Wednesday, October 13, 2010

10/13/10 Mr. October

The Market is staring at the perfect pitch- underinvested short-term market timers. Only 25.9% of the ones tracked by Hulbert were in the market as of last night? How much higher is this market going? Let's use a poorly-defined yet well-understood technical term- way higher.

What's going to drive it? No, not QE2. It's earnings, baby, earnings.

Don't confuse my bullish bias with any desire to buy and hold- I plan to sell/short on strength + repurchase on weakness all the way up.

http://tinyurl.com/2arwrzl

Consider the average recommended equity exposure among a subset of short-term stock market timers tracked by the Hulbert Financial Digest (as measured by the Hulbert Stock Newsletter Sentiment Index, or HSNSI). It now stands at 25.9%.

To put the current HSNSI level in context, consider that it stood at 65.5% on April 26, the day of the market’s closing high prior to the May-June correction. In other words, the average stock market timer today is less than half as bullish as he was in late April.

Since the usual pattern is for advisers to become more bullish as the market rises, and more bearish as it declines, the current low level is quite surprising — and bullish.

Furthermore, the current HSNSI means that the typical short-term timer still has three-quarters of his stock portfolio in cash. That represents a lot of sideline cash that could propel the market higher, should these timers decide to once again turn bullish.

They are likely to do so in droves if and when the market surpasses its April high. Don’t be surprised if the market thereafter turns in a few explosive days on the upside.

65 comments:

  1. Call me Mr. October ok?

    I made/am making a shitload in ANO babyyyyyy.

    Yes I did distribute some this am.


    ESLR long?

    stuck below the 200.

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  2. Yesterday at the close I went long STT at $39.66. This bad boy is (finally) breaking $40.

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  3. Interesting article on the Borgata sale:
    http://www.lvrj.com/business/mgm-says-it-has-offer-for-its-share-of-borgata-104810754.html

    Per the article:
    "Boyd Gaming, which operates Borgata for the joint venture with MGM Resorts, has about a month to decide whether it wants to match the offer and take 100 percent ownership of the hotel-casino, or take on a new partner."

    Well, we now have a definitive timeline as to when a deal might happen...one month. I think them November $9 and $10 calls look like a great opportunity.

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  4. Long small opening position in MGM at $12.30

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  5. My big mistake...Not holding ESLR.

    Another big mistake....Not buying Zales a few days back when it popped up on the screener.

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  6. Added more MGM at $12.37

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  7. Shark- I'm curious about your play on BZH. That's you thinking on it?

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  8. TOF- Too funny. I took at shot @ 10.29.

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  9. Bought 100 November $10 calls on BYD at $0.15 just in case the company gets bought out...

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  10. Mark.

    Higher low, change of trend, combined with a hard on for the real estate market, not mine but one of my partners.

    Hey check out the action in ANO today.
    I got paid:)

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  11. Mark - good luck to us! we'll see how strong this casino trade really is.

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  12. Thanks Sharkie..I'll take a look. Nice job with ANO.

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  13. TOF- Yeah, I broke my 3 day rule for this one, but it's a gambling stock, right? :)

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  14. Carp...Their talking about V on CNBC...Fingers crossed!

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  15. ha, indeed its a gambling stock! a gambling stock in a gambling market. seriuosly, though, i don't think the casino stocks rally dies in just one day. if this thing closes down 5% or less then that's a pretty big statement in my mind.

    by the way, do any of you guys follow RBCN? seems like it might be a good time to pick up some shares.

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  16. Alternative Reality - I wonder how shorts and nay-sayers are taking today's market action?

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  17. It's no ANO, buy V is having a moon shot as far as I'm concerned...GL PLAYERS!!!!!

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  18. Why is SMH selling off? Just my luck, man...

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  19. SMH - Well, we've got to leave the bears something to hang onto...

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  20. Re: Mr. October
    Submitted by DavidV (36 comments) on Wed, 10/13/2010 - 13:22 #71478 (in reply to #71439)

    Your prescience is amazing, 2nd_ave! And thanks for digging up that Hulbert's index -- I'll now reconsider my view of this market being overbullish.

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  21. I wake up and what do I see? 2nd_ave's call about 9am being zero hour is once again right on the money!

    Even though I want to start making money on the short side, so far all the money I am making is on the long side. :) My strategy of buying puts to hedge myself is working out -- unlike a large ultrashort position, they provide very little drag on my portfolio but at the same time they make me feel that I am not recklessly putting all my money on the long side.

