Buy BNI, WFR, Hulbert market timers out

Since I last wrote, I took long positions in BNI Burlington Northern, and WFR MEMC Electronics. I sold the Nov 80 puts on BNI and the Nov 60 puts on WFR. I went long after the earnings reports.

Mark Hulbert in his Marketwatch column reports that only 7.7% of market timers that he tracks are bullish. This is a contrary indicator, and Hulbert interprets it as extremely bullish. The market rarely tumbles when so many timers are so cautious.

Also in the news, gold reaches a new recovery high. My thinking is that this current run is 90% currency driven. The huge fish from the currency markets are eating up the big fish in the gold market (the commercials with short positions), allowing the small fish in the gold pond (the speculators) to enjoy this bull run. Enjoy it while the currency fish are running amok.

Positions: all hedged longs: GM, BNI, WFR

Lifecycle ETFs, tax selling candidates

SeekAlpha article at Yahoo business. Worth a look for those that may want a one-stop way to meet time specific goals. Lifecycle ETFs are designed with a specific retirement date or other time specific goal. As the target date gets closer, the fund manager changes asset allocation to less risky investments. If they work as advertised they may have several advantages over other ETFs and other open ended mutual funds, such as lower expenses than other target date funds, rebalancing asset allocation so an investor doesn't have to do it by hand. They are new funds, so it would be foolhardy to put a lot of money into them until a track record is established.

The stock market has been rocking and rolling since I last wrote. Too many movers to recap. I will mention that BNI looks like an interesting long. Positives: Warren Buffett owns a bunch, a good earnings report, and a decent looking chart.

BGG, SBUX, WAG, WMT, WM are candidates for late October buying. All of these five are near their lows, and may see significant institutional tax selling, as the books close for many funds on October 31.

Break from blogging

My schedule is changing, so I will be blogging less frequently. I will still update on occasion, but perhaps instead of an average of four times a week, I will reduce down to twice a week, or at times once a week.

Looking back at the first ten months of 2007, it has been a mistake ridden year. My gains were smaller than my losses. I made so flat out stupid entries. The old buggaboos of greed and fear are ever present. I would like to believe that I am immune to emotions, but that would be a lie. I don't trade a mechanical system. I look at news, fundamentals, sentiment, technicals.

Overall my main trading account is down a bit for the year. Almost all of the year I have been underinvested, so the losses are small in terms of the available trading capital. The percentages are deeper in the red, when looking at the average amount invested vs. the dollar losses.
I am virtually at break even before commissions--it has been a decent year for the broker.

Like, I said, I'll still be around, but updates will be less frequent for the time being.

Positions: long GM hedged

Taking my lumps-sell BA, WM

I cover my short puts on BA, WM. Two big losers on a percentage basis.
Buy back BA Oct 95 put
Buy back WM Oct 35 put

A big ouch. I am tempted to take delivery of these stocks and ride out the storm. Instead, I decide to cut my losses, even though they are huge losses on a percentage basis.

Positions: long GM hedged

Buy ACTIX Capital Value Fund

Buy ACTIX Capital Value Fund
This is a calendar trade as the stock market enters its most bullish time of the year.

Options 101: deep in the money calls

Jennifer Openshaw at MarketWatch gives a primer on buying deep in the money call options (article). I am sure there are a fair number of novices reading along. Openshaw suggests three stocks worth a look: SBUX, DFS, FITB.

Elsewhere, it was a wide ranging day in the stock market. On some stocks, it looked to me like the market makers looked to take out stop-loss orders on the books. Sometimes errors occur on the prints, but sometimes there is a spike up or down to take out those stop orders. The print low on AAPL is 153.21, the high of the day nearly 20 points better. Strange price action that is more common during option expirations week (next week).

BA gets hit again as some analysts cut their earnings estimates because of the announced delay.

Positions: BA, GM, WM all hedged longs

Luby: When to short China?

Bill Luby at Vix and More (link) asks the proverbial question "When to Short China?" This bit applies to the game of calling top or bottom, and being the hero.

>>
remember that it is better to catch the easy middle part of the move than to call the turning points
>>

Buy BA, sell puts

Sell BA Oct 95 puts

Boeing down on delays on its new 787 Dreamliner. The plane is a ten-year long project so modest delays are average events. It would be exceptional if there were no major delays. 95 is short term support.

Positions, all hedged longs: GM, WM, BA

Rydex Internet Fund

Adam Warner (blog) has an interesting analysis on the Rydex Internet Fund. It is currently on a neutral to bearish signal.
>>
over the past seven years, whenever assets in the fund have reached the $50 million mark, it has been an apparent indication that traders in general have become overly enamored with the sector’s prospects. The go-forward returns in the sector have been sub-par
>>

With the Fed minute generated rally I was tempted at two trades: long BA, long YUM. I decided to wait for better opportunities. Gold had another constructive day, though the range for the day was again quite wide. This kind of market action is not a good situation for risk adverse position traders [me].

