Friday, March 30, 2007

DNDN Dendreon

Speaking of amusement park rides DNDN rockets (chart) up 145% today on positive FDA news. It is a tempting stock for a buy/write because of the 200% implied volatility on the May options. There is another FDA ruling due before that expiration, so the stock could see more wild trading in the interim.

I often find the day or two after the big news move as a better time to get in.

Thursday, March 29, 2007

Round and round

Random Roger uses the analogy of the tea-cups ride (blog) instead of a rollercoaster. Today was another whipsaw type of day, with a strong open, a dip below the line, then a rally into the close.

Wednesday, March 28, 2007

Housing stocks keep falling

Lennar LEN gapped lower yesterday on poor earnings, but managed to close in the positive for the day. Beazer Home BZH is being cut 10% on news of a Federal investigation. Lennar is holding above its lows (LEN chart), Beazer is not (BZH chart).

There is spill over to the broad market. Today is not so good for my positions because my hedged positions (GDX, CHRW, C) are doing better than my unhedged positions (BA, FLR).

Smuckers SJM is up today after an analyst upgrade. The chart is a classic cup and handle breakout. I may buy on a pullback to the 50 range.

Monday, March 26, 2007

VG Vonage, straight down

Investors unfortunate enough to buy VG Vonage at IPO have seen their money disappear. In a less than a year, the stock is down 80% (chart). Many customers report positive experiences, and Vonage had a pretty big distribution. Alas, a cool idea does not a successful business make and it looks like VG may have to fold up shop without ever turning a profit or a positive quarter for its investors.

VG serves as a cautionary tale for someone investing in the next big thing.

Thursday, March 22, 2007

Covered call funds

I found an old Seeking Alpha article that takes a look at covered call funds. Readers know that this is my favored strategy. For investors that want a hands off approach, these closed end funds may be worth a look. The hefty yields look attractive, however, the long term performance, and management effectiveness is still up in the air. Certainly not a place to put a lot of money, because of the short track record (the oldest fund started in 2004).

Another interesting fund is SDY, a SP500 fund that buys the highest yielders in the index.

Wednesday, March 21, 2007

Fed's next move

Big stock market rally today. After the minutes from the last Fed meeting were released, the Fed fund futures are now putting the odds of a rate cut at 44%, up from 26%. Traditionally, rate cuts are good for stocks.

Tuesday, March 20, 2007

A list for would-be traders

Paul Farrell at Marketwatch put together this list for would be daytraders (article):

1. I have lots of time to track the market and trade
2. I am very disciplined under pressure
3. Markets are volatile, but I can handle uncertainty
4. Breaking news doesn't distract me
5. Yes, it's OK if I lose money
6. I can even handle losing streaks
7. I never buy high nor sell low
8. I can make quick decisions, with no regrets
9. No, I'm not overly optimistic nor in denial
10. I can live comfortably on $50,000 a year

>>
For the most part there is a good deal of wisdom in this list. Depending on a person's chosen trading style I might disagree with some, however, most of it would be a good starting point. I tell folks that the emotional aspects are the most difficult. The analysis can be extremely complex, or fifth-grader simple. I favor simple analysis that looks at fundamentals, technicals, sentiment and the news background, rather than complex analysis that has a narrow focus.

Number eight, regrets, is on my mind at the moment. When the market makes a sharp move, such as the recent dip, there are always a lot of shoulda, coulda, woulda situations. I would like to think that I am immune from that. For the most part, I can put the past behind me, rating myself as high average or above average in that department, there times when regret does come around for a visit.

Friday, March 16, 2007

Another tough week

My portfolio limps into options expiration. I am short April calls on C, CHRW, GDX and have none expiring today. My rolldown on GDX was near the short term low--it is painful when that happens. However, it is the nature of hedging and rolldowns that this can and does happen.

To all the Irish readers, or Irish in spirit, have a happy St. Patrick's Day.

Wednesday, March 14, 2007

SP500 downside target 134

One scenario is that this latest decline will be of the same number of points as the first drop. This would take SPY to 134 from the current 138 or another 3% lower. On the 3-month chart it takes SPY just below the green line.

Top timers still bullish, others not

Mark Hulbert reports that his top five market timers remain bullish after Tuesday's big hit (MarketWatch article). Meanwhile, the average newsletter writer is becoming much less so.

I am looking to buy selectively on further weakness. No need to hurry, bottoms usually take some time. If a fast V-shaped bottom does occur, only a very few get in at the bottom. I prefer opportunities when I perceive the odds are in my favor.

Tuesday, March 13, 2007

Roll down CHRW, retest of lows

Buy back the CHRW Apr 50 call, Sell the Apr 45

Whomp. The market thuds lower. Looks like a retest of the lows or worse is in the cards for the major averages. CHRW has underperformed since being added to the SP500. I am taking my lumps. At this point I am in the red for the year, thankfully my equity exposure remains limited.

In my mind it is a bit early to be adding to longs.
Current: long BA, FLR
hedged longs: C, CHRW, GDX

Saturday, March 10, 2007

How one pro traded the dip

Paul Sabo writes about his trading during the recent correction (article). Bottom line result was a small profit of about 0.5%. Certainly not my style or cup of tea to go on margin and trade the SP500, however, it is interesting to see how someone else tackled the same problem that all of us had to face.

