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Market had confirmed it’s up move!

Stock Pitcher — Thu, 24 Apr 2008 16:45:47 +0000

Ok, the market has confirmed it’s up move and it seems that everything seems to be turning as credit spreads have eased and most financial reports are largely being ignored. We have to now reset all the resistence levels as the previous resistance has become support. Here they are:
DOW 13200 Nasdaq 2500 SP 1410
Those aren’t exact figures but around there. So there’s 2-4% upside left I think. I’m current become slight more inclined to be long but I am still very very cautious. I’ve taken up most long global positions. Value Click looks tempting to me but I decided against it as it has earnings on May 6th and I hate that earnings game. I’m still very high on commodities as the world still ramps up on production and modernization. It’s a very very long term story but the food crisis is also here to stay. As the world gets modern, we waste more food. It’s just what happens. Too much money chasing the same amount of food. But alway pick up protection for your trades…either covered calls or just putts. I’m still very negative on COF and GRMN. But since then my friend has convinced me about the negatives of Game Stop which is everyone’s all time favorite. But the possibility of downloading games directly to consoles instead of going through retailers is a very real possibility. Cutting out the middle man is disastrous to retailers but especially GME!!! But it’s a long term trade but with just one single announcement that stock is dead meat.

Disclosure: I’m currently long RIO, TRA and short COF

Market in limbo? What now?

Stock Pitcher — Tue, 15 Apr 2008 16:48:59 +0000

You know it’s bad when my own father says he’s going to retire in China because our dollar is falling to the dumper and the worst thing is that my dad doesn’t even follow the economy. But it’s not good and there is still a lot of pain to come but for the short term, the market seems to be in a range. I’m a little hesitant to be in the market right now until a direction has been confirmed. As of right now the markets are rather flat.
My Valero position is down but net wise, I’m up by selling calls and buying them back when the stock drops and selling them when it rises. It’s somewhat of a insurance to lock you gains without selling the stock. It works well but just don’t go crazy. As for the shorts on Garmin and Capital One, they have made me a hefty amount of money. My Citibank putts were sold at a slight loss as I saw it rise to $25 before coming back down to $22. Horrible trade…should have been a little better but I was thinking of doubling down but I always learn never to double down on short term trades. At the advice of Pete Najarian, I bought some Wachovia putts last Friday and made a killing yesterday. Thanks Pete! You’re the best. Someone bought $8M worth of options last Friday. I had to trust that type of conviction. I’m going to probably sell my Valero position after this week with options expiration and I”m holding SPG putts for protection and I’m slight up on those so I may just take my profits and just reposition myself after this week. It’s good to refresh yourself and not get caught up with your positions. Doing that is the path of least resistence and good traders look for the edge. None of my positions have any edge.

I’m looking at getting in Apple perhaps before it’s new phone launch or Terra Industries because it’s a agriculture play that has more room to run with a 10% short interest. Another Pete Najarian suggestion that I looked into. Of course I will be selling calls into both of these. Apple has about $10 call profit while Terra has bout $4 with at the money calls. So usually, I try to get in low then when it rises to a good point, I sell my calls for protection. If it falls, I locked in my profit and get to keep the stock while I hedge with some putts to maintain further gains. I’m trying to keep it simple now but I’ll update everyone more soon. I think today will end flat or slightly negative by the way.

I currently hold Valero long and SPG shorts.

George Soros and his big predictions

Stock Pitcher — Thu, 03 Apr 2008 22:48:32 +0000

George Soros who came back last year to his fund because of the subpar performances took his fund back it’s previous glory by trouncing the market with currency bets against the dollar but he now suggest that the market may correct in the short term but in the long as I concur, we had large systematic problems that are not easily corrected. The two problems that he sees are in the credit swaps market and the growing foreclosures in the real estate market. My understanding of the credit swaps market was pretty limited until I read about how he suggested that the market had many loop holes which he suggest was a reason that Bear Stearns had to be rescue to avoid massive chaos which still may happen. With growth in funds for distressed securities, many people see defaults as the next logical step and with inflation rising that may likely occur. Here is a snippet of the article:

Instead of reshuffling regulatory agencies, the authorities ought to prepare for the next shoes to drop. I shall mention only two. There is an esoteric financial instrument called credit default swaps. The notional amount of CDS contracts outstanding is roughly $45,000bn. To put it into perspective, that is about equal to half the total US household wealth and about five times the national debt. The market is totally unregulated and those who hold the contracts do not know whether their counterparties have adequately protected themselves. If and when defaults occur, some of the counterparties are likely to prove unable to fulfil their obligations. This prospect hangs over the financial markets like a sword of Damocles that is bound to fall, but only after some defaults have occurred. That must have played a role in the Fed’s decision not to allow Bear Stearns to fail. One possible solution is to establish a clearing house or exchange with a sound capital structure and strict margin requirements to which all existing and future contracts would have to be submitted. That would do more good in clearing the air than a grand regulatory reorganisation.

