Monday, October 18, 2010

[Trailer] The Best Government Money Can Buy

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As long time readers know I have a few pet causes that are tangental to "pure investing" but certainly very related to the macro economics of the country.  As the government - corporate complex becomes ever more ingrained and takes a strangehold on the country, the potential long term outcomes seem increasingly dire.  One must think about the social fabric of a country where a middle class is decimated, and large majorities feel voiceless and disenfranchised - in other countries this has led to some drastic type of leadership choices.  As I forecast things out 10-20 years - and assuming no changes to current trajectory, I believe the anger from the 'Tea Party' crowd could be just a precursor for what come down the road.  Hopefully I am very wrong.*

*I've never been wrong.**

** Ok, I lied.

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One of my long time readers, Scott, has produced a documentary titled "The Best Government Money Can Buy" - to be released on DVD Oct 26th; available on Netflix as well.  As we enjoy the market melt up to distract the masses from the seedy things going on behind the scenes (concurrently making us all 'rich'...circus and bread for everyone), if one cares to detach from the Matrix this looks like an interesting film.

Website link here.
Netflix link here.

Trailer below


The Best Government Money Can Buy? TRAILER from Cinema Libre Studio on Vimeo.



LOS ANGELES (September 29, 2010) – The January 2010 Supreme Court decision in Citizens United v. Federal Election Commission (FEC), pushed the door wide open for corporations to spend unlimited funds to advocate or defeat the election efforts of federal candidates. These 2010 mid-term elections are expected to be the most expensive campaigns on record. There are already 14,000 officially registered lobbyists working on behalf of special interest - which averages to 26 lobbyists to every member of Congress - and over $6.7 BILLION spent in the last two years to influence them. Coming to DVD on October 26, 2010, THE BEST GOVERNMENT MONEY CAN BUY?, is the first-ever, behind-the-scenes examination of the lobbying system and its influence on our elected candidates.

Veteran documentary filmmaker, Francis Megahy, takes a non-partisan stance in a comprehensive examination of the influence of K Street on our elected official. With spending on elections rocketing upwards in the last decade, campaign fund-raising now occupies at least 30% of a lawmaker’s time. The biggest source of campaign funds comes from large corporations, channeled through their lobbyists. AS a result, the number of lobbyists has more than doubled since 2000, with spending exceeding $13 Billion. It would be na├»ve to think that their clients don’t expect a return on their investment.

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Baidu (BIDU) Breaks Out Ahead of Earnings, and What is VMWare (VMW) Setting Up to Do?

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Baidu (BIDU) reports Thursday and since there is no fear in the market, speculators are buying at will.   A good Apple numbers should take BIDU over 107.50 (obviously they have nothing to do with each other but HAL9000 only knows "tech" as a sector) which could set the stage for a nice rally into the report.



On a side note, I did not mention VMWare (VMW) in the previous post but they also report tonight - expectations for cloud stocks have really dropped since the Equinix guidance a few weeks ago; a lot of the charts look poor, including darling Salesforce.com (CRM).  Now the question is, will the lower bar make a 'surprise' more probable?  The chart says worrisome things but a news event makes charts irrelevant in the near term.  That will probably be the most interesting report of the evening as a nice beat could send the stock soaring as most technical traders will have left the stock due to the 'action.  Of course some sort of disappointment will also be interesting to assess.




I am mostly out of this space since the intermediate charts are looking worrisome to me - for example, CRM shows a head and shoulders from mid August to beginning of October, and VMW from early August to "now".  If I had the cajones I'd actually short... but Bernanke has snipped me as he trains his bazooka at bears.

Long Baidu in fund; no personal position

Apple (AAPL) Massively Overbought Going into Earnings

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Long time readers will know the earnings game charade that Apple (AAPL) and the analyst community plays each quarter.  Apple beats their own guidance by a massive amount, then offers future guidance which is a joke... the analysts bump up their estimates over Apple's estimates by a small amount... the level of which of course Apple crushes in the following quarter.  Rinse. Wash. Repeat.

To that end I see Apple estimate for tonight at $4.06.  The range of 45 analysts is $3.43 to $4.43.   I used to be able to guestimate the Apple figure pretty well when I watched the quarterly report more closely, but I forgot the actual formula I used - essentially it was either to add a percentage over and above the median estimate, or over Apple's guidance.  Whatever the case we should expect a print near $4.40 give or take 5 cents.  That would be roughly a 20% beat versus analysts expectations.  At that time you act surprised, buy stocks in hand over fist function, while wiping saliva off your lip as the "Fast Money" crew goes to 24/7 hour coverage on the stock (versus the normal mentioning of it every 4th minute).

Year ago was $2.77 and the last 3 quarters have been a range of $3.33 to $3.67 so it's time to move that needle Mr. Jobs.

I don't recall if I've seen Apple be this overbought going into earnings but in this market overbought is just a state of mind; it means nothing to HAL9000... see silver for example.  I also don't recall the last time Apple sold off substantially on earnings (i.e. a 5%+ type of loss) - it has been that long.



Apple has a massive weighting on the NASDAQ, much like IBM has on the Dow (nearly 10%) - I highlighted IBM 2 weeks ago, and it has only continued to march on in non stop relentless fashion... buy high, and sell higher - HAL is definitely a momo trader.  IBM also reports tonight.


Party on Garth.

No position

Bloomberg: Netflix (NFLX) Analyst Misses 572% Rally

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On one hand I want to applaud this analyst for taking a contrary position in an industry where pack behavior dominates.  On the other hand, this is the difference between a portfolio manager and an analyst... you can be wrong for 572% and still keep your job. (or in his case, he was promoted by jumping to a much more visible firm)  In the words of one of the pre eminent crime fighters of the past generation - Mr. Wible missed the stock "by that much."



Let me be clear, I had (have) some of the same concerns Mr. Wible had in terms of the business of Netflix (NFLX) but at worst it kept me out of the stock - standing in front of a freight train is not something you can afford to do in the non analyst world.  So instead of fighting the herd, I've from time to time joined it - even if I have long term concerns.  Who knows how it ends up in a decade, but for now not being long has been wrong.



