Thursday, December 31, 2009

Resolve


Tonight we will simply (should be stay awake) toast in the New Year. In past years I've had a dinner party...small with some good friends. I've made some wonderfully memorable dinners. But not this year. I may not even try to stay awake this year. It's funny to think 10 years ago how there was much handwringing about the computers of the world coming to a grinding halt. We even know people who were hoarding food and water.

I'm not a believer in fear mongering. I'm not a believer in carping from the sidelines. I see much of the media sausage--to include private blogging--to be devoted to negativity. I've never believed that positive change comes about from that sort of mentality. Rather, if the amount of energy spent railing was channeled into working toward effective change and positive outcomes, we'd all be the better for it.

I'm planning on being economic in my resolutions and merely reprising my 2008 resolutions which I've listed above. I adopted this format as a balanced scorecard approach. I have all of those items filled in, but that is no interest to any but me. But I would encourage you think about taking a similar approach in order to balance how you think about your life.

I've been reflecting a bit this week. These reflections have been of an odd, meandering type, likely induced by a confluence of factors that I'll not bore you with. But as this year closes down, I've this distinct feeling that I've traversed over some imaginary threshold. I am not the person that I once was...and this is not a feeling that I've ever experienced. No, I'm not having some psychologically dis-associative event (not that I would even know what that is!).

Perhaps all of this is merely my having to embrace a new decade age-wise....I'll be 50 this year...and that is decidely on the tail end of middle age. I wondered about it so I consulted Wikipedia:

The US Census lists middle age as including both the age categories 35 to 44 and 45 to 54, while prominent social scientist, Erik Erikson, sees it ending a little later and defines middle adulthood as between 40 and 65.



Whatever the threshold I'm passing over--I hope to not trip. Ultimately, I resolve treat each day as the beginning of a new year (which it is!)and greet it with courage and grace for the opportunities and challenges that it holds. That seems like quite a fine way to begin.



~~~~~~

Saturday, December 26, 2009

Recommended Reading | The Three Books I Always Recommend





My list of book recommendations is short. Further, my list does not include the typical titles. But the question is asked many times, "What books do you recommend" and my inclinations to be lazy and have something handy are so great, I figured that I'd do a post. Plus I was able to use the cute picture of Minnah.




  • Psychology of the Stock Market, G. C. Selden: A 1914 copyright date reminds you as you reading it that the more things change, the more they stay the same. Though I recommend your buying this slim volume, it can be downloaded from Google books here.
  • Secrets to Profiting in Bull and Bear Markets, Stan Weinstein. The charts in the book are not of the quality that our contemporary eye would hold them to. I wished the book would get updated. But this book is the best "must read" for new investors/traders.
  • The Nature of Risk, Justin Mamis. This book will inform your thinking about risk in the market and cultivate an understanding of time risk, price risk and information risk.
(Side note: I read Weinstein long before I discovered Mamis. And in reading Mamis, I was struck that Weinstein's book spoke about similar principles. I later learned that Weinstein became the editor of Mamis's The Professional Tape Reader. For fans of Helen Meisler, she was mentioned in the forward to one of Mamis's books. He was her mentor--"the very best mentor one could have.")

I'm now going to add a fourth book to the the trio above:

  • Beating the Stock Market, R. W. McNeel. Another oldie--1924. It's a slim volume that reminds us that while the market seems complicated, it really isn't. I will forgive his chapter on Women, Poor Losers.
I particularly recommend these older books to people prone to thinking about the market as something rigged against them by ranting against the proverbial "They". Both McNeel and Selden's books address this sinister "They". Both authors opine, and I paraphrase, that it is the hobgoblin of minds that do not understand the speculative process. I believe them to be correct, and I note that the folks that rail the most against this so-called "They" are the ones that have the least success.

Best to free our minds of such shadows. The greatest force that prevents our being successful in the market is ourselves.

Thursday, December 24, 2009

Happy Holidays


My best to each of you during this time when a confluence of spiritual disciplines intersect and remind us of our collective humanity and the importance of having a bountiful spirit.


Looks like Santa brought a cat...

Sunday, December 20, 2009

Sunday Outdoors

Today was a pleasant day of walking the dogs through the snow. I took 164 pictures. Of those, there are about 15 that are good, and about 3 that are terrific. The pic to the left is from today, but I stylized it. I had to lay on the ground to take it. It was very cold.

The birds are frantic. There is no ground except where the roads have been plowed. Mark and I headed out to the Southern States for bird food.

There was a spectacular sale on the bird food--to include bird feeders. We bought black oil sunflower seeds (like heroin for cardinals and titmice). I bought some work gloves too.

It was a pleasant experience to walk into this store that caters to people who need to feed dogs, horses, birds and use outdoor tools. A small store that had it's own cat sitting in one of the beds--a delightful find for me. A considerate and helpful staff. They greeted several folks coming in by name.

Standing in line was a man buying food for his hunting dogs. He breeds beagles crossing blue ticks and tri-colored beagles. I laughingly said that must give them more ground clearance. He laughed back and said, "Walker hounds are too hard to chase!"

He mentioned that he sold several of his hunting dogs to a man in Buckingham County. Gave him a good price because he was also invited to hunt on the man's 1800 acres. He said, "People say that you are not supposed to fall in love with your hunting dogs. I love every one of mine." He showed us a picture on his phone of an 18 deer that was gracing the wall of the man's home. Two thirds of the points were on the right hand rack!

It was pleasant interaction among strangers--and a reminder that people are people regardless of their occupations. It's not what you do, but the joy in which you do it that matters.

Saturday, December 19, 2009

Weekly Sector Update

Another flat week on the broad market with just a change of .03% across the broad market but some interesting action underneath. Below is a summary of the best/worst performers. You can download the full report here which includes the full list below and weekly charts for all of the sectors.

(Click to make larger)

Friday, December 18, 2009

% Bollinger Bands | KAZ

I began this week taking a position in KAZ, and I wanted to revisit it with a technical indicator that I've been using with good success. Here's an annotated, daily chart:

(Click to make larger)

One of the most helpful technical overlays for me is using the % Bollinger Bands. I found KAZ by doing a search for narrowing Bollinger Bands. On the chart above, the indicator is behind the price, though you could have it separate. My preference is to set it behind the price but make it translucent so that it does not distract. The scale on the left is for the Bollinger Band %.

Extreme readings are unsustainable. As you can see, each time the reading peaked, the stock pulled in. Today KAZ had a most extreme reading at 1.34. I've noted the peaks with circles and showed the subsequent price action. Buying when the volatility is so high generally translates into your not receiving an advantageous price. (I noted my purchase price at $1.07 on the chart). Times of high volatility are an advantageous place to sell.

I did not sell into this volatility explosion--but I was sorely tempted. My position is rather small. If I had more shares, I would have sold into this. My expectation, as documented by the arrows above, is that KAZ will pull in. Notice, too, that it stopped at $1.30, and that was a previous place of resistance with much higher volume.

Let's see what happens to KAZ next week. It might just be an incendiary move that pops and then fizzles. The setup presented a very nice opportunity for a short term trade. The chart has some long term promise as well.

Wednesday, December 16, 2009

A Volatility Squeeze Play: KAZ

First a chart of our subject. This is a weekly chart of KAZ. I like to look at weekly charts when I do my scans.
