Tuesday, May 19, 2015

5/19/15 Becky

I met Becky Hedler in August 1974, during a trip to Delaware to attend a summer camp sponsored by the OCA (Organization of Chinese Americans).  Three of us started out in Ann Arbor, stopping briefly in Toledo where Becky (who was half-Chinese) joined us.  She was a music student, and we bonded immediately.  Becky apparently developed multiple sclerosis later in life, and passed away in 2006.  The clipping below describes the person I remember to a 'T,' probably the most inspiring 'obit' I've ever read.


I was a fledgling (still fledgling!) solo pianist, and played a half-finished composition on 'Talent Night' at the camp with her encouragement.  Highly characteristic of her that I'm only now discovering she could have played circles around me.  In an era of self-absorbed Boomers, it's a privilege to have crossed paths with someone who put others first.

Friday, May 15, 2015

5/15/15 Petrobras

There are many ways to play the capital markets. You'll generally find me 'sweeping up with Cinderella after the ambulances go' (https://www.youtube.com/watch?v=AL1HUsJJCzU) or 'picking up the broken pieces of yesterday's life' (https://www.youtube.com/watch?v=EbKwTpTja98). I've traded in and out of Petrobras (PBR) for months, through the recession in Brazil, last winter's oil shock, and most recently the 'Car Wash' kill shot (http://dealbook.nytimes.com/2015/02/11/a-corruption-scandal-at-petrobras-threatens-brazils-bond-market-and-economy/?_r=0).

Occasionally, it's time to Get Shorty. Today's earnings 'beat' (http://www.bloomberg.com/news/articles/2015-05-15/petrobras-first-quarter-earnings-beat-analysts-estimates) is a shot across the bow, spiking share prices 6%+ after hours. Short interest is significant:http://247wallst.com/investing/2015/05/12/the-5-most-shorted-nyse-stocks-in-april/. There are no certainties in the market, of course, but odds favor a squeeze beginning Monday. It's hard to describe the panic that ensues when investors are caught 'short,' but James Taylor comes pretty close:

https://www.youtube.com/watch?v=kfzMLRzH2yw. Incredible performance. 

Friday, May 8, 2015

5/8/15 The Waiting Game

I (re)acquired valuable insights into my trading psychology this week.

(a) I allowed the Wednesday morning 'breakout' in Brazil to suck me in.  Sure, I recall thinking 'break out to fake out,' and consciously waited for VALE to pull back from 9.14 (there had been prints as high as 9.3x pre-market) to 8.85 before opening the first tranche.  Bids hopped back almost immediately to 9.10 (+2.8%), and I considered closing for a decent 5-minute gain.  Unfortunately, I had '9.3x' playing in my head and I gave the trade too long a leash.  Prices pulled back to 8.8x.  That was my signal to exit.  Instead, I opted for a second tranche at 8.48.  Bids continued to drop, and VALE closed @ 8.19.

(b) I opened a position in RYWVX (Rydex 2x Emerging Markets) the same morning @ the 1030 window.  The 2-day drop of -6% in Shanghai coupled with strong buying in Latin America had me thinking it was a high-conviction trade and I moved early.  Another mistake.  Using EEM as a benchmark, prices pulled back to my opening basis of 42.78, then declined further to close @ 42.39.  I was pretty sure Thursday's open would be even lower, so rather than add to RYWVX I opted to open corollary (and less-correlated) positions in RYTNX (Rydex 2x SPX), RYGBX (Rydex 1.2x Government Long Bond), and RYPMX (Rydex Precious Metals).

(c) The market delivered the lower open in EEM the following day, and to a lesser degree also presented lower bids on VALE and PBR.  Here's the thing.  Had I waited for lower-risk entries, Thursday morning would have presented a Jim Rogers scenario: http://www.growthstockwire.com/3620/the-best-thing-jim-rogers-ever-said.  Instead, I was distracted with the task of 'managing' losses on three existing positions- which prevented me from 'seeing' a clear setup into Friday's NFP: both stocks and (especially) bonds had been selling off hard all week, which almost ensured a post-payrolls rally.

My bad.

(d) This morning's pullback in VALE was another buying opp, at least IMO.  It was a difficult trade, one which necessitated distancing myself from Wednesday's 'error'/ Thursday's 'mitigation' re the same stock.  The trade may still move against me, of course.  But I can least say it was a 'clean' trade, kind of like getting back on the horse.

