1st quarter sector performance

Looking at the Fidelity sector funds for Q1 2006, at the top of the list is:
1) Gold
2) Brokerage
3) Environmental
4) Biotech
5) Air Transport

The bottom five include:
Home Finance
Money Market Fund
Medical Equipment
Insurance
Multimedia

On Nightly Business Report (PBS Television), the quarterly review noted Amazon and Intel among the worst performers. JDS Uniphase, Nvidia, Caterpillar among the best. I know about Amazon first hand, taking a loss on it this quarter.

All the major US stock indices, the SP500, DJIA, Nasdaq 100 were up between 3% and 4% for the quarter.

Here's to a good first quarter and a better second. Cheers.

Selling my gold

I am taking profits in some mutual funds, including a gold fund. Here is a chart of the HUI gold bugs index (link), showing a potential double-top. The chart for the underlying GLD looks healthier (chart).

Those readers that have been with me, or that have read my profile, know that I tend towards low risk hedged investments. It is low risk to take the profit now.

Steel was the best industry group for the 1st quarter as reported in Schaeffers Research (link) up 41% for three-months! Wow. NX is the lone steel stock on my main watch list--it is not as extended as most of the others.

Astrology (seriously)

One thing I like about the markets is the even playing field. A person can have a MBA from a top school and be a lousy trader. On the other side, a person can use indicators that seemingly have nothing to do with the markets and do well. For this entry I am writing about two market astrologers, Henry Weingarten and Arch Crawford.

For the doubters, the proof is in the pudding, Crawford is rated #1 for gold timing by Timer Digest. I don't care what a person uses, if they are good, they are worth listening to.

Weingarten says "Hell is just ahead" for equities. Read more at this NY Sun article (link).

Crawford says there is a good chance for a major terrorist attack by mid-April and all that entails for the markets. Read more at this article in the Arizona Star (link).

No one, not even legendary market pundits are 100% right or even 90%. However, like I said, if someone has a proven track record, I listen. I accept what I think is reasonable, and leave the rest.

Left behind

Congrats to all those on board today's rally--I am left at the station. Will have to catch the next train. Yesterday saw all 30 Dow stocks down or flat.

Gold and silver both surging ahead, despite more Fed rate hikes looming. The U. S. demand is only a fraction of world wide demand. I have to say I missed the move. I still have a small position in a gold mutual fund, and a hedged position in Barrick Gold (ABX), but certainly did not take advantage of this trading opportunity. Mea culpa.

I'll see you on the next train.

Fed does the expected

Fed raises again. The oldtimers might remember "three steps and a stumble." Way back when, three interest rate hikes usually signaled a downturn in the market. Goes to show a person how times change, with 15 consecutive rate hikes and the SP500 near an all-time high.

I spend most of my free time looking at brokers. Trading is on the back burner until I get a new account setup. My broker is being bought out and swallowed up and I don't really want to go to the acquiring firm. I want to avoid transferring shares, because they often sit in limbo for an undetermined period. This can be death for traders even if it goes relatively smoothly.

Falling knife (Mills MLS)

Here is the chart of Mills Corp (MLS chart). The stock is down for a number of reasons including SEC scrutiny. It is an exciting game trying to call "bottom." Most of the time it is safer to let someone be the hero and buy on a retest of a bottom. For those that want to play the game, often high volume and really terrible news are indicators to look for.

Easterline (ESL chart) is another stock that came up for a look today. Didn't buy any but will keep watching it.

Another recovery high for silver. Gold is close.

Golden Day

Nice rally in gold and mining stocks today. Silver stocks pushing nicely higher.

Goldcorp (GG chart) and Silver Strand (SSRI chart) have nice looking charts.

Howard Ruff was on Coast-to-Coast AM radio last night (recap). That radio show has a huge audience, that can be enough to move a quiet metals market.

New computer

I bought a new computer and have been busy moving files and reinstalling programs. Not much time to make meaningful comments. Cheers.