(click to make larger)

I found KAZ in doing a sector view of Basic Materials: Independent Oil and Gas. I looked through every chart, and this one caught my eye. I guess you could say that I felt that I was shopping at the Dollar General store, because the stock price is just slightly above a dollar. Here's a summary of what KAZ from their website:

BMB Munai, Inc. (BMB) is an independent oil and gas company engaged in the exploration, development and production of crude oil and natural gas. The Company"s operations are primarily focused onshore in proven oil and gas producing territories of Caspian Sea region of the Republic of Kazakhstan.


Here's what I liked:
  • Volume constructive in October.
  • They've reported already, so bad news surprises were unlikely.(To be fair, though, I did read that they were working out their loans. Their balance sheet looked strong enough, so I didn't feel that there was much downside risk. Nevertheless, I included it below).
  • The Bollinger Bands (not on the chart) are narrowing and are inside the Keltner Channel. I believe a move is building steam.
  • I like the Volume by Price distribution....it's bottom heavy and there is some airspace above.
  • The stock took a hit when they had to issue one of the deadly "financial statements are not to be relied on" press releases. The subsequent restatement was positive.
  • The stock is trading at .26 of book value and it has positive equity.
Here's what I'm neutral to mildly disliking:
  • Institutions were bailing out on KAZ. At less than $1 per share, it becomes I tough hold--but...maybe that bailing created a fire sale.
  • They have some debt that they are trying to negotiate (see above). It needs to be reiterated here though.
Pluses outweighed minuses. This is spec money, so I took a position on Monday at an entry of $1.07. Had I been more patient, I could have had a better entry price for that day. Today the action was quite favorable.

I recently posted about HPJ. Perhaps I'll have a chance to see if I can follow my own codified rules. Stay tuned!

Position: Long KAZ @ 1.07

Sunday, December 13, 2009

Learning to be an Astronaut

It's not enough to find a stock in which to take a position, but it is also important to manage the position. The literature tells us to keep our losses small and let our winners run. Sound advice. However, when faced with a loss, our head often counsels this way: "If you (as if there's a two-party conversation!) hold onto this stock, it will come back!" Conversely, when faced with a gain our head (again thinking that it is apart from us!), has equally pathetic counsel: "Better to sell it now...you know what they say, 'nobody goes broke pocketing a gain.' Besides you big dummy look at those losers in your portfolio--be quick before this turns into one of those. "

It's worth remembering that your mind really doesn't have a mind of its own. And you can go broke by failing to take a gain. How? Simply by hanging onto your losers while tripping up your winners after they've made it through the first turn on their track to unknown price heights.

Let's take a look at one of my winning horses, HPJ. I had a 97% gain on this stock. And the stock lingered a wee bit too long (to my eye) for a follow through in volume. Plus, it was a volatility play, and selling into the volatility break out is part of the strategy. But rather than selling all, I could have done it more deliberately. Here's the chart (sigh!).


So selling was fine (more on that later). Re-buying after it comes back in is part of the strategy too. I did not do that. I passed on not one but two low volume pullbacks.

It is important to differentiate between hindsight bias and transforming 'coulda, woulda, shoulda's' into learning vehicles. What would my learning be from this trip down memory lane? What would I have done differently?

  • On first volatility breakout, sell 1/2 position.
  • On subsequent pullback, add to the position--now full position.
  • On second breakout, I would have sold 1/2 position again, and looked for another entry. As you can see from the chart, that is what some other eyeballs were looking for.
  • I would have sold 2 of 3 tranches into the melt up and kept 1/3 position.
Now plenty of folks keep buying into these melt ups. My DNA is not wired that way--not on these speculative stocks which can pop and drop rather quickly. But I want to learn how to ride a rocket ship longer before bailing.

Position: Lamenting HPJ - the one that got away and went up, up and away.

Saturday, December 12, 2009

Weekly Sector Update

Is it possible that another week has gone by? Is it possible that with all of the chop, drop, rock and roll that the SPY ended last week at 111.01 and this week at 111.11?

Yes, all things are possible in the market. Here's a slice of the the sectors showing all sectors with a +/- 2% change against the narrow move in the broad market--a reminder that there's always a bull or bear market somewhere!

(Click to make larger/clearer)

Sector symbols/data are from Stockcharts.com

To see my full weekly data sector report, you can go here.

Sunday, December 06, 2009

Weekly Sector Update

I've updated the DJUS Sectors. I've only included weekly charts, not daily this week. I've updated it on the "Resources" tab, and you can find it here.

There is much surmising about which way the indices will break. The choices are simple:

UP
Down
Sideways

Of course, you know that NO ONE knows with any certitude which way it will go. Frankly, I'm tiring a bit of the blowhards that have made all manner of predictions; cherry pick a few of the right ones; and chest thump their s0-called accuracy while ignoring all of the wrong calls that have been made.

All any of us can do is consider the weight of the evidence. I prepare the sector updates each week because I believe that having an understanding of the undulations among the sectors will give one some insight on what is holding up/back the indices. I offer this view which is an extract of the top/bottom performing sectors v. SPY:



Looking only at the SPY, there is only a modest decline over the week. But looking at the sector action, there are two "Holy Guacamole" sectors: Airlines and Business Training.

My point in sharing this with you is that by poking below the surface, you will see things that are not tipped by the hand of the index by a surface reading. Spending a little time looking at the undercurrents will give some insight. There is still sector leadership, but it is changing.

With the USD gaining some strength, then commodities are going to come under a bit of pressure, and you are seeing that in the results above. Also, multi-nationals who have benefited from the tailwinds of a declining USD will soften. I also believe that there is potential for some mitigation of the underlying fear of interest rates increasing to make up for the currency decline which might cause our foreign creditors to demand greater return.

If the USD turns down again (and yes, I'm aware of the arguments that predict the long term demise of our not-so-mighty dollar), then we'll see a resurgence in these sectors. And, we'll see a resurgence once the fundamental picture strengthens.

For now, the sectors that are declining are providing benefit to the economy as a whole because the cost of doing business is less. Watch the small caps for some strength, as they will now be the recipient of tailwinds.

Thursday, December 03, 2009

Great Basin Revisited

Since my last post on GBG, the company has reported earnings, and gold has gone into parabolic mode. GBG has not been the leader in any of this, but it is a name that I've held. It has been undergoing a very nice consolidation pattern, though it has been nothing short of a laggard. The volume patterns and price action appear constructive to my eye, and I expect this stock to break out with some earnest here.

Here's a chart of GBG through the close of the day yesterday:
(Click to make larger)

And, here is a chart of GLD in parabolic mode!

(Click to make larger)


Parabolic conditions offer great reward with commensurate great risk. While I would prefer that GBG not be such a laggard, my expectation is that there will be some price appreciation here. And my risk/reward modality is such that I would not enter new positions here.

Position: Long GBG

Wednesday, December 02, 2009

A Resource for You: AMBG Trading | Colored Commentary Video

AMBG Trading: Colored Commentary consists of two videos that is well worth your time to listen too. In fact, I'd recommend bookmarking the post and listening once a month as a refresher.