Motley Fool: Waiting for weakness

Kristin Graham at Motley Fool Investing (article) writes about a conversation with her father. Dad calls and wants to increase his equity exposure because the market is up 7% from its lows. Kristin counsels caution, and to wait for better prices.

>> from the article:
"But the market's going up ... and I'm missing out on gains," dad uttered these exact words to me, and I'm sure many of you have similar thoughts. It's a typical situation: The market starts recovering and embarks on an upswing. Everyone thinks it's time to get in. Sure, sometimes this is true -- but investors need to be wary at a time like this.
>>

Readers know that I often like to buy strength and sell weakness. Again, when I talk to people, I tell them there are a thousand ways to trade the market, find one that fits your personality, find one that works for you.

Buy WM, sell puts

Buy WM Washington Mutual sell Oct 35 puts, stock edges higher despite issuing an earnings warning.

Elsewhere GLD and GDX showing strength. RIMM straddle holders are close to break even, getting the good word from Jim Cramer. The employment report is being intepreted as bullish, with stock, gold up, bonds down. Retail is one of the stronger sectors.

Long GM, WM both hedged.

RIMM straddles and the last war

I met someone who signed up for an options course. The strategy that course taught was buying straddles ahead of earnings reports. There was a system, some software, and trading tactics, and of course a hefty fee. I don't know if RIMM Research in Motion met their criteria for a trade. However, it does illustrate the risk of buying straddles. Three months ago (chart), RIMM had great earnings and rose over 20% after the report. Tonight RIMM earnings look like a non-event. Non-events are death to straddle buyers.

The CBOE (quote) shows bid of 7.6 and 6.9 for the Oct 100s, or 14.50 for the Oct 100 straddle on RIMM before the report. That means the stock has to move more than 15% up or down for the straddle to be profitable at expiration. With the report out, the straddle is likely to lose more than half its value tomorrow, because the price movement is likely to be small.

Those buying the straddle, were hoping for a repeat of last quarter's stellar performance, or a terrible miss. The ads for the seminars probably said something about making money whether the stock goes up or down. Readers known that unchanged is a good thing for option sellers. As the song lyrics go, "Time is on my side, yes it is."

Hulbert: stock newsletters skeptical

At Marketwatch, Mark Hulbert reports (article) that stock newsletters remain skeptical towards the rally.

... a contrarian analysis of stock market timing newsletters suggests that the path of least resistance remains up...

As I have been writing, next week, and the week after that may be a slightly better time to buy for a holding period until early 2008.

Gold had an impressive rally from a weak open. I was tempted to buy back into GDX, but fast markets are not my favorite thing.

Long GM, hedged

Big name bottoms, and GLD timing

Some big names that are beaten down, and perhaps worth looking at for October buying include WMT, WAG, SBUX, CC, LEN. Best time is usually the last half of the month as mutual funds dump their losers for tax purposes.

One way to look at the GLD correction is to take half the time of the up move and use that as time measurement. Looking at the 6-month chart this would be approximately two weeks, making for a buy time of October 15th or so. A lot of traders focus entirely on price. Using price stops, and price retracement levels. Sometimes time measurements in the form of a time stop (letting a stock run for a set time), or in this analysis a look at time for measuring a possible correction.

As always, nobody bats a thousand.

Seasonal trade Oct 12th buy in

Seasonal tendencies are one of the weaker indicators, that said, Oct 12th looks like a decent buy in date for those looking to go long the stock market. The simple cliche is sell in May go away until October. It is October, and historically the time between now and January tends to be bullish for equities. The bullish case for stocks would be stronger had there been a September sell off this year.

Other things to look for in October are beat down stocks that are being sold by mutual funds, because their reporting year ends 10/31/07. Many funds sell losers to limit tax liabilities for their investors. I will be compiling a list. Others can look at the 52-week low lists or similar and build their own list. I tend to favor stocks that pay some kind of dividend because that shows more financial stability than stocks that don't. Some companies get in such bad shape they cancel their dividends.

COT sell signal on precious metals

Alex Roslin at Kitco Commentary (link) gives a commitment of traders (COT) sell signal on gold and mining stocks. For novices, COT is sentiment indicator tracking the dispositions of various players in the futures markets.

>> from the linked article
My new bearish signals for gold, HUI and USERX are based on trading with the “smart money” commercial traders. These guys - the commodity producers with the best market intel in most (though not all) sectors - have just increased their net short position in gold futures and options to a historic extreme that in the past has signaled a good probability of a market turn. Some extra details on my gold and HUI setups are in the notes below.

Sell GDX (buy back puts)

Taking my small profit and running. GDX hasn't been trading that well and GLD is extended out on a limb. If the dollar turns or reacts, gold will get hit hard and so will GDX. As it is gold mining stocks have been mixed despite gold holding firm.