The other issue is rising foreclosures. About 40 per cent of the 6m subprime loans outstanding will default in the next two years. The defaults of option-adjustable-rate mortgages and other mortgages subject to rate reset will be of the same order of magnitude but occur over a longer period. With single family home sales running at an annual rate of 600,000, foreclosures will overwhelm the market and cause prices to overshoot on the downside. This will swell the number of homeowners with negative equity who may be tempted to turn in their keys. The fall in house prices will become practically bottomless until the government intervenes. Cutting foreclosures should be a priority but the measures so far are public relations exercises.

Anyways…good luck and happy trading. I’m still long VLO, short C and GRMN. I am looking into longs in MSFT and shorts in COF.

Refine Trade update and Market outlook

Stock Pitcher — Wed, 02 Apr 2008 16:53:36 +0000

I got into Valero and Tesoro last week and both are up double digits as well as selling calls on them has increase profits significantly so I’m winding down the trade now. They have ran more than the market but not more than the financials which seems a little over done to me.

My suggestion is that the financials are not at a bottom yet. I was short Citibank through putts which have lost value the last couple days but it was a safe hedge so the loss was more than offset by the refiner trade.

I think the next trade may be shorting gold related stocks when they rally a little bit. I should have thought of this before but didn’t even come to mind. What a dope! But I still need more research.

As for the market, it’s been a nice rally but be aware of this Friday’s jobs report that may ruin everything as all the markets are headed toward resistance again but slight higher though which may signify bottom but I believe it’s a fake rally. Not all the earnings have been marked down yet especially with a recession coming. I will write a post about inflation soon. The resistance levels are as follows:

DOW - 12,800 S&P - 1,420 NAS - 2,440

They are getting close so buy those putts for safety. Selling calls at this moment doesn’t seem worth while as volatility is down.

Btw, I had a comment about the Nymex trade which I did take a small loss because I’ve been selling $3 calls for the six months that I was holding it. Almost $20 in profit so that lowered my risk but I still managed a loss. Yes it was a bad trade for one huge reason. There was no edge on the trade as all the information as available and not catalyst but I still think if the market wasn’t spiraling to it’s death, the deal would have gone through at plus $140.

Good luck trading.

Currently holding: Long VLO, Short GRMN, C

Oil Refiner Trade

Stock Pitcher — Tue, 25 Mar 2008 02:52:29 +0000

Ok I just watched Fast Money and I’ve decided that the refiner trade is going to be my next move. I’m pretty short now but still I have to hedge those shorts but this short will have to go against the grain as oil goes down, refining margins go up. Like last year, the refiners ran up last year with the crack spreads going up but it looks like it may run up again but there are a lot of factors that may contribute to the raise.

1. Oversold

2. Rising Crack Spread

3. Higher Short Interest

The three subject stocks are Tesoro (TSO), Valero (VLO) and Frontier Oil (FTO) I don’t expect the stocks to go too far lower as they are all hitting lows and support levels. See the charts below. I’m debating about which stock to purchase as I plan to sell some upside calls just in case. Or perhaps just buy some calls strategically. Still up in the air. See the charts below. I played with one of them as you see the trends and the supports.

Sell the Rips

Stock Pitcher — Mon, 24 Mar 2008 21:02:59 +0000

Ok people, remember we’re in a BEAR market and don’t get too into the euphoria. A lot of money is in the side lines and they are still waiting so calm down. The run in financials is probably a nice sign as well as the run in technology today. But hold those horses and keep that cash as it doesn’t seem like the big money are in yet. There may be some window dressing as we move toward the next quarter but we should probably take this opportunity to sell what losses we have recovered on our longs or sell to keep our profits because the financial crisis is not over. Here are a few reasons:

1. European banks will slowly reveal more damage as they should come clean as well.

2. Banks with large lines of credit loans will see large losses as those loans are based on extended values of homes that will reach peak default status within the next 6-12 months. Expect more write offs.

3. Consumer spending will dry up more as credit cards are being used up and cannot be refinanced with lines of credit. Expect more defaults and write offs.

4. Although there is more liquidity, lending standards are more strict and that is not going to change anytime soon so consumers and businesses still don’t have the money although the institutions that lend are in better shape. But less lending equals lower profits and revenue.

