Monday, May 10, 2010

Bookkeeping: Beginning Stake in BorgWarner (BWA)

I try not to make it a habit to buy stocks up 9% on a session, but obviously today is a 'special' day where that is the rule rather than the exception. BorgWarner (BWA) is an auto supplier who I have been eyeing for a while as the sector has been on fire. It has one of the best reputations in the space, and its sub sector has some secular growth to it in terms of fuel efficiency - whereas many other names are just pure cyclicals. That said, less well run or smaller suppliers probably offer more upside as they are more up speculators' alleys, but I'll go with the 'safer' choice as I reviewed about 5-6 options in the space.

The company reported stellar earnings 2 weeks ago, with a huge increase in guidance - gapped up over $44 and of course filled that gap quickly during last week's correction. So we actually have a chance to enter about 10% below it's "gap up" price (i.e. the same price it was before earnings), even though the stock is sharply up today.

In terms of the day's range the stock has the 50 day moving average as its floor, and below that $37 was where it bottomed last Thursday and Friday. I'm going to start with a 1.1% exposure and see how the stock moves in the days and weeks to come, as this is my first time ever owning the stock.

A look at the earnings report:
  • Auto parts maker BorgWarner Inc (BWA) boosted its 2010 earnings outlook after posting a stronger-than-expected quarterly profit, propelled by improving industry production and rising demand for fuel-saving components such as turbochargers.
  • BorgWarner raised its 2010 earnings forecast by about 50 percent to a range of $2.20 to $2.50 per share, above Wall Street's average estimate of $1.74. The company also forecast revenue growth of 28 percent to 32 percent in 2010, up from its earlier range of 15 percent to 19 percent. Analysts on average expect sales to increase 23 percent to $4.9 billion, according to Thomson Reuters I/B/E/S.
  • BorgWarner reported first-quarter net income of $76.2 million, or 63 cents per share, compared with a year-earlier loss of $7 million, or 6 cents per share. Excluding one-time items, BorgWarner earned 65 cents per share. On that basis, analysts on average had expected profit of 41 cents per share on sales of $1.2 billion.
  • Sales rose 57 percent to $1.29 billion.
  • BorgWarner's focus on components that can improve fuel economy and performance place it in a growth area of the auto industry, with carmakers aiming to meet stricter mileage and emissions standards over the next several years.
  • Analysts say BorgWarner is uniquely positioned to benefit from rising demand for more efficient gasoline engines and cleaner-burning diesel cars as automakers race to achieve the 42 percent increase in fuel efficiency mandated by the U.S. government for 2016.
Long BorgWarner in fund; no personal position

Performance / Portfolio

There is currently a retail fund in registration with the SEC.  I am unable to offer any further details until process is complete, so please consider this a "quiet period" on the topic. Thank you.

Please note I closed out the tracking portfolio described below on December 3rd, 2010 to concentrate my time on workload required for actual fund launch.

1) I will measure the performance of portfolio versus the Russell 1000, on a rolling 4 week basis - last updated December 3, 2010.

[click to enlarge]

2010 Performance

2009 Performance

For previous years performance, scroll down the page


Please note, due to a website configuration change at - as of Fall 2010 the link below no longer works.  I will continue to cut and paste positions in graphical format each week end.

2) Total Portfolio Value, as maintained by 3rd party, can be checked here each day with 20 minute delay vs real time (starting value $1,000,000 or $10.00 NAV)


3) Last updated December 3, 2010: Full Portfolio updated weekly via screen captures. Please note "total gain/loss" in dollars, and percentage only pertain to the open portion of the position - not to any previous part of the position sold earlier. For more details please see this post.

Long Positions (click to enlarge - 1 photo file)

All positions closed as of Dec 3, 2010

Short Positions (click to enlarge)
See above

Option Positions (click to enlarge)


4) Weekly Fund Position Changes / Strategy outlined here

I've changed over from (used from August 2007 to September 2008) to as a 3rd party tracking vehicle for multiple purposes; most importantly I could not run a hedged portfolio (individual long and short positions) nor use limit stop orders in Even with those limitations and only using half my strategy I was able to beat the S&P 500/Russell 1000 by approximately 24% in my "year 1" (August 2007 through July 2008) [Aug 2, 2008: 'Rising Tide' Performance Year 1]

[After I quit there was a quarter I was "out of the market" as I searched for a new tracking website, that was Q4 2008 - October of that year was a big downturn and November and December were positive ones for the market.] 

When last I checked in August 2008 [Aug 21: 'Rising Tide' Performance v Peers] my performance would of ranked #1 in the "mid cap growth" mutual fund category (approx 1860 peers) with a 10.9% return (9.2% after fees). The median of peers was -7.8%. Out of all 6000+ or so equity mutual funds across all categories we would have been the equivalent of "top 10". (note: not top 10 percentile, but literally in the top 10) I'm confidant with the carnage that the mutual fund industry suffered in Sep-Nov 2008, the fact we held high levels of cash (the industry standard is 0-5%, while we've held anywhere from 20-40% during that time) and some "Ultrashort ETFs" would have led to further out performance although our return most likely would of turned from +9.2% to closer to zero (or perhaps somewhat below 0%). My biggest error of 2008 was staying too long in the 'commodities trade' (about 6-7 weeks of serious pain in late summer/early fall) as these stocks fell off a cliff.

My weekly discussion of performance since early in blog life can be found here (or under label 'fund performance'). In the fall of 2008 after growing increasingly frustrated with the platform's inability to realistically track how I'd manage a portfolio - along with a few days I was unable to trade ETFs (which were the majority of my portfolio at the time), I essentially gave up on the system (lots of potential there but not the right fit for my style). I was not happy about this since it threw away well over a year's worth of work, but have essentially decided to 'start over' on performance metrics with the platform.

So if you are new(er) to the website... this has been our journey thus far and where we're headed in the future.

Bookkeeping: Restarting IntercontinentalExchange (ICE)

I am looking to diversify fund holdings away from a 'tech centric' exposure I've had the past few months. There are some interesting banks in the financial space - especially PNC Financial (PNC) and some smaller regionals but for now I am going to go with IntercontinentalExchange (ICE) which is essentially a clearinghouse for transactions. I don't think I've had it in the portfolio since 2007, but as I look through various charts it is exhibiting excellent relative strength and barely batted an eye in the selloff last week.

