Tuesday, November 16, 2010

11/17/10 Longer (Than)

No, not another song by Fogelberg. Rather, it seems to be a signature move by the Market that enables it to foil almost all entries.

Bought CSCO in the early minutes of the after-hours sell-off last Wednesday at 22.50? They take it down to 21.50 an hour later. Bought at 21.50? The stock opens at 20.50 on Thursday. Bought at 20.50 on Thursday? Closes at 20.15. Bought at 20.15? Closes Friday at 19.95. Bought at 19.95? It didn't touch 19.95 today. Bought at 19.70 this morning? Sells off to 19.50. Bought at 19.50? Sells off to 19.43. Then 19.34. Closes at 19.43.

The same dynamics apply to the indexes. How long does the sell-off last? It could end tomorrow. Or it could go on longer than we think possible.

47 comments:

  1. Can't decide if I missed a great day to trade, or if I side-stepped a great day to avoid.

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  2. I thought about moving the buy-and-hold into OAKBX at the close, but being unable to decide, the default play was no play.

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  3. I'm going with longer than we might think possible therefore keeping dry powder in case a real surprise actually materializes.

    This way I make certain I'm both wrong and right, but the most important concept of my strategy involves making sure losses remain smaller than gains in all, and especially longer, time frames.

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  4. Great day to trade?

    Well, your cash gained ground, so your trade worked!

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  5. 2nd - no sense in forcing trades. i did that over the past week and am playing catch up, even after today's big gains...

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  6. A few levels from Patrick to watch for:

    'Downside points of interest are at the following levels:
    – 50-day at 1165
    – 1156, .382 down from the 1227 peak
    – 1150, the January high
    – a tight cluster near former summer top at 1130, including 1132, the 89-day moving average and 1134, the 50% retracement of the autumn advance'

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  7. Re: Bankruptcy, City of Hamtramck
    Submitted by 2nd_ave (4962 comments) on Tue, 11/16/2010 - 19:50 #74314 (in reply to #74310)
    Damn. I remember making the run to Hamtramck from Ann Arbor several times in 1978-79 when I drove briefly for Yellow Cab. It was usually a small package (probably a precision part of some kind manufactured in Ann Arbor), and the delivery paid well. The Chrysler assembly plant was so large the dispatcher had to make 2-3 calls to direct me to the right dock.

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  8. Re: Bankruptcy, City of Hamtramck newSubmitted by 2nd_ave (4962 comments) on Tue, 11/16/2010 - 20:24 #74318 (in reply to #74314)
    So it turns out my visits were in the waning years of the Dodge Main plant (I recall the buildings were worn, and much of the area deserted)-

    http://dodgemotorcar.com/factories/hamtramck/index...

    Several years later, GM built a state-of-the-art assembly plant it its place-

    http://en.wikipedia.org/wiki/Detroit/Hamtramck_Ass...

    Detroit is (geographically) a beautiful city, with broad avenues, elegant homes (in its heyday) and a riverfront. I hope it finds its way back.

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  9. 2nd.....the 2nd mouse gets the cheese.
    Interesting you should mention your CSCO experience. I lived the first few days and stopped out yesterday until the market shows us a return to the trend OR reverses.
    Small positions helped limit the damage.

    FF

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  10. FF- Good timing the Landry phrase. Yeah, I thought I was playing the part of the second (or fifth) mouse today, only to find out they had at LEAST 5 mousetraps out.

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  11. LOL, Hey, maybe everyone's been busy raising cash in preparation to buy into GM's IPO? Demand is huge, according to headlines:

    "Investor demand for General Motors stock has been so strong that the company will expand its initial public offering by 31 percent"

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  12. Yesterday I closed half of my SPY puts before the close at a 40% gain, woke up this morning and realized I missed out on more gains, saw that there was some strength in the SPY early but had a feeling it was going to drop further so I added back my full position in SPY puts and sold all of them at around 1,177 or so. I ended up about 150% total on my SPY puts. Problem is in hindsight I traded on nothing other than intuition. There were no technical trend lines that I drew or special chart patterns that I saw. I don't know if this is a good thing or a bad thing.

