Tuesday, October 21, 2014

10/21/14 Lying in a Bombay Alley

Two of the BRIC indexes look attractive this morning.  Brazil's Ibovespa off an additional -4% to 52,120.  Opening positions in the extended-hours session> EWZ 41.2x, PBR 12.6x.  RSX (Russia) appears to have found its footing on Monday> opening a position pre-market @ 21.4x.

Even at these levels, both ETFs represent high-risk trades.  For instance, Sunday's runoff election in Brazil is likely to gap its index up or down next Monday.  The ideal entry scenario would be even odds in the polls going into Friday afternoon, as risk-averse investors unload positions ahead of the weekend.

115 comments:

  1. PBR off @ 13.09, EWZ off @ 41.79.

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  2. BXE - Up $0.15 OMG what's going on, this hasn't happened since I've owned it.

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  3. Hmmm. CE just reported and is trading at 10x 2014 earnings.

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  4. Opening short positions at the 1030 window: RYIRX (Rydex 2x Inverse Russell 2000) and RYPTX (Rydex 2x Inverse SPX).

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  5. Still holding the EM positions. Sold SLCA at $48.9 and will look to add to the EM positions. I think we might have caught a tiger by the tail. Let's say we get a v-shaped recovery all the way to new highs (not unprecedented, look at corrections in 1997/98) then my guess is emerging markets rip higher. Ballsy bet but given how beaten down they are this could be a home run. A 50% gain in EDC in 6 months is possible in my opinion.

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    1. The question is: are the majority of traders expecting a double bottom or higher highs or even new lows? How many are expecting a v-shaped recovery? That seems to me like the lowest probability trade.

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    2. i ended up going all in on EDC. Avg is around $25.5. I'm thinking this has a good shot of ripping to new highs by year end. Just 2 months ago the popular trade was to be long emerging markets. Now people won't touch them. I think the move was for real and the move down was a fake move. Basically I'm going for it, trying to make a home run finish to the year. I understand how overbought the market is in the short run, but I think emerging markets were unfairly beaten down.

      The components of EEM are very attractive in my opinion. The top holdings are:
      Samsung - 3% (not too ecstatic about this one)
      TSM - 2.45% (I really like Taiwan here for a variety of reasons, but the 30 year chart screams major breakout like India a year ago)
      TCEHY - 1.92% (this is my favorite China stock)
      CHL - 1.76% (dirt cheap, trades at like 12 times earnings which are growing 20%)

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    3. Cojones, bro. I'd have a hard time even holding EEM through Sunday's elections.

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    4. But then I've never had a +105% return.

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  6. I can understand the trade, though. Markets may have set a major bear trap this past week.

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    1. Yeah its a tough one. But I've dealt with far more volatile positions in the past. If the rest of the market is ripping like crazy in a v-shaped pattern back up to new highs then why would the least expensive part of the market not eventually follow? Because of some silly little election in one country that sports 2.7% of the world's population? Maybe in the short run but my guess is this gets forgotten within a month. Buying after a 24% slide I would have to imagine reduces some of that risk. Obviously if the market falls apart here then I'll take a nice hit. But the risk seems contained here.

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    2. 24% slide in EWZ that is...EEM only dropped 13%

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  7. Very interesting comments by David Einhorn on CNBC about Greek banks. Take a listen on CNBC.com when you get a chance. I picked up a little NBG on the heels of his comments for my furniture business at $2.74 just in case he's right.

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  8. http://www.ritholtz.com/blog/2014/10/emerging-market-maker/?utm_source=dlvr.it&utm_medium=twitter

    Interactive tool that references key metrics for EM countries.

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  9. Gains have evaporated in emerging markets, right on cue.

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    1. I'll probably join you on this one. Looks good an the chart too.

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    2. Nice man. I keep thinking about how well those leveraged plays on a variety of sectors did in the US after they started trending in the right direction. Look at TNA / SOXL / ERX since 2011 lows. They didn't go up 3X the underlying sector. They went up a lot higher because they trended. If EEM can get out of this sideways funk and actually trend for a while then EDC will be a home run.

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    3. Hopefully this is the time.

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    4. Did you guys opt out of EWZ, I placed a stink bid on it, or I think I hit the button, not sure. I have a smallllllll position in OIBR but the CEO left so I dunno if it's gonna ever find a bottom, LOL...