Via Bloomberg:

  • Tony Wible loves streaming movies from Netflix Inc. Ask the Janney Montgomery Scott analyst what he thinks of the company’s stock, and the affection ends there. Since April 2007, first at Citigroup Inc. and now at Janney, Wible has argued shares of the mail-order and online movie service are too costly or too risky. He has had a “sell” rating most of that time, with a couple of “hold” breaks. 
  • Clients who listened have missed out on the best stock in the Russell 1000 over the past 3 1/2 years and a gain of 572 percent. A $100,000 investment then in Los Gatos, California- based Netflix would be worth almost $672,000 today. A similar bet on the S&P 500 Media Index, which includes Time Warner Inc. and Walt Disney Co., would have fallen to $83,000.
  • “There’s no doubt we’ve been wrong on the stock,” the Philadelphia-based analyst said in an interview. “It’s been a bad call. What’s been phenomenal with Netflix is the Street’s propensity to ignore future risk.”  
  • Wible, 34, who holds a degree in economics and finance from York College of Pennsylvania, argues Netflix faces threats from Amazon.com Inc., Apple Inc., Time Warner’s HBO and cable companies that plan to offer fare online
  • The company’s $8.99-a- month Web-and-one-DVD service may cannibalize its higher-priced subscriptions at the same time that costs for film rights are rising. The pressure will build in the next year, he said.  “Netflix is a great product, it’s a great platform,” Wible said. “It’s just that its market potential is limited. This is a story about growth and momentum and those stories can break at any time.”
  • Netflix has almost tripled this year and has a market value of $8.15 billion. The company went public in May 2002 at $7.50 a share, adjusted for splits.  Gains in Netflix have been driven by rising sales and profit, as the company has taken customers from brick-and-mortar rivals such as Movie Gallery Inc., which is going out of business, and Blockbuster Inc., now in bankruptcy.
  • This year, sales are forecast to grow 29 percent to $2.16 billion, the average of 26 estimatescompiled by Bloomberg, from $1.67 billion in 2009. Net income is projected to increase 32 percent to $152.7 million.
  • On Oct. 6, Wible boosted his fair value estimate on Netflix to $110 from $61, based on 20 times projected 2012 earnings per share of $5.52.  “I look at Netflix as being like a cable network and I assign a value based on what I think is a really good cable network,” Wible said, citing Discovery Communications Inc. “While the growth profile on Netflix is higher, the risk profile is also higher.”
  • Netflix must win new customers at a faster clip to offset falling average spending by subscribers, Wible said. He predicts more users will drop mail-order plans, priced as high as $16.99 a month according to the website, for the $8.99 service.  (but costs will also be lower without having to pay for mailing)
  • In August, Netflix agreed to pay almost $1 billion for rights to movies from Viacom Inc.’s Paramount Pictures, Lions Gate Entertainment Corp. and Metro-Goldwyn-Mayer Inc.
  • Wible says competition will lead to content bidding wars that could force Netflix to raise fees on the 18.5 million customers it expects by year-end. That would slow subscriber growth even if Netflix succeeds in duplicating its service in other countries.  (important to watch how Hulu - which should IPO in the next year - does in this space)
  • “It’s a battle of philosophies,” Wible said. “There’s the Internet philosophy. It applies the ideology that big brands win with a first-mover advantage. Then there’s the media philosophy that content is king.”

On the other side of the ledger is the "first mover" advantage.
  • “The only thing better than Netflix at $9 is McDonald’s $1 menu,” said David Eiswert, manager of the Baltimore-based T. Rowe Price Global Technology Fund, which held 12,400 Netflix shares as of June 30.  The company’s biggest asset is its growing subscriber base, Eiswert said in an interview. A new entrant would spend $500 million to $1 billion for similar film and TV rights, and then have to win subscribers as Netflix becomes ubiquitous on Internet TVs, Blu-ray players and mobile devices.  “Sure, the risk is that a large competitor is going to be willing to step up and take a $1 billion hit to operating expenses for two years,” Eiswert said. “But that’s an awful lot of pain and what do you get?”

Sold my Netflix two weeks ago

Bookkeeping: Short Prudential Financial (PRU) Again

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I know it has reached a laughable state to attempt to short anything but I am going to keep taking targeted attempts, even as I am invariably stopped out within days.   I shorted Prudential 2 weeks ago another a whole series of moving averages.  Last Wednesday I was 'head faked' by the computers as they jerked PRU over the 200 day moving average before letting it fall right back down.  My stop loss was triggered and a small loss locked in.



I will try again, now using not the 200 day but last week's highs as the bogey; this will give me a 2.2% max loss barring a gap up type of situation.  This will be a 2.5% exposure; if I am not stopped out within 48 hours I now consider that a successful short.  The company reports the first week of November, so if somehow I still am in the short at that point, I'll be covering ahead of earnings.

Short Prudential Financial in fund; no personal position


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Bookkeeping: Closing iShares Barclays 20+ Year Treasury Bond (TLT)

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This ETF definitely took a turn for the worse last week - I flagged it mid week as a potential divergence (although in this market divergences mean nothing) but Thursday and Friday it really took it on the chin.   The only explanation I can think of as QE approaches is the Fed will be targeting shorter durations - i.e. 3 year, 5 year, 7 year and the long end of the yield curve now prices in some form of inflation.   But people much smarter than me might have better thoughts.   Goldman told us 2.4%ish 10 year bond would be the bottom a few weeks back, and as a primary dealer and most important private company on Earth, they might have nailed it.



Only a 1.4% loss on the remaining stake as this is 'slow money'.  This was a 'hedge' by the way; technically a 'short' for our bookkeeping purposes.  Like all the other shorts it did its job in losing us money the past 7 weeks.



No position


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Bookkeeping: Weekly Changes to Fund Positions Year 4, Week 11

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Year 4, Week 11 Major Position Changes

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

Cash: 64.9% (v 62.5% last week)
19 long bias: 29.8% (v 19.1% last week)
5 short bias: 5.3% (v 18.4% last week)  [Note: Long bond, & long dollar positions considered 'short']

24 positions (vs 27 last week)

Weekly thoughts
The non stop rally continues.  While there were some economic reports last week, and the beginning of earnings season nothing mattered other than QE2.  The FOMC minute meetings Tuesday confirmed this was the direction, and a Ben Bernanke speech Friday put a rubber stamp on it.  Everything else is just details to this market which believes in the healing of QE2 on all asset prices.  Just as in 2009, 2008, 2007, 2002, 2001, 2000 and any number of other years the "Fed will save us".  No one mentions the Fed is usually the reason we got here in the first place, and the damage from them 'saving us' is always the nexus of the next catastrophe - but that's an issue for another quarter / year as the giddy bulls repeat the same game over and over.

