Sunday, December 26, 2010

12/27/10 Year End Close: SPX >=1280

I'm going to try to couch my take in the form of a 'set up,' because it's certainly not a forecast.

(a) The usual EOQ window dressing takes on added importance in Q4. Investors (aka clients and potential clients) + managers (aka bosses) pay more attention to calendar year performance numbers- just the way people are programmed to think.

(b) Starting Monday, JQPublic will put 2010 behind him, and start to look ahead to 2011. He may start crunching numbers, considering for instance the difference between 6.2% and 4.2% of each paycheck- and decide (i) he can start contributing more to his retirement account each month and/or (ii) he can actually afford a few of the things he cut from the budget last year (dinner out once a month, piano lessons for the kids, whatever).

(c) As of last Friday, investors have much to be thankful for- it's been a decent year for longs. Which only begets more optimism re next year. Naturally, investors (of whom 90% consider themselves more savvy than others) will want to position themselves ahead of the crowd- thereby driving indexes higher into year end. There will be a pullback at some point, of course. I just don't think it's going to be this week.

(d) Too many headlines trying to talk the market down. MarketWatch, for instance, had one running most of the weekend that (IMO) tried to set readers up for lower(ed) expectations.

(e) Bear trap. There should be signs posted on the opening pages of broker websites for the last few trading days of each year- 'Short at your own risk.' I really believe that. Especially this year. The trend is still up. Colin Twiggs reports 'A steep rise on Twiggs Money Flow (13-week) indicates strong buying pressure.' As I write, the Shanghai Composite is up +0.6% despite a surprise rate hike. There are 51 other weeks in the year- do you really have to short the last week in December? Not me, man.


  1. 5) You can afford to start giving like Santa Claus.

  2. 5...That's funny even in my fragile state :)

  3. David- Did you see SGG is closing in on $100? Man, didn't we think we were smart :) My basis was 40.40ish.

  4. SGG- The only dent in the chart was when the CME changed the margin requirements.

  5. Damn. I had 1000 shares. Unreal.

  6. latest from Hussman:

    hope you all had a great xmas/whatever it is you celebrate!

  7. SGG -- that's crazy, Mark...

    JJS is also at a new high now. How did I manage to short it at $75, place a buy limit at $65 AND have my buy limit triggered intraday, even though JJS has not closed below $67.50 since I shorted it? That's lucky...

  8. Sold my ACMR at $2.57 avg that I bought on Friday. Now only long RAS and short RIMM/long Jan / Feb $62.5 puts on RIMM, short SPY / long SPY puts.

  9. Stopping out of INTC/Taking profits on CSCO newSubmitted by 2nd_ave (5096 comments) on Mon, 12/27/2010 - 09:48 #76576
    Flat overall. Back to 100% cash.

  10. HRB's been cut in half since January.

  11. 2nd - H&R Block longer term is going to get hurt because of online tax prep + I think in the short term there will be a movement toward tax code simplification which might cause negative sentiment on HRB. that doesn't mean there isn't a price that makes it a good buy, but I don't like the longer term trends working against the company.

    Mark - hope you're still in V.

  12. I'm watching the price action on a 30 minute/hourly window for these large caps that recently reported earnings and I'm seeing a similar trend. Look at ORCL and FDX. They are both quietly trending down.

    Another one I kinda like from the short side is JBL. On an earnings basis the company looks cheap but margins are very high vs historical standards.

    And lastly, I love RIMM from the short side. The stock has a series of lower highs/lows, the fundamental story behind a short position is great, and the stock's gains after earnings have been completely evaporated. This stock, in my opinion, is a great short on any pop.

  13. Yeah, still in V and all the others. Too tired to do anything about it really. Port +1.63% so far, IRA +2.23%. I'm sure it will follow the market down if it goes that way, but obviously I don't think it will.