Vista delayed

Microsoft delays release of its new Vista operating system. Market recovers from the early selling. Schaeffer's Research made the call on MSFT yesterday (link).

Refiners are a strong group, even with crude oil prices well off their highs, these stocks are basing for another run. Some stocks in the group are Valero, Tesoro and Giant.

GM and BMY up on news.

SEC approved silver ETF yesterday. I do not see it as a big event because of the advanced notice and run up buying before the news. I believe that silver may actually dip once the ETF starts trading, and that dip will be a good time to get in.

Coach COH

A tame producer index is the news this morning. Gold sells off then rallies, stocks rally then fade. Silver has a wide range today, closing at a new recovery high.

Another stock I am looking at is Coach (COH chart), the maker of luxury handbags and luggage. The valuation is a concern for a company with a $14 billion market cap. However the chart looks nice, and earnings keep going up.

Sell the news (BA) and PE ratios

Trade
Sell BA (Boeing)

I am selling the news, an analyst upgrade at Prudential, a recommendation on Nightly Business Report, PBS TV, Friday, market monitor segment Mr. Russell. Will look to buy on a pullback. I find it tough to sell, when everything looks so rosy, and I am so long-term bullish, however, experience has taught me that this is often a good time to exit.

A little bit on price-earnings ratios (P/E or PE). Here are two stocks Pionier Companies (PONR key stats) and Harrah's (HET key stats). PONR has a PE around five, HET almost 50. However, Pioneer is in a cyclical commodity industry where the price for its main product may have peaked, and the projected PE for Harrah's is more in line for next year. Many beginner investors look too hard at PE ratios, it is one number, but alone it is not enough to make buy or sell decisions.

Read more about why the Pioneer PE is not all that it seems at the Yahoo message board (link). The stock may still be a good value, however, an investor would be making a mistake to value the company only on the latest year's worth of earnings.

Gun shy

I look at quite a few stocks, but my intuition keeps me on the sidelines.

Pending Trades that will settle Monday:
PDLI (PDL Biopharma) half of my position called away
BAB (British Airways) called away

I still hold:
ABX (Barrick Gold) hedged
BA (Boeing)
PDLI (PDL Biopharma) hedged

I am flush with cash and I am looking at a lot of opportunities. I may be changing brokers in the near future, so don't want too many loose ends to tie up. Transfers can often be a royal pain.

I'm sure more many folks are watching college basketball instead of stocks today :). Enjoy.

Read any good books lately? (BKS)

Barnes & Noble BKS up about 9% on earnings. 2 yr-chart The run up looks better than the news. I'll watch it for a pullback to buy. Borders Group also BRG chart has already had a nice run and has news out today. Sometimes a day, or two, or even a week after the good news, a stock pulls back to a much lower risk buy area.

My stock BAB British Air breaks 60. If it were primarily an American traded stocks, I would think that the odds of it being pinned would be higher. Half my PDLI will probably be called away at 30 tomorrow.

Dog Day (Dupont DD)

Dupont bumps up after raising guidance chart. It is one of the so-called "dogs of the Dow," among the highest yielding Dow 30 stocks at the end of 2005, that I recently highlighted.

Brokerage and transports are among the leading groups for this rally. That is good news for the bulls, because these two groups often lead the market.

Another up day for precious metals, with the stocks up in concert with the spot metal prices.

Dead Cats (housing stocks)

Home building stocks get a boost today (article). The group has been in a mini-bear market. "Top" seems to have been called more times in real estate than just about anything else these past few years.

Gold mining shares are also showing some signs of life, with spot gold crossing back above $550 per ounce. It doesn't look like it is worth getting excited about, but hopefully the chronic bleeding has stopped. Gold still looks like it is tied to oil.

Oil higher, and airlines higher--an interesting conundrum. I am still long BAB (British Airways chart) and see it as an excellent long term investment. The stock survived the London terror attacks and has been on the mend.