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  13. CP- That has to be the biggest scam this year. So everyone wants in on the GM IPO? I'll wait for the inevitable point when they can't wait to unload them.

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  14. tof- You're kidding, right? If I spent much time listening to the TA gods explain to me (condescendingly, of course) why my intuition is bound to fail me at some point, I would be down big time + probably out of trading altogether.

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  15. It's been my experience all gods are condescending in nature, not sure if that's a requirement or a characteristic.

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  16. Congratulations on your SPY put trade, TOF! That was some good timing...

    Have you had a chance to read Hussman's article? :)

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  17. 2nd - I'm not quite sure what your motivation would be for unloading GM shares but I can say I've been quite happy with every GM vehicle I've owned and they've steadily improved over the years along with automotive technology.

    I would consider a GM if I were in the market for a new vehicle, they've designed some of the lowest friction engines on the road, my Buick gasoline 3.1L V6 regularly delivers 32 MPG, the best I've ever experienced with a gasoline vehicle.

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  18. Gary Shilling- '10 buys, 12 sells for a slow-growth decade' newSubmitted by 2nd_ave (4964 comments) on Tue, 11/16/2010 - 21:32 #74324
    Paul Farrell does a good job of summarizing Gary Shilling's thought-provoking forecasts:

    http://tinyurl.com/3x44ud7

    Makes me wonder whether healthcare/pharmaceuticals will be one sector that leads the next bull.

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  19. CP- The best car I ever drove was (my Dad's) 1973 Pontiac Ventura. He bought it from a GM executive, who'd only driven it 3000 miles. I think it was Pontiac's version of the Chevy Nova. Holy cow that car was fun to drive- great acceleration, 'compact' for its time, and solid frame/body. My younger sister ended up totaling it about a year later.

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  20. 2nd - yeah, i was kidding. but i was just thinking to myself how i don't really have a method that i can look back on and say well this worked and that didn't work. most of it is just based on intuition. part of me feels like i should at least be jotting down notes on what i was thinking so i could look back on them.

    david - i honestly haven't had a chance to read all of hussman's comments. his articles are so long that i don't have enough time a lot of days to read anything like that in length. i briefly read the notes about the margins being at their highest and i gotta admit i agree with him on this point. however, it would take a whole lot of jobs growth for margins to come down much. i guess his thesis is probably in part that the economy is being aided by one time stimuli and when that goes away a lot of the good times in corporate world will go away. i actually kind of don't believe that. for the longest time people were saying that when the cash for clunkers went away, auto sales would tank. last i checked they've gone up significantly and companies like Ford are killing it. when the housing credit went away the numbers did crash but they're starting to rebound from what i can recall reading.

    one of the things i don't know is how much of a boost consumer spending is getting from all of these people not paying their mortgages. i have a couple of friends that aren't paying anymore and their just waiting to get foreclosed on. they were out in scottsdale spending their money like any other one of us so in a way they're helping the non-banking economy by not paying. i can't quantify what effect that has on the economy. even if i assume its 10,000,000 households not paying $1,000 a month, that's "only" $120 Billion a year in extra income being saved/spent elsewhere. The economy is what, $14 Trillion? That's 0.86% of the economy. And its not like it's extra money spent on the economy...it's just going somewhere else instead of to the banks, who ultimately recycle the money into the economy. i don't know man, this is why i don't bother getting all worked up about the machinations within the economy...it's too damn complex for me to boil it down to a buy/sell decision. i'd rather look at individual stocks and/or just use my gut instincts.

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  21. Things change so quickly. When I bought the first memory card for my camera about a year ago, you could take 160 RAW photos with a 1.5 second refresh rate. Cost me about $88 I think. Just got a new memory card from SNDK that can support 1,200 RAW photos with a refresh rate of .15 seconds. Got it on AMZN for $28.