  14. Re: Stopping out of INTC/Taking profits on CSCO
    Submitted by 2nd_ave (5097 comments) on Mon, 12/27/2010 - 10:34 #76579 (in reply to #76577)
    dave- Yeah, I'm having a hard time taking on risk right now. My thinking at this point in time (fwiw):

    (a) It hasn't been a spectacular year for me, but were I to close out Friday with no additional trades, it will have been +12%. I'm OK with that.

    (b) I only need to average 10%/yr for the next 8 years to 'retire.' At that point, I'm hoping to see reasonable bond yields. I like the day job, and will probably wait 13 years to retire- furthering lowering the need to outperform. Any given year typically offers great entry points for the broad indexes- that's where I plan to make the 10%. So psychologically, I can see I'm much more risk averse now than I was just 2-3 years ago.

    (c) In ten years, I may find myself trading just like Grym ;) His strategies become more appropriate the older we get.

    (d) Looks like you're right about CSCO!

  15. Not much of a sell off for us on Beijing's rate increase, although it did have an effect in Shanghai... Funny thing though, the initial response was decidedly positive.

    Still long, waiting for the next move.

  16. Filliping my TIE $'s into MMR is paying off so far. TIE just seemed stuck.

  17. Looking at the order flow, C should break R2 here (4.73).

  18. APWR - Something's up?

  19. CMG should get back into 210's at least.

  20. CMG - What's a good P/E for that, are their earnings estimates really spectacular enough to deserve a sky-high P/E of what looks to me like ~2x of what might be a justifiable buy?

    I just don't understand how some of these equities can run such high P/E's, while others (like CSCO) aren't... in the clouds.

    Wish I understood it, then maybe I could make some money...

  21. CSCO: Draw arrow. Look at chart.
    Notice the mountains of previous buyers turned sellers/overhead supply.
    Zoom out to 2007-2010.
    Now look at big picture. The chart (map of psychology) indicates it could as easily be a short to 13.61. So it could go to 27.50 or 13.61.
    50/50 risk reward sucks. Everyone should see it. It's more than likely everyone DOES.
    Hence CSCO sucks.


  22. Well, it looks as if I'm not going to meet my goal of a portfolio double by end of this year...

    Guess I shoulda loaded up on a mega-giant-grower like CME if my goal was a 2x...

  23. CSCO sucks? Sure, CSCO ain't worth a dime, CME has tons more proprietary and intellectual value, which explains the P/E divergence!

    Same's true for INTC, right?

  24. And so if EVERYONE DOES see that CSCO is a POS, then it surely will move on down to $14, b/c the crowd is always on the right side of the trade?

    Yeah, it's obvious!

  25. LOL! It kinda depends on your intestinal fortitude and how many shares of a $234 (IF you could miraculously time the year bottom) stock you can afford. It still only would have made you about 30%. Hard to double on 30%.
    I know if I were lucky enough to buy it at sub $200 in 2009, that move off of 350 to 265 would have shaken me loose!

    Better to find a nice $3-$5 upwardly trending stock and try for a double on it or a few like it.

    You guys are trying to double on big thick, high priced oil tankers that make you sick on the ups and downs of the high seas. You need little high beta fast sporty cars that climb fast and give you some cushion for the long haul.
    That nice sleek GMO is/was more like it.


  26. LOL! What's PE?
    Do you trade PE (made up earnings) or price?

    Stocks trade on psychology (greed/fear), not PE.
    There are thousands of instances where low PE stocks went lower and high PE stocks went higher and vice-versa.
    PE therefore is not an indicator.

  27. Well, I've got GMO/CADC/ATNI and looking to add/new plays. We'll see where they are in 6 months...

  28. They slide faster than they glide.
    It is easier for CSCO to slide to 14 than to glide through all the overhead supply. THAT is the psychology. That is CSCO's chart.
    It's human nature to sell losers as they regain where they were bought. So it is a lot harder, lacking some insane story, for CSCO to go to 27.50 than it is to go to 13.61.
    At best the risk is 50/50. It is what it is.
    I'm not buying the fricking company, I'm trading it's stock, so it's WORTH is absolutely totally meaningless. If I'm Warren Buffett and I'm buying the company, then it's worth is a concern. I'm not an investor, I'm a trader.
    As a trader I see it's PRICE is trending DOWN.
    I just draw a simple arrow. The arrow is pointing down. Why would I fight the trend?