      I guess the bounce for BXE is near done now.... $5.18 is the line in the sand and it's far from there. At least it's not down yet again today, after like 180 straight down days Normally 3 consecutive down days is the obvious sell signal... huh?

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    5. here's what i'm talking about; these are 2-3 year returns:

      Small Caps:
      TNA 240%
      IWM 55%
      MULTIPLE: 4.37X

      Energy:
      ERX 313%
      XLE 67%
      MULTIPLE: 4.69X
      Semiconductors:
      SOXL 500%
      SOX 86%
      MULTIPLE: 5.83X

      Biotechs:
      BIB 738%
      IBB 196%
      MULTIPLE: 3.75X

      The only one close to 3X was BIB. Obviously it has to trend. One of these times EEM will trend up and out. If not it's pretty beaten down anyway.

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  10. End of the drought? "Sacramento, CA - Expect showery weather... "

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  11. CE - That chart reminded me of TSO's, huge failure of the H&S

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  12. (a) My short positions have moved against me since 1030 (ie, I'm wrong!). Normally I would need to wait 'til Wednesday to close the positions. Instead, I plan to open equivalent positions in RYRSX (the mirror image of RYIRX, which closed the 1030 window down -2.45%) + RYTNX (the mirror image of RYTPX, which closed the 1030 window down -2.4%) at the 345 pm window. Based on current bids, I'll be 'locking in' manageable losses of -0.36% and -0.7%, respectively.
    (b) Why are US indexes continuing to rally? Best guess is last Wednesday's capitulation eliminated most sellers, allowing prices to rally on low volume.

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    1. Earnings seem to be helping as well. I thinkk people got too negative and now are seeing things are actually moving along fairly well.

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  13. IWM and a few others now actually up for October. SPY still down, but getting close.

    Still some work to do to get back to all-time highs as Sept. was a weak month, but pretty strong markets.

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    1. I'd have to look back to see how my purchases I made the last couple months as the market went down are doing now, but I sure do find it easier buying into those days than adding on a day like today when the S&P is up 2%.

      Several were far too early in hindsight, but at least with those, I had a chance of bottom ticking now. Now, of course, no way.

      Some people like to see things bottom before buying, but I personally find it hard to do.

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    2. Gotta know your personal disposition and use it to your advantage!

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    3. BB - I agree. I prefer buying panic. I believe today's panic open in EEM / EWZ could potentially mark a significant bottom for a very very long time. I'm biased, of course, as I've been stalking this position for at least 3 months now.

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  14. Good call by this guy:
    http://www.seeitmarket.com/small-caps-time-rally-13823/

    I agree and was why I was buying TNA yesterday morning. The two seem to be more in line, valuation wise, now.

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  15. I think the strength in this market should be a bit of a wake up call to anyone still thinking bearish or caught off guard. Just from studying charts over the years this snap back reminds me more of a move from the 1997/98 period than anything else. Those snapbacks didn't stop until new highs were reached in fairly short order. In the short term we are extremely overbought...however, if you think in terms of game theory there are probably a TON of fund managers underperforming and in desperate need of catching up into year end. So while it makes sense to at least pull back here some from a relative strength standpoint, momentum is definitely on the side of the bulls and it wouldn't surprise me to see little in the way of pullbacks until we hit the old highs. So many big investors got hit hard this month from collapsing energy / emerging markets / european markets and given the volume at the lows, they probably panic sold.

    When you get a chance read Loeb's comments in his most recent investor letter, released today:
    http://www.thirdpointpublic.com/wp-content/uploads/2014/10/Third-Point-Q3-2014-Investor-Letter-TPOI.pdf

    "In early October, a confluence of events transpired in relatively short order, including weaker economic data, political uncertainty, a potential global plague, and bureaucratic meddling, which caused fear to spike, sentiment to decline, and investors to de‐leverage. The month got off to an especially rocky start for hedge funds when a court dismissed a claim in connection with the Fannie Mae/Freddie Mac GSE complex. Many investors were oversized in this trade and their forced selling kicked off the “de‐risking” cycle. Next, oil prices declined sharply and many funds who had large positions in E&P companies suffered enormous losses. Then last week, AbbVie halted its announced inversion transaction with Shire, inflicting great pain on the arbitrage community. Opaquely blaming mysterious “meetings with the Treasury Department”, AbbVie walk ed away from an entirely lawful deal that it had touted as enormously accretive and strategic as recently as two weeks ago, incurring a substantial $1.6 billion break‐up fee. A rational conclusion is that instead of a legislative solution that might require comprehensive tax reform, this Administration has decided to unilaterally curb inversions using whatever means are available. Needless to say, this regulatory uncertainty (along with prior detours from the 2 rule of law) will be a wet blanket on top of investors until transparency and a level playing field are restored to the mark."