Tuesday, December 01, 2009

Post Reprisal: A Modest Proposal

I originally published this post almost a year ago. Given the news about loan modifications--particularly the paucity of mods, I'm lazily reprising my Modest Proposal in original form that can be found here:


I have an idea, likely hairbrained, but that will not stop me from stating it.

Here are some simple facts to consider:

* Anyone who bought a home in the last 3-5 years paid too much.
* Some of those people who bought a home did so under false pretenses--I'd not extend these benefits to them.
* Many of the those people are hard working Americans, who did not lie, who did not fully understand the egregiousness of loan resets etc, or simply believed that continually increasing home values would mitigate any concerns that they had.
* Home prices are falling and LTV ratios are very unfavorable for lenders.
* Payment/interest resets are putting borrowers (the good ones and the bad ones) under stress.
* The recession will put more mortgage/home owners at risk.

My proposal is not to help with the last bullet or help scammers or speculative borrowers. Here's my proposal.

Objective: To find a manageable way to help both borrowers and lenders to rework loan terms; keep borrowers in their home to the extent practicable; not deal an egregious blow to lender balance sheets for principal modifications.

Example: Borrower (qualified, and no falsification) bought a home for $400K and the loan value was $400K (LTV=100%). At the time of purchase the home's fair value was not impaired. Interest rate is 6.%; term is 30 years; payment is $2,400.

The home can now has a fair value of $320K. That is an asset impairment of $80K affecting both the borrower and the bank. The bank and the borrower agree to modify the loan provisions. We bring in another party. The Fed. (Why not?). The bank records a temporary loan impairment of $80K. This impairment is guaranteed by the Fed (or through some other arrangement) so the bank creates a deferred loss that is carried on the balance sheet and shown as a contra receivable.

The loan is modified so that the principal is now $320K, the payment term is 35 (420 months) years and the interest rate is 3%. The payment is now $1,232 per month, for a reduction of 49%. Each time the borrower makes a payment, the amount of the temporary impairment is reduced by 1/420 or $190 ($80K/420). The bank will record a loss in the amount of $190 for each payment made. (One could fashion some tax consequence to the borrower in the amount of reduced tax benefit of interest payments).

Periodically, the amount of the impairment unamortized balance will be reviewed. To the extent that the impairment can be recouped (there is a recovery in home prices that would make the $80K temporary impairment now $60K, the bank will reduce the impairment prospectively. The decrease in the impairment (net of expense already recognized) would be added to the principal amount of the mortgage and the future amortized expense reduced. (Loan receivable would be increased and the deferred liability would be decreased).

I realize that is pretty complicated way of monitoring values, and perhaps there is some regional house price index that can be used--like CPI--a housing price index: HPI.

I'm sure that there are lots of problems with the above, but I see a few benefits:

* Induces borrowers and lenders to work together;
* Allows the lender to not recognize an immediate loan impairment (as the Fed guarantees the temporary impairment); keeps the loan from becoming a non performing asset (so the bank stabilizes their asset ratios, but interest expense is reduced); reduces foreclosures; supports housing values;
* Allows the borrower to reduce their liability on the temporary impairment so long as they are making payments--so that is an inducement for them to make payments;
* Pings the borrower by reduced tax benefits of mortgage interest to the extent that they have received a benefit. (Rather than having to pay income taxes on debt forgiveness).
* Reduces the "freebee" perception by those who did not get themselves into the pickle.

Monday, November 30, 2009

Blast from the Past

I found this George Soros quote from a post I did November 27, 2007. I'm putting it by my computer.

Glenn...this is the quote that I referred to.

George Soros quote,

“Economic history is a never-ending series of
episodes based on falsehoods and lies, not truths. It represents the
path to big money. The object is to recognize the trend whose premise
is false, ride that trend, and step off before it is discredited."

Saturday, November 28, 2009

Sector Updates

I have updated the following chart books for you.

DJ US Sectors (daily)

DJ US Sectors (weekly)

Gold Stocks (weekly)

These are downloadable PDF's that are best viewed in 125% magnification.


Edit: 8:52 p.m. ---I added the Sector weekly charts.

Thursday, November 26, 2009

T Minus 11.5 Hours

It is 6:21 a.m. as I write. The day of the big feast. I have been awake for almost 3 hours, and up and at 'em for 2. The funniest things occur to me upon waking. I awakened to my subconscious bubbling up an unpleasant thought: I have brussells sprouts on the menu, I've nothing to make it with. Yes, it was on the list. My first shopping stop was BJ's--bless them for have marscapone cream cheese! My second stop, a regular grocery store was very close, and everything seemed so fresh in my memory from my list making and my BJ's foraging that I was sure that the few items that I needed would be a cinch. Oh, I'll remember. Last words.....last words.

It's like those brilliant investing ideas that one has....you have to write it down. Then....you have to look at your list. It's really quite simple. Why circumvent a simple system?

I'm going to work out my logistics for the meal today. Desserts are done. I elected to make a last minute substitution for a different pecan pie--one that calls for honey and browned butter. Browning butter without the benefit of caffeine at 5 a.m. is not something that I would recommend. Always best to have extra butter (and I have lots!). First batch was blech. In cleaning the pan for the next batch I burned my hand on the pot--of course I knew that it was still hot, but precision at that time in the morning is too much to expect (like shopping without a list). It is going to be a heavenly pie, though, and it is out of oven, cooling--glistening brown and fragrant.

I'll send my husbando to the store with the list of final things. I'm going to the garden to pick turnips for the potato turnip gratin. And I'm not too worried about not finding Brussels sprouts at the store...they never get sold out!

Happy Thanksgiving.

Tuesday, November 24, 2009

Resources for You

One of my oldest on-line blog friends is MarkM. We participated together in Bill Cara's blog. He's been a great friend to this blog with his insightful, enigmatic commentary. He even has a suite, er woodshed, when cussin', fussin', smokin' and drinkin', the lubrication of a healthy society, is needed for reparations of one sort or the other.

He has a blog, DURABLE WEALTH, PRACTICAL COMMENTARY ON THE CREATION, PRESERVATION AND TRANSFER OF WEALTH, that you can find here: http://durablewealth.blogspot.com/

Martin Pring is also out with an informative paper: Lost Decade: http://www.pringturner.com/newsletters/LostDecade.pdf On page three, he has a comparison of secular bear markets in terms of percentage loss over time.

And here's a video from Pring on reversal in bonds: http://www.youtube.com/user/mjpring#p/a/u/0/7rM0Me-BfR4

Monday, November 23, 2009

On Being Thankful

I believe that gratitude is an important quality. And readers know that Thanksgiving is my favorite holiday. It is about being grateful for the bounty of land that nurtures our body and grateful to our families who nurture us--body and mind. What better way than to celebrate these things than over a shared meal?

I believe that I'm cooking my 23rd Thanksgiving dinner this week. I had a small moment of panic this morning, as I could not find my recipe file. After an hour and a half I located it. And while you should never take investment advice from me, you can absolutely take cooking advice! I could also advics you on love and work matters too, but who needs advice on that?!