  29. PE is not an indicator - Well, I don't agree with that, a company with no earnings is bound to experience difficulty justifying it's existence in the longer time horizon.

  30. SLW on the watchlist newSubmitted by 2nd_ave (5098 comments) on Mon, 12/27/2010 - 12:49 #76590
    Is there a company in the mining sector with a better business model than SLW?

  31. CSCO - Then if you're right and CSCO does trade under $14, I'll take advantage of crowd psychology by throwing some in the old buckboard.

    I'm always looking for a bargain, those bargains aren't normally found simply by looking at the left side of a chart.

  32. 2nd - A better business model or a better valuation? That's the question.

  33. IMO, at SOME point, things like PE and PB *DO* matter, but do you REALLY think its THAT Cheap?

  34. I'm more inclined to think the crowd has misjudged the value of CSCO, unless of course there's some problem(s) or issue(s) lurking I'm unaware of, which I think is unlikely given CSCO's history.

    Eventually it will bottom and begin to rise, or continue a downward spiral into the depths of hell, just like the US economy is/was doomed?

  35. SLW - Assuming I understand the business model, my question is, how much longer will silver producers continue selling their production for less than market price?

    Does SLW's business model add value and therefore benefit silver producers? If so, then it should keep humming right along?

    Is SLW overpriced here? That kinda depends on which way the price of silver moves? Have traders priced in the current or future price of silver?

    There are a million variables.

  36. IPO's generally have no earnings or no history or record of earnings, yet some of their prices skyrocket. There are some stocks with negative earnings and debt that increase in price.

    SLV is in the model portfolio (with a 26.70 stop after taking off half at 30) and SLW has been on the watchlist. I like the chart but the only thing that concerns me is it has been 8-9 days of correction (more of you count the knockout pattern on the 7th and 8th) and it's also corrected into the previous support. I like to see the trend resume, then enter when it breaks above the correction bars. I think it's very wise to have it on your watchlist.

    As my "coach" says, the second mouse get's the cheese. It isn't important to catch bottoms or buy low, it's better to buy the high, sell higher.
    We have talked about this before, taking the middle of a move instead of trying to time tops and bottoms. Much safer, better risk/reward.

  37. I think CSCO warned and traders got scared, reacted to fear. Fear beget selling which begets more fear and selling. Psychology.

    At some point fear will give way to greed and it will start over again. Nobody will notice PE, although some might use it to guage their fear/greed at the extreme.

  38. Yet another good day for copper?

  39. GMO baby!!! No, I don't have any. Just happy for CP :)!

    Do my eyes deceive me, or is Natty pushing my port higher?

  40. The very best signal to noise ratio is always obtained as close to the front end as is physically possible.

  41. ESLR is up 12% in 2 days. I just sold at $0.64 the 5500 shares I purchased at $0.62 a couple of weeks ago. I didn't expect it to be SO weak after announcing the debt restructuring plan, and so I am happy to reduce my exposure to ESLR now.

  42. Okay, I'm going to give you all an idea.
    Remember Mark's fracking co. HEK? They treat, transport and dispose of fracking liquids.
    But fracking liquids, notably benzine, is flammable and poisonous, so the EPA got involved.
    Check this out.

    Now it just so happens that one of the co's listed in this article is breaking out of the mother of all bases. Hint: It isn't the big ones mentioned and it uses citrus products as well as supplying oil field services worldwide.
    In 10/07 it traded at $55. It triggered a while back at $3.95. CP, you want to double a trading acct? How far would a thousand percent get you? How about 300%?
    Even if it gets turned back at previous overhead of 13.25, it's a triple. Note the trend. Overhead supply is back over two years.
    Just look at the chart for three-four years. That base and cup and handle make me crazy.

