Thursday, June 29, 2006

White hot nuclear market

Fed comments add gasoline to a hot market. The strength is quite amazing and surprising to me. I am hard pressed to find minus signs, either in groups or in individual stocks. Bonds, gold and stocks are all higher. If I came in short any of these, I would definitely be covering because the pain would be too great.

As is, I have some hedged longs, and would like to add more. It is difficult to find anything that hasn't already moved. AMLN, BA, BRK and MER are the most tempting. RIMM reports earnings after the close. I don't think I want to roll the dice on this one.

I remind myself that there is always another day, another opportunity. Jumping into a fast market can be quite exciting. However if a person is on the sidelines, it more often times than not pays to wait for calmer waters and clearer opportunities.

Wednesday, June 28, 2006

Take your CAKE, churning GLD

CAKE Cheesecake Factory down on lower guidance. The stock remains richly valued given the modest growth prospects. Tough to short or to buy puts when a stock has been sliding down then gaps lower (chart). CAKE does look like it will go lower before finding a bottom, however, today is a high risk entry point for both longs and shorts.

Most of the market is waiting for the smoke to clear from the Fed announcement tomorrow. Often times the initial reaction to Fed meetings is a head fake. I still have some cash looking for good longs.

I haven't written much about gold, silver and copper. Gold seems to be churning to try and form a bottom. I think there is still a lot of speculative excess in the metals and the market churns to frustrate both bulls and bears. So while I have taken a look at a few gold stocks, I am not close to pulling the trigger (chart). Again, this does not look like a low risk entry point.

Tuesday, June 27, 2006

Retest for bonds, gold and stocks?

It is an oddity, with GLD gold, TLT bonds, and SPY stocks all looking like they want to retest their recent lows.

It seems more like the absence of news that brings in all the selling today.

It is so tempting to buy, but not many stocks have reached bargain basement levels, despite the down day today.

Monday, June 26, 2006

$90 billion in mergers

Another big day for acquisitions, with JNJ Johnson & Johnson spending $16 billion for Pfizer's consumer brand name division. PD Phelps Dodge announces two huge acquisitions in metals and mining.

Conventional wisdom interprets this as long term healthy, because the very smart bean counters find value in buying whole companies at a premium to current valuations. They find this cheaper than trying to replicate said business, or see unique assets that can not be duplicated.

Also in the news is Warren Buffett giving away 80% of his personal fortune. BRK stock is under a bit of pressure with more uncertainty and the likelihood that more shares will be on the open market as foundations may sell a modest amount to fund their projects.

Home sales stronger than expected. LEN Lennar earnings ahead of estimates but they guide lower.

Friday, June 23, 2006

APC takeovers, CNX and SIX

Spotlight is on oil as APC Apache (correction Anadarko Petroleum) announces two major mergers today. APC is down on the news. CNX Consol Energy is being added to the SP500 index at a yet to be announced day. CNX stock leaps on that news and the positive aura of takeovers. SIX Six Flags rides the rollercoaster down on disappointing guidance and lower theme park attendance.

I am looking to buy more stocks. My VLO position is down to delta 10 (moves 10% as fast as the stock moves) because it is well in the money. Rather than try to roll up the VLO call, I am content to leave well enough alone for a smallish profit. BAB British Air got hit yesterday on news of a price fixing investigation. Other airlines escaped untouched, but usually it takes more than one airline to fix prices.

Thursday, June 22, 2006

Under the weather (empty post)

I am not feeling so well, mild fever, coughing, sore muscles. So I'll skip my blog entry for the day.

Wednesday, June 21, 2006

Bull run and AMLN

Who knew? A meek open with flat futures turns into a powerful rally with a 4-to-1 advance/decline ratio and most industry groups participating.

FDX Federal Express, and MS Morgan Stanley, lead the charge. Even Darden Restaurants DRI (chart) with earnings right at estimates gets a nice bump up. AMLN Amlin Pharma gets an upgrade and is higher. The chart looks nice, the back story is that they can't make enough of their new diabetes drug to meet the enormous demand. The stock fell in the short run on this news, but in the long run this is bullish news. The stock is a tough one to evaluate because it is $5 billion, but still considered a developmental/research company.

Tuesday, June 20, 2006

A look at Sequoia Fund's top holdings

Looking at the holdings of mutual funds can be a useful tool for investors. The Sequoia Fund (home page) is closed to new investors. It is run by managers who share the investment philosophies of Benjamin Graham and Warren Buffett. Looking at their top holdings (link), it is no surprise that Berkshire Hathway (the Buffett holding company) is their largest holding.

Other stocks on the Sequoia list include PGR (which I own), TJX, FAST, WMT, IDXX, EXPD, WAG. What these stocks have in common are what all Buffett/Graham type stocks will have: stable business models, sound management, decent balance sheets.

Nice up day today. I still expect the major averages to retest their recent lows. However, there are some opportunities in the mean time.