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  22. david - i know you don't read much into the Ted Spread, but if this whole Ireland thing was so bad, wouldn't the Ted Spread have risen at least a little bit? I mean it skyrocketed when the Greece issue came about.

    maybe people are over-reacting to all of this. i've heard people throwing around $80 Billion as the amount the Ireland banking system needs. Shit that's not even 4 weeks of QE2.

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  23. tof- Personally, I think trying to learn TA would ruin my rhythm. It's like driving. I just drive. If I had to stop and think about tweaking torque, rpm, and psi for maximum performance it would (a) slow me down, and (b) take away the pure high of driving. I prefer the Nike way- just do it.

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  24. TOF- It's interesting you made a comment about your friends not paying their mortgages. I ran into one of mine yesterday that did the same thing. He was going to bail on the house and actually got a principle reduction. My problem is he could have afforded to keep paying, just didn't want to if he was underwater. Pulled some crap with his boss to make it look like he was making way less than he was.

    This guy is no idiot. He wasn't suckered into any loan. Just decided to say F it.

    Personally, I've lost all respect for him. Just the way I am.

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  25. Re: Longer (Than)
    Submitted by analyst65 (234 comments) on Tue, 11/16/2010 - 22:06 #74327 (in reply to #74309)
    2nd_ave,

    with all do respect, don't you think it's strange that most of us here ask the question "how long does the sell-off last?" but many of us forgot to ask the simple question during the last 2 1/2 months, "How long does this artificial buying in the extremely over, over bought zone going to last???"

    Any idea why?

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  26. Re: Longer (Than) newSubmitted by 2nd_ave (4966 comments) on Tue, 11/16/2010 - 22:31 #74330 (in reply to #74327)
    Yes-

    (a) Markets tend to move up over time, which lends credence to the 'higher ever after' perspective we all tend to develop. Sell-offs always end, even if it's at 'zero' (could it be that they keep reverse-splitting those inverse funds to keep investors from even 'thinking' zero)- whereas uptrends can continue indefinitely (or close enough to indefinitely). After all, if stock market indexes were not expected to move higher, why would anyone invest?

    (b) Sell-offs are generally shorter phenomena.

    (c) Actually, many bloggers did question the longevity of the rally off of the August 31 low. I would guess the Market doesn't like being told what to do, and silenced most of them. Now it's free to do the same to those of us who like to call bottoms.

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  27. Mark - I hear you on losing respect, but i would have to imagine that there is more to it than you think. I couldn't imagine the stress of being in that position. I stress out enough about having enough for retirement and it's a long ways away.

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  28. "Makes me wonder whether healthcare/pharmaceuticals will be one sector that leads the next bull. "

    2nd - Check out BSX...that is a classic breakout formation on the longer term chart. Look at how it broke out above the 200 DMA and is currently backtesting it. This is EXACTLY what the S&P 500 did back in June/July 2009, which is when I was officially convinced we were out of the bear market, despite all of the bad stuff going on in the world. BSX could be a great long term investment.

    To that end, I see that the Sound Advice newsletter recommends BSX:
    http://www.marketwatch.com/story/sound-advice-cranky-but-still-bullish-2010-11-15

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  29. Early expectations for natty's storage report on Thurs, average +9 (injection) with range of -1 to +19

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  30. Soc Gen summary comments

    "Index reweighting – still a non-event for NG
    The combined reweighting and roll of the GSCI and the DJ UBS indices should result in the outright buying of 69,868 lots of NG March 2011 contract. The number represents almost 9 percent of the total open interest on the NYMEX.


    The reweighting of NG among indices is a result of 2010 NG bearishness, compared to other commodities - especially ags. Playing the rebalancing is too risky: 2011 fundamentals will play against long positions on any summer maturity (Mar to Oct).


    Summer 2011 price forecast (published on Sep 17) stands at 3.52USD per MMBtu for Q2 and 3.20 USD per MMBtu for Q3 11 – both much lower than the current curve. Next summer's bearishness will be felt at the start of 2011: A mild Jan-Mar winter and large supplies should balance out a colder-than-normal Dec.