  43. Speaking of solar stocks, SOL is retesting the 20 SMA and I bet it proves a good entry prior to a nice rally.

    FD: No intent, just an observation based upon curiosity.

  44. FTK -- shark is that you bubba?????

  45. No, it's FF, but this pick is very Shark-like, isn't it?

  46. FTK - I believe I bought a bit of it back in Nov when the volume increase hit my '2-days Gainer on Increasing Volume' scan, but I sold it early this month when it entered the triangle and volume dropped.

    Watching AVL...

  47. BTW, FD on FTK. I own it and have been trading around my base position. I intend to own a lot more if it does what I expect.

  48. HEK is indeed doing well -- I haven't looked at it for a while... A while ago, when HEK dipped under $4, I bought 5 March 2011 $2.50 calls for $1.70. Now they are trading at $2.50 already. If they get to $3.40, I'll sell them for a 100% profit...

  49. Ha!! I thought that was Shark like also :). Good choice. I knew of the Co. but never followed it. There is a connection between HEK/FTK through US Filter. Can't remember who it was though. Good job FF. HEK is now almost to 5.

  50. FF - FTK may indeed continue up, but one of Vad's trading lessons re. volume is something I pay close attention to...we want Big Fish to Run the Show...

    If the volume goes into the toilet, I'm out of there.

  51. Notice that while the US markets are staying flat or trending up, EWP is trending down. When the US market eventually collapses, EWP will also collapse. So it is a one-way ticket down. Landry is right -- trading in the direction of the long-term trend (down in this case) is much easier then betting against the trend (which I am doing with IWM now).

  52. Fracking - Yeah, so what's the ticker? My guess is they use benzine as a solvent to "loosen" the hydrocarbons, or decrease the viscosity, sort of, so they flow or release more readily from the poors of the rock, etc.

    I'd been wondering if some compound of flourine wouldn't do as well, which would tend to combine with the rock b/c of it's affinity for calcium, breaking the bonds and making the rock more porous. The fluorine wouldn't go anywhere because of it's affinity for Si and calcium, the strongest of nature's bonds.

    APD used to be our supplier of choice for aggresive fluorinated compounds, I guess they have more than they can dispose of due to some of their other refining processes.

    Fun stuff to "play" with too, much more entertaining than mercury, one heck of a lot safer once returned to it's natural state, and very selective under the right circumstances (disolves your bones yet leaves flesh practically unscathed).

  53. FTK is interesting. I used to watch this one. Why did the earnings crap the bed? How will they compete against the big dogs in this area?

  54. Bought another RIMM Feb $62.5 Put at $5.35. Just kinda watching the action today.

  55. C- Still high bid/ask ratio @ 4.78/4.79

  56. If volume goes down then it is likely the price will too and I'll get stopped out. I'll let the market take me out as I'm already up quite a bit trading around the base on some of those gaps higher.

    That's one of the Landry methodologies. This may be why I like the method so much. I'm guilty of over/micro managing positions and then having them take off on me. The methodology calls for entering on pullbacks in persistent trends or transitions, then using a relatively loose stop (just below the previous low) and an equal price target to take partial profits.
    This way ijits like me can use a plan to avoid over-trading/micro-managing and instead trade a plan while limiting losses. So far so good.

    David, don't forget trends in indices, sectors.
    At the moment Landry is suggesting doing nothing. That's the deal with trend trading. If there's no trend you do a lot of nothing.
    Another benefit for me.

  57. FTK - Okay, so this is the ticker to observe. I have my doubts about citrus fracking though, unless someone can synthesize the compounds?

  58. Crikes. The bid/ask spread for FTFL is a buck today. No trades.

  59. Imbalances..

    BUY- AA


  60. Okay, I see they currently use:

    Hydrochloric acid
    Some "buffers"

    I can understand the use of HCL to disolve rock, fluorine would too, maybe combining too rapidly to be of use, or practical? More difficult to work with, for sure. Large quantities of unbound HCL isn't something I would want to leave underground to mix with ground water. Wonder where the benzine is?

