Posts Tagged ‘Trading Calls’

Covering The Shorts!

If this is a hurricane, then I believe we are smack dab in middle of it!

Based on our 1973-74 Trading Radar, I believe we are near an intermediate term bottom! I know it sounds crazy, but I think its just as senile as buying back in March. Bear Sterns had just failed and Gold was at an all-time high. Rates were being cut like crazy and the Fed was lending to anyone who can possibly need it. Shortly thereafter the Dow rallied 1,400 points!

Now, I am not saying to buy stocks! But I do believe that the short-term short-trading opportunity has passed us with the Dow falling over 975 points over 2 days. Stocks ill probably trade within a confined 12,000-10,500 point range for the next few months.

I may be wrong as capitulation may be in order. Therefore I suggest that you at least consider covering. If we do cover and stocks fall incredibly – 1930s style – then we lost a good opportunity. If they rise slightly then we are due to see the 10,500 level often anyway.

Divide your position into 3. Sell 1/3 on the Morrow! Sell another 1/3 when you see supported buying on larger volume. And Hold your final 1/3 until capitulation.

Start building up capital. The major selling opportunity has seemingly passed.

“Sell High, Buy Low”

We’ve all heard the “Buy Low, Sell High” mantra, but what about selling when things look frothy with optimism and awaiting a better buying opportunity in the future. When this comes to mind there are two very important questions one must consider.

1. Am I really smarter than the market? Many traders and speculators follow trends and technical analysis to dictate their trading. The problem with this is simply that the markets don’t usually move in tandem with the charts. As a matter of fact the largest moves, be them up or down, are usually when many investors are out sitting on the sidelines for a better buying or selling opportunity. I don’t have a good chart to prove this to you (funny that its not often that traders boast their records of chart predicting), but consider how many investors were ready for the 9/11 attacks, the Oil Embargo in the 70s or the breakout of a World War.

2. How much will I gain by doing so? This boils down to a very simple equation of numbers. Will I end up with more or less than I started with. Although this may seem quite obvious in the beginning, considering that one is truly selling high and buying back low, it is nevertheless of extreme importance to account for accuracy (if you know someone who has timed both a top and its bottom I’d love to meet them), Spread between the Bid and Ask (you will usually buy slightly above the price and sell slightly lower and, of course, one must configure trading costs, commissions and taxes.

Here’s a simple equation to figuring all this out:

Ne = Nb x (Pb/Pe) x A² x S²

Ne – The number of issues at the beginning of the trade
Nb – The number of issues at the end of the trade
Pb – Price at the beginning, before selling
Pe – Price at the end, before buying again
A – Accuracy (5% accuracy would be .95)
S – Spread (a 2% premium would be .98)
2 – These numbers are squared for both trades
Trading costs and taxes must then be configured, as well as commissions if necessary.

The complete article can be found here.

Speculative Trading Update for Tuesday, March 6th

Our trades for this year seem to be going very well for us. Many calls were made on mere speculation based on extreme bearishness from the media and general sentiment as well as on sound fundamental basis. In an article in the beginning of the year we told you that one thing we can be sure to see in 2007 was a strong increase in Volatility. This came to fruition last week as we saw many asset classes get slammed hard. This will definitely continue and get worse as housing and the lenders continue to implode.

Gold and Silver seemed to be holding up well relative to stocks, but of course we also need it to be able to outperform the Dollar as well. We see significant upside in both metals especially now that the topping action we saw last week has all but vanished. Our Calls thus remain intact with Gold even and Silver -2.5%.

Stocks have seen some serious action as analysts cry Recession worries and Carry-Traders fleeing from the Dollar. We see this as an expected event that we see far from over. We should continue to see stocks paddle between 12,000 and 8,500 for the next few years as Per Earning ratios descend. Dow Puts +9.7% and Nasdaq Puts +10%.

Natural Gas and Oil Calls are up 16% and 15.5% respectively. We are watching closely if these levels are only being sustained by speculation of continued cold weather.

We have closed our Lumber call at a 4.5% loss.

