe multiple contraction, the evidence simply does not exist.  The industry, product and earnings growth trends (mid-to-longer term) are all in Apple's favor.

Friday, April 15, 2011

quick thought... puts

The SP500 Vix overlay is making me purchase put protection via the SPY.  It is at the low end of its this rally's trading dynamic.

The vix could go lower, but it is unlikely given the macro economic and geopolitical concerns.

UPDATE - 04/16/11: Did some digging over the weekend, regarding the VIX pricing and why it declined so much. The linked article is a good explanation.  Basically, the current set up maybe false due to the role over. Regardless of the role over, the level was still in the low-end range that merits caution for me.

quick 'timeless portfolio' note

If I was actively trading the 'timeless portfolio', which is highlighted via the Links section as 'timeless portfolio', I would sell BKE now.

With BKE being at 45, it is an increase of approx +19% of the 2010 recorded price of 37.77. Of course I would buy it back on a consolidation, and to be a share holder on record for a potential dividend.

The only reason I would do this is because my 2011 modeled performance for BKE was to be -15%! (The current appreciation more than makes up for the dividends.)

an AAPL heads up

Over the weekend I will be posting a detailed re-evaluation of my AAPL trade. Basically it will be a summary of everything I know about AAPL, and where I potentially screwed up or didn't. Basically, a learning exercise.

I continuously re-evaluate my positions, so if you have been following my blog, the answers will be fairy obvious.

I wanted to give the potatoes before the trading day ends, but the meat will come over the weekend.

I re-positioned my AAPL calls to Oct. I will not sell regardless of any weakness. At current prices, especially when factoring in the current quarters cash position after they report, the price of AAPL effectively discounts any growth it is currently seeing and any future growth.

(There are two explanations to this. One is simply the mechanics of the market, the other is far more sinister.)

Thursday, April 14, 2011

lack of transparency... GOOG

The jump in expenses are most likely causing Google's decline after earnings.  But I think the real reason is Google's lack of transparency. 

There was impressive top line growth, but how is that broken down? They need to break down display and mobile.

They can not keep touting the impressive growth of these businesses and give vague answers like "we tripped into $1Billion".  Analysts are left to estimate the breakdown of mobile an display from these vague statements.  The vagueness causes uncertainty, which causes a discount. (Vague answers are forgiven only if numbers beat. If numbers don't beat, the stock gets punished 30points :)

The fact remains, the macro conditions for display and mobile are in-place for Google to benefit. The linked video has Schimdt highlighting the potential.

A few key fundamental changes that took place with the current quarter:

1. Cash positions is $112/share
2. ex-cash, at a price of $548, GOOG's trailing PE is 15.4

For a company that grew top-line by +27%, that just seems way too cheap for the businesses. (It is now as inexpensive as AAPL, ex-cash, even when factoring in anti-trust concerns or a new CEO.)

Technically, GOOG at 548 (AH price) is at the weekly 50 SMA.

In the chart above, obvious support after the 50 SMA is the low 500s. But if Google trades in this area, the market effectively discounts any future prospects from mobile, display and continued dominance of search.  (The market will give GOOG a trailing PE ex-cash of 13.5. This PE is give to perceived slow growers.)

To me that is very unrealistic, and the market will be extremely inefficient. Market action is already entering the state of inefficiency with the AH decline.

I do not know yet if a negative market psychology (from easing QE or slowing global growth) could drag GOOG to the $500 levels. (If it does, and I am hoping it does, I will enter GOOG heavily.)

GOOG, ouch!

GOOG is taking a hit right now.  As of this typing it is down 30points. So much so, it is getting me interested to start trading it again.  I was waiting for a washout from the anti-trust pressure and new CEO. Looks like we are getting that now. 

And, quite frankly,  I wanted it to get cheaper. Even when cash was backed out, prior to this report, GOOG's PE was around 17.9. Not particularly inexpensive when factoring the macro changes of a new CEO, being under anti-trust scrutiny, not maximizing their cash position, search growth maturing and their growth businesses still on the cusp of being meaningful to the bottom line.

When I get a chance I will comb through the numbers.

nervous street

The Street is nervous. It doesn't know which way to lean. 

The claims numbers where fairly crappy, but what if earnings are kick ass? (After all, the stock market is a function of earnings. Jobs are a derivative of earnings potential.)

Feels like a tug of war.

Google's results will be interesting.

Wednesday, April 13, 2011

Market Thought... tricky

During Cramer's MadMoney rant, he mentioned a growing consensus of a global economic slowdown. (The new CNBC video format is simply kick ass, allowing me to post the specific section of the link. Kudos CNBC, well done.)