So sells the rips and buy the dips. It’s ripping so at least start selling.

Currently: Holding NMX out of money calls and COF in the money putts. Net short.

It’s not safe to short….at least for now.

Stock Pitcher — Tue, 11 Mar 2008 16:26:53 +0000

It looks like the federal government and the central banks around the world are weary of the decreasing amount of wealth in consumers in the United States. The decrease in real estate equity is one factor. The decrease in stock value is another factor. The decrease in income as opposed to inflation is another. Of course the slowing job market is a major one. With the decrease in property tax revenues a lot of states who are already in financial problems are cutting jobs especially in government services such as educations and social services. So now it’s eventually going to lead to a business slow down as we have to lower work force and spending which creates the downward spiral we call a recession . So now we’re all pretty much hoping on the recession bandwagon, the central banks have to attempt to slow the crisis. With their move to exchange liquidity in the market by exchanging treasurers for mortgage back securities, it tremendously allows banks and business to use their deadweight securities as collateral to borrow against. This is pretty much more significant than any rate cut at this time as it’s a credit and liquidity issue.

I think the bears do have something to think about with today as a starting point as the solutions start to appear in the market. Although the long term problems are not gone by any means, in the short term, there seems to be a few catalyst to push the market up to 12500 or so before another downturn. The catalyst include investment bank earnings and the fed meeting next week. There will probably be momentum going into these catalyst so it’s good to be quick on the long side or not in the market at all. I took off all my shorts last Friday and I’m long NMX and FCX but unfortunately, I did ride the punishment yesterday on the FCX as all the material stocks got punished but it looks like today will probably go back to positive and I’ll probably start taking off the position as the market rises slowing into the end of the week. But once again, good luck people and trade well.

Market on the Rebound?

Stock Pitcher — Fri, 07 Mar 2008 20:31:01 +0000

It looks like the market will rebound today as I expected. I cut all my shorts yesterday which was one day too early but profit is profit. Sometimes I’m a little hard on myself for even missing a dollar of profit but as you get more experienced, you learn to live with your wins and not regret your missed opportunities because every day that the market is open, there will be plenty of opportunities. There is no lack of opportunities but there is sometimes the lack of execution. It’s better to execute less than to execute wrong.

I expect the market to have a short term bounce next week as the investment firms will deliver surprising earnings based on lowered expectations and of course, the fed will definitely cut the 75 basis points instead of the already expect 50 basis points to prop up the market. The market will jump once again on these renewed hopes. However even through all this our basic market situation is not solve as mortgages will still crumble and will trickle to other sectors such as commericial real estate, lower business spending, lower consumer spending and some job losses. It’s just what has to happen for the market to shake out the economically weak. It’s financial evolution. So I’m on the look out for a bounce on the short term and is long FCX and NMX (NMX for the buyout hopes - yes merger arbitrage is a horrible idea but I’ll stand by this one).

One percent away from support

Stock Pitcher — Tue, 04 Mar 2008 17:01:16 +0000

Looks like the markets are heading toward support levels but it seems that it may not bounce this time because with financial earnings and the fed meeting a little bit away, there seems to be very little reason to rally. So at this point it looks like the Dow will drop below 12,000, Nasdaq below 2200 and the S&P below 1,300.
As for me, I’m still long NMX with hedging putts on Capital One and Simon Properties. So I’m still doing fine - but why does this merger take sooo long! Good luck folks.

A short that I’m currently looking at is Borger Warner which I will state my case in another post.

Danger Time

Stock Pitcher — Thu, 28 Feb 2008 17:31:18 +0000

So the market is down over 1% today at the half way point but it doesn’t look very good if it drops below 12500 for the dow and 1360 for the S&P. It’s close but we’ll see if it pulls it out. I feel that it should at least test the lows again and break up. It may be forming a base as everyone seems to be getting a little more excited about financials and retailers lately. Even the battered Apple stock has seen some action lately. Techs might be getting to the point where it looks good but I think it needs to test it’s lows and at least form a base. It’s barely recovering from it’s low so there is a little more time to come.

Perhaps the deciding factor will be next week. Will the economy announce a further deterioration of the economy or will we see resilence. I doubt the resilence thing if we can’t even buy muni bonds that are pretty darn safe, how can we fund anything else. There are problems still. They need to be solved. No one is really raising money just asking for recapitalzation help.

Of course, there still is room for oil and commodities to raise a little more. Perhaps the agriculture and commodities space may be a little crowded but on weakness there should be room for growth at least until we realize that the Indians and Chinese aren’t growing as fast as we thought.