  61. I'll try to not be flippant, but I don't pay any attention to that stuff. Volume either.

    My charts are simple bar charts and sometimes I use a series of MA's on a longer chart to visually see/confirm trend changes. No volume, no RSI, no MACD, no nothing. Green and red bars. That's it.
    No news, no PE, no fundamentals.

    "Don't confuse the issue with the facts".
    I'm just a trend following moron now.

    NOTE: 'Following' is key word. I don't try to outguess, beat, lead, predict, bottom tick or pick tops. This may not work for everyone, but I'm more relaxed and it fits my psychology.
    I used to feel like 'Tweek' from South Park.
    Now I get up at 6AM, in time to make a pot of coffee and to read the Random Thoughts and maybe watch the market in a minute. I toodle on over to BC to see what he is thinking for laughs. At about 5 PM I sign in to the service and see a more extended version of the markets and then check the written version for possible equities to put on my list long or short.
    I also read Patrick's take (closing report) as I noticed he has a similar method and triggers.

    I don't worry so much anymore and I let my positions wander more as long as I have stops in place. I have more automation in place with advanced/conditional orders. I have to move those around as the market moves in my favor.
    Yawn. :>)

  62. Craig: EWP is the index of the Spanish stock market, and it is in a clear downtrend since January 2010 (or since 2007 for that matter).

  63. FF - So you reject all tape reading methodologies. Interesting...hope you had a nice Xmas...

    LVS working to fill this morning's gap...

  64. Bought some $57.5 Dec 31 Calls on RIMM right before the close just in case anything unforeseen happens so I can partially hedge my puts. I have about an 85/15 put/call ratio on this stock. I think with the iPhone going to VZ soon the stock will tank to $55 and possibly down to $50.

  65. I figure the market has a huge ego, even larger than mine, if that's possible, and won't admit when it's made a mistake, until after the mistake has been compensated.

    Kinda like watching someone chopping off their fingers one by one with a hatchet. I'd pay $5 to watch that, wouldn't you?

  66. Ah, Thank You David. That makes sense.

    Not really Kyle. This method made me see there is MUCH more to charts then I previously thought.
    Think about it. In Livermore's time they didn't have real time charts, yet he is known as one of the best tape readers ever.
    As a trend follower you don't need second to second rearward looking noise.
    Generally, if you can draw an arrow, you know what you need to know.
    Then you apply trend qualifiers.
    Persistency, base breakouts, gaps, laps, trend acceleration, wide range bars, higher highs and higher lows, strong closes, new highs, and how much a stock moves over a given time. Also moving averages, slope, daylight.

    There isn't any indicator that will tell anyone what will happen on the right side of a chart!

    When I read Landry's latest book I couldn't believe how much I DIDN'T know about reading charts.

    All that other stuff is really noise to a trend trader because ALL indicators are derivative of price.

    It is true that traders like Vad keep their risk quite low, but they also miss big persistent moves. So downside is reduced, but so is upside.

    Landry's method is using a swing entry to protect the downside and taking half a position off for partial profits to protect the long position, moving the stop to break-even and letting the remaining position run to hopefully capture the bigger long term gains. Then moving the stop up as the market moves in your favor. Thus you let the market take you out or run it higher, since no one knows what will really happen.
    A totally different game than Vad who rarely holds for long.
    There is really no need for volume in Landry's methodology.

  67. Uh.....maybe? If that's all it cost and it wasn't MY fingers and I didn't have a greasy breakfast.

    But it's likely I would leave early and then wonder WTF the market was thinking....


  69. RE: Paypal

    PayPal, once seen as a niche product primarily for eBay transactions, has
    achieved mainstream status for American consumers. According to a new survey
    conducted by Cardbeat�, conducted by Auriemma Consulting Group (ACG), more than
    three-quarters (76%) of American consumers have an active PayPal account, up
    sharply from 55% in their 2008 survey.