    Pretty good summary.

    So I think the chase very well could be on. If that guy that BB referenced yesterday is anywhere near the mark with S&P earnings then the market could very well be in the beginning stages of a melt up phase. I'm positioned for this and hope I'm right.

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  16. Robot went long yesterday @1900, now I guess we see how many suckers can get trapped chasing? Maybe everyone runs for their lives and buys EM's, it could happen.

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    1. Wouldn't shock me. There's two elements that provide some support longer term:
      (1) Continued widespread skepticism, which still shocks me.
      (2) Economic reports are still quite strong (solid home sales #'s today and jobless claims last week confirm this)

      If this is all we get in terms of a market pullback with the Fed out of the game, think about how many people currently on the sidelines waiting for a deeper correction will come rushing back into the market. This is setting up to be the mother of all fakeouts. Most people were in agreement we would see a substantial pullback. We had precedent for it in 2010 and 2011. And we got a sharp quick drop that justifies their thinking. But if that's all we get it could be a mad rush and could set up for a bit of a melt up phase.

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    2. What shocks me are 50 point days on S&P and 300 point days on DJI and the knee-jerk response central banks seem to respond with, rushing to make it seem they might delay raising rates, or the ECU rushing to stage and making promises they can't legally keep.

      JPM gets a small slap on the wrist for manipulating rates and the FED/SEC convene a meeting to tell Wall Street they better stop being abusive or else (they might be forced to enforce existing laws).

      Why is it the teeter-totter always seems tilted completely in one direction or the other and healthy balance is thrown out the window when it comes to our forum?

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  17. Wow. I should have held the positions I closed on Monday for another day. RYPMX and RYWVX closed flat to lower today, but RYEIX and RYRSX stacked even greater gains on top of Monday's.

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    1. I'm left with the hope that we at least retest the capitulation lows.

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    2. I think a lot of people are looking for that, but if I look at the SPY chart, ever bottom for the last 2 years has been a V-shaped bottom. "they" say that in strong bull markets, it is hard to find good entries and that is true with this one.

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  18. I'd like to know, is this incorrect, misleading, or are we here just living the moment without consideration for next week?

    "The French economy is stagnating and it is not a cyclical stagnation but a true structural problem.

    The French budget is a classic example of too much government spending as the public sector has made up more than 50 percent of GDP for many years. A nation struggling with economic growth is in dire straits as the cost of maintaining its public grows due to increased debt costs. It was rumored that David Einhorn of Greenlight Capital recommended selling FRENCH GOVERNMENT DEBT in a speech today at the Robin Hood Conference."

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    1. True. France is in a bad spot and need serious structural reform, but their socialist history and too big government is preventing this. They need a Margaret Thatcher type person, but would never vote for her if they could.

      When I look at Euro-countries, France is pretty much on the bottom of my list for places to invest.

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  19. Replies
    1. Yep! GEVO seems to be leveling off to where a 2 cent rise is a nice gain.

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  20. OIBR - Added some @ $0.45, not thrilled with the action so keeping it tiny.

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    1. You would think sellers would give it a rest, going into the election there could be a nice relief rally in store?

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  21. I thought more and more about being all in on EDC at this level in the market after a monster move up. I took the majority off at break even, thinking I may be able to get a better entry. One of the things that keeps spooking me is why are the defensive sectors now at 52 week highs? That seems like a risk-off type move. Maybe I'm wrong but more than anything I think I'm just too skittish right now and would prefer to avoid a big hit until I am calmer.

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  22. Another thing I keep thinking: am I either ahead of the curve or behind the curve buying here after a 130 point up move in the S&P 500?

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  23. Started buying back into EDC under $25.

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  24. BXE - Just a few centavos more and will have a more positive outlook. Doubt it happens quite yet (if anytime soon as UNG and UCO remain in a FUNK).