A tale of two stocks TM and GM

Here is a long term chart overlay of TM vs. GM (Toyota vs. General Motors) comparison. This is with a backdrop of a long bear market in Japanese equities, and a strong American bull in the early part of the chart for GM. Even though their world-wide market share is about the same, TM is now worth about 15 times what GM is worth.

One reason I am pointing out this chart now, is that this weekend there was a nice write up about Boeing in Barron's. In my opinion, their main competitor Airbus is starting to stumble. Missteps by Airbus will translate into very good news for Boeing. There is always risk with a new plane, especially when it involves new fabrication, and new production techniques as the Boeing 787 does. However, the payoff can be enormous. With jet fuel at what seems like permanantly higher prices, composite parts are a competitive advantage that will take many years for Airbus to try and duplicate. I own Boeing stock for the long term, unhedged. I look to add more on pullbacks.

Takeover stocks are the main movers. I tend to shy away from takeover stories, because I feel like that by the time I get the news, it is stale and the stock has already moved.

More on Dogs

Year to date performance of the Dow 30, listed by highest yield first.
http://www.dogsofthedow.com/ddogytdy1.htm

Nice rally in the markets today, including some stabilization in the oversold gold mining stocks.

DWA (Dreamworks) down after earnings. JBLU (Jet Blue) down on analyst downgrade. Jet Blue is approaching a price-to-sales ratio of 1.0. That may be a point worth taking a second look at the stock, especially because fuel prices seem to have stabilized.

Dogs of the Dow

The basic strategy is to buy the highest yielding Dow 30 stocks at the end of the year. Lets see how they are doing so far this year. With interest rates ticking higher, I would expect that these haven't done so well. Some are higher, some are lower. The only one I have traded is GM.
from
http://www.dogsofthedow.com/dogs2006.htm
Ten Dow stocks ranked by yield on 12/30/05
GM Gen Motors 19.42 10.30%
T AT&T 24.49 5.43%
VZ Verizon 30.12 5.38%
MRK Merck 31.81 4.78%
MO Altria 74.72 4.28%
PFE Pfizer 23.32 4.12%
C Citigroup 48.53 3.63%
DD DuPont 42.50 3.48%
JPM JP Morgan 39.69 3.43%
GE Genl Electric 35.05 2.85%

Good is not good enough (NSM)

NSM (National Semiconductor chart) reports earnings above estimates and also guides higher. However, the stock is down 2% today. Good is not good enough for this market.

In a similar vein spot gold is up today, but gold stocks continue their steady decline. The commentators on Kitco seem shriller, some saying this is a must buy opportunity. When anyone says that, I walk away, but that is just me.

Schaeffers Research reports unusually high call activity in MSFT (Microsoft). Hard to imagine what is up. The origami project has already been revealed. The stock is in a tight range and it will take a lot to make it move.

Stay dry out there.

Ups and downs

Two "dangers" that covered call writers face are a big decline in the underlying stock and a big up move. The big up move isn't really a "danger" but a good deal of the upside is given up when it occurs. Both happened to me with today, with AMD going down on the Intel announcement of new chips to compete with AMD, and PDLI moving up when a drug that they get royalties on got a 12-0 vote to bring it back to market.

So, not a happy day. To add insult to injury, my sell of AMD, while not at the lows for the day, was not that far from it. Such is life.

Good luck to all the readers.

Bailing out

Trade
close out AMD buy/write, buying Apr 40 call, selling stock

I bail out of AMD suffering a good size loss in a couple of days. The decline is too much pain to endure. This isn't a value stock, so waiting around can often lead to extra large losses. On the Yahoo message board (link) buyers continue to want to step up--not a good sign when a stock is this weak. To me it means these people are insisting they are correct and the market is wrong. I've been around long enough to know that these are very dangerous arguments to have, even if selling on the dip occasionally means dumping at a temporary low.