Posting will be sparse--so I wanted to take a small moment now to write. I have to work a bit tomorrow, and then I will do the shopping. Wednesday and Thursday I will cook and clean. My menu is as follows:

Brined Turkey
Ham
Brussels Sprout Hash with Caramelized Shallots
Potato and Turnip Gratin
Sausage and Cornbread Dressing
Spicy Pear and Pecan Muffins
Scalloped Oysters
Tart Cranberry Sauce
Maple Pecan Chocolate Tart
Sweet Potato Marscapone Pie


As I write it out it doesn't look like much, does it? It is a production though! It is very good though, and everyone looks forward to it. Normally I try one new dish...but not this year. It is possible that something will catch my eye, and I'll feel the need to serve it! I'm shielding my eyes! And after cooking all of that, I will not cook for the next three days!

I wish each of you a Happy Thanksgiving. May the market not serve you up a turkey!

Sunday, November 22, 2009

DJ US Sectors Updated

I've updated for you the DJ US Sectors. It is in a down loadable PDF which you
can find here. It is under the "Resources" tab, too.

I create this PDF to enable you to (1)quickly scroll through sectors and (2)easily see how sectors are performing against the broad market index. The sectors are the mosaic pieces that comprise the index picture.

Saturday, November 21, 2009

Cognitive Dissonance

Any of us that have had a psychology class are familiar with cognitive dissonance, though it is unlikely that we think about it in our everyday life. I needed a refresher on this definition, and I give it to you, courtesy of Dictionary.com.

Mental conflict that occurs when beliefs or assumptions are contradicted by new information. The concept was introduced by the psychologist Leon Festinger (1919–89) in the late 1950s. He and later researchers showed that, when confronted with challenging new information, most people seek to preserve their current understanding of the world by rejecting, explaining away, or avoiding the new information or by convincing themselves that no conflict really exists. Cognitive dissonance is nonetheless considered an explanation for attitude change.



I like to pay attention to things that bother me, as my subconscious has a lot on the ball. Readers are familiar with my "What do I have to believe is true?" wonderings out loud when I'm confronted with things that are perplexing to me. My current troubling wonder is the so-called dollar carry trade.

I don't pretend to be knowledgeable about the intricate logistics of carry trades, currency reserves and the like. I know enough to be dangerous....and I know enough to sense danger. I do know this: The USD is still the reserve currency, commodities are still priced in USD, and the boat is listing rather heavily to the side of the boat where the shorts are congregated. And being a contrarian just for the sake of being a contrarian risks one's being label a curmudgeon. Or, perhaps I'm just a coward and unable to take risks commensurate with reward.

But for all of the problems with the US economy and the dollar, we still have a pretty good system. (Or perhaps that is my rationale for dealing with this dissonance!). To me, being short USD (and long commodities) feels like shorting a stock that may have a takeover bid at any moment. Is it the 'smart' or the 'too-good-to-be-true' trade? Father Time always answers that question for us. And perhaps I need to do a little navel gazing to make sure that I'm not the one in the weeds and everyone else on the path to low risk riches.

Position: Long SMN.

Thursday, November 19, 2009

Tick Born Diseases

In Leisa-land, I have three dogs. Since Saturday, I've spent about $1100 in vet bills. On Saturday, my son discovered a wound on Macy. It was a three inch gash of undetermined cause (likely her barrelling her 72lb body through the woods to retrieve a ball). Very fresh. I took her to the vet for stitch/staples to include her annual "stuff". She tested positive for ehrlichiosis. Bill $~$300.

When Daisey and Ella went in a couple of days ago, Ella tested positive for ehrlichiosis. Daisey tested positive for Lyme's. I've not pulled 5 ticks off of the three of them. So everyone is on anti-biotics. Bill $800. Of my vet bill, $600 was for the heartworm and flea prevention for a year. I'm reminded that in these tough economic times, people struggling with paying bills find pet expenses to be unplanned--and unmanageable.

Tick born diseases are tough on humans too. Though tick season is ending, it's a reminder to ensure that your dogs are reviewed for exposure by your vet and treated accordingly.

Wednesday, November 18, 2009

WUHN Post Earnings

On Rev Shark's blog on Real Money a blog participant, Beaky, would often talk about "Fight Club" rules regarding buying stocks before earnings--to do so is a violation of Fight Club rules. Or, one could channel Dirty Harry as one contemplates buying a stock before earnings, and hear "Do you feel lucky today, kid?" Let's revisit WUHN post earnings:

Click to make larger/clearer

As you can see, quite a bit of volume came in two days before earnings---followed through on the second day with good volume and good price action. The third day--earnings--had the long black candle that you see in the chart above.

If you were buying on the breakout and just before earnings you were making an exceedingly high risk entry and have a bit more than a flesh wound. I don't buy those breakouts even under normal circumstances (though that is a very successful style for many); I surely would never buy it two days before earnings. Why? Well, I don't want to ask myself, "Do I feel lucky?" Rather, I want to ask myself, "What's my risk of entry at this price level this close to earnings?" Let's take a look at the price range in this stock in the last 3 days, and compare the range to the low of the day (LOD):



Let's look at one more chart with a volatility overlay:


The pink line is the % Bollinger Bands. As you can see, the price action and the volatility go hand in hand. I don't buy during those times. Another Fight Club rule is buying low volatility and selling high volatility. I believe that paying attention to volatility helps me manage my risk better. Or that's how I make my own luck! There is nothing harder to do than to sell into that volatility. The stock might just keep on going. Or it might not. Incorporating volatility analysis into planning my entry and exits has been the single best strategy for me this year.

Now, onto more mundane stuff to put a wrap on Wuhan.........

The earnings were not so bad--and their business is off due to their reliance on the steel industry. Let's take a quick look at some balance sheet 'stuff':


Click to make larger/clearer
While I'll take an entry on technicals (volatility squeeze set up) as I did with Wuhan, I like to hold based on what I understand about the company's prospects. For a company with a 30% decrease in sales, I do not expect rises in inventory (171%) and receivables (15%)--they should be liquidating. These numbers are worrisome. Let's take a peek at the backlog:



That softens the worry but just by a bit. I'm interested in seeing the follow through on WUHN to see how other participants react to the news.

Position: Long but with a speculative allocation.

Tuesday, November 17, 2009

The Importance of Having a System | Timing is Everything

My guiding light in the market is Marc Faber's perspicacious observation: Economic reality and the market's perception of economic reality are two different things. Think of it as two parallel universes and when those universes collide....well, we've seen those examples, and they are not pretty.

We know that things don't matter in the market until they matter. I want to encourage you to not be discouraged about the things that should matter but don't seem to. They'll matter. I also want introduce a tool for you that you may not have considered for organizing your own ideas: a blog.

Do not shudder. You, too, can have a blog--your own personal blog. Did you know that? You can create a private blog, and use the blog as your automated idea retrieval system. You can write your trading notes, your stock ideas, load your charts, create a tickler system, all in an instantly retrievable system. You'll then be able to watch your nascent ideas evolve and capitalize on the opportunity to act on those ideas. Being early or late to a move means we take on more risk. If you organize your ideas, to include your expected timing and assessed risks, you'll be in better control of information and time. That control will lead to better results. You can also do a post-mortem as well.

It is one of those obvious things that isn't so obvious. We know that writing is a discipline to concretize our jumble of thoughts. (Maybe your thoughts are orderly, but mine are jumbled and as readers know, sometimes I undergo a tortuous process for both of us to get it out of my head). But get the stuff out of your head and onto SOMETHING--and something that you can index/organize and retrieve.