Friday, March 09, 2007

A down week

For me, this week is in some ways tougher than the previous one. Why? When the market goes down a lot, most folks lose money. This week the market stabilized, so losing money is tougher to take. Today's hit is an analyst downgrade of CHRW C.H. Robinson, sending the stock down about 5%. CHRW looks like a good buy in here, if I did not already own it.

Thursday, March 08, 2007

Buy/write GDX Gold stock ETF

Buy GDX gold stock ETF, sell the April 38 call (in-the-money).

On the strength of the Hulbert article, I take a conservative position in GDX.

Buy FLR Fluor

Buy FLR Fluor

I buy a small position in Fluor. The company reported blowout earnings during the market selloff. There is an old wives tale that stocks that get to 90 almost always make it to 100. Chart looks like a classic liftoff into heavy resistance, if it can clear that, it can move much higher.

Current holdings: BA, FLR unhedged
hedged: C, CHRW

Hulbert: gold timers bearish

Mark Hulbert reports that gold newsletters have turned bearish after the meltdown last week (Marketwatch article). Hulbert also points to stock market timer newsletters moving to the sidelines, but it is not as extreme as the gold move. The index used by Hulbert moved from 75% to 0% on gold, and 62% to 23% for stock timers.

This is good news for gold bulls.

Tuesday, March 06, 2007

Oversold reading

TickerSense writes about the oversold condition that occurred Monday (article, chart). It is instructive to look at the chart. The similar oversold reading in the spring of 2006, was not a great time to buy, as the market knifed lower still.

Today's relief rally was certainly welcome. However, one scenario involves a retest of the lows, that retest is often a good time to buy.

Monday, March 05, 2007

What is a yen carry trade?

This week there has been talk about the yen carry trade. What is it?

from
http://www.investopedia.com/terms/c/currencycarrytrade.asp (link)

Here's an example of a "yen carry trade": let's say a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let's assume that the bond pays 4.5% and the Japanese interest rate is set at 0.5%. The trader stands to make a profit of 4% (4.5% - 0.5%), as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 40%.

--
In simple terms it means borrowing yen, then buying some other investment, usually a non-Japanese investment that pays much high interest rate than the current 0.5% that it costs to borrow in Japan.

While I'm explaining things, another popular term this week is subprime mortgages.

from
http://www.bankrate.com/brm/green/mtg/basics2-4a.asp?caret=8 (link)
Generally, subprime mortgages are for borrowers with credit scores under 620. Credit scores range from about 300 to about 900, with most consumers landing in the 600s and 700s. Someone who is habitually late in paying bills, and especially someone who falls behind on debts by 30 or 60 or 90 days or more, will suffer from a plummeting credit score. If it falls below 620, that consumer is in subprime territory.
...
Subprime loans have higher rates than equivalent prime loans.
...
A subprime loan also is more likely to have a prepayment penalty, a balloon payment, or both. A prepayment penalty is a fee assessed against the borrower for paying off the loan early -- either because the borrower sells the house or refinances the high-rate loan. A mortgage with a balloon payment requires the borrower to pay off the entire outstanding amount in a lump sum after a certain period has passed, often five years. If the borrower can't pay the entire amount when the balloon payment is due, he/she has to refinance the loan or sell the house.
--
Unfortunately, a lot of subprime loans are used by speculators. The recent dip in real estate prices, puts these borrowers (and lenders) underwater. Few thought the picture would go bad so quickly. Which brings up the cliche of the day, when things change, they often change quickly.

This is not a time for rash emotional decisions. If a person can't sleep, sell off 10% or 20% of equities. If a person has been on the sidelines waiting to get in, put in 10% or 20%. Going all-in or all-out is a losing game for average people.

Friday, March 02, 2007

Roll down C calls

Buy back the Citigroup Apr 52.5 calls, sell the Apr 50 calls.

Normally, I might just take my lumps here and move on to the next stock. However, there is multi-year support at 50 on the long term chart. I am still underwater and locking in a loss even if the stock moves higher from here. Rolling down does give me more downside protection and less exposure.

Like I wrote yesterday, the bottom is probably not in, and calling bottom or top for that matter is not a profitable game for the majority of traders.

It has been a painful week, even with my very limited equity exposure, and hedged positions, I have taken my lumps. Those still in high flying stocks or worse, on margin, are probably going to have a very long and difficult weekend.

Currently positions, all longs
unhedged: BA, hedged: C, CHRW

Thursday, March 01, 2007

Buy ACTIX Capital Value Fund

I move some IRA money today into the American Century Capital Value Fund.

As always, my posts are not a recommendation to buy or sell.

A rough open this morning, followed by buying. The bottom is probably not quite in yet, however, I always tell folks that virtually no one buys at the bottom. Internet traders that don't trade real money do it all the time, often posting after the low and high of the day is printed out.

In real life, calling bottom or top, is generally not a profitable game. The traders with that kind of style often use tight stops and make six trades to catch one real bottom.