- China announced its biggest interest rate cut in 11 years on Wednesday to spur private borrowing and support a multibillion-dollar stimulus package to boost slowing economic growth.
- The 1.08 percentage-point rate cut -- the fourth cut in three months -- reflects the government's urgency about raising private consumption and investment to supplement state spending on the stimulus package.
A few interesting notes today
#1 - one good sign, speculation is back (animal spirits) - incrementally positive. A lot of small caps are screaming higher today but the day before and after Thanksgiving is notorious for huge moves in small cap stocks as big money leaves and retail traders dominate. Today speculative solar stocks are flying 15-40%, and since our A-Power Energy (APWR) is now considered a solar stock it's having a decent day. Pathetic, but it is what it is. I have 3 solar stocks and I am hoping for another speculative day Friday so I can exit some of these - they are very small stakes however.
#2 - infrastructure stocks are screaming the past few days - I find this hilarious but again this market is always about sentiment. They told us to sell infrastructure stocks because as oil fell all those energy projects get cancelled. Then they told us to sell infrastructure stocks because as credit contracts projects cannot be funded. But NOW they tell us Obama is the savior and New Deal 2.0 means money will be flying from the sky and you must buy infrastructure stocks! Yes of course - that's logical - even though these projects will be years in the making it's time to pile in them now - don't worry about that whole energy thing or lack of credit thing. This is our modern day stock market - find a thesis, scream about it, and pile into stocks despite any sort of reality check that has to do with said thesis. Not bullish or bearish - just absurd :)
#3 - bad economic news continues, but the market is taking it more in stride rather than panic - incrementally bullish.
With that said, for the first time in a long time I began buying individual stocks last week - I was one day early as I did my purchases on Thursday and the Geithner bounce didn't happen until Friday 3 PM but I'll consider that good timing nonetheless.
I bought Joy Global (JOYG) at $15 last Thursday [Nov 20: Beginning Joy Global Position], saying enough was enough - I made a 5% position, and unfortunately took 3/5ths of the position off the very next day with a 10% gain. [Nov 21: Selling Some Joy Global] We've been conditioned to take our gains immediately and this will be the correct thing to do - until it is not. Sounds deep eh? Simply put, ride a pattern until the pattern changes - and then adjust. At some point we will get a rally that last weeks or heck, a month or two. So we'll adjust when that happens - maybe this is the beginning, I don't know.
If the "global growth is back on/commodities are sexy again" trade is back - Joy Global should do well - but I have other names to take advantage of what I call the "ReInflation" trade. Frankly I did not do my homework fully and had not realized that almost all of Joy Global's 2008 stock buyback was already done - which was one of my drivers for buying this stock. That said, we had an excellent trade in 1 week - we bought just above the absolute low during the panic selling Thursday and sold 3/5ths of the position with a 10% gain and now I am letting go the rest of the position (2/5ths) in the $22.40s. That's a 49% gain in under a week on that portion of the holding. We are closing out Joy Global's 2.0% stake and booking a $7K gain. It now approaches resistance and the chart looks similar to many other I have in my watch lists... if these moves are to continue many stocks need to begin breaking resistance ahead.
We restarted a smaller position in Baidu.com (BIDU) the same day [Nov 20: Bookkeeping: Restarting Baidu.com] as people were panicking about the name - the stock has jumped from our entry point of $115 to $136s, so I'm going to take some off the table. I am going to cut this name in about half, down from a 2.1% stake to 1.1%. We have a nice 17% gain booked, but I still see some upside to $150s or $160. I'll let go more there - this was one very oversold stock.
If I had the ability to place a "trailing stop" on this type of position I'd rather do that, but Marketocracy.com does not have that function. We really are limited in so many things we can do from efficiency of trading. So instead we are going to just book some gains since I cannot sit and stare at this tick by tick.
Remember, for the market [Short Term Views] - a close above S&P 870 has us bullish; a close below S&P 840 has us bearish - everything in between is white noise. We have two very thinly traded sessions sandwiching the holiday so it is hard to read much into the current action but S&P 840 is very important to me; it was our long time floor and if we can hold it - the super computers across America [Hal9000s] could be seen creating a rally into year end.
As I said, economic news will be bad, and continue to be bad for a long time - that does not mean we won't have rallies along the way so we'll keep this positioning we've done of late as it's working wonders.... high cash stake and then jumping in for trades at extreme sentiments (as we did last Thursday) with a portion of the portfolio. We've been able to book a 40%+ gain in Ultra Real Estate (URE) in 1 session, a 49% gain in Joy Global in under a week, Lennar jumped 50% in 1 day, James River Coal 35% in 1 day - etc - some crazy moves can be had even as we keep much of our capital protected. In the current casino you can make in 3 days what used to take 3 years. But only with some nimble movement. Don't confuse any of this with investing; investors have been left in the ditch and scoffed at by the super computers.
We'll partake in some of these rallies along the way while not drinking Kool Aid about the "coming recovery in 6 months". Don't believe one moment the stock market is any longer a discounting mechanism of the near future - that's baloney in this day and age of algorithmic computer dominance. The stock market was at an all time high in October 2007 - what exactly was that telegraphing to us about the 6-9 month period ahead? Nothing. So when we do get one of these bounces, ignore the foaming at the mouth by CNBC hosts about the economic recovery next summer and the bottom is in. They said that all spring when they yelled about the "2nd half 2008 recovery" - they'll just keep repeating the "recovery in 6-9 months" on every rally until finally they are correct. These are all sentiment moves.
I am at least constructive from the point of view that technical analysis has really been working very well of late. Fundamentals still mean nothing but at least one tool is useful nowadays. If we can see any sustained strength in financials, and small caps - you could build a case for a holiday rally. Which means nothing in terms of our economy. For now, we remain neutral and will take profits as offered. S&P 840/870 are our keys.
Long A-Power Energy, Baidu.com, Ultra real Estate, James River Coal in fund; long A-Power Energy in personal account