This is the first I heard about a global slow down. There have been numerous economist taking down US GDP, and the BRICs trying to ease their inflation, which would obviously conclude to a relative slow down.  But I do not see it through my indicators, yet. (There are signs within certain commodity ETFs I follow, but I am attributing relative weakness to China's lack of buying. For instance, copper is still stock-piled in China, and they have not used the excess inventory.  They have a housing glut, so if they do not need to use it, so be it.) Company profits, should not be affected by this type of stuff.

This is where it gets tricky.

The SP500 is sitting on an interesting area of support.  Its the low end channel range with a slew of SMA support. The market has room to go lower as per the channel.

If earnings act as the catalyst, the market may bounce from these levels or a little lower (horizontal dotted blue line).

If Cramer's assertion is correct, and perception by the big-boys of a slowed global economy takes hold, the market can start their correction. (The slow down thesis is most likely fueled by the ending of QE2, and the emerging markets appropriately acting to combat inflation. They will be wrong with this assumption. These actions are taken because economies have improved and are growing.)


If the big-boys want to ignore the earnings story, and a negative sentiment takes hold, there is support around 1260 via the daily and weekly charts.  The daily is highlighted with the 150 SMA, and that is near the level where the market bottomed due to the 'nuclear melt down' threat.  The weekly support is showcased by the 28 SMA.

Its a bit tricky right now.

trade - PBR

Made an initial entry on the current weakness. Will double up at 36, if I am lucky to get it there.  As indicated in the previous post, gas prices should be rising soon in Brazil, which will help their margins and profits. (Also, operationally, they benefit if oil goes down. In terms of asset value, they benefit when oil is up, obviously due to their massive reserves. But the street does not credit them via asset value.)

some thoughts

1. PBR indicated that they will look to increase gas prices. This is interesting, as they have not increased prices since 2009.  The statement gains more credibility when looking at the other inflationary measures Brazil has taken. (I posted an article on the tumblr blog regarding increase in tax to credit to ease inflation, and this may allow PBR to increase fuel prices.) The Brazilian gov is smart, they know two years of no price hike is not sustainable when PBR's own forecast called for oil to between 65-85.  (Although a revised forecast is in the 90s.)  With out a price hike, I was waiting for 36-37 to get back into the name. But now, I am looking to get in sooner, probably around mid 37.

2. LLNW saw really interesting strength throughout the day.

I was/am waiting for the Semi Index to bottom out before re-entering LLNW. (As the Semi Index usually leads.) It is close. (I know the two are not related, with the exception of the general title of 'technology'.)

I will still wait for the semis to settle in before re-entering, but the strength of LLNW is worth noting.

3. The USO is at its 20SMA.  Next stop a bounce or a breakdown to the 38SMA.

Oil should be pressured due to the dollar rising. The question is how low? High 90s, for the seems reasonable to me.

Tuesday, April 12, 2011

trades

I am, and will be, in a more day-trading mind-set for some time. (I have too much slack to pick up due to AAPL's affect on my portfolio.)

1. I covered the market protection. (The SP500 is at the low end of my trading range.)

2. I closed the oil short. (Will look to pick it back up after a potential bounce from its 20SMA. It may collapse to the 38SMA then bounce. Regardless, where ever it bounces I will most likely pick the short back up.)

3. Gonna enter IBM at the mid 161 to low 162 level.

4. AAPL had a nice bounce from the open, and shows a change in trend. I am not being shy day-trading this today. (Buy on weakness, sell on strength. But if it maintains below 330, I will have to sell and regroup.)

Monday, April 11, 2011

Market Thought... dollars look interesting

The US dollar is in very deep oversold territory. The set up looks interesting for a bounce.  If it reaches the 22.5 level on the UUP, a break from the negative trend will be screaming on everyone's screens.

The chart is interesting enough, but we also have the fundamentals and mechanics on the back of the dollar.

Assuming Bill Gross is right shorting treasuries, rates should rise soon enough. (I think rates will rise due to the strength of the US economy, and exaggerated by the mechanics of the Fed ending QE2.)  With the higher rates, there will be legitimate demand for US treasuries, which will also boost the dollar.

If the US dollar looks to rise, US denominated commodities will have pressure. (Adds to the 'short-oil' thesis.)

I do not clearly see how this affects the equity markets.  Earnings should not be impacted with the removal of QE2, and subsequent rise in rates. If earnings are not impacted, then their should be little to no damage onto equity prices. Also, there will not be a forced de-leveraging in equities, as Bill Gross' admitted very heavy cash position is indicative of many other hedgies out there. They are in a ton of cash, and ignoring value in equities.