Usually rallies begin to tire at this point out from inception but this one continues despite some divergences last week, especially in the bond market.  It is is a one way orchestra of computerized algo's played by the master conductor.  No matter the weakness in banks, a NASDAQ which has lost a lot of its leaders the past 2 weeks, but content to suckle at the teat of Apple, Google, speculation in nonsense stocks, a rumor mill that puts just about any stock on the planet 'in play', or any other factor.  It continues, until it ends.

Bogeys are S&P 500 13 day moving average (1164), and 5 day moving average on the dollar - neither of which have been punctured during this entire move.

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In the week ahead earnings season reaches the heart of the matter. Most of the focus will be on being surprised by the beat by Apple.  Economic news will be released but has been completely irrelevant for the past month as good news = good news and bad news = QE.

Monday:  Industrial Production (9:15 AM)
Tuesday: Housing Starts (premarket)
Wednesday: Beige Book (2:00 PM)
Thursday: Weekly Unemployment Claims (premarket), Leading Indicators & Philly Fed (10:00 AM)

A lot of fed heads speak - Fisher Tuesday, Lacker & Plosser Wednesday, Bullard & Hoening Thursday.

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Portfolio 

Another week of sitting in quicksand.  I am at a loss of what to buy with all of our favorites either in parabolic moves with little to no rest, or looking damaged after some breakdowns the past few weeks.  I moved into some second tier stocks as a replacement but some of those broke out, and then reversed back down late last week even as the general market held in, causing losses.   On the short side, are you kidding me?  I had 5 short positions on last week and each one was stopped out within a handful of sessions... hedging techniques are mocked.  Overall I am finding it difficult to make any progress right now despite a market that seemingly can only go up.

For the portfolio I was stopped out of a bevy of individual short positions, and gave up on one hedge (volatility).  On the long side I bought some breakouts in secondary type names which looked solid until giving up the ghost Friday.  I also bought a solar stock just to make sure my magic touch was still there (the ability to crush the sector the moment I get involved) - I am still good on that front.

On the long side:

  • After being stopped out of shorts on Whirlpool (WHR) and China Automotive Systems (CAAS) Monday morning, I decided to try them long
  • I started to move into some secondary long positions, a "chicken" energy play with Kinder Morgan Energy Partners (KMP) which at least yields 6.3% if nothing else. 
  • Tuesday, not liking the 'action' in the cloud space - I closed out positions in F5 Networks (FFIV), Acme Packet (APKT), and Salesforce.com (CRM).
  • Added to Rovi (ROVI)
  • Restarted a stake in Baidu (BIDU)
  • Started a stake in commercial real estate stock CB Richard Ellis (CBG) as it had broken out of a long held range. 
  • Wednesday I bought some SPY Calls (4.5% exposure) as S&P 1180 was breached; for the day this was a winner but by the next day it was a loser where I sold out the incremental exposure. 
  • Thursday, I restarted Trina Solar (TSL) as a test to see if I could stop the sector in its track as per my history - test succeeded. 
  • Sold 1/3rd of Home Inns & Hotel Management (HMIN) for a 10% gain. 


On the short side:

  • Monday, stop losses of Whirlpool (WHR) and China Automotive Systems (CAAS) were triggered. 
  • Volatility has been sucked out of the market as complacency reigns - hence the VIX has been crushed, and with that the very poorly constructed ETF that tries to track VIX has been doubly crushed; I sold the last of iPath S&P 500 VIX (VXX) with a 17% loss. 
  • Stopped out of OpenTable (OPEN) for a 2.8% loss. 
  • Wednesday, stopped out of Prudential Financial (PRU) as it broke over the 200 day moving average. 
  • Thursday, stopped out of Shanda Interactive (SNDA) as it broke over the 50 day moving average. 

Sunday, October 17, 2010

[Video] Barry Ritholtz: Don't Fight the Fed - but I'm Only 55% Invested

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A quick video from Barry Ritholtz of 'The Big Picture' via Yahoo Tech Ticker









"You can't be short a market where the Fed is saying ‘we'll do whatever it takes to hold up every asset class,'" Barry Ritholtz, CEO of Fusion IQ and author of Bailout Nation says in the accompanying clip, taped ahead of Ben Bernanke's Friday morning speech.

But not being short is different than being aggressively long. After moving to 100% cash in May right before the ‘flash crash', Ritholtz is currently "half-in, half-out" of the market: Fusion IQ is currently sitting on about 45% cash and "slowly adding to long positions."

"We have a foot in cash and a foot in the long side," he says. "The market is fairly valued but there are all these problems," i.e. the litany of structural issues facing the economy - and that's before the emergence of foreclosure gate', which could roil the financial system.

On his widely read blog, The Big Picture, Ritholtz has been writing about the tug-of-war between the bearish macro backdrop and the market's rapid ascent since late August.

"This market has had repeated opportunities to roll over, to fall on bad news, to follow other bourses lower, or to take a modest sell off...and turn it into something more dangerous," he writes. "In just about every case, Mr. Market has refused to cooperate with the bears."

To all the "Fed watchers, politicos, policy experts and amateur economic wonks," Ritholtz asks a simple (yet profound) question: Do you want to be right, or do you want to make money?

If your answer is the latter, Ritholtz recommends "what's working", including the ADRs of emerging market stalwarts like Brazil, Chile and Korea; high-dividend paying stocks, notably in telecom; and farm equipment plays like Caterpillar and Deere.


"There's more going on [in the agriculture sector] than just a weak dollar, QE and some softness in the corn harvest," he says.

Updated Position Sheet

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Cash: 64.9% (v 62.5% last week) 
Long:
29.8% (v 19.1%) 
Short:
5.3% (v 18.4%) 


This data is updated weekly and can be found on 'Performance/Portfolio' menu tab on thewebsite. 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)



SHORT



OPTIONS




Get Your Cotton On

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Wheat, sugar, coffee, cocoa, corn, gold, silver - whatever speculators can get their hands on with fiat money (ex natural gas which is in a personal nightmare), it's time to bid it up to the moon.  Cotton hit an all time high Thursday - even higher than the speculative fever reached in summer 2008 in all things commodities (before they crashed) - before a frantic retreat Friday as Bernanke creates a Wild Wild West atmosphere in all soft and hard commodities.  Thankfully as long as you don't eat, use energy or (now) clothe yourself - you should see no ill effects.  As long as we all live like Ghandi we should be safe from the loss of purchasing power (that are only happening in our imagination - per government).