On a fundamental basis any move to bring derivatives out in the open rather than hiding in dark shadows in coming legislation should help ICE and CME Group (CME). Valuation between the two is not much different (former at 22x forward, latter at 21x) and ICE just reported earnings so there is no earnings risk for another 2.9 months .... ICE has the slightly stronger chart. As an added bonus, every time I think of the symbol it brings back memories of a the great white rap hope of the late 80s. ;)

I'll begin with a 1.5% exposure around $121 and frankly this stock is almost at a yearly high, at which point I should add more... might even happen today. I find the valuation "fair" so I would assume not that much upside in a normal environment - but if you invest on valuation anymore you are left in the dust.

A quick look at last week's earnings:
  • IntercontinentalExchange Inc., a futures and over-the-counter exchange operator, said Wednesday that its net income rose 40 percent in the first quarter on stronger trading activity.
  • For the three months ended March 31, the company said net income rose to $101.2 million, or $1.36 per share, from $72.2 million, or 98 cents per share, in the year-ago period. On average, analysts polled by Thomson Reuters expected income of $1.31 per share.
  • Quarterly revenue increased 22 percent to $281.6 million, exceeding the average analyst estimate of $278.7 million.
  • ICE's surprise was largely due to record volume, primarily in its core energy trading as well as cotton and sugar futures and options. It also got a boost from lower-than-anticipated operating expenses. After-tax margin climbed to near 36%, the best mark since Q3 of 2008.
  • ICE's credit default swap business, introduced late last year, climbed 18% to $43 million. The company reported it has now handled $700 million in customer CDS transactions.
  • ICE also announced last week it would pay $604 million for the Climate Exchange, which operates carbon dioxide emissions exchanges in Europe and Chicago.

Long ICE in fund; no personal position

Bookkeeping: Starting Position in ETFS Physical Palladium (PALL)

Reasons for this position on a fundamental basis were outlined in mid April [Apr 15, 2010: ETFS Physical Palladium a Superstar Since Inception]. The recent pullback has allowed a more more attractive opportunity for entry for those of us not of the "momo" crowd variety. I'll begin with a modest stake of 1.1% in ETFS Physical Palladium (PALL) and reconsider on any break of recent lows of $49 which would also be a break of the 50 day moving average.

Main risk here are any of the sundry "Chinese slowdown", "Americans are actually forced to make payments on homes rather than cars" etc. On the other hand if (when?) the market breaks over the 50 and 20 day moving averages and the move to S&P 2500 is back on, I'll add more.

Long ETFS Physical Palladium in fund; no personal position

Bookkeeping: Selling 45% of Powershares DB US Dollar Bullish (UUP)

Frankly I am not sure how the actions in Europe are "bullish" for the Euro currency but I assume some of the move today is simply shorts being squeezed. That said, I've been long US dollars as my main "shorting" strategy the past 3 months since regular shorts have been destroyed except for the past week and a half. It's worked out nicely as a hedge since for much of this rally in US equities, the dollar went up in kind.

The dollar chart is still very bullish but most likely extended and the can has been kicked down the road for now. I will be taking down my position by 45% in Powershares DB US Dollar Bullish (UUP) ETF which effectively lowers my "short" exposure, here in the mid $24s. But with Frankenstein currencies now in all major G7 markets* (who knew South American currency would be amongst the least banana republic-ish!) it's pick your poison. Since the end game for the U.S. will be the last in the coming decade, I expect the dollar to continue to gain fans as the "least ugly black sheep", so I'll place a limit purchase down in the $23s and see if hits in the weeks to come. (obviously this is not 'fast money'). If I don't get that price, oh well, more money to buy stocks for risk free return.

*ex Canada

Long Powershares DB US Dollar Bullish in fund; no personal position

Jump for Joy

Obviously news events have been trumping the normal ebb and flow of market for now 3 years in a row. Any positioning taken on charts can be destroyed in the single swipe of a bad Tim Geithner speech, the refusal of Congress to pass TARP on first pass, or the vice versa type of rescues. Traditionally you look for a bottom off (a) a retest off old lows and/or (b) a sharp down day, followed by an intraday reversal - on volume - with a close at or near the highs. But those are old rules. Now you just await a Sunday night bailout.

While the EU "quantitative easing" is not of the US, UK, or Japanese kinds reports this morning are that central banks are quickly buying government debt. This lays the groundwork for any of you worried about tiny issues like the trillion ($2?!) plus pension problem in American states [Jan 5, 2010: - US Public Pensions Face $2 Trillion Deficit], the Medicare unfunded liability, or any other problem. Answer: there are no problems anymore. When push comes to shove we now clearly see where all roads lie. Once a problem ignored for years or decades hits a crisis point money will be printed and holes will be plugged. [Mar 12, 2010: Pappa Malmgrem Tells us What Foreigners Think America's End Game Will Be] Any and all worrying is simply for theoretical reasons - this is the no risk world and without limitations to spending. Frankly I am upset a million dollars is not being sent to each America this morning ... just for kicks.

The biggest mistake I certainly made in the past 15 months is not realizing how powerful QE would be in the U.S. - the rush of liquidity overwhelmed a market where there were actual net outflows of monies in 2009. And since investors believe there is no risk, and the central bank has their back, they can buy at will and all dips must be bought.

I thought this morning I'd be writing about a gap but somehow despite a 4% gain in premarket & due to Friday's immense intraday trading range there was not a gap on the S&P 500 or Russell 2000 chart. Only the NASDAQ had a small one. So I expect it this is not filled very soon (i.e. today or next 2-4 days) it will be filled in 2-3 months as that has been the typical pattern.

Other than that, the only question is waiting on the moment when these major indexes clear resistance of the 50 day moving averages which they've all fallen below. Once they do, the mandate by central bankers is clear. You keep buying, at any price, at any value. You must assimilate - fiat money is toilet paper.

Unlike my mistake in 2009, I shall be a good lemming and pile in once these moving averages are cleared as the Beranke Forcefield now extends globally. Risk has been offloaded to Saturn and other celestial bodies, no longer a factor on Earth and as speculators (or long biased mutual funds) we can only hug in glee.

p.s. let me tell you, anyone with any sort of meaningful exposure to a short position this morning - or puts - simply can have an entire year destroyed.

p.s.s. Fannie Mae announces it needs another $9 Billion. No problemo - just print it.