    "PayPal has long been popular with young consumers," noted Patricia Sahm,
    Managing Director at ACG, "but it`s striking to find that 69% of respondents 45
    and older said they have an active PayPal account. Many of our respondents say
    they feel more comfortable using PayPal rather than their credit cards for
    online shopping." The Cardbeat survey also found significant gains in frequency
    of PayPal usage, rising from an average of 10.8 purchases a year in 2008 to 14.0
    annual purchases in the most recent study.
    Although PayPal still accounts for less than 10% of total online sales volume,
    the seemingly inexorable growth of ecommerce drives more and more dollars to the
    payment service. While final volume counts await the end of the holiday shopping
    season, PayPal reported a 27% increase over 2009 in Black Friday online

    And those millions of PayPal accounts are increasingly bypassing the credit card
    networks altogether. "We`re seeing substantial gains in consumer willingness to
    provide their bank account information to PayPal," Sahm said. In 2008 45% of
    survey respondents said that they were "uncomfortable""with the idea of
    providing bank account information to an internet-based payment company like
    PayPal; in the most recent 2010 study that percentage had fallen to 31%. "Where
    Visa and MasterCard formerly had a complementary relationship with PayPal when
    consumers used their credit cards to fund their PayPal account, the credit card
    networks are cut out of the exchange when PayPal is positioned like a debit card
    linked directly to the checking account."

    About Auriemma Consulting Group
    Auriemma Consulting Group (ACG) is a full-service management consulting firm
    serving the payments and lending industries since 1984. Cardbeat is ACG`s
    syndicated market research study of credit card holders, conducted monthly in
    the U.S. and quarterly in the U.K. With offices in New York and London, ACG
    consultants are experienced practitioners, drawn from the credit card, private
    label, auto finance, mortgage, and retail banking industries that we serve. For
    more information, contact Pat Sahm at 212-323-7000 or

  70. You guys know I'm bullish on eBay. I don't own any shares, but this looks like an absolutely perfect setup to go long. The stock got hit because of the V/MA news > people think that merchants will guide people toward using the lower fee cards from V/MA over AXP and Paypal. However, Paypal is used by people more and more because they feel safer using it. I don't think this trend slows down one bit. I'll be looking to buy tomorrow.

  71. New to the blog here...Love the quality of the posts. I'm in agreement that the solars are setting up here. ASTI is best bang for the buck in my book. Perhaps a return trip to 5's and 6's?
    More charts of interest- MITK, GMO, SHZ, DHX, ADES, OXPS. Additionally, I have a gut feeling that UNG may move here based on psychology. Most traders thought natty would soar due to this weekend's blizzard but surprisingly it opened 1.5% lower. May have rinsed out the few remaining bulls who would be left behind in a surprise post-blizzard advance. Chance that chaotic whiplash pattern over last 7 trading sessions MAY be bottom. Picking some up AH at 5.63 and setting market stop a little under today's low at 5.49.

    I'm waiting for the smart $ confidence to hit 25% w/ a corresponding bull confidence % of 81 or so in the next 2-3 weeks before a sudden 10%+ correction.

  72. Solar - Hi jesse, In that case, I suppose you've been tracking JKS and TSL as well.

    I don't really know much about these, TSL supposedly has one of the lower production costs.

  73. Welcome Jesse. Interesting comments. TOF had ADES back in the 5's. Thing that makes me nervous is the volume is already back to 60K. Sometimes when theses MOMO stocks stall, watch out.

    What's your trading style? I can kinda guess looking at the charts you posted. GL!

  74. FF,

    I don't think you understand Vad's methodology correctly. He manages his trades in pretty much the same manner you described. It's only a time frame that is different but the method is not time frame specific.

  75. A 4% pop for the portfolio today, too bad I've got nearly 1/3 of it in cash (today's loss on the cash position was almost 0.25%)!