Current positions, all hedged longs:
BBY, EWJ, KMX, JPM, MAR, MCD, PGR, VLO

Monday, June 19, 2006

Buy JPM J.P. Morgan

Trade
Buy/write JPM, buy the stock, sell the Aug 40 call

Stock at support. Also goes ex-dividend on July 3rd. If called for the dividend it will be a nice gain in 16 days. If not, the dividend adds to can add to total return.

Tough day in the oil patch, strong one for airlines.

Buy KMX Car Max

Trade

Buy/write on KMX
buy stock, sell the July 35 call

sell the PGR Aug 27.5 call

KMX is up on earnings report. They are also a possible long term growth play, with a market cap of $3.5 billion, and 71 stores, that leaves a lot of room to grow. KMX is starting to gain some national brand recognition. Other types of stores have fallen to the chains, office supply, hardware, drug stores, so KMX has a shot at it.

Friday, June 16, 2006

The sleeping point

Paul Van Eeden writes about the sleeping point at Kitco Commentary (link). The cliche meaning is if investments are keeping a person up at night, he/she has too much in, and needs to sell some until they can get a good night's rest.

Trade
Sell EBAY (option exercise)
Sell WCG (option exercise)
Option expiration sees EBAY and WCG called away, PGR option expires worthless, will probably look to sell the August 27.5 call next week. It is refreshing to see some green plus signs on the spreadsheet in the net column.

May margin debt down

An article at TheStreet.com talks about a steep decline in margin debt. The decline is the steepest since the 9/11 meltdown. Conventional wisdom would interpret this as bullish, because a lot of weak hands have folded.

Fool.com has a blurb about brokerage stocks (link). The writer believes more patience is warranted. MER is one stock I like with a base about 10% below its current 67.

Airlines are one of the very few groups to be up again today. Bank stocks are very active. One cliche is that volume precedes price, so the big volume may be a precursor to an up move. JPM is the bank stock I am watching most closely.

It is pins and needles time for a lot of players today on option expiration Friday. If it is typical, a lot of stocks will close right at a popular strike price so both the puts and calls expire near worthless.

Thursday, June 15, 2006

Bernanke Bulls--holy cow

Fed chair Bernanke comments set off the running of the bulls. It is amazing and yet typical of the market for sentiment to turn on a dime. VIX, the volatility index collapses as the market rallies.

Some other stocks I resist buying are CAL, MER, DCX. Several of the stocks I dumped this week and last week have rallied since I sold. That is the way of the world, lots of sellers create bottoms, lots of buyers create tops. I can move forward to new trades.

The urge to buy (retest expected)

A nice recovery rally. I feel a strong urge to buy more. There is a good chance that a retest or even lower lows are in the cards. Today's opportunities look like slim pickings. Housing stocks are up, despite another brokerage downgrade. Some big name techs such as AAPL, MSFT are not participating in the rally. I am not smart enough to figure out if they will eventually join. What looks likely is that big players are switching out to other more promising sectors.

JPM, AMX, DCX are some stocks I am watching to buy.

Wednesday, June 14, 2006

Buy MAR Marriott Hotels

Trade
Buy/write MAR Marriott Intl
buy stock, sell the July 35 call

Marriott has good fundamentals (stats) and support right at 35. It has held up well in this down market.

Current positions, all are hedged, long stock, short calls:
BBY, EBAY, EWJ, MCD, PGR, VLO, WCG and MAR

EBAY, PGR, WCG options expire this Friday June 16.

Tuesday, June 13, 2006

Buy BBY, sell SHLD, TrueContrarian

Trade
Buy/write on BBY Best Buy
Buy the stock, sell the Jul 50 call (in-the-money)

Sell SHLD Sears/Kmart
Never let a profit turn into a loss, is a guideline that I use to help keep my morale up. Stock is getting hit, so even though fundamentals are sound, I am dumping.

Best Buy out with good earnings. 50 looks like a good level to be buying (chart). By selling the July 50 call, that brings my price below 50 if it dips. If it doesn't, I make a small profit.

Gold stocks starting to looking interesting. True Contrarian (link) has been bearish on metals and mining stocks during much of the rally earlier this year, has set this level on the gold bugs index as a possible buy point. For stock market bulls, his predictions of 7% yield on the SP500 are either terrifying or dismissed as idiotic. In any case, this fellow has had a good month being long bonds and short metals. The beginning of the year was not so good and he endured far more pain than I could have when his metals shorts were down 30% or more. Enduring that kind of loss is not a recipe for longetivity for traders. Investors, especially value investors sometimes will succeed by doing so, especially if they buy and sell in small increments.

Monday, June 12, 2006

Another roll down this time VLO

Trade
Roll down VLO Valero call
Buy the 57.5 sell the July 55 calls

More damage control as the market turns against me. I wish I had done more selling. It is not pretty by the close of trading. Sure is tough being a new Fed chair. Bernanke has his work cut out for him. Right now, the stock market has learned to fear his remarks. It is useful to remember that investors are only one constituency, and a rather small one for a Fed chair. While I don't think Bernanke wants to be remembered for causing a crash, he only has half an eye on the market.