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 40

Year 3, Week 40 Major Position Changes

To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.

Cash: 85.9% (v 68.2% last week)
15 long bias: 10.7% (v 24.5% last week)
2 short bias: 3.4% (v 7.0% last week) [Includes 1 'long dollar' position]

17 positions (vs 20 last week)

Weekly thoughts
After months of "hear no evil, see no evil" the market finally faced the music. And how. Monday was the strangest day of the week as we had a rally on a well known Greek bailout that was telegraphed to the market. Of course futures were juiced premarket as any good Monday should be. Well it *was* Monday and that is the day of the week we have a 80% chance of winning. At least the past 8 months (is it 9 yet?). The rest of the week was down, down, down (yow!), and down Tue-Fri. Thursday May 6th will go down as one of the most remarkable days in history. But not to worry - in good American reactionary fashion (rather than pre-emptive) people have now woken up to the case that there might be a "teeny" issue when 60-70% of your volume is computers daytrading in milliseconds to each other under the guise of "liquidity". You see, this financial 'innovation' works great at providing liquidity - except when its needed. Oh as for that fat finger lie?
  • Regulators now believe the disruption was caused by a toxic, not-yet-understood, feedback loop created when multiple trading schemes interacted, according to people familiar with the situation. That contradicts earlier speculation that the trigger was a small number of erroneous trades.
Now look, I'm not some big wig regular. Nor am I someone who works at the Fed, the SEC, or any other agency who can ask to sit in (like Larry Summers did for a few years) and learn the dark arts of HFT because it *might* be useful when this is more than half the trades on any single day. But little old blogger me was able to forecast this would cause massive dislocations. And we saw it in August 2007 as well, if anyone was paying attention... or not tuned into their porn at a certain agency. But only when it's so egregious will the regulators bother to notice.

Either way, Thursday's action creates some head scratching for chart watching. While the first 3.5-4% was "real" what do we make of that last 5-6%? The one thing that crazy 30 minutes did do was fill the gaps we mentioned just Wednesday morning! [Minding the Index Gaps] Now in my minds eye those gaps were going to fill in a manner of weeks (3-6), not 24 hours later. Traditionally we'd look for an eventual retest of the lows before going back up, but *what* were the lows? I don't know what counts and does not count. What we did see Friday was in a nasty volatile session a retest of the 200 day moving average.

And with the shock and awe campaign unleashed in Europe Sunday (I originally read to be $800B but now close to $1 Trillion) we should see a 2.5-3% move up right quick, which will take the S&P from 1110 to 1140ish. And "free market capitalists" (i.e. market speculators) everywhere will clap at yet another intervention in what has now become commonplace since 2008.

Obviously we are now in about a 65 point window in the S&P 500... the bottom being the 200 day moving average of 1100 and the top being the (turning downward) 50 day moving average of 1167... that should be roughly 1165 by end of day today/tomorrow. Within this band it's fine to trade but building up long term positions with any confidence will be tougher.

It was also rumored that the "nuclear option" of the European Central Bank to turn BOJ (Japan), BOE (England), and Fed (USA! USA!) and buy government debt would be the last chess move. And this too has been announced in late breaking news Sunday.
  • The European Central Bank said it will buy government and private bonds as part of an historic bid to stave off a sovereign-debt crisis that threatens to destroy the euro.
  • The central bank said it will intervene in “those market segments which are dysfunctional,” signaling it views the recent surge in some of the region’s bond yields as unjustified.
  • While the ECB cannot buy bonds directly from governments, the euro’s founding treaty doesn’t ban it from doing so in the secondary market, providing the bank with some room to execute today’s plan. The bank’s council will decide the scope of the intervention.
  • The concern is that the purchasing of government debt opens the ECB to the accusation it’s helping authorities plug holes in their budgets, raising questions about its independence. An unchecked increase in the amount of money in circulation could also fan inflation, the containment of which is the ECB’s main aim.
Truly epic times, and we can see rules and laws are meant to be broken worldwide. Got gold?

Since none of this debt has been dealt with and just goes into hiding places on central banker balance sheets, we've once again done nothing but kick the can. But at least the Eurozone can join its ugly 3 brothers in playing the game as the rules were rewritten overnight on what their central bank can do. Truly groundbreaking events circa so much of what we saw in 2008.

So if the pattern repeats of what happened in the U.S. the world should go on a new rally to new (nominal) highs as fiat currency is printed and shoveled into the system at every orifice, and the "liquidity rally" can ensue. By the way American taxpayer - you are funding the bailout of European banks (which really is what this is at the heart of it all) via your majority funding of IMF. Thank you ... again.
  • While European banks had claims on Greece totaling $193.1 billion at the end of 2009, that number is dwarfed by their $832.3 billion exposure to Spain and the $240.5 billion with Portugal.
And away we go....


A quick word on some economic data which was overshadowed last week. There are two employment reports each month but the more widely followed one (which most likely is less accurate at turning points) signaled 290,000 job gains. Ex census workers 224,000. But ex the magical "birth death model" (which creates jobs out of thin air from businesses too small to measure) it was about 36,000 jobs. Yes folks 188,000 birth death model jobs. Maybe in reality small businesses (lacking credit) added 300,000... or 500,000... or 0. I certainly don't know. I am simply pointing out how much of the good news was either census workers or made up numbers...

This week, it is very quiet actually on the economic front. Bernanke apparently speaks twice - Monday & Thursday... if the Fed every raises rates again (don't laugh) it will be forecast to markets in speech first. I see no chance of this anytime soon. Lots of bond auctions but other than that nothing too earth shattering until Friday's retail report, industrial production and consumer sentiment.