We often see stuff that is 'fixin' to get ready' to do something. We note it. Then the move is made; we slap our head; we mumble our coulda, woulda's; we vow to do better.

I'm encouraging you TODAY to make good on that vow. Create your own digitized space. For your eyes only. Use it to upload your charts. Write your ideas. Link to interesting articles.

Having written this, I realize that I've let my own indexing system collapse. One of those housekeeping projects. Only 45 days or so until New Years. I've at least one resolution.

ATR: Weakness What Weakness?


After my observation that I thought the Containers and Packaging sector looked weak, they rebounded yesterday with vengeance! The market backdrop was exceedingly strong, so to see some resumptive vigor here is not surprising. Volume is still lower--and while volume instructs, price pays (or pummels if you are on the wrong side of it!).

If the market stays strong, then perhaps this group will regain footing and move forward. You know that aphorism about a rising tide lifts all boats (and containers)....it is something to be mindful of if we take positions counter to the broader market.

Position: Still watching!

Monday, November 16, 2009

Market Dynamics or The Stinky Thumb Rally

This market has been met with much incredulousness. We want the market to bend to our logic and comply with our wishes (which generally means enriching our held positions!). I was perplexed for a good long time before I came to embrace the notion that the market runs on emotions: fear and greed. Of course we know that; it is a mainstay aphorism.

I also have come to understand that fear and greed evolve into something more. We get a two-fer on this: Fear of being left behind and fear of missing a move. We have the bulls who have sat out this rally: scratching their collective heads when they were not sitting on their thumbs. I'm tempted to call this the stinky thumb rally--but that is not really polite, though quite descriptive. And we've have the equally bewildered bears who haven't seen a rally yet that they were not eager to short for fear of missing the next big move down.

And in the space between what the participants think the market should be doing v. the reality of the price action is then filled with all manner of speculation about the shadowy heads and hands that are mysteriously propping up the market. Those on the wrong side gripe about how unfair the market is, how rigged it is.

The market is no different than any other venue in life. Why should the market be fair? Life isn't fair. Business isn't fair. Neither love nor war is fair. Fairness in the market place--and we all know that 'fairness' really means that the market conforms to our expectations--is an ideal. If we are to be active market participants, we must understand the risks and the rewards. Energy spent hurling invectives about nefarious third parties is energy wasted in my view.

If we want an explanation of the market we merely need to understand this: money needs to find a return--and as money seeks return the interplay between bulls and bears will continue to fuel the market's upward march. It will come down again. It always does, but on its own time. When the bears stop shorting and throw in the towel in disgust and the bull's realize that the exit doors are looking a bit far away and narrow for the crowd to safely exit will mark the 'time'.

And not a moment before.

Sunday, November 15, 2009

DJ Sectors Updated

I have updated the DJ US Sectors PDF. You can find it here. It is 160 pp but you can scroll through it quickly. I presented the chart somewhat differently. I did not use candlesticks, but rather lines. I thought that it presented a cleaner chart. I believe that the benefit of looking at these charts is how they appear relative to another, and relative to the 13/34 EMA. One other change that I made.....I used a daily v. a weekly view. I want a little more granularity now with the market having advanced so much.

Saturday, November 14, 2009

Sector Selector: Containers & Packaging

I'm seeing quite a bit of weakness in the Containers & Packaging area. I wanted to highlight one chart, ATR and present you with a download with with other charts in this sector.

Click to make larger/clearer


I like to use the 13/34 exponential moving averages as recommended by John Murphy. This stock is showing significant weakness relative to those moving averages and relative to the broader index. Is it consolidating? Could be along with the broader market. I've no crystal ball. But I'm keeping my peepers and my mind on this group for shorting opportunities.

I was viewing this stock in conjunction with a broader sector view. Each of us must cultivate how we go about looking for opportunities (long/short) in the market. I like to look at sectors and stocks within those sectors. My personal belief (though I've no empirical evidence just my anecdotal!) is that poking about in sectors will give one a feel for what is supporting the broader market indices.

Sectors rise and fall in a syncopated fashion against those broader indices. Accordingly, focusing only on the indices (or even the ETF's) may prevent one from finding some 'action' away from the crowd. Once you hear about the action in the mainstream media, that is after a move has become newsworthy. Newsworthy= stale=higher risk to me.

I prefer to point and flush these out on my own. I've put other charts in this sector in this PDF for your viewing pleasure.

Position: Interested and watching.

Transport Today

Today is another transport day. I'm not sure if I'm driving, but I'll go to help. I'm hoping to take the day off, as I'm a bit under the weather--but no so much that I cannot drive if needed--a short jaunt to Fredericksburg.

This is Columbus, an Australian Shepherd mix. He will be going to his permanent adoptive home today. Quite a handsome fellow, too!

I'll post sector charts before the weekend's out. From that, I'll pick a sector to highlight for you in charts. I think that our northeaster has left us. I'll be glad to see the sun's shine, as it has been absent for too long.

Wuhan General: Update

As you know am an intrepid picker in what I call the Chinese boneyard of stocks. FINVIZ currently lists 154 China-based stocks. Pink Sheets lists 145 that trade on the pink sheets.

I own this symbol: WUHN, Wuhan General Group. I wrote about them first here, on October 21, 2009. I bought them because I liked the chart, and I liked the space that they were in. Here's a current chart through EOD Friday:

(Click to make larger/clearer)




As you can see, it had quite a pop on Friday--this is precisely the type of activity I would expect using this chart pattern.

I found this stock doing my low volatility scan. I liked the volume patterns, and I liked the "space" that the stock was in. However, because of EXTREMELY low float, it is a speculative stock at best. They also report on November 17, 2009 BMO. This type of chart pattern (low volatility, constructive volume, and basing) has been a successful chart pattern for me. I believe that the basing makes for a low risk entry. However, it is important to determine what you plan to do into the spike--I want to hold this longer term. I did not sell. But as a trade, I believe that selling into the volatility nets you a nice return. And there is always middling ground: sell part into the spike, and wait for volatility to collapse (if it does) and re-enter.

Position: Long WUHN.

Wednesday, November 11, 2009

Rational v. Rationale

Reader, Bryan, writes to ask me if I still use Marty Chenard's wonderful service: Stocktiming.com. I had to answer no. And in answering no, I was inspired to write a post on it. I'll try to be quick in getting to the point--but sometimes that is a struggle--as there have been some other mosaic thoughts that I wanted to cement together.

Technicals v. Fundamentals: Many claim to be traders on technicals, but are consistently overlaying fundamental arguments to persuade or dissuade a decision about entering/exiting a position. Ultimately, it is the price of a stock that that makes our accounts go up or down fundamentals notwithstanding, and our opinion about them be damned. Marc Faber's powerful observation that economic reality and the market's perception of economic reality are two different things. Nevertheless, there is much energy when those two worlds collide, and they always do. Readers know that I try to make sense of both. Further, my embracing the disparate time frames of those two time frames, as made a world of difference in my being (ahem!) early in applying my fundamental thesis to the market's current perception. Timing is everything.

Sentiment: I was having lunch with a very good friend...a career banker. We were talking about the market, and he was expressing disbelief that market was moving up. He proclaimed: "I'm a contrarian!" I looked at him steadily and simply stated, "But you didn't sell when the market froth was at its highest." Personally, I have trouble with sentiment indicators. What people say about their feelings and what they do with their money may be vastly different. They may think that the invisible hand of the market is on the toilet knob ready to flush and are 100% invested--with great trepidation. I've not done any research to validate that opinion, so I'll just throw it out at face value.