New Picks!
Mining Stocks: We have also noticed an extremely bearish take in Mining Stocks. We have chosen two new plays. Our Gold play is a company called Golden Star Resources (GSS). Our Silver trade is with Silver Wheaton (SLW). Both seem to have significant upside, in addition to being undervalued relative to their respective metals. GSS currently trades at 3.56 and SLW at 9.12.

We have also placed a “Carry-Trade Put” Japanese Yen Call. The Yen currently stands at 116.42.

We thus closed this week +6% since January 14, 2007.


Silver, To Buy or Not to Buy

Reading through the weekend articles and reports on the recent rally in the Precious Metals, I noted a few things.

As investors, we look constantly towards the fundamentals for choosing what to buy, but lean towards technical analysis to know when to buy.

Fundamentally everything is perfectly in check. Silver supply still seems in decline in regard to demand, many banks and developed nations are still skeptical about gold’s power and traders still believe that commodities are risky.

Technically however, silver and gold seem very strong and are expected to continue strongly breaking through $15. Once that is done there is will most probably be a mad blowoff sending the metal to the possible 20s.

This in result will most end up in a sharp sell off and maybe even a strong overall commodities decline. This is where many investors will be looking for as their last buying opportunity to buy both metals at such prices.

We saw this in the early 70s. After Gold staged a solid uptrend it then fell overall, wiping out most gains.

Alan Greenspan has also mentioned that the U.S. may head into a recession towards the end of 2007. This is most probably when we can expect this “bottom” to take place. Although I previously expected the boom and bust to begin in September, it may have already begun.

Investors are thus warned not to buy-and-hold from such prices. Silver will go higher but there is solid reason to speculate that these higher will be met with lower than current prices. Many short-commercials will then buy-to-cover creating a permanent bottom that we may never see again.

Traders on the other hand may find it quite profitable to play this rally.

Just remember to sell in time.

Speculative Trading

We bought back our Silver and Gold Calls. Thus our initial trades remains intact. We initially sold out waiting to see if the metals would trend lower and create a more sound buying point which they did, but needless to say they bounced back too fast. Pressure on Iran may also be pushing the metals higher.

Oil and Natural Gas Calls both remain in bullish mode gaining on the oversold conditions primarily from speculation of a continued mild winter as well as reports of lower supply.

Dow and Nasdaq Puts. The markets have been struggling to make any new ground. Our positions remain intact awaiting a significant down day for both the Dow and the Nasdaq.
We would expect the Nasdaq to fall sharper than the stocks of standard issues due to the nature of the businesses as well as the recent speculation regarding Tech stocks.

Lumber Calls have been our choice of play in commodities as it struck new lows last month.

Oil +18%
Natural Gas +24%
Silver +11%
Dow +0.5%
Nasdaq -8%.

Lumber +6%

The Investor Sentiment Trading Fund +8.5% since January 14.

Speculative Trading for Week of February 9th

My Call on Natural Gas remains bullish at 7.89 as cold winter weather sent many US cities to below zero and demand from investors seems more complacent than just after the Amaranth break up. +26%

Call on Oil doing well thanks to the cold. Gained strongly as funds seem to be increasing exposure once again to commodities, weighting especially in the Energies sector. + 15%

Dow and Nasdaq Puts struggled this week mostly with last weeks losses. Both Indexes closed almost even for the week. Optimism for strong quality stocks and earnings remain but overbought conditions may be present. Ultra Short adds leverage by 100%. Down 1% and 3% respectively

Gold Call strong as metals posted strong rallies due to negative news from Iran, sub-prime lenders and restating of earnings. Oil also contributed to gains. +2.5%

Silver Call in tandem with expectations outperforming Gold for the week, bringing the ratio into 47 territory albeit temporarily. +4%

Added Position:
Lumber Call due to seemingly distressing signals from the housing market, lumber as a commodity seems to be lagging in an oversold condition. Finished +3%

Portfolio would have a current return of +7.7% (up 2% from last week)

Weekend Thoughts for February 2nd:

More Jobs
CNN Headline: Found! 1 million jobs – Government revisions to payrolls are likely to show job growth has been much stronger than first thought.