As for the portfolio, I am happy with the process last week - the only thing I screwed up were shorter term index trades. In terms of core position, one after the other popped out as it broke support (mostly the 50 day moving averages) so when the flush out happened, aside from a handful of positions we were already "out" having moved down from 44% long exposure 2 weeks ago to under 14% when the flush happened. Another 1.5% fell off the table in the huge swoosh down Thursday. I was duped by the Monday surge and had index positions in the wrong direction when Greece begin to "matter" yet again (despite the previous Sunday's bailout) Tuesday. So I took a loss that day. But a late to the game Thursday put position helped save the week - even with what I consider a poor entry point and an exit point nowhere near the lows it still pushed the portfolio to a positive for a very ugly day in the markets, and helped to make up some of the losses earlier in the week. In total portfolio value was net higher this Friday then the previous Friday protecting investors from a huge downfall in the market this week. But of course with protection (insurance) comes inability to benefit from an oversold bounce so we'll be lagging Monday morning very badly. But no real short positions are on except short bonds and long US dollar, and they are relatively minor so we won't be hurt much.

For the week on the long side:
  • Monday I closed the last of coal/mining related Alpha Natural Resources (ANR) and Bucyrus (BUCY) positions as the charts had rolled over late the previous week. Bucyrus actually went from breaking below its 50 day moving average late last week to breaking the 200 day last Friday. Ditto for ANR - ugly set ups but now they can gap up Monday on Euro party time.
  • Tuesday as the market had a big hit, some of our charts began to break down so I took action: Atheros Communication (ATHR) broke its 50 day, I cut the stake by 75%; took more profits (1/3rd of remaining position) in homebuilder Lennar (LEN) simply to lock them in, in case the market took them away; cut Riverbed Technology (RVBD) in half to lock in profits as there was a gap that looked like it needed to be filled; sold half of Skyworks Solutions (SWKS) to lock in profits as it had a similar "gap" situation as Riverbed.
  • Wednesday, as the market fell again - more stop losses. I closed completely out of L&L Energy (LLEN), 2/3rds of Discover Financial (DFS), and 2/3rds of Quality Systems (QSII).
  • Thursday morning, stopped out of 2/3rds of Indian bank HDFC Bank (HDB).
  • Restarted a smallish position in industrial name Cummins (CMI).
On the short side:
  • I assumed the Greece bailout was "in the market" and with the S&P 500 below the 20 day had some SPY puts on from late last week; those were stopped out for loss Monday as the S&P 500 broke back ABOVE the 20 day.
  • I tried another SPY put position (along with short TNA ETF) Wednesday - but a 20 minute splurge over 1172.50 which was my stop out area caused me to stop out... and of course the market promptly rolled over after spiking to 1176 for only a very short while. Another loss.
  • After the S&P 500 had broken January 2010 highs of 1150 and seemed to still be going down, I placed some small exposure into SPY puts in the 1130s, within 30 minutes the S&P 500 crashed and I sold at some level - no idea where but the position obviously paid off. Wish it had been bigger.

Unfortunately we have a lot of broken charts on the long side, and the gap up Monday is going to simply create reversals with new gaps that need to be filled in most names. One thing to keep an eye on is how these charts act once the stocks do their dead cat bounces into support they broke last week.

Sunday, May 9, 2010

[Video] Dylan Ratigan Explains Thursday's "Flash Crash"

Let us be so thankful Dylan left CNBC and is on a mainstream cable channel so some in the non financial world hear the truth.

Dylan on last Thursday's "fat finger" (cough cough). Please only view if you wish to leave the Matrix. Otherwise it was a sole finger on a grassy knoll that caused it all...he of big fingerness pressed a "B" instead of a "M" and that was enough to wipe away $1 trillion of value". Yep!

[email readers will need to come to site to view]

Visit for breaking news, world news, and news about the economy

hat tip Zerohedge

Greek Bailout Plan Increased by Factor of Five

We are back to 2008... it's Sunday night, so that means someone is getting bailed out. After agreeing to a bailout just a week ago of some $160Bish, European and IMF (read: US) officials have taken the stakes to the stratosphere with a proposed $800B bailout. Now we're talking real money. Obviously Bernanke was called in to teach 'em how to do it right... this is a statement to the bond vigilantes that yes we can fight a debt crisis with even more debt, U.S. style. Much like the US ring fenced its financial oligarchs, the Europeans are attempting to ring fence their debt laden brothers in arms. Now all the Europeans need to do is allow their central bank to buy government debt and every major region in the world with be monetizing debt (i.e. stealth defaults) - got gold?

As we saw with almost every bailout for the past 2+ years, as long as the can is kicked down the road, short sighted speculators will be giddy and are bidding futures up in gleeful benevolence. Rinse. Wash. Repeat. Yawn.

Via Reuters:
  • European Union finance ministers on Sunday promised to counter the "wolfpack" of the financial markets as they sought agreement on a 600 billion euro ($805 billion) plan to keep Greece's debt crisis from spreading.
  • The compromise measure under discussion included loan guarantees by euro zone countries worth 440 billion euros, a 60 billion euro stabilization fund and a 100 billion euro top-up of International Monetary Fund loans, EU sources said.
  • The safety net being assembled was meant to protect other countries with bloated budgets, such as Portugal, Spain and Ireland.
  • Economists estimate that if Portugal, Ireland and Spain -- three other heavily indebted euro zone countries -- eventually come to require bailouts similar to Greece's, the total cost could be some 500 billion euros.
  • Moving swiftly to bolster Greece and instill some confidence in shaky markets, the IMF approved a 30 billion euro rescue loan as part of a broader combined EU-IMF bailout for the country totaling 110 billion euros.
  • "We now see ... wolfpack behaviors, and if we will not stop these packs, even if it is self-inflicted weakness, they will tear the weaker countries apart," Swedish Finance Minister Anders Borg told reporters in Brussels as he arrived for the EU meeting.
  • U.S. President Barack Obama and German Chancellor Angela Merkel spoke by phone earlier on Sunday about the importance of EU members acting to build confidence in markets.
  • Hopes the EU package would successfully tackle the crisis helped lift the euro, which gained almost 2 percent against the U.S. dollar and 3 percent on the yen in early Asia trade. U.S. stock futures also surged at the start of trade on Sunday.

Kick the can Sam.
  • " the measures taken before -- for the benefit of Greece -- a stabilization fund is just buying time for distressed borrowers," it said.