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  25. It seems to me like EWZ will rally regardless of the outcome of the election on Sunday because it reduces uncertainty. If Rousseff is re-elected I would think the rally would be short and sweet and probably a good opportunity to flip out of it. If Neves wins then it would rally extremely hard. Just a guess but it seems that the 15% drop in the Ibovespa over the past 6 weeks compensates for a lot of this.

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    1. Speaking of elections when does the clock begin ticking on the US election rally?

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  26. Oh what a surprise, chasers getting clobbered again.... Who'd a thunk it?

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  27. Instant karma:

    (a) I elected to close only the two leveraged longs (RYRSX, RYTNX) at the 1030 window.
    (b) That leaves me with the leveraged shorts (RYIRX, RYTPX) , which I plan to close @ 345 pm.
    (c) With the DJIA up +30 points @ 1030, and now off around -120 points, that's called playing both ends against the middle!

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    1. Well done sir!

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    2. I see you dodged a bullet yourself.

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    3. yeah i did. i actually made some money on TZA but sold too early. but i'm now holding some EDC heading into what seems to be a pretty crucial few days here.

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  28. JONE/BAS/CXO - Oh my....... Surplise!

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  29. Check this out fellas:
    http://charts.stocktwits.net/production/original_28307489.jpg?1414007358

    Sure looks to me like a rotation is going on. The question is whether or not Emerging markets still go down but at a slower pace or if they go up should small caps continue to fall.

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  30. Must be time to reboot again, my computer is sending more data than it's receiving. Thanks to MSFT....

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  31. Shooting in Canadian Parliament? :( BB, you okay up there?

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    1. Crazy stuff. Plus we had a guy "with jihadist sympathies" run down 2 soldiers with a car on the weekend.

      Everything is on alert for more attacks and they even postponed the hockey game in Ottawa. Probably just a couple of whacko's, but better to be safe.

      I was actually out golfing for the afternoon and missed all this - was low 50's and sunny, so pretty nice.

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    2. Now they're going after the White House again - very wierd:

      http://www.marketwatch.com/story/another-white-house-intruder-reportedly-arrested-2014-10-22

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    3. I guess I should return to DC and stand guard if they can't find someone to do the job.

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  32. 2nd,

    your ATACX fund guy is calling for deflation and blaming his performance problems on the markets not doing what he thinks they should instead of just saying he got the market wrong.

    "Markets desynched from reality, as our own ATAC Inflation Rotation Fund ATACX, +0.08% had difficulty gaining traction following the taper tantrum of May 2013."

    http://www.marketwatch.com/story/is-the-last-great-bubble-bursting-2014-10-21?link=MW_Nav_NV

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    1. I hear you. If I were at the helm, I would switch gears rather than stick to a strategy that's not working. Investors want performance, not an explanation of under-performance (a weekly ritual for Hussman that's getting tiresome).

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    2. If you're nut flexible in your thinking and willing to admit you're wrong you're dead in this business. It's tough to do because it goes against human nature

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  33. Police: Man pretended to be in a coma for 2 years to avoid court: http://abcn.ws/1tgvm56

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  34. Secret Service dogs caught drinking on the job and divulging sensitive info to veterinarians.

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  35. PBR @ 12.48.
    EWZ @ 40.51.
    SLW @ 19.51.

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  36. ORI - Earnings hit, but is it that bad or a fake out?

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  37. CYTX- I must not get this one. I would have thought higher.

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  38. Eurobank stress test results are out this weekend Sunday, right? So the report is unlikely to be "bullish" and eurobanks are going to be forced to raise cash, and probably Germany will (or when?) agree to ECB stimulus?

    So what happens, will Monday be a scary day and US Rates drop or will the market rally in anticipation?

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  39. Adding a position in RYWVX (Rydex 2x Emerging Markets) at the 1030 window.

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  40. Jack Flash walking out to the plate.

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  41. ATACX - Isn't inflation 1.7%, the amount social security is anticipated to increase benefits payments?

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  42. NBG doing fairly well. I'm getting tempted to buy several of the European banks like DB BCS SAN. I read that Spain's unemployment rate is starting to go down which could be a very good sign for banks with exposure to that country. Its not that its at 23% or whatever its at. Its that it is improving. The direction of change is more important.