Gold and silver break $550 and $10 support. Mining stocks down a modest amount considering the move in the metal. The long awaited correction in the price of the metal may finally take place. Platinum also down and it is at round number support of $1000.

As of this writing, it seems like I am on a bad streak, or the markets are. Need to regroup and clear my head. Almost always a good idea after getting whacked.

HUI gold index below 300

HUI 1-yr chart gold bugs index, made up of unhedged gold mining stocks, breaks 300 on the downside. If this were a stock that price level would be more meaningful, because of the round number resistance/support. Because it is an index, it is less meaningful. The HUI top was around 350. Gold bullion held $550 today, so there is some divergence. The steam is coming out of the bullish exuberance and all the "happy talk" of $600 gold by March. It may take that $600 price on the metal to get the HUI back to its highs.

PDLI 10-day looks like it may be headed towards a "pin" at the strike price of 30 for March expiration in 11 days. This would suit the option market makers just fine. I reported the huge volume of March calls being bought before earnings. The option sellers would like nothing better than to have all those calls sold to expire worthless, and will often deploy their capital to make it so. Tough game, buying options at retail. Even when you are right on the news, in this case good earnings and excellent forward guidance, the market makers often do what they can to make the buyers lose money. The put buyers have fared even worse.

Staying Dry

Selling continues in several stocks that I own, BAB (British Airways), PDLI (PDL Biopharma), ABX (Barrick Gold), AMD (Advanced Micro Devices). All of these are hedged positions, meaning I have sold the calls and own the stock. Down days are not pleasant, but more painful for those who own the stocks or calls. When the rain starts coming down, being hedged helps keep me dry. Now if the storm turns out to be a hurricane, then the hedge gets blown away with everything else.

Gold is hovering at $550 support, silver at $10 support. My gut tells me that support will not hold, but I rarely place real money on the line on that basis alone.

Hedger at heart

Trade
sell PDLI Apr 30 calls against the stock that I own

Today's overall market weakness makes me nervous enough to sell the April calls on the unhedged half of my PDLI (PDL Biopharma) stock. The first half has March 30 calls sold against it. Despite the excellent fundamentals and technicals, I find comfort in a hedged position. I guess you can call me a hedger at heart.

Gold takes a dump today. Looks weak to me. Mining shares have telegraphed a decent correction in the bullion. In my earlier post today, I mentioned the seasonally weak period from now to August.

Gold cycles, and support/resistance

Roger Wiegand at Kitco commentary writes about the calendar gold cycle (link). Unfortunately, once these kind of cycles become studied and documented they start to distort as traders jump in ahead and bail out early. Wiegand says late December thru March is one bullish time, and August to Thanksgiving is another. If he is accurate, gold may take some time to digest the gains.

Support often becomes resistance and vice-versa. Silver breaking above $10 may mean that price becomes support. Chart looks extended, in particular the 6-month and 1-year charts

Big news late Friday for RIMM (Research in Motion) settling their dispute over patents. Stock trading in a narrow range for the day.

Resorts/casinos and Telecom among industry leader groups on takeover/divestiture news.

Some Days

Some days the bear gets you. AMD dives after I buy, taking out my downside protection in a few hours. Some analysts are saying a price war with INTC may be in the offing. The high option premiums come with a price tag, and that is volatility. If a person is wrong, it can get ugly fast. The ironic thing is that INTC isn't down much and selling is worst in AMD than anywhere else in the tech sector.

Steel stocks up, as X (U. S. Steel) may bid for AKS (AK Steel).

DCX (Daimler-Chrysler) is interesting here, but I believe I can get in cheaper. They usually pay their entire annual dividend in April. Most U. S. stocks pay four quarterly dividends. GM (General Motors) is also nearing a price that I might get interested again.

Silver has another close above $10. Gold dips a bit.

The 5% solution (AMD buy)

Trade
Buy/write AMD, buy the stock, sell the Apr 40 call
My entry is not so great, and the stock is drifting lower. Support at 41, and then 39.