Updated Position Sheet

Cash: 85.9% (v 68.5% last week)
10.7% (v 24.5%)
3.4% (v 7.0%) [long US dollar positions are considered "short"]

This data is updated weekly and can be found on 'Performance/Portfolio' me
nu tab on the website. As always the total gain/loss (both dollars and percentages) only apply to the open portion of the position; it is does not apply to portions of the position sold earlier.

[click to enlarge]

LONG (1 photo file)




Friday, May 7, 2010

Las Vegas Sands (LVS) Narrows Loss

What a day to report earnings...

Yesterday evening, Las Vegas Sands (LVS) - among the hottest stocks in the market - reported its first quarter data. I had sold off almost all the position far too early in mid March. I placed a limit order at a small gap in the lower $17s that was created in early March. Amazingly, in yesterday's plunge LVS did NOT fill that gap, instead falling tot he 200 day moving average before rebounding like a yo-yo. As you can see below we are going to have some very screwed up charts in the near term as we deal with complete outliers created by yesterday's action.

Fundamentally the report was an improvement, but the stock is still trading on things other than earnings power. This is another backdoor way to get exposure to Asia, although the company obviously continues to have a large stake in U.S. ventures.

Via AP:
  • Casino developer Las Vegas Sands Corp. said its first-quarter loss narrowed as its gambling revenue rose and cuts that began last year helped keep its costs in check. The Las Vegas-based company led by billionaire Sheldon Adelson said Thursday that it lost $28.9 million, or 4 cents per share, compared with a loss of $80.9 million, 12 cents per share, a year earlier. Excluding one-time items, the company's net income was $53.5 million, or 7 cents per share, compared with $8.9 million, 1 cent per share, last year.
  • Sands' net revenue was $1.33 billion, a figure it called a record high, compared with $1.08 billion in last year's first quarter.
  • Analysts polled by Thomson Reuters expected Sands to earn 2 cents per share on revenue of $1.31 billion.
  • Sands said its quarterly revenue in the Chinese gambling enclave of Macau rose 24.2 percent to $945.8 million. The company said its net income for its Chinese operations increased to $113.3 million, compared with $36.9 million during the first part of 2009.
  • The company last month opened the its newest resort in Singapore. Adelson said the Singapore casino is attracting high-rolling gamblers from unexpected places, including Singapore, Indonesia and Malaysia.
  • In Las Vegas, where the gambling market is struggling, Sands said its Venetian resort was 89.3 percent full at $202 per night, while room and occupancy rates were higher at the company's Palazzo resort.
  • "This was a pretty solid result all around," said Sanford Bernstein analyst Janet Brashear. "They are showing better margins and you can't do that unless the tide has turned."
Debt was the major issue for this company, causing it to plunge near bankruptcy not 15 months ago.
  • Sands said it had $3.93 billion in unrestricted cash and short-term investments. It said its total debt as of March 31 was $10.46 billion, with $131.3 million due this year. Another $1.35 billion is due next year.

Long Las Vegas Sands in fund; no personal position


Thursday, May 6, 2010

A Picture Worth a Thousand Words

Yes it was real. And it's time to pin it on some hapless quasi government entity like Citigroup. Case closed. Move along. No more questions. Back to your regularly scheduled, low volume, melt up tomorrow. (with +0.5% coming in premarket if you are good children)

'nuff said.

[click to enlarge]

p.s. One can only imagine all the stop losses triggered today, leaving people with wonderful realized losses.

Redux from June 2009: Joe Saluzzi on HAL9000

I wrote a few times in the blog I believe circa 2008 that due to the quants, we will one day have Oct 19, 1987 repeat... but instead it will happen in 15 minutes. I think today was a preview of that. When you have a market dominated by a handful of players, who control 70% of the volume ... and all basically mimic each other. Well that sings Black Swan event. About a year ago I wrote this:

I will repeat what I said last year - this might keep working for a year, 2 years, 5 - even 10. But eventually this will turn on itself and cause a another Black Swan. Just as humans are apt to do, although I expect the speed of this Black Swan event caused by HAL9000s to be extraordinary. I could see October 19, 1987 literally happening within a 10 minute time frame especially if we continue down this path and even more money goes into these strategies. But until that day, certainly incredible wealth will be created by a small subset of firms while the rest of the investing class just looks like a 1910 Model T trying to buy stocks on... fundamentals (chortle). As we now know everything in financial America is about exploiting narrow windows, even if it breeds massive instability down the road - and then have the taxpayer clean up the mess. So we're on track here.

Long time readers will know I've been using HAL9000 for years to reference the quants... the algos...the machines. No one in position of power will question the owners of HAL9000 until something very bad happens. Because said owners are among the greatest lobbyists and want thing to keep going as they are. We are in a locust society...

I want to bring over a piece from Joe Saluzzi from Jun 2009 on the blog; [Joe Saluzzi Comments on HAL9000] Joe being one of the only mainstream guys allowed on financial TV to talk about it. In a truthful manner.

A few quotes:

  • Over 60% of equity volume comes from the high frequency traders (HFT). Basically, HFT’s are computers that execute trades with extremely low latency.
  • Our equity market is being controlled by machines that are nothing more than two bit, SOES bandits. They cloak themselves under the mantra of liquidity providers but they are really just locusts and are feeding off the equity market until it doesn’t suit them anymore.
  • what damage would they have done? We will be left with a shell of a market that is used to being led around by computers. Real people and real capital are a scarce resource in today’s market.

But don't worry - you'll be assured today's festivities were all just part of "the normal market" and just a fat finger or a computer error. Remember these are a benign class of computer who are only here to "provide liquidity" and skim a little bit off the top for themselves. Just ask them.

Just remember that Russian guy who dared steal Goldman's algo code and had the full force of the FBI borne on him within days. Who knew some computer code could be so important to national security. Investigate Madoff even when handed to the SEC on a silver platter? Give us a decade or two. Goldman quant code on the other hand? Bring every government agency to bear - we must fix this in 3 days or less. Justice *will* be served.

All part of your natural "free market".

Oh My.. We're Crashing



The other gap just filled !!!!!


I am selling my puts!!!!!!!! wow!

EDIT 2:57 PM - wow! quants gone mad... something went haywire and drove the market for a minute to -7%. After the gap filled we immediately popped back to -5% and now in the mid -4%. I'm stunned. Can't wait to show today's chart to anyone who does not believe in gaps filling on indexes.