Are you tapping your toe now, wishing me to get on with it? As human beings, we are endowed with an amazing creative ability. Whatever we do not fully understand or comprehend our need for a construct in which to operate ASSURES that we will create a mental model to make sense of it all. If the market is going down, the market is going up, the market is going sideways.....we have all manner of media that is going to impose upon us a construct--a model--that gives meaning to the move. And, we know, because we pay attention to these things, that there are very smart people who presumably are observing the same thing, but come up with conflicting opinions about it. I would say that you want to embrace a reason for it too. So is that endowed creativity a blessing or a curse in navigating the markets? I'd say both...but the reasons are for another time and are certainly subjective.

Now getting back to Marty.....Marty has a very rigorous methodology where he is taking objective, observable points and using those to assess risk. It is rational--and from those rational observations he is assessing risk in the market. He also tracks institutional money flows. Money = liquidity = direction = markets rising when increased = markets rising when decreased. Pretty darn simple. But when the rational does not = our rationale, then we have a tendency to disbelieve the rational.

Why did I stop subscribing? Simple...Marty's objective observations--his rational--was not lining up with my rationale. My rationale was simply that we would have a bounce and roll over as I did not believe that we had a true bottom. Why did I believe this? Because the market never failed to go up on good news. I wanted to see the market playing possum for a respectful amount of time--and meet any good news with phlegmatic apathy. It did not comply. Ulitmately, the train left the station without me!

I'm in good company, to be sure. Therein lies the other seductiveness....you are always going to find terrific, exciting, intelligent compatriots that subscribe to your point of view. History is replete with wrongheadedness embraced by many.

So I ask you, how do YOU know if you are being rational or if you are engaging in rationale that is either prompting you to action or preventing you from action? How would I answer that question? I'm working on that, but I can tell you this....I'm going to get my label maker and print out a strip and put it on my monitor: Raional v. Rationale. Awareness is always the first step toward change.

P. S. After hitting publish, I re-subscribed to Marty's excellent service.

Tuesday, November 10, 2009

Federal Home Loan Bank System

I've become recently intrigued with an institution that I rarely hear anything about: The Federal Home Loan Bank (FHLB). With the implosion the credit markets involving all things related to home financing, this agency came under the purview of the FHFA along with Fannie and Freddie. My objective is not to go into any exhaustive analysis or even cultivate an opinion. Rather, I'm just reminding you of this banking system that we does not get much press--and to hit a few high points. I've no special knowledge on any of this, and everything that I present here is from 'stuff' easily found on the internet.

Here's an overview from their website that you can find here. The emphasis added is mine.

The Federal Housing Finance Agency (FHFA) was created on July 30, 2008, when the President signed into law the Housing and Economic Recovery Act of 2008. The Act created a world-class, empowered regulator with all of the authorities necessary to oversee vital components of our country’s secondary mortgage markets – Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. In addition, this law combined the staffs of the Office of Federal Housing Enterprise Oversight (OFHEO), the Federal Housing Finance Board (FHFB), and the GSE mission office at the Department of Housing and Urban Development (HUD). With a very turbulent market facing our nation, the strengthening of the regulatory and supervisory oversight of the 14 housing-related GSEs is imperative. The establishment of FHFA will promote a stronger, safer U.S. housing finance system. As of June 2008, the combined debt and obligations of these GSEs totaled $6.6 trillion, exceeding the total publicly held debt of the USA by $1.3 trillion. The GSEs also purchased or guaranteed 84% of new mortgages. Considering the impact of these GSEs on the U.S. economy and mortgage market, it is critical that we intensify our focus on oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
I thought the highlighted text to be an eye-popping fact. There are two other GSE's: Farmer Mac (AGM) and the Farm Credit Administration--both serving agriculture. Readers may remember the lonely trade that I did not take--shorting AGM. Here's the post. Let it serve as a reminder that there are many jewels of ideas for trading that are not in mainstream media.

The FHLB is a collection of 12 banks (with links to their websites):

Boston | New York | Pittsburgh | Atlanta | Cincinnati |Indianapolis | Chicago
Des Moines | Dallas | Topeka | San Franciso | Seattle

Each of the above are wholesale banks serving as a cooperative within the geographic areas that they serve. As a cooperative, they have members

FHLBank members include thrift institutions, commercial banks, credit unions, and insurance companies. A financial institution joins the FHLBank district that serves the state where the institution's home office or principal place of business is located.

From website.


which purchase stock from the FHLB that serves that geographic area of the member.

The FHLB system allows member banks access to affordable financing for their lending operations. The member banks, in exchange for these loans, pledge collateral. Accordingly, the FHLB debt issuances are supported by collateral. The quality of this collateral is derivative--meaning that the value is ultimately derived from: (1) credit quality of the end borrowers and (2) valuation of the collateral. You see where I'm going with this, right?


The table below is taken from the July 2009 Report on Federal Home Loan Bank Collateral for Advances and Interagency Guidance on Nontraditional Mortgage Products This table shows the concentration of Subprime and Non-traditional Mortgage Collateral.
(Click image to view)

The next table shows the loan to collateral ratio

(Click image to view)
Source: July 2009 Report on Federal Home Loan Bank Collateral for Advances and Interagency Guidance on Nontraditional Mortgage Products


The higlighted data point is FHLB-Seattle which was recently cited by the FHFA as being under capitalized. The last column is the system wide coverage ratio of 160% which increased from 152% in 2007. Also it is important to note that each FHLB is jointly and severally liable for the obligations of the others.

The collateral offered may also include mortgage backed securities that the member banks might hold. It is a reminder of the cyclical nature of of this 'stuff'. Fannie Mae, Freddie Mac and Ginnie Mae securities that many conservative institutions bought due to their perceived safety. It is important to note that ONLY Ginnie Mae Securities are backed by the full faith and credit of the United States. Freddie and Fannie are 'wards of the state' as the are in conservatorship. But the domino effect of an implosion is evident as these balance sheet holdings served as collateral and supported capital of the institutions that held them.

For any of you who read financial statements, the next graphic Taken from
First Federal of Northern Michigan Bancorp, Inc.

press release shows where you see the stock purchased from FHLB as well as the advances.

(
Click image to view)




If any of this whetted your appetite to learn more, I'd encourage you to seek out the following resources and perhaps appropriate counseling!


In another post, I'll introduce you to the agrarian world of high finance.

Monday, November 09, 2009

DIA & SPY End of Day Look

I generally stay out of discussions regarding the PPT and other shadow money that is moving around like an invisible hand to pick the pockets of small fry investors/traders. The existence or not of such forces, any of our jobs is to swim in the waters of our choosing.

Nevertheless, I do marvel that, for those who are short the market, their failure to realize that their pain is often the rocket propellant for the moves up. I know, I've been that pain from time to time, and I've a little pain going on now--but not teeth gnashing, weeping and wailing pain. A dull ache!

You know that one of my favorite little market books is G. C. Selden's Psychology of the Stock market. It is available through Google's books on line. You can find it available for download here. It is one of my favorite books. And though with a copyright of 1914, the commentary is fresh as ever.

