Thursday, March 16, 2017
(3/16/17) Easy/ The Long Bond
Opening positions in TLT ('the long bond') @ 117.80. Will add a position in RYGBX (Rydex 1.2x Government Long Bond) at the close.
A bet on rising yields has historically been the easy trade following increases in the Federal Funds Rate. Over a time frame of 5 years, that's probably true. However, there's a good chance yields will drop significantly (let's say over the next few months) before they're ready to take off.
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The easy trade was the shippers, when BDO turned up a couple of weeks ago. BDO tends to move in the same direction for many days, so buying the shippers after the first couple of days of the BDO uptrend is the thing to do...
ReplyDeleteBesides, the stock charts of NMM and GNK show a clear uptrend for months now, so buying them on each pullback makes total sense. Thank you, Mike, for bringing shippers to our attention a few months ago!
DeleteI meant BDI in my original post, but my phone corrected it to BDO for some reason...
DeleteIt is actually not too late to buy NMM yet -- it is down now because they are offering stock at 2.10, but once the offering will be bought by big Boyz, the price will move to $3 quickly (hence my purchase of NMM today).
DeleteBDI keeps plowing higher, this morning's drop in GNK was fully recovered, so I think the next move in GNK is above its resistance at $12.20. In preparation, I just added to my GNK position at $11.92.
ReplyDeleteLooks like I had correctly recognized the pattern in the GNK chart as "a shakeout before a move up." :) Still holding the shares I purchased today for a breakout above $13 next week...
DeleteOnce GNK breaks out above $13 and I sell out of it completely, I'll just move all that money into HLX (it is in the bargain territory now and I am just waiting for its chart to flatten out).
ReplyDeleteMike: if the dry bulk market is indeed turning around now, how high can then GNK go? It was at $215 in the summer of 2015, when BDI spiked to 1200. BDI is at 1200 now. What if BDI spikes to 2K? What if it spikes to 5K?
ReplyDeleteDavid - I really like GNK pretty much all year. I think we will be surprised to see how high BDI goes. As far as upside...I think if all goes well you could see it go up 2-3x from here. NM peaked at 1.5x Book in the last cycle...I doubt we will see the same highs in BDI, but 1x book brings GNK to $25-30. I'm sure they will do equity raises, though, since all of these guys like to screw shareholders
ReplyDeletewhen I say 2-3x I'm referring to GNK not the BDI. The BDI will probably be limited by coal.
DeleteMike, if you think this way, how come you are not invested into GNK? Or NMM?
DeleteI just read a piece by David Rosenberg titled "Is Mr. Market Playing the Role of Pavlov’s Dog?", where he writes:
ReplyDelete"Sentiment is wildly bullish, and while it has been such for weeks now, we have hit some pretty extreme levels.
The Investors Intelligence poll now shows there to be 63.2% bulls, up from 61.2% a week ago, and the highest since January 1987 (i.e. when we last saw the Dow on a 12-day winning streak).
The bear share fell a point to 16.5%, the lowest since July 2015 (and the correction camp is down to 20% – one in five see at least a 5% correction coming even though the declines roughly of this magnitude have happened at least once per year for 88 of the last 89).
The bull-to-bear spread is now in proverbial danger-zone at 46.6 percentage points, up from 43.7 and just took out the 45.5 nearby high in February 2015. That is an ominous sign, even if not yet apparent amidst the euphoria.
As per Bob Farrell’s Rule #9, in reference to the herd mentality:
When all the experts and forecasts agree – something else is going to happen.
Just because it hasn’t happened yet, doesn’t mean it is not going to."
So now I understand why 2nd_ave moved out of stocks into bonds. :) I decided to do the same in my 401K, and I placed a sell order for my remaining 1/4 position in LZEMX, to be executed EOD on Monday.
Not sure what to do with my shorter term trading positions, though. Hopefully GNK breaks out to new highs and I'll sell out of it before the current market rally folds...
DeleteNice trades 2nd. Betting on long interest rates certainly is contrarian in this market, but so was RSX and EEM when you bought last year and that's done very well.
ReplyDeleteFor me, I'd rather just play the longer trend of rising rates over time, but I do agree that the potential for a reversal in the shorter term makes a lot of sense.
Sold half my shares in bond insurer AGO when it got over $40 and all of regional bank FUNC too soon when it got over $11.00.
ReplyDeleteBought more of Dutch insurer NNGPF as it is SO cheap, they are consolidating the market and rates starting to rise over there.