Here is your "liquidity" baby. Good job HAL9000, thanks for nothing.

EDIT 3:08 PM - that happened so quickly I did not even get good prices on my puts. Wish I had the agility of a supercomputer - I could of sold the puts, turned around and bought calls and then sold the SPY calls 15 minutes later and said goodbye for the year, I'm going to the beach.

So the only question is whose HAL9000 went ballistic. Goldman's? RenTech's? Or Getco's? [Aug 28, 2009: WSJ - Meet Getco, High Frequency Trade King] But don't worry folks, they only provide liquidity... no one should question how RenTech has the best record of any hedge fund in history or Goldman makes money 98% of the trading days. Nothing to see here - just like Bernie. Don't ask, don't tell policy. Shh... they're just the smartest guys in the room.

Gap #1 on S&P 500 Filled! And How!

Wow, this is going down so fast I cannot keep up with the updates. Yesterday morning I wrote a piece to mind the gaps [Minding the Index Gaps]... gap #1 filled! That was 57 S&P points higher.

I added some SPY puts maybe 20 minutes ago and maybe 20 S&P points higher, can't type fast enough to keep up...

Wow, someone tell Ben to cut interest rates in an emergency move.

What's that?


S&P 1150 Broke

The market has fallen and cannot get up...

How quickly things change. Hard to really place any meaningful new positions ahead of a news event such as tomorrow morning's labor data*, or with the headline risk that comes out of Europe each night.

*I need to revise my guestimate for tomorrow's job gains, I was thinking well over 400K but I heard on CNBC someone say that they don't need as many census workers as they anticipated because the pool of applicants is so overqualified versus previous years. That's what happens when all your engineers and scientists are now unemployed since their jobs are in Mumbai. But at least they are efficient census workers. So if there is only say 175K census workers versus the 400K I was anticipating the number might come in around 200-250K instead?


For the bulls, a break of some support level and then a late day reversal with preferably a close at the high of the day is what they are seeking.

For bears, after months of news not 'mattering' and being laughed off the airwaves and blogosphere... well it is funny how quickly things change.

I don't really see any support below 1150 until the 200 day moving average of 1100. Perhaps I am missing something obvious. Only pit stop is that gap in between at 1124. I would think the market is getting oversold here and prone for a snapback rally soon. But we've seen moves continue in 1 direction much longer than normal the past few years.

Until things become more clear...

Swimming in cash


EDIT 2:15 PM - wow, 1136 hit. I was stopped out of my SPY puts not 26 hours ago at 1172! Could that nasty first gap at 1124 actually fill today?

EDIT 2:35 PM - are you kidding, 1126.

EDIT 2:38 PM - gap filled! 1124

Bookkeeping: Restarted Cummins (CMI) After Great Quarter

As stated coming into the week I want to redeploy some funds from weaker areas to stronger, and diversify the portfolio into sectors I have had little exposure to. One such area is industrials. This is not normally an area I ply except for a few names, and Cummins (CMI) is one of them. While an American global corporation, this engine company definitely gives a nice exposure to emerging Asia, as they were in India and China before it was fashionable. [Sep 23, 2007: Stock to Watch: Cummings Hitting on all Cylinders] Unfortunately, the company still has heavy exposure to the U.S.

Technically, the stock spiked 2 weeks ago in a stellar quarter and I thought "missed another one". But with the market weakness it has come back to "fill the gap" and now sits at the 20 day moving average. I am hoping this first purchase of a 0.6% exposure under $69 is a 'loser' and the stock drops a more - at least to the 50 day ($64s) where I'd be adding. If that support breaks I will have to reassess but for that to happen I think this selloff will need to be of the '8 to 10%' variety. Which certainly can happen. If so, purchase in the low to mid $50s should be very possible. For today I just went to create a starter stake and this purchase is more on fundamentals than technicals.

Fundamentally, this might have been one of the best 'beats' of the quarter on the bottom line (40 cents) as a huge amount of costs (read: human beings) were taken out the past few years [Feb 11, 2009: WSJ - Cummins Engine Shifts Gears Amid Stall] (Full report here).

EPS estimates for 2010 have been raised from $2.49 (30 days ago) to $3.10 (7 days ago before quarter) to $3.53. 2011 is currently over $5.11. Of course if the world goes into a new tailspin we know these numbers mean nothing but for now it is what it is.

  • Engine maker Cummins Inc. Tuesday reported sharply higher first-quarter profits on improved sales in fast-recovering markets like China and India, and the effect of restructuring charges in the year-ago quarter. The company also raised its 2010 sales forecast.
  • The company said it earned $149 million, or 75 cents per share, up from $7 million, or 4 cents per share, in the first quarter of 2009, when it posted restructuring charges of $66 million. Sales rose to $2.48 billion, up 2 percent from $2.44 billion. Analysts surveyed by Thomson Reuters expected quarterly earnings of 35 cents per share on revenue of $2.42 billion, on average.
  • Cummins said that three of its four business divisions showed improved profits in the quarter. The biggest improvement was in the engine and components unit.
  • Cummins saw a higher demand for its products in China, India and Brazil, primarily among manufacturers of trucks, construction and power-generation equipment.
  • One weakness for Cummins remains the North American market.
  • For all of 2010, Cummins now expects sales of $12 billion, up from prior guidance of $11 billion. Analysts expect $11.32 billion of sales.

Long Cummins in fund; no personal position

Bookkeeping: Stopped Out of 2/3rds of Remaining HDFC Bank (HDB)

Despite a wild valuation that seems excessive, I held a material position in HDFC Bank (HDB) as the "no one loses... valuation no longer matters" stock market continued ever upward. I did take half of the position off after a big run 1 month ago in the $145s, and then sat with the rest. Up to about a week ago that sale price was good, as the stock just went sideways. The stock began another run post earnings, but topped out mid $150s. Going into this week I had a stop loss order ready (in the $137s) below the 50 day moving average, and the selloff of the past hour triggered it. Hence 2/3rds of what I had left just was flushed - locking in about a 14% gain.

This is a position I'd like to remount but at a lower price (and better valuation). Something near the 200 day moving average would be a good place to begin rebuilding if and when. For now we only have a 0.33%ish exposure remaining.