    With an expected end-of-heating season inventory level of 1.96 Tcf, bearish fundamentals should hold back any index-related bull moves at the start of January, before the rebalancing starts.




    Finally, an economic report converges with weak industrial demand readings
    The most recent ISM and GDP reports (both published pre mid-term elections) were supportive (if not bullish) and contradicted NG seasonally-adjusted industrial demand readings. Monday's release of the Empire State Manufacturing Survey of General Business conditions for October was, for once, not overly optimistic and was in line with these gloomy readings.


    The Empire survey posted a decline of 11.14. Given its past behavior vs the ISM manufacturing survey, the ES report may not be considered a forecaster of the next ISM report, due Dec 1. However, now that the elections are over, weak economic data won't have a political impact anymore. The ISM might then reflect actual weakness in US manufacturing activity as reflected in NG's industrial demand readings. NG Industrial demand outlook is bleak, despite a low-price environment (see chart below). 2011 industrial demand levels are expected at 17.3 Bcf/d on average, 0.3 Bcf/d below 2010 – 0.3 Bcf/d above 2009."

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  31. TOF- I hear you, and I wasn't trying to disparage your friends. God bless those that can rally until 4:00am :). I guess what I'm saying is, we have had 5% umemployment for ever. What's another 5%?. If people like us that have money wouldn't hold it so tight, we wouldn't be in this situation.

    I'm betting on a return to the mean.

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  32. I posted the Soc Gen comment because I found their "Empire Survey" comment interesting. I just glossed over their price targets above that. Those have to be the lowest price targets I've seen.

    With respect to industrial demand, someone once told me that 20% of the gas produced in the US is consumed by the petrochemical complex on the gulf coast. I've never seen that in print but maybe I can ask one of my bank buddies about that.

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  33. Port- Chuck would agree with that point. He's very bullish on Natty right now for a 6 month play. Big dog CHK is actually looking interesting to me here.

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  34. Team, Did you play TPC, Greyhawk, and what was the name of the Afterhours club?

    Mark, What is your take on clne. I keep getting shaken out of this thing. I might put it in the buy and hold. I don't understand how low NG would be bad for this company. You would think it would be good. How come you and me are the only one's that realize that.

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  35. I have my 400 shares of HK and short 4 Jan 19 calls plus my 200 shares of XOM and short 2 NOV 70 calls, all in the long term account. There I was griping about not being invested in the market. On both of these I would have been better to buy the stock and just sell it 1 week later.

    I'd like to add another $5k-$8k of something natty related for the long term account but I keep coming back to either XOM or COP. I like the dividends.

    I'm looking at the weekly GLD chart. Over the last few months, it looks like anytime we have 2 red weekly candles in a row we get another 3 to 4 weeks of sideways to down action. This week isn't over yet so if it closes above the weekly open at 133.86 then it's doesn't count.

    Looking at support I see the first line at 128.80 which are the weekly lows for weeks 10/18/10 and 10/25/10. I see the next support around 123.50 which was resistance for three weeks starting 6/14/10. I'd like to buy 2 Jan 13 calls and if GLD traded down to the mid 120's then I would target the 110 strikes. The big problem here is that if GLD does trade down that low the volatility will probably be a lot higher making my calls a lot more expensive. What the heck, gotta have a plan. Lets see how it works out.

    Good luck tomorrow.

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  36. Mark - that's always my first thought: thinking what's wrong with people that just stop paying...but after I've heard my friends' stories, I can't help but feel sorry for them. One of my friends bought a house for $400k, then his company went bankrupt (and he lost his job, which was paying him $125k), got divorced and has to pay child support of $1,500 or $1,800 a month (can't remember), got another job paying him $65k, and the value of his house dropped to $225k, all in the span of 3 years. He was just like, screw it...he's waiting to get foreclosed on so he can move to a small apartment, but the bank isn't foreclosing on him. So he's just staying at his place for free.

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  37. Robear - We played a few no-name courses...each was about $60 a round. the after hours clubs were Skin, Babes, and I can't remember the other ones. Although I think the first two weren't after hours.