    Today might be the biggest one-day gain in my portfolio, as ALL of the crappy stocks I have are having a field day (ESLR, AZM.V, WATG, PNP.TO, GIX.TO, etc.), not to mention the solid stocks like MON, V, USO, GLD, CEF, etc. And HNUZF/UNG, for a change, are not spoiling my day either! :)

    One of the V calls I purchased at $1.72 hit its sell limit today at $3.50, making the other call purchased at $1.72 a "free ride" for me. Whatever I sell it for will be my profit on this trade. I have a sell limit order at $5 for it (so as to make a nice round $500 profit on these calls).

    Also, for some unknown reason, my REDF short was closed today at $4.87 (I opened it at $5). When I lowered my sell stop to $5 (so as not to lose money on that trade), I probably entered it as a sell limit order, which was triggered at the open...

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  22. Since my goal is capital preservation now, all I want is to keep the gains I am having so far during this rally. So I placed a buy stop order for 100 more shares of TWM at $16. If it doesn't get triggered during the day, then at EOD I'll just buy more TWM "manually."

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  23. OK, go ahead and laugh, but HEK has had pretty good volume the last 3 days but hasn't gone anywhere. Hmmm.....I wonder which way this is going. Weak hands bailing and strong hands ready to absorb the shares, of a large hand liquidating.

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  24. Hmm, HEK looks interesting here... broken out of downtrend it seems...

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  25. David- V crossed both the 365sma and the 200ema today. If it can hold here, the only thing above it is the 200sma @ 80.07ish.

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  26. On the other hand, CADC broke the 200ema today on the downside. I'll be careful here.

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  27. CADC - The 20SMA will be turning up through the 50SMA soon, has been frustratingly weak for two days now though. Probably lack of belief in recent rally or someone working to shake out weak hands?

    I have no idea.

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  28. Hey boys - dumped C and YHOO, back to 60/30/10 allocation

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  29. jb - You're such a girl, no sense of adventure. ;)

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  30. Dumped my MGM at $12.3...no conviction.

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  31. TOF- I just added @ 12.25...Just for fun :)

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  32. JB- Don't be such a stranger....Non of us even knew you where in those 2 ;)

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  33. in looking at the volume it looks like i should have been BUYING and not selling MGM. it had a huge spike at around $12.30 just now. anyway, my shares were on margin and i'm ok with not being in this trade. back to 100% long.

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  34. Mark - yeah i think that was the right move (adding)...check out the volume spike right there when it dipped to $12.25. people are buying that stock.

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  35. WTF is YHOO so giddy-up today anyway???

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  36. TOF- I wouldn't be doing this on margin either. I'm only about 30% long so I have a lot of wiggle room.

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  37. Sold 1/3 of my BYD position at $8.41...

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  38. Natty article. Nothing really new to us gassy veterans.

    http://finance.yahoo.com/news/Natural-gas-elbows-its-way-to-apf-3742330099.html?x=0

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  39. MGM off @ 12.24...Will look to re-enter.

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  40. Sold the rest of my BYD at $8.4. HOlding on to my options in the event it gets bought out.

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  41. hi guys,

    what's with mgm? nose dive to 11.95

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  42. 11.62 might be the next stop for MGM.

    VB- Look at the past comments about MGM. It's well covered here.

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  43. MGM...I'll probably take a shot @ 11.62 if it gets there and depending on the spread.

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  44. TOF- Good timing on BYD. I couldn't believe it held up for so long given the action in MGM.

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  45. I did the unthinkable just now...bought SPY $119 October puts at $1.03 and sold them at $1.17. It was only $2,800 but I was scared.

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  46. Re: Mr. October
    Submitted by 2nd_ave (4739 comments) on Wed, 10/13/2010 - 15:26 #71505 (in reply to #71478)
    DavidV- Well, not really. After all, I'm long INTC/WFC + mutual funds in the financials/technology sectors. None of them are doing well today.

    My take right now? The market is either testing recent buyers with a major shakedown (in which case it's a buying opportunity), or smart money is now selling. I have no idea which might be the case. I'll let you know within half an hour how I plan to play it.

    replyBookmark this Ignore thread
    .Re: Mr. October/ Heading for the Showers newSubmitted by 2nd_ave (4739 comments) on Wed, 10/13/2010 - 15:43 #71506 (in reply to #71505)
    Alright- Being unable to watch the action earlier this morning due to the day job, I have to make a call under the kind of pressure I don't like.