Plus, buying into a few micro-caps that are cheap with good catalysts - recently bought APWC, HMG, INOD, PDRX and in Canada, VCI, CLH and AWI. Small positions, spreading risk, but think will outperform.
Still sitting on a good chunk of cash and not rushing back in. Many stocks I look at are GE (that a friend and I were talking about). Trailing p/e of 35, but fwd p/e of 15. So if the increase in profits doesn't come, should be some good opportunities to get stocks cheaper.
Holy shit NNGPF sure is cheap, but also very illiquid.
DeleteMike, do you have a mental stop for CBMX? It made a floor for some time at $4.40, but now it broke below it. Are you allowing it to "fill the gap" to $4.00 and will sell it if it breaks below $4.00? Or will you sell it when it comes back to your purchase price, so as not to "let a profit turn into a loss"?
ReplyDeleteNot really David because I will get stopped out at the point where I should be buying.
DeleteSo you are just betting on its fundamentals improving over time, and think that its stock price will eventually follow, right?
DeleteGetting roasted on GNK today. Don't really know what to do about it. If I just looked at its chart, I would say that there is a good chance it will make another higher low here. But then BDI had a small down day today, and BDI tends to have many same-direction days in a row. So traders are taking their profits now ahead of a high-probability long streak of down days.
ReplyDeleteTo answer your question about why not buy NMM / GNK...I sold too early and was waiting for a panic selloff entry. Maybe I get it here, maybe not. I actually like the upside in the other stocks I have (excluding FCX) better, EXPE, CBMX, YIN...and all three of these have better fundamentals in my opinion.
DeleteWhat about CBMX? Will you sell it if it drops below $4, so as to still have some profit in this trade, or are you willing to wait until it comes back to your entry point?
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ReplyDeleteWhile we are all getting creamed today, 2nd_ave is having a blast with his TLT. What a prescient switch from stocks into bonds!
ReplyDeleteYeah, great-timed trade. Making it look easy (which we all know it is not!)
DeleteThank you. I just reread Jesse's 'Last Letter' emailed out last November. It's easy to forget the brutal 'under the surface' 2014-16 bear market in emerging markets and commodities. I think the bull in emerging markets has a long way to go.
DeleteMike,
ReplyDeleteNNGPF is very illiquid - the main listing is NN.AS which trades 1 million shares a day.
I've found I've got reasonable spreads on a couple buys. I'd think getting out should be the same, but I wonder if you could sell into a crash-like environment.
The DJIA suffers its first major decline of 2017, trading off as much as -228 points intraday to 20678. SPX breaks 'headline' support of 2350 to trade as as low as 2344. EEM (emerging markets) off by -1%, but still trading above last Wednesday's (post-Fed) high.
ReplyDeleteWe may see lower prices in the next few days, but I don't believe the uptrend ends that easily.
For now, I'm taking the bond trade off the table. TLT off @ 120.xx for a 3-day +2% gain. RYGBX (Rydex 1.2x Government Long Bond) will be sold at the close for a +2.2% gain.
The key for Bears will be a close at the lows + downside follow-through in the next day or two. Unlikely in my opinion, but should it unfold I plan to buy the dips.
Well, I lucked out in at least one area -- sold LZEMX in my 401K yesterday. :)
ReplyDeleteAt the 52-wk high, no less.
DeleteIf it weren't for you exiting your positions, I would not have started wondering why you did it and would not have started researching the market sentiment and would not have discovered that it is overwhelmingly bullish. Thanks!
DeleteI'll probably take a shot at XLE if it gets a buck lower.
ReplyDeleteJust bought some more NMM at $1.95.
ReplyDeletePlaced a sell limit at 2.20 for these shares.
DeleteThere's always drama in the markets. This time everything appears to hinge on President Trump's ability to forge a deal on a new healthcare bill. My take is that it passes, and the markets rally in response...at least for a day or two.
ReplyDeleteReopening a partial position in EWZ (Brazil) @ 36.4x, which is -11% off the 52-wk high (set in late February). Bonds continue to look good, and although somewhat counter-intuitive I think bonds will spike in unison with stocks should Trump succeed.
(a) EWZ (Brazil) off @ 37.0x for a +1.6% one-day gain.
Delete(b) RYWVX (Rydex 2x Emerging Markets) off at the close for what appears will be about a +1% gain.