Much like in late 2007 to early 2008, we will soon have to worry about the impact of input costs to our dear corporations.  The lag effect is generally 2-4 quarters so about this time next year, the 'success' of Bernanke should be crimping profit margins for commodity users.  On the plus side, they can just cut more jobs to offset those rising costs and maintain profit margins... aka "success" at the Fed.




Via AP:
  • Cotton for December delivery fell 5 cents to settle at $1.0987 a pound after hitting a record $1.1980 a pound. 
  • It was the highest level for cotton since cash prices paid to farmers during the Civil War when blockades prevented shipments from leaving the South, said Sharon Johnson, a senior cotton analyst at Penson/FCG. "As long as I've been involved in this I've never seen anything like this," said Johnson, who has worked in the cotton market since the mid-1980s.  (one positive about this era of central bankers gone mad the past few decades is we get to see history made all the time)
  • In the past three months, cotton has rallied from a low of 73.01 cents a pound after adverse weather in Pakistan, India and China delayed or reduced the size of crops there. Traders also have taken advantage of the dollar, which has grown weaker recently against other currencies. Since commodities like cotton and oil are priced in dollars, traders can buy more product by using foreign currencies.

Long cotton clothing I hope to sell on Ebay at much higher prices during QE7 in personal account

Friday, October 15, 2010

Shanghai Jumps 3.2% Overnight to Cap off +8.5% Week

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The Chinese came back from holidays with gusto to buy speculative assets - it must have been difficult to sit aside when local markets were closed and watch every global asset on earth not named the U.S. dollar rally, and not be able to join the party.  They made up for it this week.

This chart is delayed by one day - the close Friday was @ 2971.



Via Bloomberg:
  • The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, gained 91.52, or 3.2 percent, to 2,971.16 at the 3 p.m. close, the most since May 24 and the longest winning streak since the eight days to Nov. 10, 2009. The measure has risen 8.5 percent this week, the most since Feb. 6, 2009, after the markets were shut last week for a holiday as global stocks rallied. 
  • The Shanghai gauge has rebounded 26 percent from the 2010 low on July 5; the measure is still down 9.3 percent this year as government efforts to cool the economy and avert asset bubbles helped drag the gauge down 27 percent in the first half.
  • “Expectations that the U.S. Federal Reserve will initiate a second round of quantitative easing -- the so-called QE2 - continued to occupy investors,” EPFR said. “Emerging market equity funds again enjoyed solid inflows during the second week of October as investors gravitated to the faster growth rates and appreciating currencies offered by this asset class.
  • Royal Bank of Scotland Group Plc turned bullish on stocks in China and the rest of Asia this week, saying they will benefit from a global “liquidity wave”.

Boo yah, we're all getting rich.  One only wonders why we don't have permanent QE each and every year - no one would need to work.

Thursday, October 14, 2010

Google (GOOG) Wins

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It was all a dream Bobby Ewing!

Everything is almost back to fall 2007... banks getting crushed, but the rest of the market ignoring it as it races to new highs.  :) All we need is some food riots in smaller Asian countries and we're in a Memorex moment.  Oh memories....  Google (GOOG) is even back to its old ways, up 7% in after hours on an earnings report that pleased.
  • The online search and advertising giant said it earned $7.64 a share excluding one-time items in the third quarter, against $5.89 a share last year.  Net revenue excluding traffic-acquisition costs for the most recent period rose to $5.5 billion, from $4.385 billion a year ago.
  • Equity analysts who follow Google expected the company to turn in a profit of $6.69 a share on sales of $5.27 billion 

Here is a "gap fill" in the opposite direction (upside) - see April 2010



      No position

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      Nice Melt Up

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      As any serious technician knows, when you have an intraday chart making a series of lower lows throughout the day, it is both sensible and predictable to expect a 180 degree turnaround in the closing hour and a melt up into the close.  Yep, right there in all the technical analysis books - just check appendix 82.1a.

      [click to laugh and enlarge]


      I was hoping to at least wait until tomorrow to kick the wall for selling my calls, but since the market is so 'efficient' it happened within 30 minutes.

      Again, if your market experience consists of "3 hours", at this point you have as good of a chance as I do as nothing conforms to traditional logical outcomes.  Obviously a close below S&P 1170 would have been at least a minor chink in the armor, as the market would be below a breakout level.  Could not have that.  Urgent buyer time.

      Long discovering new and innovative patterns


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      2010 Fund Performance Period 10

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      If, after reading the blog content you might have an interest in participation for the mutual fund, please consider reading why this blog exists. Conditional launch date should be November 2010.

      1. [Jan 2008: Reader Pledges Toward Mutual Fund Launch]
      2. [May 2008: Frequently Asked Questions]
      3. Our story in Barron's [A New Kind of Fund Manager]
      4. [November 2009: General Updates, Questions]

      Or if you are just here for daily market / economic commentary or stock trades to follow on your own, consider supporting the blog via donation (paypal buttons can be found on the upper right margin of the blog)

      ---------------------------------------------------------------------------

      For those who read the content of the website via email or RSS reader, you can come to the website at any time and click on 'Performance/Portfolio' tab in the menu bar to get updated positions (weekly) and performance.


      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)

      I will post an update of performance versus Russell 1000 every 4 weeks; we moved to a new tracking system in 2009 (Investopedia.com) as the old system would not allow shorting of individual stocks, among other "technical issues" that often came up. Hence while the website and portfolio began in August 2007, we "began anew" in terms of performance with portfolio "B" as of early 2009. Detailed history on latter 2007 and 2008, as well as 2009, [Jan 7, 2010: 2009 Final Performance Metrics] can be found on the above mentioned tab. For 2010 our tenth 4 week period is now complete. (Data is through last Friday's closing prices)

      (click to enlarge)








      Period 10 was another ho hum period for the fund, whereas the market was in continues melt up state.  Long exposure was in the right stocks until late in the period when certain 'cloud type' entities crunched performance a bit, whereas all short exposure was damaging.  This was a period of QE2 anticipation, dollar destruction, and every asset on earth rallying in concert.  Other than 1 selloff that last a few days (after a spike) it was mostly up or sideways action during the period.  Chinese stocks continued to lag while other emerging markets sang; commodities continued to shine.  