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  38. Team, Great sounds like you did it right. Scottsdale is a freaky place to me. I spend a lot of time there since it is the epicenter of Arizona soccer. One example of the freak show that is Scottsdale. There are more car-washes per capita than anywhere else in the world. One particular one that fascinated the hell out of me was a hand towel car wash gourmet coffee combo. What was strange was the outdoor dining area had all their chairs facing the car toweling area theater style. The place is always packed and instead of lounging around drinking coffee and reading the paper these people are intently watching the serfs towel off their high end cars. WTF. Me and my buddy spent 20 minutes one hungover sunday watching the people watch their cars. It blew are minds, yet that is Scottsdale in a nutshell. I should do my DD and find out if that car wash is a publicly traded company. I smell a money printing press.
    Bob

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  39. Wow, lots of posts!

    Don't forget about corporate money sitting on the sidelines waiting to discover what the tax landscape is going to look like going forward, I suspect Corporate America may soon be offered some enticing tax breaks in order to reinvent US jobs creation.

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  40. '72 Pontiac - Well, those weren't the best years for American auto manufacturers for a number of reasons such as trying to meet tightening air quality standards using old-tech carburetors and the beginnings of lightened steels from recycled materials but quality really slid downhill over the following 15 years as a result of cost-cutting.

    It wasn't until the early 90's really when a quality renaissance remerged in Detroit but by then GM had lost tremendous market share.

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  41. “david - i honestly haven't had a chance to read all of hussman's comments. his articles are so long that i don't have enough time a lot of days to read anything like that in length.”

    TOF – it takes me only 10 minutes to read Hussman once a week (which is how often he publishes), and reading his weekly commentary is a highlight of my weekend (he publishes on Sunday evening).

    “i'd rather look at individual stocks and/or just use my gut instincts. “

    I noticed that, and that's why I didn't debate the stock valuation issue with you for a long time. This issue is relevant for long-term investors in the broad market, and you are definitely not one of them, changing your investment stance from long to short based on the local price action and short-term news events. But still, for the record, I think it would be beneficial for us to realize (and also enlighten others of the fact) that the stocks ARE overvalued here.

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  42. "david - i know you don't read much into the Ted Spread, but if this whole Ireland thing was so bad, wouldn't the Ted Spread have risen at least a little bit? I mean it skyrocketed when the Greece issue came about."

    Now THAT'S an excellent point, TOF, and is worth posting on the CC blog for the benefit of a wider audience. This excellent observation has relieved me of my worries about the current European situation.

    My remaining two worries now are the deteriorating balance sheets of the state and local governments (described by Meredith Whitney as the cause of the next crisis like the one we had in the Fall of 2008) and the impact of the currently huge overhang of unsold foreclosures finally hitting the market.

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  43. port2013: how can the NG price go down to $3.50 by next summer? Isn't it below the production cost of most of the current gas producers, especially with a large part of their hedges coming off at the end of 2010? The NG market is very inelastic, and if even 10% of production is taken off line because it is uneconomic at $3.50, the NG price would shoot up. I think the Soc Gen is right about the weak NG demand seen so far, but have they carefully analyzed the supply side of the story in their report?

    Mark: what makes your oil guy so bullish on NG for the next 6 months?

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  44. This has to be one of the best sets of evening posts I have seen here in a while...

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  45. As a continuation of my strategy of scaling into CSCO in a "value region," I am placing a sell limit order for 5 CSCO January $19 puts for $1, so as to buy CSCO at $18. I can't believe that CSCO will stay below $18 for a long time.

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  46. I can't believe what I am seeing! With MON closing at $59.33 today, the January $55 puts are bidding at $2.23 now! So I can already buy MON now at $52.75 now! That's a killer price right near THE bottom for MON, which is especially attractive now after MON made a higher low and a higher high after hitting THE bottom in July.

    I have just placed a sell limit order for 1 January $55 put on MON at $2.50 and 1 such put at $3.50.

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