    So I'm going with the default option, which is to cash out. Back to 100% cash (at the close with the mutual funds), and not exactly sure about the decision, other than I know it's the right thing to do when I can't decide what to do.

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  47. Thanks Mark. I still hold about 250 November $11 calls at $0.05 in the event that they get bought out, which I think is possible.

    It was nice going heavy on that and scoring after the REDF score. Back to back makes for a great year. Now it's a matter of not giving a big chunk of those gains up. Off to the bar!

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  48. TOF -- did you make $2800 in profit on a quick trade??? That's a profit even cheapy would be proud of! :)

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  49. Alright...bought 7 November $121 Puts on SPY at $4.3 just as a speculation that we get a bit of a pullback first.

    I'm selling all of my mutual funds at the close and will be about 85-90% or so cash. Still holding on to my STT and will sell if it goes back under $40.

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  50. I just sold at $1.09 the 2000 shares of ESLR I bought at $1.05 during the flash crash in May. My point was not to make a miniscule profit but to reduce my ESLR position. I *hope* selling these shares now was the wrong thing to do and ESLR will be at $2 soon, as I still have a lot of that crap in my portfolio!

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  51. David - No, the $2,800 was the money at risk on the puts. I don't like putting much more than a few grand at risk on those options. They are primarily for crack addicts.

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  52. Also, a few minutes ago I purchased 100 more shares of TWM at $15.79, so as to preserve a little better the oversized gains I am having today on the long side.

    In the same spirit, I raised the strike price of my January $60 puts on IWM to $70. In fact, I did something a little trickier -- I went from having +2 January $60 puts to having -2 January $60 puts (that is, I sold 4 puts). So basically I limited my gain on the 2 $70 puts (out of the 4 I have) to $10 per put. If the market goes down tomorrow, I'll sell 2 more January $60 puts on IWM and will limit my gain to $10 on all 4 January $70 puts I now have, but at the same time, I'll reduce by 30% the cost of these puts! I doubt we'll have a major collapse in the market before January -- the collapse will come once the market participants realize that QE2 is not working, which I think will happen in mid-2011.

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  53. David - Remind me again: what was your take on the slide in the most recent AMB figures from the St. Louis Fed?

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  54. I just checked the close in ECU.TO -- up 7.35%! So today is officially my biggest one day gain -- 4% for the whole portfolio, and now [drumrolls...] the absolute gain in my portfolio relative to the total money I put into it is at an all time high, larger than it was in September 2008! The percentage gain is 47% now over the last 5 years.

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  55. "David - Remind me again: what was your take on the slide in the most recent AMB figures from the St. Louis Fed?"

    TOF -- I am not checking that chart regularly, since the mechanisms that used to work before are not working now. Until March 2010, Fed kept purchasing MBS securities from the banks, and so the change in the AMB reflected the progress of these purchases (the AMB was growing by the amount of money Fed was giving banks in exchange for their MBS crap). So naturally, the market welcomed each set of purchases and grew upset when they were slowing down.

    Now we have a totally different game -- expectation of QE2 and purchases of Treasuries. According to the Fed, "Adjusted Monetary Base equals the sum of currency in circulation outside Federal Reserve Banks and the U.S. Treasury, deposits of depository financial institutions at Federal Reserve Banks, and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories." Thus, if I understand this correctly, if the Fed will start purchasing Treasuries from the banks, that won't change the AMB. Thus, AMB is useless now as an indicator of liquidity flowing into the system.

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  56. Yes, assuming I understand correctly, since the FED cannot purchase equities directly, they can do so indirectly by purchasing T's from banks, freeing up capital with which Banks can then use to purchase equities.

    I have the impression the FED wants this to be a better Christmas shopping season than last, and one mechanism to make that happen is attained through pumping equities.

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  57. David - Congrats! My port is up by ~28% from where I started in 2008, and my interim goal is to reach 100%, hopefully before end of year! ;)

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  58. Chicken - funny, i've been looking into the whole CREE/VECO/RBCN sector. Seems like there is significant opportunity for growth in that sector. I originally thought we would see the low to mid 40s for CREE but unless we have a reversal in the markets, that probably ain't happening.

    http://blogs.barrons.com/techtraderdaily/2010/10/13/veco-aixg-rally-ge-sees-explosive-growth-in-led-lighting/?mod=yahoobarrons

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  59. CP, 100% return in 2 years is a worthy goal -- go for it!

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  60. http://www.hemscott.com/news/comment-archive/item.do?id=110371

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  61. Yea, look at how much cash DELL has on hand...

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