      For the tenth "four week" period of 2010 the fund returned +0.5%, versus the market's +3.6%, so an underperformance of -3.0%.
      On a cumulative basis in 2010 the return is +56,2%, versus the Russell 1000's +3.3%, so an outperformance of +52.9% for the year to date. (thus far 40 weeks)


      Period 10 was a period of absolute outperformance (making money) but relative underperformance (did not outperform the market). The yearly goal of beating the index by 15% is on track.

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      *** Long/Short Fund Discussion below

      Portfolio Overview:  The manager's performance continues to be "lacking" as buy and hold (and never sell) takes over the reigns during this period and much of the last.  A lack of long exposure, and hedging techniques both created under performance.  Correlations dissipated a bit so that was a positive - except a new correlation took over.  Dollar down, everything else up.  QE. QE. QE.  Our "cloud" stocks (although a much smaller portion of the portfolio than period 9) took a hit late in the period; multiple attempts at shorting individual equities were stopped out at 3-5% losses.  Las Vegas Sands (LVS) was a star, as were auto suppliers.  While happy to make some money even when ill positioned, the first half of 2010 was much more suited for our style - right now the "balls to the walls, cash is trash, buy anything that moves, everyone is a genius" style (circa NASDAQ 1999) of investing is dominant.

      Below is the chart for period 10:




      Week 1: Entered the week: Cash 67%, Long 19%, Short 14%

      Entering the week the market had just broken over the 200 day simple moving average, and the S&P 500 was testing early August highs around 1130.  It was either a 'double top' or a breakout situation.  Obviously it was the latter.  Economic news was very light - mostly just housing data but everyone was focused on QE.  After a big run I began taking profits in some positions - in retrospect, far too early.

      On the long side:

      • Monday, as Indian markets continued their recent surge, almost all remaining shares in Indian bank HDFC (HDB) were sold as the stock hit 30x forward PE. 
      • The last of 3 tranches of Amazon.com (AMZN) was sold as the stock hit extreme overbought levels.  Only a 0.1% exposure was kept.
      • A good sized amount of Spreadtrum Communications (SPRD) was sold, even though the position had just been upped the previous Friday.  With the stock up 10% in 1 session it was too good to pass by and more importantly I had placed a limit sell order at the 10% gain, which immediately hit.
      • Tuesday, a 1% exposure was added back to Cleveland Cliffs (CLF) as the stock pulled back to its 20 day moving average.
      • A modest 1.4% position in Thoratec (THOR) was restarted as the stock broke above multiple resistance levels.
      • Tuesday afternoon it appeared the market was finally going to break out so I bought some SPY 113 October calls... but with no follow through these were immediately sold.
      • A quarter of Gafisa (GFA) was sold as it was up 7% from entry.
      • Thursday, Power-One (PWER) broke support and seemed intent on staying there, so with a 17-18% loss the position was closed
      • Friday, Rovi (ROVI) was reduced by 55% as it broke support intraday. 


      On the short side:

      • Monday, the stop loss in Monsanto (MON) was triggered at about 4% loss. 
      • I had started a of Texas Instruments (TXN) the previous week, and one half was covered for a quick profit.  I reshorted that half position Monday.  After entering a stop loss, I realize I had a 'fat finger' and placed a limit cover instead so I lost the position.  Tuesday morning it was reshorted.  Mid day Thursday this position was covered for 'flat' - good timing as the company announced a stock buyback in after hours. 
      • Another batch of iShares Barclays 20+ Year Treasury Bond (TLT) was bought as the ETF came back down to the 50 day moving average.  I treat this as a 'short' even though it's not technically ... but it has moved inversely to the market for much of the past few years. 
      • Caterpillar (CAT) was at the top end of its range, so if the market could selloff it seemed ripe to book some profits on the short side - I shorted it Tuesday but had covered for a 1% loss Friday.
      • Wednesday I added some iPath S&P 500 VIX (VXX) exposure as well as minor index short shorts (BGU/TNA) as the market kept teasing the top end of the range. 
      • A short on Intuitive Surgical (ISRG) was covered for a 4% loss as many of the laggards in this rally finally showed some life.


      Week 2: Entered the week: Cash 74%, Long 17%, Short 9%

      QE. QE. QE. US Dollar down.  QE. QE. QE.  That summarizes the week.  Made a nice entry in Las Vegas Sands - that was the major positive move of the week.

      On the long side:

      • Monday, half of F5 Networks (FFIV) was sold
      • Wednesday, the majority of the remaining Rovi (ROVI) was sold after a big surge due to Apple partnership.  A limit order to purchase shares at the 'gap' from which it surged will be the plan to rebuy shares. 
      • Thursday after the market bounced hard for reasons no one could find after dropping on bad european levels, I went long some SPY calls.  The market reversed back down within hours, through S&P 1131, causing frustration and losses
      • Las Vegas Sands (LVS) was noted as a chart with a multi week base building; when the stock jumped outside of its range, the position size was increased materially (+3%).
      • Friday, because I appeared to be the last man on Earth not buying stocks I added to Thoratec (THOR), VMWare (VMW), Spreadtrum Communications (SPRD), and Riverved Technology (RVBD)
      • A new position was created in "shapewear" name Maidenform Brainds (MFB)


      On the short side:

      • Wednesday, Best Buy (BBY) was shorted as it kissed the 200 day moving average for 3 straight sessions.  This was covered the next day for a 2% loss as the stock broke over resistance.
      • Thursday, "good" existing home sales (the numbers were awful) rallied the market after bad european news led to a rarity - a premarket downdraft.  Index shorts (TNA/BGUwere shorted just below S&P 1130, but the market bounced for no particular reason during the day causing a forced cover.  Then late in the day the market plunged but our position was already gone.
      • A longer term 'insurance policy' was bought with a modest SPY put position - Dec 110 puts, hoping for a fill of S&P 1090 sometime in the next 3 months. 
      • Intuitive Surgical (ISRG) and Whirpool (WHR) were shorted. (reason: stocks nearing resistance)
      • Plantronics (PLT) was shorted as the stock was at a make it or break it level - a double top or not.  In this case - not.  The stock was covered the next day for a 2.5% loss. 
      • Friday, the 'best' short of the past few weeks - NASDAQ OMX (NDAX) finally broke over resistance, causing a 4% loss as we were stopped out.  The stock failed to rally with the market for weeks but finally succumbed in the "David Tepper" rally. 


