Friday, June 5, 2009

Bookkeeping: Continuing to Trade BHP Billiton (BHP)

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The volatility in the "big 3" mining names this week has been extreme, most of it due to a lot of drama around Rio Tinto (RTP). BHP Billiton (BHP) has been moving around like a penny stock with its hair on fire in association. I continue to trade the name...

Recall we stopped out at $58.60 earlier this week, taking out almost our entire position due to "two gaps" and a steep ascent... then rebought on "two gaps" being filled at $55... just yesterday. With the stock over $60 today, I liquidated 1/3rd of the position for a quick 10% gain. (1 day) That takes us down from a 3%ish stake to 2%.

I will sell 95% of the remaining holding below the low of the day, which is $59.91. To give myself leeway, $59.80 or so will be a stop loss. Then we once again created a gap in the chart this morning and I'll repurchase at the bottom of the gap... around mid $57s. The 20 day moving average continues to move up and is now mid $55 which is where I'd buy more.

If this continues to work, I'll go to 99% BHP Billiton portfolio... ahem

As for the market, my S&P 950 "in the bag off great jobs number" did not come true... in my exponential moving average world that is my trigger to bathe in Kool Aid. The 200 day moving average is right below that. I am still waiting for it; remember last Friday we had a quiet market and then in the last 5 minutes we added some 1%+ in the market via "magic hands". So anything is possible and what happens during the day is now pretty much useless. Almost all the magic is premarket (80% of the days we're in the green) and in the last 15 minutes each day.

Let me also reiterate "short bonds, short US dollar, long foreign, long reflation" is quite possibly the most crowded trade since 'long commodities, short banks' late last summer. How long this can keep working is unknoweable but when everyone is on one side of the trade have your foot near the door and your eye on the exit. It's now at the point that 4 year children walk up to me in parks, tug on my pant leg, look up and ask "Mister. Mister! How do I do reflation trade? Tommy's doing it. I want to." When these things reverse they get ugly - fast. Every fiber in body says it makes sense to short 'reflation' here (long dollar, long US bonds, blah blah), but with the Invisible Hand scorched in our memories and watching the clock we've been cowered to taking the sensible trade against the massive crowd. So just watching for now...

The commodity trade is getting so egregious people are piling in even as the dollar does a technical bounce of a major oversold condition...

Long BHP Billition in fund; no personal position

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