Long HDFC Bank in fund; no personal position


S&P 500 Slumps Down to January 2010 Highs

Graphical example of what I was speaking about in previous post and why S&P 1150 might be some support for at least a cursory oversold bounce.

[click to enlarge]

EDIT 11:50 AM - the predictable cursory bounce off 1151ish did happen, and we go 4-5 quick S&P points. Now we are back to rolling over and in the 1151s. Now the real action happens.

EDIT 11:55 AM - Selling the puts bought about an hour ago here at 1151 area. I think this will provide support for a few hours and tomorrow morning we have news event risk with the monthly jobs report. Plus I need to soak in a victory. If 1150 breaks one can rejoin the fight.


Yesterday's Head Fake Over the 50 Day Moving Average Ruined a Nice Index Trade

I am mostly "out" of the market right now with a less than 15% long exposure but I am still chaffing over yesterday's lost opportunity. In the morning after the market gapped down and then rallied, I started first with a more conservative short using TNA ETF around S&P 1166. S&P 1171.50 was the 50 day moving average so I wanted to have something short against my much larger long position (I was about 20% allocated yesterday morning). Then as the bounce continued I went more aggressive with SPY puts around 1170.50. Since these options can lose (or make) a lot of money in a short time if the market is volatile, I vowed to sell with no questions asked if S&P got over 1172.50.

The market drifted around S&P 1168-1171 for an hour or so ...held down by the 50 day moving average. Things look fine. Then they/it spiked the market through the 50 day causing me, and I am sure others who fear the now almost constant "V" shape bounce on no news. The S&P peaked just under 1176. Then rolled right over.

I let go of both positions for moderate losses, but by the end of the day both would have been profitable. 10 S&P points on a near term SPY option can create a windfall. With the propensity for futures to be marked up 80% of the days since March 2009 I doubt I would have held them overnight so today's action would have been icing on the cake but most likely I would have not participated.

Reviewing my trade mentally (which I think is useful to everyone - especially your "losers"), I don't think I would have done anything differently but truly that 45 minute spike crushed a nice idea.

As for today, the S&P 500 has now broken below yesterday's lows and as I believed yesterday the intermediate term still seems lower. I cannot really find any support other than January 2010 highs ("1150") on the chart since the move up was relentless and without pause, creating very few natural support areas. If this move continues down, that will most likely be an area to make a stand for the bulls - we are most likely oversold "soon".

EDIT - as a reminder, below S&P 1150, next areas of importance... (a) gap #1 S&P 1124, (b) 200 day moving average 1100, (c) gap #2 S&P 1078. But for today I'd be tickled just with 1150 since I want a win of any kind.

I am going to (once more) attempt a SPY put position here but since my hand has gone ice cold for the past few weeks, my position size each time I am in a bad phase gets smaller and smaller. That way if the ice continues, the consequences are smaller. This too shall pass - it's been a very good 11 months of almost non stop wins since Jun 2009 and getting slapped around by the market happens from time to time.

EDIT 11:20 AM - that was quick, here we are in the S&P 1151s. Now it will be interesting to see if 1150 has any meaning and provides a support for bulls.

Long SPY May 115 Puts in fund; no personal position


"The Generals" (Leadership Stocks) Flashing Trouble

I always like to keep an eye on the leadership stocks i.e. "momo" favorites of the institutional fast money. Let us exclude Apple (AAPL) which at this point exists in it's own sphere of world domination - and Goldman Sachs (GS) which is in a whole 'nother sphere - many of the other 'go to' names are flashing trouble.

The amazing thing is *how quickly* it has happened - some of these stocks were gliding along their 20 day moving average 3-5 sessions ago without a care in the world... and in a span of a few days are now below the 50 day moving average. Now.... due to the relentless rally without pause from mid February to late April there are huge air pockets of no support, just as we see in the S&P 500.

Here are some of the names

Priceline (PCLN)

Visa (V)

Freeport McMoran & Gold (FCX)

Amazon (AMZN)

Normally I would include Google (GOOG) but since the Chinese blowup it has been acting horribly - whereas the "Chinese Google" is acting as if there is not a care in the world.

Now theoretically these are all "short set ups"... on any bounce to the 50 day moving average from below you can put on low risk shorts with stop losses on any break above. That said, except for a few weeks here, and a few weeks there the past 14 months "theory" has meant little.


Looking away from individual names, ETFs have taken on a far more important role versus even 3-4 years ago as computerized algo programs live to trade these things...

....we mentioned the Financial ETF (XLF) a few days ago as a key tell - thus far it is holding in.

Two others to keep an eye on... the consumer discretionary sector as represented by SPDR S&P Retail ETF (XRT) was near (at?) an all time high a few weeks ago, [Apr 14, 2010: SPDR S&P Retail ETF (XRT) Approaching All Time High] it has drawn back to support but still is ok.

And the commercial REIT iShares Real Estate ETF (IYR) - as "extend and pretend" has become the U.S. mantra (just don't call is Japan) - is among the strongest.

No positions

Freddie Mac (FRE) Requests $10.6B in Additional Bailout Funds

Lots in the shuffle yesterday was a day end request by Freddie Mac (FRE) of $10.6B in bailout funds. [Sep 7, 2008: Bailout Nation Continues - Fannie/Freddie Now Owned by You] Fannie Mae (FNM) should have its hands out in the next few days. $10 billion used to actually mean something, now it is not even worthwhile of being part of the headline news.
  • Freddie Mac (FRE), the second-largest provider of U.S. residential mortgage funds, on Wednesday asked for an additional $10.6 billion in federal aid after it lost $8 billion in the first quarter.
  • The new request will bring the total tab for rescuing Freddie Mac to $61.3 billion.
  • The company warned it would continue to need billions more in government funds because the housing market remains fragile.

No surprise now, as these firms are essentially being run for loss to help misrepresent free market prices in home values.