5/8/15 New Post

Non-farm payrolls Friday.  The numbers were in line, and reaction is quite positive.  All indexes are up around +1%.  I was planning to draft a bearish market take last night, but ended up going to bed early.  So I saved myself time, effort, and egg on my face!  Am I still bearish?  I'm not bullish, but I also have no take as to which side of the room is more crowded right now.  

Thursday, April 30, 2015

4/30/15 'And all this science I don't understand'

An unusual mix of strength in oil and commodities (other than precious metals) worked to my advantage today.

(a) A -3.3% loss in the first tranche of RYWVX (Rydex 2x Emerging Markets) was offset by a +0.5% gain in the second tranche (which unexpectedly closed higher @ the 350 pm window [compared to the 10 am window] despite a lower finish for EEM- presumably due to strength in iron ore/copper miners and oil exporters).
(b) The above was also represented by a strong finish in EWZ (Brazil).
(c) RYEUX (Rydex 1.25x Europe) closed -0.43%, offset by a +0.32% gain in RYGBX (Rydex 1.2x Government Long Bond).
(d) RYPMX (Rydex Precious Metals) closed down just -2.28% (compared to a -2.94% drop in GDX) thanks also strength in companies like FCX (Freeport McMoran) and Brazilian miner VALE.
(e) Speaking of VALE, its +11% rally from my opening basis of 6.94 more than offset a -3% drop from my basis in Goldcorp.
(f) TWTR (Twitter) seems to have found short-term support, closing up +1.22%

All in all, the portfolio closed the day down just -0.18%- unreal considering a -195 point drop in the DJIA + a -1.52% loss for EEM.  I take no credit for the outperformance apart from saying I opened all positions trading (as usual) against my perception of crowd psychology.  The rest can be attributed to the 'science I don't understand.'

Monday, April 27, 2015

4/27/15 Altitude Sickness

(a) Nice overnight reversal in spot silver prices: http://www.kitco.com/charts/livesilver.html  It could just as easily reverse again and plunge at the New York open, but following months of negative sentiment the odds have shifted in favor of bulls.  Dips in the mining sector are more likely to be bought by dedicated buyers.
(b) Interesting contrast in sentiment indicators for US markets.  Mark Hulbert's Sentiment Indexes are at or near record highs (bearish): http://www.marketwatch.com/story/investors-exuberance-is-at-a-frighteningly-high-level-2015-04-24.  On the other hand, Barron's survey of Big Money managers shows 80% of them expect a 10% correction this year (not outright bullish, but we know the market rarely accommodates consensus expectations!).

Most global markets have ascended quickly over the past several weeks, which doesn't play to my trading style.  One index I will be looking at is Indonesia's Jakarta Exchange, which plunged -3.5% last night to where it started the year.

Saturday, April 18, 2015

4/18/15 Red House

The average investor in China has to be asking himself how he plans to navigate Monday's open.

My least successful trade on Friday is also the most instructive, at least when applied to the above scenario.

(a) Let's say the Shanghai Composite opens down -5% (as suggested by Friday's futures).  Do you sell?
(b) Should the index fall further, let's say to -7%, will you have a stop level in place?
(c) Should the index then gap down hard to -9%, will you decide to capitulate, or will you add to your positions?
(d) Do you have the capital to add to positions?  If not, do you plan to raise capital by cashing out?  At what point will you cash out?

Let's replay Friday's action in RSX (Market Vectors Russia).  Not unlike the Shanghai Composite, RSX had also risen (prior to Friday's selloff) about +20% since March.

(a) RSX gaps down -3.8% at the open.  Do you sell?
(b) It continues to slide to -5.5%, which coincides with technical support levels.  Do you stop out, or do you add to the position?
(c) A large sell order appears midday, taking RSX to the -8.7% level in the blink of an eye.  Do you capitulate, or do you buy/add?
(d) Have you the capital to buy/add?  Was it raised by cashing out @ -3.8%, to be deployed at lower levels?

All good questions for investors in the Shanghai Composite to ponder this weekend.  Of course, it's unlikely that investors in the DJIA/SPX will need to ponder these questions immediately.  Unlikely, but not out of the question.