The main point of their argument is
that the state of mind of a man short
of the market is radically different from
the state of mind of one who is long.
Their whole study, in such a conversation,
is the mental attitude of those interested
in the market. If a majority
of the volatile class of in-and-out traders
are long, many of them will hasten
to sell on any sign of weakness and
a decline will result. If the majority
are short, they will buy on any development
of strength and an advance may
be expected.

G. C. Selden, Psychology of the Stock Market, p. 11


I pulled charts on the DIA and SPY. Simple charts as I wanted to see some of the dynamics given today's thrust on low volume:


The oscillator (I use the Ulitmate Oscillator), is divergent from the price action in both indices. I look for these divergences, and I treat them as a heads up.

Positions: long SPY DEC puts and DIA NOV puts.

Sunday, November 08, 2009

GBG: Great Basin Gold

I own one gold stock---Great Basin Gold. It's an immaterial holding in my account, but I do have 2K shares @ $1.53 per share.

Here's a chart:

Click to make larger

This apex is my favorite thing to watch....the stock is fixin' to get ready to move. The news tomorrow will determine which way! Do note the volume patterns in this stock.

I'll pull a chart for you later in the week....to see how it pans (!!) out.

Position: Long GBG.

Gold Stocks Weekly Sector Chart

Gold continues to be at the forefront ofthe media. To enable your ease of review of charts in this sector, I have created this PDF.



Important note: When I create sector charts, it is for the purpose of providing readers with access to quick charts for many stocks in a sector that I feel may be broadly interesting. Because these are all-inclusive charts AND I do not mention individual stocks, I do not disclose any positions that I may have.

Transport Notes


Yesterday was a long day. I did a double run (Richmond - Springfield) for the animal transport. We had two older puppies, one cat and 6 tethered dogs. Pups, small dogs and cats are always in crates. Tethered dogs pose some interesting logistics because they are riding in passenger vehicles (sedans/SUV's) of various sizes. Temperament, then, plays a large part in who rides with whom. Abbott was an 8 month old massive boy. He needed to be in a car by himself. He appeared to my eye to have some Akita in him. We agreed that he would ride as a single tether in the other volunteer's Passat.

One of my clients, who is also a very good friend, lets me use an extra company vehicle. It is a Ford Freestyle, and is perfect, as I can fold down all of the seats to make a 'van-type' back.

Alpha dogs (male are female) have to be considered carefully. I had three females. Sapphire rode shotgun (passenger seat) with me. I had to 'humpy-boys', and I had to crate one of them, Stanley. I tried some MacGyver contraption with a gate to keep my other humpy boy, Sampson, in line. It worked until one of the girls, Dana, took a dump about 10 minutes into the trip. I had to get off the interstate. Unfortunately, my protective covering was short by 2 inches. She had a 6-inch diameter dump, and managed to hit the uncovered portion. I got up what I could and covered the spot with a towel. But there was that 'odor' wafting about the entire remaining passage.

If you've ever ridden with a dog in your car, you know that they are very sensitive to changes in speed. So slowing down is some sort of 'signal' to them that they need to do a 'heads-up'. In this particular instance, I was stopped, and all heads and tails were up. That's when my MacGyver contraption failed. I'll not bore you with the details on the contraption, but it took me about 8 minutes to get everyone untangled--and somehow one of the leads which was clipped on the collar also managed to get clipped onto the gate (which is made from wire). So the dog basically was hung on the pen. Thankfully, none of them panicked, and none of them snipped or snarled at the other. They placed complete trust in me. Sapphire was interested, but she stayed in her seat.

I decided that my other humpy boy, Sampson, would just have to be loose. Thankfully, he responded to my voice when I yelled at him to settle down when he had "other" ideas. Stanley in his crate was snarling (not sure why as he was a really sweet boy--probably didn't like being thwarted), and Claire snapped back at him. I yelled at her, yanked on her lead, and she stopped and came forward. 30 miles later, they were all asleep, each resting their head on the haunch of another with Sampson's head on the lip of the bed closest to the front. (He did not like my yelling at him or anyone else, and he was anxious to please).

All in all I had to drive about 260 miles round trip. It makes for a long day. Sapphire was on her way to West Virginia to an adoptive home. Because your 'shotgun' passenger is so close to you during your trip, you always bond with them during the drive. This time was no different.

Here are Dana and Sampson. I did not have pics from the shelter for Claire and Stanley.

Saturday, November 07, 2009

A Watershed Week

This week has been a bit of a watershed week for me. Some time ago when I was underwater with my work schedule (and this blog was a wasteland), I received an invitation from Seeking Alpha to be a guest contributor. I put it in an "action" file, but was still mulling over it in a vague sort of noncommittal way. They recently sent me another invitation within the last week. And....I received yet another invitation to write from another source.

Another 'thing' occurred this week, that was fortuitous in that it FORCED me to address my inertia regarding the first invitation (read: introspection). An appreciative reader mentioned my blog on another another blog (where the folks are serious traders and serious technicians), and I felt embarrassed. Why? Because in that company, I feel like my small insights, or whatever they might be, are not really 'worthy'. Here I was given a supreme compliment, and my reaction (inappropriately) was embarrassment.

You'll have to understand, too, that I'm that way in my work life and my personal. But dammit, if one doesn't learn how to be gracious about getting compliments, one will not get any! Modesty is a terrific trait, but it can be taken to an extreme. It took me six months to screw up enough courage (with the generous support and encouragement of an internet friend) to link my blog to my name.

While I promise NOT to become arrogant, I'm going to dispense with this posturing. I'm going to take a risk. That's what it is, isn't it? A risk that someone is going to read something I wrote and levy some harsh judgment--deserved or not. I guess what it comes down to is that I'm thin skinned!

I've been experimenting with you guys now for 1,296 posts (soon to be 1,297) over the last three years. We have a small, quiet corner of the world here, and I like that very much. It feels comfortable and intimate. My readers may not be legion, but they sure are loyal (and bashful, too!).

Thursday, November 05, 2009

Hunting for Volatility Squeezes

While I consider myself a serious student of the market, I don’t call myself a trader. But I do trade and have done so with reasonable success. This year, I incorporated a new dimension into my trading: volatility. Simply put, I’m buying when volatility is low, and I’m selling when volatility is high—and I’m doing so on charts that appear to be good candidates for long entries. I’ve not used it for short positions.

The point of this post is not to go into an in-depth analysis regarding volatility, but rather to introduce to you this concept and provide some actual examples. I think that you will have fun experimenting with it. I'll mention, too, that John Carter uses this in Mastering the Trade . But I cobbled it together for myself (after first experimenting with Donchian Channels) before reading his book. I believe it to be a book that belongs on most traders bookshelves.

Method: There are two technical indicators deployed: The Keltner Channel and Bollinger Bands. Like most indicators, both of these are measurements that are incorporating time and range of price movement that the user defines. For this method, I am specifically hunting for stocks that have the Bollinger Band nested INSIDE the Keltner Channel. Carter notes this as quiet periods..."period of reduced volatility and signals that the market is taking a significant breather, building up steam for its next move." For the Bollinger Bands, he uses 20 and 2, and for the Keltner Channels, 20 and 1.5. I started out using 10, as a parameter for both, and I've not changed it. But I wanted to share the parameters a vocational (Carter) rather than an avocational (me) trader utilized.