Economic strength and inexpensive equity values should prevent de-railing of the positive trend.

Sent to CNBC over the weekend

I sent my article 'not a perfect storm' over the weekend to CNBC's fast money email, refuting every one's bullishness on oil via the half-time report.  Wonder if they have the balls to discuss it or even mention it?

I'm not holding my breath.

trading mood

Thanks to the extraordinary performance in AAPL (heavy on the sarcasm), I am in an extreme trading mood.

Hints of weakness, and I am pulling triggers. 

For instance, sold all the half positions of LLNW and MF.

If AAPL breaches 330, I will sell and regroup.


I think the IBM downgrade is silly, but it usually rallies before earnings. I will look to sell some into that potential rally.

Sunday, April 10, 2011

explains why IBM is a growth company

The linked article explains the importance of Web 3.0, and its immeasurable potential.

I you look into the areas to which IBM is focused on, and take the time to connect to dots, the article lays out the very reasons why IBM is a growth company.

IBM, and a few other companies, are at the heart of this rapidly emerging field.

(This is why IBM deserves a trailing PE with a 16 handle verse a 14. I would usually post this type of article on the tumblr blog, but wanted to make sure anyone interested in IBM saw it.)

Friday, April 8, 2011

not a perfect storm

The price of oil was impressive today. Gotta call it like I see it, despite my new short position.  The bullishness of oil was obvious, and it is highlighted within the intraday chart of the USO.

It's a momentum-whore's wet-dream.  The herd mentality is blatant on CNBC with all the traders, all-the-traders, saying oil will keep rising. (I use the term momentum-whore in the nicest possible way, as I too am a momentum-whore at times :)

The linked article from CNBC is the first time I heard OPEC supplies are being affected from the Middle East unrest.  Joe Terranova simply states "...OPEC exports are down" for the month of March.  I have to assume the big boys are better connected to commodity related information, especially established oil traders.  But my searching did not produce anything material.

The only corroboration to Joe's claim was an article from April 5th that highlighted a Barclay's analyst that said “OPEC production for March shows sharply lower Libyan output, falling Nigerian volumes and higher Saudi production, highlighting the tight market conditions.” Basically, the quote says nothing we did not already know, except inferring a tighter OPEC supply.


The actual OPEC numbers do not corroborate a reduction in OPEC supply.  On pages 39-40, the report points out an increase of 110 tb/d of OPEC supply for Jan-to-Feb.  The actual numbers from OPEC for the month of March are due April 12th. (I have this strange feeling that the big-boys may change their whoring ways when this report comes out.)

Regardless of what the actual production number is, this month the States are seeing some major demand destruction.

Tuesday will be interesting. If OPEC remains consistent with their output and the largest consumer of oil is not consuming as much, wouldn't that mean the +$110-120/barrel argument no longer exists?

I will be looking to add to the USO short before Tuesday. I will re-assess the position after the OPEC report.

(Oh, and I am completely leaving out the fact that investment banks and hedge funds have enough crude in tankers that rival the Federal Strategic Oil Reserve, and the fact that speculators have caused a divergence between the fundamental supply/demand aspect of the market and the price of the commodity in the past. Remember that $147 spike? Apparently, the CFTC or NFA do not and did nothing since the last spike to prevent such massive amounts of leveraging allowed within the commodity markets.)

some more action... F, AAPL

F - re-entered with today's decline.

AAPL - Added with today's decline. (Looking for short-term trades this position. Will only sell my already existing position at 370.)

FYI... still protected, but patiently waiting for IBM to enter the 162 range. (I will add when that happens.)

Some action... LLNW, USO

LLNW - as indicated the other day, LLNW approached +7.30, so I unloaded the position I entered the other day. (Still have a position.)  It may have gotten a boast from DIS announcing WatchESPN for live broadcast to iOS devices yesterday evening, and coincidentally LLNW announcing earlier in the day that they have an enhance tool specifically for this very application.

USO - Took on the short. However, I am using the Oct 45 Puts.  Entered a light position, only two contracts right now. Looking to average up if need be. (And to the Market Makers who made me pay up the extra 10cents on the contracts, fuck you :)

Thursday, April 7, 2011

Market Thought... itching to short oil

My market thesis, and action, has not changed since my last Market Thought post 'reality'.  I am still protected, except I see  more hints of bullishness to break this resistance. We are easing out of the overbought condition, while staying at the high end of the channel range.

The 14 and 62 SMAs are seemingly bullish, while the fundies are still pretty inexpensive. (The market seems like it wants to rally with earnings.) I will still cover the protection around 1320.