      Week 3: Entered the week: Cash 64%, Long 26%, Short 10%

      Dollar down, everything up. QE. QE. QE.  Almost all short exposure was not in individual equities but 'long bond, long volatility' and I started a long dollar trade as a hedge.

      On the long side:

      • Monday, started Chinese Home Inns & Hotel Management (HMIN) on a technical breakout - if I was a very short term trader I could have been in and out of this position with a quick 6% gain, as the chart had laid out.  But once it did that, it stalled and fell back. 
      • Tuesday, Cleveland Cliffs (CLF) was sold as it was stalling.  However, as speculators moved into lagging names the stock ran with the 'energy' complex late in the week so thus far a bad sale.
      • As the S&P 500 fell back to 1131 area of support, I bought some SPY Calls with intent to sell 10-15 points higher (from 1133).  This played out very quickly, indeed within hours - but my fill price on the options was horrid and a 30%+ some gain was barely double digits. 
      • Added to Spreadtrum Communications (SPRD) on a sharp pullback to the 20 day moving average.
      • Thursday at the open, closed out 3 "market general" positions in Netflix (NFLX), Amazon.com (AMZN),  Priceline.com (PCLN).  In retrospect shorting all 3 would have worked out quite well, but you never know when these sort of stocks will finally exhaust themselves... 
      • Closed Thoratec (THOR) for non performance and reversing a breakout. 
      • Sold 20% of BorgWarner (BWA) to lock in gains, and 66% of Powershares DB Double Long Gold (DGP) as the commodity has been on fire. 
      • Added to Acme Packet (APKT) on a pullback to the 20 day moving average. 
      • A limit order for Salesforce.com (CRM) hit at a "gap" which coincided with the 50 day moving average; a tight stop loss was put in in case this is part of a larger move down.


      On the short side:

      • Goldman Sachs downgraded Intuitive Surgical (ISRG), so Monday half the position was covered, and Tuesday the other half - together about a 3% gain.  Not much but in this market it's a victory to make money on anything on the short side. 
      • Wednesday, shorted a second leg in Whirpool (WHR) as the stock reached closer to resistance levels.  The company actually warned on the year the next day, but speculators did not care as the stock barely budged. 
      • Restarted a position in the much hated U.S. dollar with Powershares DB U.S. Dollar (UUP) - this is being used as a hedge and for a trade, not a long term position.


      Week 4: Entered the week: Cash 63%, Long 25%, Short 12%

      Entering the week ISM Services and the monthly employment data were risk factors - but despite coming in "meh" no one cared.  QE was coming and everything else was just details. A breakout over key level 1150 led to some index plays, but the rally was short lived as Equinix (EQIX) warned on revenue, causing damage the next day especially in the leadership categories.

      On the long side:
      • Monday, took 1/3rd off of Las Vegas Sands (LVS) position after a 10-11% gain in 2 weeks on a sizeable trading position. 
      • Took a good chunk of Gafisa (GFA) off the table, after a 15% run the past month.
      • Tuesday, on the ISM release and a clear of technical resistance at 1150, TNA ETF and SPY Calls were bought for 'breakout' reasons (short term); at end of day 1/3rd of the SPY Calls were sold for roughly 35% profit.  The next day I sold the rest of the long exposure for much smaller profits as the market sold off.
      • Wednesday, an analyst downgraded Maidenform Brands (MFB) which acted like a stock in very weak hands, a tremendous selloff occurred, causing us to stop out as the 50 day moving average was punctured.
      • The "cloud computing" selloff had VMWare (VMW) break through key support, so this name was closed out.
      • A good size batch of Salesforce.com (CRM) was bought late last week at $111s area; with the "cloud computing" selloff, our stop loss of $107.50 was triggered so all the exposure bought last week, went right back out the window.
      • Thursday morning, bought back some exposure in F5 Networks (FFIV) and Riverbed Technology (RVBD) as they had come in with the 'cloud' plays - unfortunately the next morning Goldman downgraded FFIV causing pain, causing us to cut back until we saw if the name could recapture support quickly.
      • Cut back 75% of Acme Packet (APKT) as the cloud / momo plays continued to suffer Thursday morning.
      • Thursday, sold the majority of the remainder of Gafisa (GFA) (to lock in a 17% gain) and 1/3rd of Polypore International (PPO) - locking in a 21% gain.
      • Similar to a few other names this week, Mercadolibre (MELI) broke through some support levels - so the position was closed.
      • Sold 25% of Magna International (MGA) as the stock has run nicely the past 3 weeks.
      • Went long SPY Calls Friday afternoon as the market was impervious to selling off, and Monday morning melt up awaited

      On the short side:
      • Tuesday, a short on Whirlpool (WHR) was stopped out at 5% loss.   Reshorted it Thursday, as the stock fell back below resistance.
      • Shorted 3 technically weak charts Thursday - Prudential Financial (PRU), Shanda Interactive (SNDA), and China Automotive Systems (CAAS).
      • Shorted OpenTable (OPEN).

      [Sep 16, 2010: Fund Performance Period 9]
      [Aug 18, 2010: 2010 Fund Performance Period 8]
      [Jul 20, 2010: 2010 Fund Performance Period 7]
      [Jun 24, 2010: 2010 Fund Performance Period 6]
      [May 26, 2010: 2010 Fund Performance Period 5]
      [Apr 28, 2010: 2010 Fund Performance Period 4]
      [Apr 1, 2010: 2010 Fund Performance Period 3]
      [Mar 2, 2010: 2010 Fund Performance Period 2]
      [Feb 2, 2010: 2010 Fund Performance Period 1]
      [Jan 7, 2010: 2009 Fund Performance - Final Edition]


      For previous years please see tab 'Performance / Portfolio' (we were using other tracking mechanisms at the time)  

      Bookkeeping: Sold Additional Batch of SPY Calls I Entered Yesterday

      TweetThis
      Throughout the day I've been selling in 5-6 pieces the SPY calls I added yesterday as the market has weakened.  I was looking for a breakout once we cleared S&P 1170 which was my view of the "top of the move".   Instead we've enjoyed a reversal, so having an overweight in near term options when the market is not going your way is a very bad thing.  These were very much in the green yesterday, and today have caused a nice drawdown.  These were SPY 118 Oct calls... I still have my SPY 117 Oct calls which are a smaller stake of about 1.6% exposure.  There is a great possibility I will regret this tomorrow when we are 'surprised' by Bernanke's QE declaration, but I always put protection of capital ahead of potential profit opportunities and the 10%ish drop is at the outer bounds of what I'll accept in this type of stake.

