high fliers

The Anderson's, Intuitive Surgical, Nucor, Hansen's, Ventana, Titanium Metals, Blackrock, what goes up must come down. Look for well established upward trends to be broken and take advantage of the money that is to be made to the downside. However, don't get in early or these stocks can inflict damage upon the short seller. Some have already broken, see Gilead as an example.

Interesting things going on in the markets, some are saying the internals are the tell.

Happy weekend.

DJIA 11,367.14

NASDAQ 2,322.57

SP500 1,310.61

the economies of rates

Last night in the news I saw something that was interesting; a large majority of the US public is uncertain about the future of the economy. I thought this was interesting because of the rather bullish feel of the markets. If John Q. Public is uncertain of the economy, then who is driving the markets higher? The markets continue to ever so slowly push their way higher, moving back and forth within their upward trend channels. Must be the smart $. People of course are drawing parallels to 1987. I suppose if one can dig deep enough, one can always find parallels to something. The direction of the market will tell us where the economy is headed. By the way, when looking into your crystal ball, don’t forget about the Fed’s short-term comments about long-term interest rates. Question: has the market already discounted the future interest rate hikes into its valuation going forward? If so, how many rate increases and what frequency of rate increases are priced into the market? Answer: It is impossible to say that something that may or may not happen, (and if it does happen, the size and timing remains unknown) is valued into market going forward. Interest rate movements can definitely be the catalyst for a change in direction (or trend) of the markets but to say that the markets are now correctly valued for future interest rate increases is just plain unfounded.

on fire

the metals are on fire, Titanium Metals (TIE – NYSE) continues to climb, how ‘bout Gold (GLD – NYSE), then there’s the closest thing to a pure play in copper (PD – NYSE). On a different note, the canslim/mo-mo magic is working on Hansen’s Soda (HANS –nasdaq) as it continues its ascent into dizzying heights. I mean, their soda is pretty good, but c’mon ??? Obviously by sticking to the technicals one would continue to ride this one to the moon… but from a fundamental perspective, it’s just a tad overvalued (ya think?). Looking at that stock on a 3 year chart, a company from the tech bubble comes to mind, Qualcomm (QCOM – nasdaq) had a similar run when the cdma chip story was the hot play. Cell phone chips, natural sodas, doesn't matter what the product is as long as the stock price is going up.

Want to see what happens when someone decides to short a stock and that stocks comes out and blows away earnings? A textbook example of a short-squeeze: Travelzoo (TZOO –nasdaq) Shorts are all-in from under $25, waiting for the next move down. The stock gaps up and trades higher, the shorts who need to cover are forced to buy and that pushes the stock even higher which fuels the bulls to buy and not miss the train, and the cycle continues. That is some serious pain being dealt out by that stock over the last week. Ouch. However, that stock was one of the great shorts of 2005 but any serious money made in 2006 has only recently made to the long side.

The line is blurring between PE, VC and hedge funds. Each is moving into the other’s area of expertise and money inflows and lack of opportunities close to home have caused the firms to examine other possibilities. Big PE firms such as Blackstone, Carlyle, and TPG have had a presence across fund types for quite some time. Of note is the recent move of hedge funds into the VC arena. The path of least resistance to outsized returns continues…

Definition of the day - Alpha: A measure of a fund's risk relative to the overall market. It reflects the difference between a fund's actual performance and the performance expected based on risk level taken by the fund's manager. A positive Alpha shows that the manager produced a return greater than expected for the risk taken.

Always in search of alpha.

a rally?

the topics on everyone’s minds: soaring oil prices nearing their recent highs, inflation data and a bevy of earnings reports that could shake up the markets in the next several trading sessions. Crude prices are again running up near the $70/barrel level, and the yield on the benchmark 10-year T-bond touched 5% for the first time in over 3 years, signaling increased inflation expectations. Subsequently, the fed comes out again and talks strongly about a possible end to the near-term rate hikes. The market took the latter news as a positive today, (that and there were more buyers than sellers for myriad reasons) and the markets rallied hard. Against that backdrop, earnings releases this week need to be strong to give this move some legs. Yahoo started things off on the right foot by blowing away the revenue number of last year’s similar quarter. Is that a sign of things to come? The quality of the earnings reports (good or bad) could be the catalyst for a move either way out of the sideways funk in which most of the market seems to be wallowing. As always, there is lots of information out there; important to keep one’s eye on the ball.