Despite my view of the market, I am itching to short Oil.  At the moment, it is purely based on the technicals. It has rallied hard, and it is very very overextended via the short and long-term trends.


I am looking to short via the USO July Puts at the 45 strike.  Technically, I will be looking to cover the short when the WFIC nears 105.  Fundamentally, I would like to cover when the WFIC is in the high 90s.

not happy

Considering I measure my performance with the previous day, I have been left frustrated over the past couple of days.

So long as my portfolio value is higher than the day before I know I am doing well. (Granted, there are times when this shifts due to market conditions like the 'nuke meltdown threat'.) But no matter how much I trade, at least in two accounts, my  portfolio values keeps getting knocked because of AAPL.

Its most frustrating. And since I am only as good as my previous performance, right now I am sucking.

UPDATED on 04/09/2011 to correct the cash-per-share and trailing EPS number: (For anyone who does not think AAPL has not been seeing a value compression, just do the numbers.  Backing out the $63.98/share in short-long term cash and equivalents, AAPL has a trailing PE of 15.3... [338-63]/17.91 = 15.35) 

Just an FYI... I re-entered LLNW. It approached its 10SMA, and jumped in due the intra-day action. (Considering my frustration with AAPL, I may find myself day trading it or selling it around 7.40-7.50)




couldn't sleep

Late last night I saw a Forbes article by Martin Sosnoff. After reading it I could not sleep, but didn't want to get out of bed, so I posted a response via my iPhone to tumblr. (The article is about AAPL and GM.)

Just click on the 'shit happens' link within the 'Links' section of the blog, and you can see it.

(I can not directly link to the tumblr post because the Pfizer network blocks tumblr. So much for Pfizer's proclaimed 'social' awareness.)

Wednesday, April 6, 2011

potentially

There maybe a trend forming with AAPL. Pop in the AM, and sell off throughout the day.  This makes sense given the index pressure it faces for the month. The consistency of the decline is telling.


However, the SP 500 and the Qs have a similar intraday, just not as exaggerated. (A day does not make a pattern.)

My goal here is to try to unveil every manipulative pattern that I see so that the closet indexers of the Qs get fucked selling off AAPL at these low levels due to their closet indexing ways. (Cause money managers that simply mimic an index should not be money managers! But I am sure they are pretty pissed for being forced to sell AAPL at these levels. All they have to do is to stop pegging themselves to the Qs, and become real money managers.)

Tuesday, April 5, 2011

some thoughts and charts

F - Looking to unload some in the low 16s, near the 98SMA. I think the SMA will act as short-term resistance.  On the consolidation, or light pull back, I will not hesitate to re-enter. (I plan on holding the position as a future dividend play.)  This is the one industry where supply constraints were needed to slow down production, and prevent price deterioration.  Profitability should be really good across the industry, especially with the lean Ford.


IBM - I have liked this thing since the 120s, and the business momentum is not changing my feelings towards it.  The technical set up makes me want to buy more if 162-163 is seen, and unload some if 166-167 is seen. I will act accordingly dependent on how it moves.


LLNW - As it approached 7.25, I sold half my position (at 7.19), as I indicated.  It is now consolidating, and am looking to re-enter if it sees around 6.70.


MF - With the sizable move the other day my discipline forced me to sell half of my position. It appears to be consolidating. I am looking to re-enter around 8.40. (If I think it can see 8 again via the intraday movement, I will wait for 8. But if I am getting caught up with work and meetings, I may have to settle for 8.40.)


PBR - I unloaded yesterday afternoon. This is still a favorite of mine, but it was just overbought.  (I am also not a fan of oil at these prices.) I want to re-enter near the 50SMA, around 39. Don't know if I would be so luck though. Re-entry will depend on price action after a consolidation.



AAPL - (obviously have to talk about Apple :)  I already posted the weekly chart on it this morning, and think 330 will act as support.  It can break down to 310 to the weekly 38 SMA, but think about what that would mean.  It would mean AAPL will have a trailing PE of 15-16 after they report the current quarter. This trailing PE does not exclude its $45 dollar-a-share cash position.

Apple is ridiculously inexpensive right now, but it keeps getting punched.  One wonders if the market is re-pricing AAPL to trade at a lower multiple? The thought has crossed my mind, but then I remember the awesome demand of the iPad 2, the nice demand of the iPhone 4 via Verizon, the continued demand of iPhone 4 via ATT, the awesome demand of their computers, the supply chain improvement to supply the iPad 2 demand and the other little things that keep running through my mind (like the AppleTV demand, Mac Store, etc).  Then I ask myself, will its patterned trailing PE of 20-21 decline to 15-16 with such growth still ahead of it? (And I am not even touching the R&D chatter that should be product lines 1-2 years out.)

perfect storm

The punches just keep coming for AAPL (the stock). Now, its index rebalancing.  (This is why I would much rather play the common vs the option. These sucker punches just crush the premiums.)