(c) RYGBX (Rydex 1.2x Government Long Bond) off at the close for what appears will be about a +0.6% one-day gain.
(RYWVX + RYGBX opened near Thursday's close. An additional position in RYWVX opened this morning @ the 1030 window. So taking off half the RYWVX + all the RYGBX.)
The bigger picture? Beyond the next few days, in my opinion I think we'll see a -5-10% pullback. Which will be a buying opportunity.
Correction-> the first RYWVX opened @ 1030 est Thursday.
DeleteDavid - This is why I didn't bail on CBMX:
ReplyDelete3.54M revs last quarter, run rate is $15M. Keeps saying they will get FCF breakeven by Q4. Let's say they have $2M cash leftover. Shares right now is 2.9M. They have warrants converting to $10M cash for them at $5.17. Let's say that hits. They have $12M cash leftover at Q4 and ~5M shares (including warrants). So at $5.17 the company is worth $25M with $12M in cash. That means the core biz is worth $13M.
Now in order for company to get to breakeven they would need to do about $4.7-$5M revs per quarter. That's a $19-20M run rate. So if the core biz is worth $13M and they're doing $20M run rate then its worth 0.65x Enterprise Value to Sales.
Compare the buyouts of some publicly traded companies in their industry:
SQNM - 3.3X EV/Sales with horrible financials, and losing a ton of money
US Labs - 2.5X over 10 years ago (when multiples were lower)
WGBS - 3.5x Buyout at Annual Revenues
So using these multiples, if CBMX gets to a similar ratio of 3x EV/Sale, annual sales run rate is $20M, and they have $12M in cash, you get:
$20M x 3 = $60 + $12 = $72M. $72M divided by 5M shares = $14.4/share
That's why I'm willing to see this through.
Thank you, Mike! Your belief in CBMX's fundamentals helped me to hold myself from "stopping myself out" on a recent pullback.
DeleteBDI rallied nicely today to a new high for 2017, easing concerns that the two back to back declines earlier this week was the start of a new downtrend for it. But then, GNK/NMM stayed flat today -- does the market think that the move in BDI is close to being over?
ReplyDeleteI would like to sell GNK before the pullback 2nd_ave is foreseeing materializes, but I would like to do it above $12, preferably above $13!
DeleteDavid- I can't say for sure if my take is unbiased (as I'm holding a [small] position in RYWVX), but as of right now I sense a gap up on Monday.
DeleteThe put/call ratio was 1.21 on Friday. Even more pronounced was the put/call ratio on ETFs-> 1.99. Those are high levels of bearish bets. So we're likely to retest recent highs before heading down.
ReplyDeleteRocky start to Sunday evening futures, as the 'ES' drops -16 points to 2328. DJIA futures -108.
ReplyDeleteI'm still holding a small position in RYWVX (Rydex 2x Emerging Markets). (One position was opened Thursday morning and closed Friday afternoon. The second position was opened Friday morning and still holding.) Should markets gap down on Monday, the plan is to add a position in RYTNX (Rydex 2x SPX) at the 1030 est window.
SPX futures traded as low as 2318 overnight, undercutting 'support' in the 2328-31 level by a significant percentage. This leads me to pull in my (bull) horns. I'm not spotting an 'edge' right now-> the odds of the market retesting overnight lows are about the same as (perhaps higher than) the odds of retesting recent highs.
ReplyDeleteShould a retest of 2318 fail, next major support level (see Carl Futia) is @ 2240-60. That represents a further decline of -3%, and not the kind of risk I want right now. Will close RYWVX at the 1030 est trading window for a minor loss.
RYWVX closed the 1030 window down -0.76% @ 60.23. Better than I expected. It's likely to close end of day at a better price, but I made the correct move based on my trading philosophy.
DeleteRYWVX closes @ 61.18, UP +0.81%.
DeleteToday's trade was a textbook example of how NOT to do it. I knew the put/call ratios were high. I knew the DJIA had sold off 7 consecutive days. My position in RYWVX was small. I even had a 'gap down' plan.
Then I proceeded to let my emotions take over.
Trade instincts rusty from lack of practice? No doubt.
DeleteThat said, the overnight breach of support levels remains a concern. The risk of a reversal in trend is high enough to keep me on the sidelines.
WTF??? BDI zooms for a second day in a row, but GNK/NMM are both down today!
ReplyDeleteHere's to the absence of logic in the markets! Without it, we'd probably never make any money.