Some people just don't get covered calls. They often ask why a person needs to hedge, when they can just be right, trade and make money. Well, sometimes a person is wrong, as I am just now with AMD down from where I bought it. With covered calls a person can be wrong and still make money. The AMD position is set up for about a 5% gain over the next 50 days, with about 5% downside protection. If the stock is up, flat or even a little bit lower, the position is a winner. What I give up is explosive upside. However, 5% over 50 days, over and over again, makes for a nice year, and I don't even have to be right.

Silver party of 10

Silver up over $10, closing at $10.15 on the spot market than tacking on a few more cents in after market trades. The Kitco pages got a lot of views today as excited traders and those on the sidelines check the latest prices. PAAS (Pan Amer Silver) and SIL (Apex Silver) both up about 10%. Yesterday, I wrote about the temptation to chase and that is strong with these silver stocks. Trend followers do have to buy into strength, often buying at new highs. However, there are low risk entry points and high risk ones. As of this writing, this looks like a high risk time for both longs and shorts.

I moved quite a few gold stocks off my main watch list yesterday--whaddya know, that is about the bottom :). The markets often frustrate as many people as possible, it is the nature of markets. Tops occur when everyone is buying and few are selling, bottoms occur with the few buyers, and lots of sellers.

All those minus signs on my positions in the early morning, and a flat day by the close. I am unable to pull the trigger on MHS, waiting for a better price, a price that never appeared. NX is a bit thinly traded and has wide spreads on its options.

Schaeffer Research reports heavy put buying today on Starbucks (SBUX) and Cisco (CSCO). Not enough premium for me to get involved. These option imbalances can turn around in a day or two, so they are not enough to trade on by themselves. Starbucks just came in with what looks like a decent sales report (link).

Sea of red

Earlier this morning, all my positions show red, always a humbling experience.

A few days back, I mentioned ANF (Abercrombie & Fitch). Today ANF dives after weak sales results. Those analysts who goosed it may have angry customers who bought on the recommendation. Many other retailers are moving on the monthly sales report. Many times these fluctuations are temporary. A person who really wants a stock can use weakness to buy in on this kind of news.

During my homework last night, I found two interesting stocks: NX (Quanex) and MHS (Medco Health Solutions).

Heavy Equipment (when to chase)

Strong moves in this sector, with stocks such as DE (Deere), CAT (Caterpillar) with good gains. Steel stocks such as NUE (Nucor), OS (Oregon Steel), X (U. S. Steel) are also strong. A look around to their competitors, finds that most all of these stocks have already moved.

Earlier in the year, I owned CMI (Cummings Engine) and sold it for a small profit. Now it looks like it is hard to get back in, at much higher risk and higher prices.

It is a tough call, when to chase, and when to let it go. I'd say 80% of the time, it is better to let it go and find something that is lower risk. If a position is taken, a small position with the intention to add more on a good pullback is often the easiest tactic.

A person can ALWAYS find stocks that would have produced good gains. The advantage of 20-20 hindsight is one that Internet stock gurus often have, but not me. Readers know who I am talking about, those traders that report that they bought at the low and sold at the high, every time. These guys/gals are a riot.

Cheers.

Flight of the eagle (AEOS)

Nice bounce back rally. Semiconductors, TXN, AMAT, AMD, techs ADSK all rally off support levels. AEOS up nicely on earnings. The news doesn't seem so hot to me, so I am steering clear, even though the chart is decent looking (link).
(Texas Instruments, Applied Materials, Adv Micro, Autodesk, Amer Eagle Outfitters)

I have my action list of stocks to watch and am checking it twice, three times. I haven't found the pitch to swing at yet. That is beauty of the markets, more so for traders. Warren Buffett put it in baseball terms, it is as if you have an infinite number of strikes, that a person can wait for that fat pitch down the middle before swinging. Every day there are many more pitches to either swing at, or have a look at, or back of the plate from.