Regardless, I will look to play the bounce off of 330-331, the 26 SMA on the weekly.

This will be a very short-term trading position.  The positions I currently hold I will not sell until 370. Maybe forced to reposition the options to a later date during this period of rebalancing.

Monday, April 4, 2011

transitory :)

And the chatter continues.  Today, Bernanke told us that the Fed will change on a dime if his assumptions of a transitory boost in US inflation is incorrect. (Whatever that means :)

Currently, the only thing holding down inflation is housing.  But I think that is going to change.

(Over the past few weeks I have been looking at houses with the wifey, and while there are plenty of houses on the market, people are buying.  I saw three houses in two weeks. Two are now signed for.)

Curious to see the housing data over the next two months.

Needless to say, I maintain the thesis of the market thought post 'reality'.

Saturday, April 2, 2011

Market Thought... reality

For all the negative nancies, and all the expectations of a poor economy, there is one fact that can not be ignored: unemployment is now at 8.8%.

Regardless of any one's opinion of what the 8.8% actually means, the powers that be pay attention to that number. It is a symptom toward the health of the American economy. It is merely confirming what the data has been telling us all along.

I believe the American economy is strong and in good shape. The past two weeks proved to the world the global economy is extremely resilient, and in far better shape than the many think.  Through all the natural disasters and social unrest, I have been assessing the potential weaknesses and the market thus far is proving me correct. (The global economy can handle these issues.)

We find ourselves in a precarious position.  There is no 'black swan' to worry about.  If the economies are humming along, and black swans will not act as correction mechanism to the market, what is there to be concerned about?

The Fed raising rates.

Although as a technician, I also concern myself with overbought conditions, fundamentally, these are the kind of conditions the Fed will act to be responsible. I do not know when the Fed will act, but there has been too much chatter by multiple Fed governors over the past two weeks to ignore this risk.

I am anticipating a 50 to 75 basis point move, because that is how much strength I think the economy has, but I do not know when. (Frankly, I do not know why they are still in acting on QE2.)

The market should maintain its trend despite the removal of QE, but the rate rises will act as hick-ups to the trend. (Economic strength and inexpensive equity values will prevent de-railing of the positive trend.)  I just do not know the effect of the first rate hike on commodities, especially if it is greater than 25 basis points. (Been seeing chatter that many investment banks and hedgies are using the zero interest rates to specifically play commodities. If this is true, a significant rate hike will cause a shock to those funds, assuming they are ill prepared.)

Technically, we are at the top end of what I think is the channel range while being overbought. I am still protected, and will look to cover that protection below 1320.

Friday, April 1, 2011

i laugh

I laugh at reports like these. 'Apple is suddenly falling behind.'

Curious to know the return rate on the Thunderbolt because the battery barely last the entire day on a new phone, let alone one that has been in use for a few months to a year.

Fact remains, AAPL is working on a LTE phone, but the 4G coverage and viable form factor is not worth the effort to commercialize an iPhone LTE version at the moment. Management has made that very clear.

This is the wash-out phase from the Negative Nancies over the pushed out release of the iPhone 5.  The delay will not affect earnings.

(The only real issue is the potential short-term margin compression from the increase component costs due to the Japan issues. But on a valuation basis the market is factoring that in now, and the market is over reacting.  As I see the dust settling, I will be taking advantage.)

fyi... aapl

I will not sell AAPL at the initial resistance (the downward sloping trend line) as indicated in the previous post. The line is near 355, and AAPL has consolidated too much. Due to the consolidation, I do not think the line will act as resistance. I will look to sell that specific position when AAPL is at 360.

Job report... its okay

The non-farm payroll was nice.

Total private job created: +230K (nice)

Ave weekly earnings: saw no change. (This is interesting, and seems inconsistent. With the increase in the job number I would figure the weekly earnings would increase as well. I will dig in on this over the weekend. Maybe it has something to do with how the number is reported.)

More jobs should mean more people make money. This is why I put more emphasis on the weekly earnings number.  Based on how I understand the report right now, this is telling me the jobs that were created did not produce a higher earnings power.

The inconsistency makes me think the report was 'ho-hum'. (But since I am not an economist, my perception maybe my lack of understanding of how the ave weekly earnings number is reported. So I have to look into it more.)