Just add it to the tab and let the hockey stick default rates continue. [Feb 1, 2010: 2 Graphs Showing Part of the Reason for the Christmas Eve Taxpayer Massacre] Remember as of Christmas Eve (perfect timing for the news cycle) the US taxpayer in on the hook for unlimited monies for the next 3 years to make sure FranFredron are happy campers. Why? Because Tim Geithner said so. [Jan 5, 2010: WSJ - The Treasury Department's Christmas Eve Masscare of the US Taxpayer]

Of course reform for Fannie, Freddie is nowhere to be found in any "financial regulation". [Feb 9, 2010: WSJ - No Exit in Sight for US as Fannie, Freddie Flail]
  • Treasury Secretary Timothy Geithner has said he does not expect any substantive changes to the system until next year at the earliest. (kick the can Tim)

To show you how socialized the US housing market has become, data last week showed that the 4 main entities (Fannie, Freddie, FHA, VA) have upped their share from an already astounding 90% of mortgages last year to just under 95% in Q1 2010.

[Nov 14, 2008: Freddie Mac First to the Trough]
[Jan 25, 2009: Freddie Mac Saddles Up for Another $35B]
[Mar 12, 2009: Fredie Mac is Back for More of Your Grandkids Money - $30.8B]
[May 8, 2009: Fannie Mae with Next $19 Billion Bailout]

Wednesday, May 5, 2010

Ford (F) "Double Top" Indeed

If you are newer to technical analysis and want to know what a double top looks like, look below. Of course you never know until after the fact but if you spot it early and have the gumption you can make some nice bucks off these formations, which are bearish. On April 29th I wrote [Apr 29: Looks Like a Potential "Double Top" in Ford] The chart looked like this:

Today? Double top.... indeed.

Of course with almost every stock moving in concert with the greater market nowadays (I have called this student body trading) knowing which way the market is going to move in now 90% of the battle (in the old days it was maybe 60% of the battle). So how much is Ford specific and how much is baby with the bathwater trading, who knows.

On the positive side, it was identified in theory with Ford. On the negative, no monetary gain was made.

As an aside, outside of the overall index charts, I am seeing a lot of stocks finally beginning to break down similar to Ford. Hence anyone with discipline will be taking stop losses on these type of positions as they break support, rather than attempting to catch falling knives.

No position

Bookkeeping: Stop Losses Trigger in Discover Financial (DFS), Quality Systems (QSII) and L&L Energy (LLEN)

What a frustrating day. My earlier short positions would have now paid off in spades... one of those type of weeks. 2 steps behind the curve.

On the long side, I placed a lot of stop loss limit orders in coming into the week - some of which are now triggering.

First all of speculative coal small cap name L&L Energy (LLEN) had a stop loss of $10.25 which hit. I had been stopped out of half the position two Friday's ago, and this is the other half for about a 14%ish loss. I am actually surprised at how well this one held in yesterday. And with that all 3 coal or coal related (equipment) names have been dumped this week.

Second, two thirds of Discover Financial (DFS) has been stopped out at just over $15 for a 7% loss.

EDIT 3:15 PM -- oops one more, Quality Systems (QSII) was stopped just over $62.00 this morning... another case of 2/3rds of the position gone. In this case it was mostly unrealized gains that went poof and I lost about 2.5% on the shares.

Long exposure is now down to under 14%.

Long Discover Financial, Quality Systems in fund; no personal position


Head Fake City

HAL9000 has really evolved into a sharpshooter daytrader. The intraday head fakes are quite impressive; it has certainly been smoking me left and right the past few weeks.

Today... looked like the 50 day would hold serve all morning.
Then we broke over.... scurry to cover fearing V shape move up.
Now we broke back under....

30 minutes from now? Who knows.

Too tricky of an environment to mess with, not my skill set to outguess this computer on a 30 minute interval with these type of shimmy and shakes. (as an aside Investopedia - which tracks my trades - has a 20 minute limit on holding positions so you can't daytrade even if you want to. With the action the past week you need to be jumping in and out in 5 minute intervals, not to mention 20 minutes)

It still *seems* like the intermediate term should be down... but HAL is not making this easy.


Bookkeeping: Throwing Some Hedge On

With this gap down open, and then retrace we have a nice opportunity to throw a lower risk hedge on the table. With the S&P 500 below the 50 day moving average, we can use that as a ceiling to stop out of an index short position. While we're heavily in cash, I want to marry the remaining longs with some index exposure short, so I'll go with short TNA ETF at about a 7.5% exposure up here near S&P 1166. I am not ready to play the SPY game here after having my teeth knocked in 3 times in the past 7 sessions.

Any move over and above S&P 1171 will basically make this form of insurance policy one that did not work out, and my main worry nowadays is that sort of chicanery would happen in a premarket session. As always, the close of the day is far more important than the intraday action but this early morning bounce after a combined 3%+ drop in most markets yesterday and the opening minutes today makes sense. Now, if the market acted like it used to, it would stop at or below the 50 day and roll over. I can only go by probabilities and assume at some point this market acts like it used to. If the market just goes straight back up through the 50 day like a knife through hot butter ... then we'll exit this position with a loss.

On the flip side, any move below the low of the day (i.e. S&P 1160 is broken) would be a cherished victory for bears.

EDIT 10:22 AM - Already right back to 1170.40 so here we are at the 50 day moving average not even an hour into the session; let's see if there is an ounce of resistance or V shaped bounce it is.

EDIT 10:26 AM - the 50 day seems to have restrained the bounce, so I am going to attempt a SPY put (May 116) position for the very short term with same logic as used above but with an even more low risk entry point. Since my directional plays on the market have been horrid the past 2 weeks, I will go smaller than usual, about a 4.5% exposure. S&P 1172.50+ and this will be gone. Period.

EDIT 11:44 AM - ok I tried.. failed again. This is an epic winning streak - sheesh. April and May the past 2 years have not been kind. I stopped out of both the TNA ETF and and SPY puts since we seem headed higher and the 50 day moving average is going to be an after thought.


Over the intermediate time frame, I will be looking to purchase some of the better performing stocks (based on fundamentals) whose charts are still ok.... or stocks in sectors I have little exposure to in increments over time. However if this is a more serious correction of 7-10% (which it looks to be the beginning of) some of those positions might be punted right back out since there is 100 S&P points before all gaps are filled.

In the long term, if the gaps we discussed this morning *are* filled it is going to be one interesting moment in time since it will mean the indexes broke through the 200 day moving average. Which almost seems impossible in this era of constant liquidity pumping by the Fed.

Short TNA ETF in fund; no personal position

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