      Tactically I should be buying index exposure on pullbacks, not breakouts in this type of contained melt up.  The strategy I utilize with these are better suited for big up days rather than 3 steps forward, 1 step back rallies.  So that was an error I'll blame on excessive Kool Aid consumption.

      p.s. my string of top ticking solar stocks looks Cap Ripken like

      Long SPY 117 calls in fund; no personal position

      x

      Bookkeeping: Selling 1/3rd Home Inns and Hotel Management (HMIN)

      TweetThis
      With the normal caveats (the market can only go up, selling anything is silly, yada yada yada) I am taking 1/3rd off one of my 2 China stocks Home Inns and Hotel Management (HMIN) - like many Chinese stocks it had a monster day yesterday and in about 10 days since buying is up 10%.   (obviously almost all of it coming yesterday)  Pure momentum traders will do the exact opposite of what I just did, as the stock has a nice breakout formation, even if somewhat extended...



      Long Home Inns and Hotel Management in fund; no personal position


      x

      US Dollar Cannot Even Hold 5 Day Moving Average

      TweetThis
      Dollar bulls are now showing in the 3% range which is a similar reading to Euro bulls in late spring during the Greece crisis ... the euro was roughly 1.18 to the dollar, and people were talking par (1.00).  Now the euro just broke over 1.40.

      This chart has a 1 day delay but similar to the 13 day moving average support on the S&P 500, we have such dramatic weakness that the dollar cannot even break OVER the 5 day moving average on a closing basis.  Today the dollar is down about -0.5% (off the worse levels of the day) but has continued the degradation.



      So sentiment is in the right spot for a counter trend rally - now we need to see a technical reversal before declaring a move could be afoot.  Since all my short positions have been ripped away from me, I am using this as a pseudo short vs the market...but on a day like today when the mkt is down along with the dollar, it is useless.

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

      Rubber Band Rule Pretty Effective

      TweetThis
      Yesterday I noted the market was approaching levels above the 13 day moving average where it typically corrected from during this rally.  There was still a bit of room to the upside (about 0.3%-0.7%) but the rubber band was being pulled quite strongly - effectively this is a simplistic way to speak of 'mean reversion'.   For now the pattern continues.... buying comes in on the pullbacks to the 13 day, and then the market rallies and gets 2-3% above the 13 day, and that is where selling and/or consolidation occurs.  It is nothing if not mechanically (silicon) consistent.

      One time this will be wrong.  The pattern is the pattern... until it is not.  Then you get havoc, and finally the bulls will get trapped.  Of course you never know which time will be the change.  I thought it would have happened by now, but we are not operating under normal quasi-free market rules (rarely have we the past 3 years but now its a level of extreme beyond compare).  So historical rule books are not working as well in 2008-2010.



      As of now, S&P 1158 is the 13 day and it should move up tomorrow a few points.  At some point QE is priced into the market, and I also have thought it would have happened by now, incorrectly.  So each time we have an event like Bernanke talking tomorrow morning, we have to see if the market shrugs it off.  There *have* been some divergences the past 24 hours - yesterday I noted the bond market (longer duration) reversing, and today even as the dollar is bludgeoned yet again we are not getting the "buy anything that moves" trade.  Are those warnings signs or irrelevant?  Obviously in 2 weeks it will be easier to tell you.

      I can print a litany of warning signs ... 93% of stocks in S&P 500 over 50 day moving average, rampant speculation in (pardon my french) s*** stocks, lack of leadership from former generals (the cloud computing stocks), and now rumors planted by banksters that Yahoo is going to be bought out (congrats to the CEO for $37M pay day for accomplishing no value add for shareholders by the way), or the latest buyout rumor: EMC Computer which is a fine $40B+ company.  Surely Oracle will be happy to spit out $50B+ to buy it...  after all, it's only money and we're printing more every second.  But lots of those signs have been around for a while, and QE has overwhelmed everything.   We need to see an event such as the speech tomorrow in which the market does not bid up risk assets on news EVERYONE already knows to mark any serious selling point... combined with a break of this 13 day MA (in my opinion).  When the QE2 meme loses its potency, we finally have a change.

      -------------------------------------

      As an aside, let me keep repeating - so it is not lost in the day to day - this will end badly.  Frankly almost every 'solution' of the past 3 years brings with it terrible consequences - because we refuse to take our medicine.  We just don't know when "it" happens... all we are doing is repeating the same policies that got us NASDAQ 99 and real estate 2005, and commodities 2007.  We are just making the bets bigger and more dangerous, and kicking the can of yarn (which each time it rolls, it grows).  I've written many times when we look back in a decade Bernanke will be viewed in the same harsh light as Greenspan... even though "the market" worshiped Greenspan when he was doing those things, just as "the market" worships Bernanke.  Look at these PE firms borrowing money to reward themselves as if its 2006 again, look at the hedgies bidding up risk assets with free money, look at the banks cost of capital near zilch (and they still can't get out of their own way).  Everyone is getting 'rich' off the risk assets (woo hoo) - why would "the market" not love central bankers like this?   Why am I talking like this?  I should be celebrating like a good ole Wall Streeter!  But as a common American - you should be anywhere from disgusted to fearful of what these people are doing.  Just as Greenspan refused to allow a real (cleansing) recession under his watch, and instead created a pressure valve that once blown brought down the entire U.S. financial system - Bernanke is painting the exact same portrait.   But like good Romans, we are supposed to enjoy the orgy while it happens and let tomorrow worry about itself - Cramerican style.  Just don't lose sight of the long run - the consequences of this 'recovery' are gong to be debilitating.   My only shock is as we repeat the same Fed induced bubbles now on 5-8 year cycles, no one questions those who bring us these issues repeatedly - instead we give them even more power.  Quite amazing really.