Question: If wages are not bad and jobs are doing great, with the lowest of unemployment levels in years, 4.5%, then why are we getting so excited about “job growth”?

Today’s Front page of CNN Money included the words: “Why Stocks will rock”, “Enron”, “Dow record”, “Fed holds rates steady”. Sound Y2K-ish?

Kevin Depew from Minyanville points out

The last time inflation readings were this low – referring to the 0.1% increase in the core CPI reported yesterday – this economy was fighting deflation, back in 2001. Makes you wonder is Inflation really the only thing that the Fed should be looking at right now?

Personal income rose by 0.5%, up from 0.3% in October and November, but the savings rate remains negative and for the 21st consecutive month now. Kevin points out that the last time we had such a reading, 1933 that is, we were amidst the best buying opportunity for stocks. People however didn’t have the money to buy due to the Great Depression.

My Thoughts: The reason that people aren’t saving is because they see no need to when their home equity value and stocks remain at all-time highs, paired with the strongest earnings seen in decades. But were the markets to decline substantially, let alone critically, it would seem to me that we would indeed have a phenomenal buying opportunity.

Scared yet?
The Times reported that many worry over a possible flue pandemic. If the Government was really interested in scaring us why don’t they just tell America the truth about the economy? Oh, no money to be made there? Then never mind.

Now that’s what I call speculation
Allen Wastler of CNN gives us three reasons why stocks will rock in 07

Number One … The January Barometer. That’s the one that says if the S&P 500 index goes forward for January, it will go forward for the whole year.

Number Two … The Presidential Cycle. The pre-election year … that’d be this one … usually logs the most gains for the market.

Number Three …
The Superbowl Indicator. If an old NFL team wins, then the market will gain.

My Thoughts:
#1. As everybody realizes this it will eventually be put to rest as all speculative signals eventually do. What if major players pumped up the “January Effect” just to create it in order to sell stocks at a higher price amidst even greater optimism?

#2. Follows with the same blind optimism as the first. What if this has already been processed into the cards the same way a “sell-off” worry always strikes Wall Street around October time.

As for #3. What are we now superstitious star gazers? The only thing football has to do with the money is with profit jumps from Beer, alcohol and T-shirt producers. We might as well just see if the Bears win.

On selling high, someone’s getting it right
Google speculators seemed to have been following the “Buy the Rumor, Sell the News” mantra of corporate bull runs in profits, after Google posted a $1B increase in returns after costs. We may soon see very similar action in other major companies that are expecting huge surges in profits such as Apple (iPhone), Microsoft (Vista) and maybe even a decline in stock prices if Michael Dell can pull his act together.

Speculative Trading
I decided to have fun over the past few weeks. I made some market calls. Heres how I did.

Call on Natural Gas at 6.28 as speculators seemed shut out after it hit its low after a 44% decline from mid-summer that wiped out large players such as Amaranth. +21%

Call on Oil at $52 after funds sold out after worry that the decline may extend to the possible 30s. A definite Buy signal. + 10%

Dow Put at 12,565 and a Nasdaq Put at 2,451 after stocks seemed to be losing their lacker after continued optimism for stocks, particularly Tech, over the coming year. Ultra Short adds leverage by 100%. Stocks remain bumpy with “Wet roads ahead”. Both -2%

Gold Call at 643.20 after metals seemed to have been left behind as major indexes and oil climbed higher. +2%

Silver Call on an even more bullish stance that Silver is moving closer to its eventual 1:16 Gold ratio. Closed 1.5% higher at +3.5%

Portfolio would have a current return of +5.7%

Prediction for the next 6 months – Stocks out and Metals and Energies in with both Gold and Oil breaking out of consolidation trends.

As for stocks, for the first time since 1996, the SP500 finished higher for the 8th consecutive month. And the DJIA daily chart has not seen a 2.5% correction since the fall of 2006 (longest streak since the 1950s).