Now for four charts. I want to give a brief preamble. While many of you are technical traders, I mix macro fundamentals and sector fundamentals into my work. It's my quirk, and it works for me because of my learning style and my background. It points me in the direction I want to look and helps me assess risk.

The first three stocks were actual positions. I've been trading Chinese stocks long before it was fashionable to do so. The floats and price range may not suit many here, but the concept can be applied to any stock. It's worth noting that because this market fell hard, there were lots of attractive candidates in these long bases. The last is a contemporary example.

Here's SNEN. I liked them because they were in the compressed natural gas space in China (engine conversion units and stations). I also knew that they had a small balance sheet problem--so I took my money and ran. This stock is an example where I entered, sold on the volatility spike. Re-entered and re-sold on the volatility spike. No third time charm on this one because of the risk on the balance sheet. They are being bought by a shareholder.


Second is AZC. This stock is again a combination of fundamental (copper--they will supply 10% of the copper when one of their Rosemont site comes on board) and TA.

HPJ is another one. This one broke out along with the other lithium-ion battery producers.


I also wanted to give you a contemporary example in a more recognized name rather than the Chinese boneyard that I pick through. Here's LLY


The current price action suggest that it is fixin' to get ready to do something........

Here's the stock screen that I use on StockFetcher:

Close is above (XX)
AND Volume is greater than (XXXX)
AND Upper Bollinger(10) is less than Upper Keltner Band(10)
AND lower Bollinger(10) is greater than Lower Keltner Band(10)
and add column Bollinger %B(10,2) (I use this to order candidates from lowest band width to highest)

To put this post together, I didn't have to cherry pick through my stock entries to provide examples for you. It has proved to be a high probably trade and a richly rewarded trade. I will tell you that the hardest thing to do is to sell into the volatility explosion. And we know that doing the hard thing is often the right thing! I'm going to employ Market Sniper's excellent advice of holding onto a vestige of a former position--particularly if the stock gaps and goes like HPJ did. Naturally, any method you deploy must fit with your time, money and risk/reward parameters.


A Good Market View

Don't forget to visit http://www.ichimokucharts.com/ for a terrific overview of several markets!

Wondering Out Loud

It's always dangerous to wonder out loud, particularly as whatever one is musing is likely to abrade against the conventional view of things.

A blog participant on another blog mentioned this story (click to be transported).


While one respondent stated "that is a sure sign of a top in the market", my particular reaction (I'm not holding my reaction out as being more insightful) was this: "It seemed like a sure sign of a top in the bond market."

There seems to be lots of speculation about the fate of interest rates. I think that I can say with some conviction that there is no place but up. However, how far up and how soon is anybody's guess. Again, the 'epic' inflationista/deflationista debate which will be waged in the media and blogosphere. I'm not stepping into that fray other than saying one side or the other is in for a big surprise. How's that for neutrality! Equivocation! Teflon!

The second thing to take to address (if not take to task) is 'money on the sideline.' There seems to be much uninformed commentary based on that. I'll not add to the fray there either. I'll state these simple Truths which I believe are not subject to much credible debate:

Truth 1: Short term interest rates cannot fall further.
Truth 2: Long term interest rates can fall further (unlikely)
Truth 3: Long term interest rates can increase (likely)
Truth 4: The bond market is a very large enchilada, and due to low interest rates is not a very filling meal.


Yeah, I know that calling these "Truths" is stretching it a bit. And I know that stating that they are not subject to 'credible debate' is sort of impugning any criticism! That's not my style, so if you have an opinion, voice it.


But the point is this.... These Four Truths, I'm holding out to be self evident that the 'money on the sideline' is really the bond market. So while many who are on the wrong side of the trade are quick to point to the PPT and other unnatural forces that seem to thwart their every move or projection (these are omnipresent market forces always in existent--our job is to outnimble them!), I'm merely pointing out that the 800lb gorilla that represents money not previously in the stock market, is that money "sidelined" in the bond market.

So if you were a bond holder faced with an instrument denominated in a depreciating currency, earning a low return, subject to face value decline due to increasing interest rates what sort of repositioning would you do?

Wednesday, November 04, 2009

The Stinky Cheese Man

You know that, outside of some otherwise intemperate moments, that I'm a nice person. Some years ago, I was driving into town, and I decided to give an old man who I often see walking down the road a ride. It was raining, and I knew where he lived.

Unfortunately, when we get old, our olfactory senses diminish. Well, I'm not that old. He was drunk, his breath was bad, he smelled of urine and....yes, stinky cheese. I gave him a ride for about 8 miles. I thought that I was going to retch, and I wanted to be polite and not cough or make noises. The only other time I've smelled such stench on a person was when a morbidly obese woman was in the waiting room at a hospital. Anyone who has young kids will have had to make one of those late night trips to the pediatric urgent care. Clearly there were some crevices that she wasn't able to get to and the smell was worse than a dead skunk.

So what is my point? It's beginning to feel like to me that UBS is now the stinky cheese man of the banks. Here's a chart:

They were even downgraded by themselves to 'Sell' (From FINVIZ)



Here's an unflattering Bloomberg story. Click on graphic to read:

Non-stigmatized Commercial Real Estate Workouts

In my noodling around, I found this release which you can find at this link http://www.ffiec.gov/press/pr103009.htm [Edit: here's a link to the PDF (which I've not read!): http://www.fdic.gov/news/news/financial/2009/fil09061a1.pdf]

To my eye, it appears that they are trying to use motivation to facilitate loan workouts...meaning that we don't want you to NOT engage in workouts and will not penalize you for it. However, it does beg the question on transparency.

You know that my thinking is that 'they' are only trying to buy time to get this stuff worked out. Hopefully, 'they' will not run out of time.

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Press Release
For Immediate Release October 30, 2009

Financial Regulators Adopt Guidance on
Prudent Commercial Real Estate Loan Workouts

The Federal Financial Institutions Examination Council (FFIEC) released a policy statement today supporting prudent commercial real estate (CRE) loan workouts. This policy statement, adopted by each of the financial regulators,1 provides guidance for examiners, and for financial institutions that are working with CRE borrowers who are experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties. The financial regulators recognize that prudent loan workouts are often in the best interest of both financial institutions and borrowers, particularly during difficult economic conditions. This policy statement details risk-management practices for loan workouts that support prudent and pragmatic credit and business decision making within the framework of financial accuracy, transparency, and timely loss recognition.


Financial institutions that implement prudent loan workout arrangements after performing comprehensive reviews of borrowers’ financial conditions will not be subject to criticism for engaging in these efforts, even if the restructured loans have weaknesses that result in adverse credit classifications.2 In addition, performing loans, including those renewed or restructured on reasonable modified terms, made to creditworthy borrowers, will not be subject to adverse classification solely because the value of the underlying collateral declined.


The policy statement includes examples of CRE loan workouts. The examples, provided for illustrative purposes only, reflect examiners’ analytical processes for credit classifications and assessments of institutions’ accounting and reporting treatments for restructured loans. The policy statement reiterates existing guidance that examiners are expected to take a balanced approach in assessing institutions’ risk-management practices for loan workout activities.


Policy Statement on Prudent Commercial Real Estate Loan Workouts (docx) (pdf)