      Bookkeeping: Restarting Trina Solar (TSL)

      TweetThis
      The solar stocks have been screaming the past few weeks, as "risk is on" and speculative asset buying is back en vogue.  Aside from dry bulk stocks and financials, I am not sure if there has been a worse group since the peak of 2007.   That said, if you can avoid the huge downdrafts that seem to follow every rally, they are excellent short term trading instruments, if not really good investments.  To that end, LDK Solar (LDK) [which a reader was pounding the table on in comments last week] is up some 35% in 4 days.  Boo yah.



      Whenever I buy a solar stock, it does a good job of ending the rally... I am the ultimate contrarian indicator in this space.  So with that in mind, I am starting a 2% stake in Trina Solar (TSL) which is generally one of the slow movers in the group versus such 'special' stocks like Solarfun (SOLF) or really cool stocks like Evergreen Solar (ESLR).  (like a good zombie you can never really kill ESLR)



      Nothing quite marks the end of the rally than TM buying solar. ;)  If this doesn't stop the QE2 buying binge, nothing can. "I want my solar.com."



      Long Trina Solar in fund; no personal position


      x

      China September Trade Weakens Across the Board; No One Cares

      TweetThis
      I am being a tad tongue in cheek when I say all economic data is to be immediately ignored since nothing matters in a world of global liquidity tsunami but even I am taken aback on how NONE of the data matters.  This morning PPI came in hot on the headline number (that includes food and energy) - 0.4%.  That is 4.8% annualized.  Food alone rose 1.2%... in 1 month; feel free to annualize that.  I wrote about what Bernanke is going to do to food prices a month ago - I am just shocked the input prices have reacted like this already - corn up some 17% in 3 days... nice!

      Yesterday on the earnings front, two of the bellweathers of the market that reported earnings (INTC, JPM) actually fell post report, but the market did not care one iota.  On the economic front, the one country on Earth every other country is looking for to help them create an economic miracle showed a sharp slowdown in both exports (representing DEMAND from other countries) and imports (representing EXPORTS from other countries).  Yet not only was it barely mentioned in the financial media, no market on Earth cares because fiat currency is flooding into every crevice.  Even better, the Chinese market did not care ... in fact the market has gone boom boom since it came back from holiday.



      It truly is extraordinary times and something we're going to remember when we look back in a decade or two.  Although I expect we'll have many more extraordinary times with the lab experiments our global central banksters are running on us.   We are running a faith based market (buy on faith of money printing) in a ponzi economy - jaw dropping in all its awesomeness.

      (again, if you read the rest of this post - remember to forget it immediately, as it means nothing)

      Via AP:
      • China's September trade surplus stayed high at $16.9 billion. Export and import growth both weakened, hurt by slower global demand and a moderation in the rapid expansion of China's economy, the world's second-largest.
      • Export growth fell to 25.1% from August's 34.4% as Europe's financial crisis helped to cool global demand. Import growth also fell to 24.1% from August's 35.2%, a negative sign for economies that look to relatively robust China to drive sales of their goods.
      • "We'll probably continue to see more slowdown in trade because the global recovery is facing difficulties," said Citigroup economist Ken Peng. Demand for steel and some other materials is falling sharply as the government reins in a building boom triggered by its stimulus spending.

      These are still extraordinary numbers (if they are completely accurate) taken within a vacuum.  But in the context of what has recently been reported it's a substantial slowdown.  Every country wants to export their way to recovery but even China who buys almost anything that moves has seen a sharp drop month over month, in what they are importing.  And as the world's factory, China's exports obviously reflect demand in Europe / U.S.  Maybe it's just a short term blip... but at this point all data is irrelevant I guess.  

      Percent of S&P 500 Stocks Over 50 Day Moving Average Flirting with Recent Records

      TweetThis
      I only can see this statistics for the past 3 years, but any reading over "90%" is extreme, and at yesterday's print of 93% either this market has matched recent records or perhaps slightly surpassed.   Other than a few days in August & September 2009, and April 2010 we have not been in this level of the stratosphere.  "Everyone is a winner".

      [click to enlarge]



      If you are curious who the lovable losers are - per a screen on Finviz.com here are the dirty 7% (35 stocks):

      ADBE, AEP, AKAM, AN, AXP, BAC, BBT, CL, CRM, CTXS, DPS, ETR, FLIR, GME, HCBK, IRM, ISRG, LMT, MDT, MON, MTB, NRG, OI, PHM, PNC, PRU, QEP, SLM, TSN, TYC, URBN, VMC, WY, X, ZMH

      (interesting to note that 3 of the names are 'cloud' stocks - once the momo fans return to this group perhaps we can get closer to 95%+)

      Bookkeeping: Stopped Out of Shanda Interactive (SNDA) Short

      TweetThis
      It appears late yesterday my short in Shanda Interactive (SNDA) was stopped with a 2% loss around $40.15, as the stock broke over the 50 day moving average which has served as a ceiling.  No surprise here as Chinese stocks have surged the past few days; frankly the lack of performance in this name within that atmosphere is especially interesting.



      And with that every major short position is gone by the "no one loses" (except shorts & anyone who holds their wealth in dollars) market.

      No position


      x

      Wednesday, October 13, 2010

      Pulling the Rubber Band

      TweetThis
      As I mentioned earlier this week, the market has been dancing along the 13 day moving average for this entire rally from late August.  All dips hence are bought, and the corrections only take care of near term overbought conditions - they are very short term in nature and much of it is just sideways action.  In that context, I thought it interesting to see how far the rubber band could be pulled from the trend line (the 13 day) before the (a) minor pullbacks or (b) sideways action - begins.



      Sep 6th: 2.8%
      Sep 13th: 2.3%
      Sep 20th: 3.0%
      Sep 26th: 2.3%
      Oct 5th: 1.9%
      Average: 2.46%

      Today: 2.1%

      Hence a strong surge tomorrow or Friday premarket would lead to a short term oversold condition.  That does not mean any serious selling; just the kind that either has us go sideways to let the 13 day moving average 'catch up', or minor selling that takes the S&P 500 closer to the 13 day.

      Until the pattern breaks, the computers will keep playing the pattern.  Remember, they only look for patterns - they don't care about emotion or valuation.  It's irrelevant.


      Disclaimer: The opinions listed on this blog are for educational purpose only. You should do your own research before making any decisions.
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