    What banks are you in over there BB?

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  43. Man if I look back at the moves in YHOO in 1996 to 1999 it sure seems to me that stocks like BITA (which is the poster child of the China internet craze right now) have a lot more room to go to the upside.

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  44. Is there another asset class other than Gold where your neighbors, your uncle, your aunt, your brother and sister, all had to own a piece of some of it? Talk about a bubble. That thing is on the precipice of a massive decline. JDST was what we should have been playing on that dip.

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  45. Man if EWZ could just get its act together this EEM (EDC) would be rocketing higher today.

    Anyone buying the dip in YELP? I had a feeling it would see the $50's again after it broke down to $70 a few weeks ago. Gotta wonder if it re-tests that $49 level again.

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    1. This comment has been removed by the author.

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    2. I bought some YELP, avg. price 58.87. Will sell at least half today, regardless. If market keeps cranking, I think it rebounds. If not, it may have further to fall.

      Also, long some EWZ.

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    3. Freakin' Brazilians. Intent on making Sunday's elections a cliff-hanger.

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  46. "Eurobank stress test results are out this weekend Sunday, right? So the report is unlikely to be "bullish" and eurobanks are going to be forced to raise cash, and probably Germany will (or when?) agree to ECB stimulus?

    So what happens, will Monday be a scary day and US Rates drop or will the market rally in anticipation?"

    CP - That's interesting, I didn't even think about that. Brazil has its election results on Sunday which will be a huge market mover. These two events could provide some significant upside to the market.

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    1. Just how weak is Brazil anyway? Is this 11% move down this week justified? Is this a potential problem for world markets?

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    2. My exercise in futility, LOL, I dunno, my Brazil play is OIBR at the moment but I'm interested in seeing Monday's market response. My wild guess is the market dummies sell based on the eurobank failure to pass stress tests (This will be made to look bad so Germany can have an excuse to allow ECB stimulus), so the initial reaction to Brazil's election and Europe's bank results might cause a sell off in which I intend on accumulating into.

      Today feels like a bull trap, but it might be news Germany will agree to stimulus has already hit the news or folks are betting it happens?

      Still, I expect DB should get hit and thinking of buying this one if it does, as well.

      I could be totally wrong, market might be anticipating bad news at which time will cause further rally, really don't know.

      Good news from CAT and GM, might be we saw the bottom.

      Need to watch DAX and see what's up there... 8910 seems to be the line in the sand:
      http://peterlbrandt.com/wp-content/uploads/2014/10/10.6_DAX_D.jpg

      SO, I'm thinking of shorting today instead of chasing a rally, LOL..... Then flip long on "BAD" news that allows Germany to bend the rules.

      If the news is all good then no stimulus and monetary tightening, so I don't that would be good for equities?

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    3. I ended up bailing on my EDC at $25.25 or so I think. I think I made 1% woo hoo. I also bought TZA at $15.7. Keeping everything on a short leash here though. My best guess is they give EM bulls a gut check tomorrow.

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    4. BP - I think the good earnings news will save the day...after the near term volatility dies down. I still can't shake the feeling that equities are going to be bumpy for a while.

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    5. Sold TZA at $15.8x. I have little conviction either way.

      BB - Have you taken a look at TUP?

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    6. I have not looked at TUP.

      But I also go back to the fact that every downturn for the last couple of years has been a quick drop, followed by a v-shaped bounce. If the market holds to this trend, we are bouncing now and unlikely to head back down. It would be good if it did for more cautious traders to buy on a retest of lows or a w-shaped bottom, but unless something in the market character has changed, I think it is unlikley

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  47. TOF,

    I own DB and ING and I'm pretty sure Brad owns the same plus he bought Bankia in Spain.

    ING might be hard to buy now as it is near 52 week highs, but it is still under book value and has the catalyst of finishing repaying the dutch government and reinstatement of a dividend next year. Plus, they are raising money spinning of VOYA, NN Insurance and a few other things and the remaining business will be a solid bank in the Netherlands, Belgium and a couple other countries.

    DB is still down and very cheap and I think should pop soon and there is some talk that failed the stress testing based on 2013 numbers, but raised another $15 billion this year, so will be well-capitalized. DB is kind of the cheaper, German version of BAC or JPM.