DeleteThe logic finally prevails! :)
DeleteI was almost shaken out of GNK (at least partially) during the latest "unreasonable" pullback, and I suspect many traders WERE shaken out. As such, they should be chasing GNK now. So I think it has a good chance of gapping up for a few days in a row now. The recent pullback made yet another higher low, and now, purely chart-wise, a new higher high seems inevitable.
DeleteWay to hang in there!
DeleteLast week I bought some NMM on the pullback at $1.95. I bought it on margin, since I have already deployed all my funds in that trading account into a large position in GNK. I have just remembered :) that buying on margin is a way to get into trouble, and so I just took profits on that position, selling it at $2.10.
ReplyDeleteA good day for you, David!
DeleteThanks! :) Now I just need to unload my large GNK position, and I would prefer to do it at new highs, above $13...
DeleteI was wondering how the market planned to 'resolve' the high put/call ratios. Unless put buyers closed early on Monday, the market resolved most of 'em today!
ReplyDeleteCBMX, carry big stick walk softly.
ReplyDelete* Lipka Michael Andrew reports 6.1 percent passive stake in
Combimatrix Corp as of feb 23, 2017- SEC filing
https://www.sec.gov/Archives/edgar/data/1383183/000169927817000001/schedule13G_CBMX-2.txt
Way to go, Mike! That's the way to make money -- take a huge position in a company that is in the process of tripling! :)
DeleteNo kidding. Nice move in the stock today.
DeleteJust out of curiosity, I am trying to see whether I can make more money by trading CBMX than by holding it. I am holding a core position with a $3.60 entry, but this morning I decided to sell my trading position (a little smaller than my core position) at $5.50. So far the trading position is doing better than the core position: purchased at $3.60, sold at $4.90, reloaded at $4.50, sold at $5.50.
ReplyDeleteGNK did not gap up this morning as expected, and BDI had a tiny increase today. Maybe the move in BDI is over, and GNK is preparing for a pullback. So I decided to place a sell stop limit for my whole position just under today's lows, at $12.10/$12. My entry was at $10.40, and I want to preserve a decent profit in it, since that position is 3X my normal trading position.
ReplyDeleteI would just stick with it man. Although there will probably be a big pullback sometime. EMES is one that had one that I bought last week. Didn't get enough, though, before it started running. The fundamentals on that one are much improved as big energy companies are utilizing sand more b/c of the cost savings, from what I've read. .
DeleteA 50% pullback in EMES probably knocked everyone out, just in time for a big move back up.
DeleteThank you, Mike, for pointing out EMES! Its chart indeed looks interesting now, and the EPS forecast at
ReplyDeletehttp://www.nasdaq.com/symbol/emes/earnings-forecast
shows that it is expected to turn from negative to positive. That should have a good effect on the stock. :)
I just placed a buy stop limit order on it at $14/$14.10, so as to catch it on the way up.
This guy is inspirational:
ReplyDeletehttps://www.nytimes.com/2016/11/04/world/asia/china-wang-deshun-model-80.html?mtrref=www.dazeddigital.com&_r=0
That's cool. Definitely inspirational.
DeleteHa, that's great.
DeleteNice!
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ReplyDeleteBDI turned negative today after a long rally. A large pullback can easily start now. I don't want to risk losing profits on my large GNK position, and I just sold it all at 12.60. My cost basis was around 10.40. I still have a little of NMM left, but I am OK with holding it long term since it has decent fundamentals. Also, it has already pulled back a lot from its recent highs, so it should not drop as much as GNK might if the whole sector pulls back.
ReplyDeleteEMES hit my buy stop today at $14.00, and now I have a small starting position in it.
ReplyDeleteI'm hoping to add more down in the $12 area. Good luck.
DeleteYes, I was also thinking of adding if it gets down to $12. What was your initial entry?
DeleteI got some at $12.30 when it tanked a week or so ago. Haven't added to it yet. Im just thinking it's gotten creamed and the fundamentals for sand haven't really altered...if anything maybe they've gotten better b/c with oil down the big oil companies are focused on minimizing production costs which means more intensive sand use.
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ReplyDeleteSo now GNK is above $13, just like I was seeing in my crystal ball. :) Too bad I already sold it. Damn...
ReplyDeleteIf NM didn't have such an incestuous relationship with NMM and NNA I would be buying that up. Just all seems so shady how they're shifting money around.
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