scandalous

interesting week even though it was a short one due to Good Friday. One of the strangest stories to break in quite some time was played out by a couple of guys from Goldman, another from Merrill, two guys from a Midwest printing plant, and random relatives from eastern Europe. The gritty and jaw-dropping details include the following: a self-penned novel loosely based on the author's (and main conspirator's) life, a soon-to-be-released indie movie, M&A secrets, strippers (sorry - exotic dancers), theft, ivy-league alums, Russian baths, front-running Business Week stories, insider trading that spans the globe and the makings of one of the best insider-trading scandals in decades. For a good summary of all the details, start here:

http://www.bloomberg.com/apps/news?pid=10000103&sid=aXxn5pU1KTTM&refer=us

One of the best chapters in this story: "...a retired seamstress, Sonja Anticevic, made more than $2 million, a seventeen-fold return on a two-day investment in options on Reebok International after the company announced last August it would be acquired by Adidas-Salomon and the stock surged 30 percent. " Gotta love those options. It was her account that initially tipped off the SEC that something was going on. The IP address of the computer that was used to make the trades came from the same NYC office building that houses the SEC's offices.

Back to the regular stuff, the markets continue to give mixed signals although the three major indices all drifted lower this week, drifting towards the lower edge of their upward trend channels. Do the markets continue to trend lazily upward or will they break the upward trend line? Oil is steadily climbing towards all-time highs again. Like they say, if it was easy, everyone would do it and everyone would make money at it. However, since we are playing a zero-sum game, there must be winners and there must be losers. Which one are you?

Tip: cut losses immediately, let winners run as long as possible, follow your rules, execute on your strategy and keep a tight reign on risk management.

Happy weekend.

DJIA 11,137.65

NASDAQ 2,326.11

SP500 1,289.12

gotta love it

after the market (nasdaq) looked good to the upside, a pull-back has ensued. The longs have stayed the course and some nicely set-up shorts were added. One of the great tasks is sifting through the myriad news events and data that is readily available to anyone willing to look for it. Then, try to make sense of it by eliminating the distracting noise and boiling it down to the root cause. If one can continue to ask "but why?", then one has not reached the root cause of the event. One of the goals is to find the root cause of moves. The catalyst, the impetus. That can give validation to the move or warn of a possible 'head-fake'. The problem lies in the ease in which one can be caught up in all the noise...which ultimately takes away from the ability to focus. Having said all that, is that market going up or down? After reaching a lofty level (relatively speaking), the market has pulled back the last 3 days, looking weak. Of course the talking heads are ready to point the finger at anything to blame. Going forward: continue to stay the course, execute the strategy, stick to the stops and maintain control of risk management.

goin' up?

market is going up
commodities are going up
naz broke out of sideways trading range
fed is talking about easing interest rate hikes
closed out poorly performing shorts
market looks like it's moving higher
party like it's 1999

hold up a sec

could be a last gasp up before the big sell off
nice thing about being small is ability to change directions
we're mainly long now except for the best short positions
added a few longs for good measure

read a nice piece about risk management
risk based position sizing vs. value based position sizing
we definitely use risk-based, more intuitive to our strategy
spread the risk out over the 20-40 positions
makes sense because of varying stops, some are 2%, some are 6-8%

good blogs (4)
alchemy
under the counter
robertos' trader
seeking alpha

lots of blogs out there
best ones (informative and entertaining) seem to be anonymous
most are professionals that don't want their thoughts to be attached to their firm
this is more of a journal, a snapshot of the thoughts/opinions/ideas of this firm at this moment
should be interested to go back through archives someday and note the subtle changes

gotta start doing my entries in word and copying them over. Lost a long entry due to blogger maintenance. too bad.

short and sweet

Naz had a good week, Dow not so much, S&P - basically flat.

So I guess being added to the S&P 500 is a good thing? Just ask the goog.

Busy week, more of the same upcoming.

Happy weekend.


DJIA 11,109.32

NASDAQ 2,339.79

SP500 1,294.83