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    1. For ING > What level dividend are they talking about?

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    2. 50% of profits or something in that range. This is the common Euro way and the dividend varies per year depending on how business does which is probably a smart way of doing it.

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    3. income is all over the place. what do you estimate the yield to be?

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  48. Long EWZ at $40.08

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  49. Definitely going to be an interesting Monday with the ECB banks test results out and the Brazil elections.

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  50. I kind of went a little heavy in EWZ today. Seems like the mother of all over reactions

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  51. Sounds like Birinyi got a bit shaken out:
    http://seekingalpha.com/news/2030405-bullish-birinyi-shaken-up-by-downturn

    That's a good thing.

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  52. (a) I detect signs of traders/brokers 'running stops' in the miners this morning. Adding a position in RYPMX at the close.
    (b) SLW traded as low as 19.19, but has now rebounded to print a +2.53% gain @ 19.85.
    (c) EWZ (Brazil) has dipped <40, now changing hands @ 39.91. PBR (Petrobras) also off -5.9% on the day @ 12.08. Both are high-risk trades which, if successful, also offer the potential for outsized gains.
    (d) RYWVX filled @ 72.65 at the 1030 window, a -0.6% discount to yesterday's close.
    (e) The long bond now off -0.83%, and I'm contemplating a position in RYGBX (Rydex 1.2x Long Treasurys) at the close.

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  53. Re stop running, that 39.38 print in EWZ looks suspicious as well.

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  54. I took my positions off in EWZ / EDC again. That drop in EWZ spooked me, I'll admit it. At this point, I think I need to take a much needed break for the day. I ended up +0.5% which ain't too bad I guess.

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  55. Re ING, if analyst estimates are correct, the dividend should be about $0.60. I checked, they are expecting to pay out 40% of earnings.

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    1. Also, they have the money to pay off the government. they were just waiting for the stress test results to be released which is this weekend. So, this should happen fairly quickly and then the dividend next year. Earnings estimates are in the $1.40 to $1.50 range.

      Delete
    2. Nice dividend if that's the case. I just jotted it down and will have to look at it later. Been meaning to take a look at FLY too. I didn't realize it has such a huge dividend. Is that sustainable?

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    3. Yeah, the FLY dividend is sustainable unless the airplane market completely tanks, but even then, they've got good contracts and a lot of cash. I don't worry about it at all.

      The other thing about them is they trade at 70% of book value and that is likely understated to their market value as every time they sell a plane (that I can remember), they make a profit compared to book.

      The knock against them is their fleet is older than other leasing companies, but the way I look at it is if they can easily fund their dividends with their cash flows and they have the book value safety and management is doing a good job, I don't see that as an issue.

      The other reason the stock is so cheap is they did a poor/unluckily timed capital raise when they doubled the size of the company a while back. Then they recently (3 months?) did a shelf filing saying for $1 billion is debt/equity, so people are worried that they may do that again. I don't think they will as they don't need the equity and they used the shelf filing to issue debt, so I think it was just broad to give flexibility, but I guess it could happen.

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  56. Wow that's a huge miss for AMZN. Jeez. Sales growth projections are really weak for Q4. Need to look further into this. That's not the greatest sign for retail given how huge they are.

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    1. Yeah, I wonder if there is something going on there, because it seems like there must be some special factors.

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  57. "Definitely going to be an interesting Monday with the ECB banks test results out and the Brazil elections."

    Sure will. I'm just not sure where we are in the news cycle. ie: Specifically, if Germany has already agreed to stimulus Have they said anything? I guess if Germany has said something positive the EWZ should rally too?

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  58. I want to buy a horrible Mon/Tue/Wed on news eurobanks failed their stress tests.... Or short Tomorrow's continuation rally in anticipation of flipping long. But maybe Tomorrow will be down, ughhh.... Which way do we go, George? :)

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    1. I picked up a position in TZA / SPXS after hours for a move down to 1080ish for the Russell 2000. Not looking for a big move down....maybe 2.5 - 3%. Then new highs hopefully. I'm making a list of stocks to buy should there be a mini pullback.

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  59. OIBR - Doesn't seem to be getting a ton of volume, as I'd expect if a bottom was reached. I seem to notice bottoms are typically marked by a ton of volume for at least a day, maybe two...

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    http://us.insightec.com/

    ReplyDelete