Disney down, GLD below 60

DIS Disney down, after a brokerage downgrade and a $63 million dollar opening weekend for its new animated feature "Cars." Tough crowd. MVL Marvel Entertainment didn't get a pop when the movie X-Men (licensed property) had a good run. So even though seemingly everyone knows movie attendance is down, expectations still run high. Sometimes there is information that everyone acknowledges, and yet the market has not taken it into the price.

GLD the gold ETF dipped below 60 on Friday. It was tempting with the discount from spot ($608 at that time), however, the chart still looks lower to me. I don't trade enough size to warrant the arbitrage risk for $8 on $600. The discount may persist or news may move the market.

As always it is dangerous to try and be the hero and call bottom, even on intermediate declines. Usually a second entry, on a retest of the bottom is a much safer entry point. V-shaped bottoms do occur, but only like 1% of people can boast they bought at the bottom. I don't like those kind of odds.

Friday, June 09, 2006

Support at 10500/10600

Looking at the DIA charts (3-month, 2-year) there are two signs pointing to 10500/600 as a possible bottom.

The market is still skittish. Schaeffer's reports wide mood swing on XLE, the oil stock ETF (link). Swinging from lots of puts being bought yesterday, to lots of calls being bought today.

Some stocks I am watching include DCX, JPM, BRKB.

I am certainly taking my lumps (sold ATK for a loss yesterday), but my losses are contained. I am most nervous at the moment about my EBay position (chart) as it sinks today. There is support a few ticks lower at 30, and expiration can not come quickly enough (Friday the 16th). However, in this market support sometimes only provides a very short term uptick. I'll keep that in mind, if and when DIA touches 105/106.

One of the few shelters continues to be long bonds. Again, TLT will look a lot more interesting to me on a retest of its recent lows (3-month chart).

Sell ATK, Buy VLO Valero Energy

The blogger host site has been having problems on and off during the day.

Trades
Sell ATK taking a loss. Stock still looks okay, but I have reached my loss limit.
Buy/write VLO Valero Energy
Buy VLO, sell the July 57.5 call (in the money)

I am impressed at the tape action of the oil stocks with the news back drop. The VLO chart actually looks lower to me, but tape action and news say it is a good time to buy.

Thursday, June 08, 2006

I got rolled (EWJ)

Yesterday's morning rally was a headfake and I got taken. All those morning plus signs turned mostly red by the end of the day. Today's European central bank interest bank rate increase doesn't help. Even the positive geo-political news is ignored, so this looks ugly.

Trade
Roll down the EWJ call from 14 strike to 13 strike
Buy the EWJ Sep 14 call, sell the Sep 13 call

Thank goodness this was a small position. When the market dives, covered calls offer little protection. Flat markets or slightly up markets are the ideal environment. Rolling down, or rolling down and out is a way to update the hedge.

Precious metals and foreign stocks are getting slammed today. Bonds are offering some shelter from the storm. With relatively high money market rates, some people are parking their money.

Wednesday, June 07, 2006

Buy EWJ Japan

Trade

Buy/write on EWJ Japan exchange traded fund
Buy the stock, sell the Sep 14 call

I may buy more EWJ, if it continues to dip.

Current positions all longs:
ATK, EBAY*, MCD*, SHLD, PGR*, WCG* and now EWJ*
* hedged positions, long stock, short calls

A good day for my holdings. Often times days like this are a good time to sell, but I am not moving as of this moment. SHLD reached my first target, but looks like it wants to continue to move higher. EBAY, PGR, WCG options expire June 16.

Tuesday, June 06, 2006

Buy MCD McDonalds

Trade

Buy/write on MCD McDonalds (fast food chain)
Buy the stock, sell the Sep 32.5 call

A conservative trade, selling the out month in-the-money call, based on overall market feel than anything else.

The long term chart of the overall market doesn't give me a warm fuzzy feeling. However, I believe a short term bounce is sooner rather than later. Because of my skepticism at the long term prospects, I haven't made any buys in my long term retirement accounts.

Current positions all longs:
ATK, EBAY*, SHLD, PGR*, WCG* and now MCD*
* denotes hedged positions, long stock, short calls

Friday, June 02, 2006

Next year (a personal reflection)

I attended a memorial service yesterday. My friend died at 63. She was the picture of health, working out at the gym several times a week, watched what she ate, a part-time massage therapist. Cause of death, a brain aneurism. There were no warning symptoms, only a sudden death, a terse announcement, a quickly assembled memorial.

Back at home, her husband talked about some of the things the wife wanted. New furniture, a new car to replace her aging Chrysler. To which the husband responded "next year." Oh, they both watched their pennies.

So many times, investors focus on ending up with the highest net worth at the end of their lives. "Next year" may not come, enjoy the time we have. Good health and blessings to all.