by Phil Davis - December 10th, 2005 6:31 am
I’m a little concerned about the National Debt today – this is what happens when you start reading world financial news reports, which is why I usually don’t, it’s so depressing!
Just 5 years ago the National Debt was $5,700,000,000,000 (5.7 Trillion) and was being paid down at a rate of about $300M per year. Forecasts were that we would be debt free perhaps as soon as 2010.
That didn’t seem like such a good idea to George Bush. He said, wouldn’t you rather have a $300 tax refund? Apparently everybody did, because we kicked that gloomy Al Gore out the door with his ridiculous concerns about conserving energy and putting some of our surplus (huh, what’s that?) aside to protect Social Security benefits and Medicare – what a loon!
I mean really, oil was just $25 a barrel – what was conservation really going to accomplish? In fact, oil had run all the way down to $15 in early 1999 on speculation that Al Gore would be the next President but it quickly picked up to $30, peaking when the supreme court decided Bush had won the election but it dropped back to $20 in the Summer of 2001 (buy on the rumor, sell on the news). 9/11 actually caused oil to drop $2.50 over the next 3 months as the economy slowed and demand was destroyed but the war turned that right back around and oil is up 300% in 4 years.
Our Social Security/Medicare crisis is a whole other problem you can read about elsewhere but I do have to laugh when Bush wags his finger at companies who have underfunded pensions. He is running a pension that is underfunded by the entire GNP of any 2 other countries on the planet!
But I’m not here to criticize our fine government or to engage in conspiracy theories, there are plenty of web sites for that (and I’m scared!). What really worries me is that Congress is about to run into that pesky debt limit that was set up to make us spend responsibly. The great thing about being Congress is that if you don’t like a rule, you get to change it, so expect yet another amendment allowing us to increase the National Debt yet again before the year is out.
by Phil Davis - December 9th, 2005 4:03 pm
A pretty good week in a choppy market, the nice finish gave me real hope but I would have liked to have seen the S&P get back over 1,260.
Oil completely sold off yesterday in fear of warm weather and nice Saudi Princes at Monday’s meeting. I think next week will show that people are mistaken on both of those fronts.
Quick review of the week’s picks:
Color Codes : Winner So-So Caution Oops
- ABTG is up 20% since Monday’s open
- ADM – stopped out even, then went up unexpectedly
- AHR continues to be dull and safe
- AV is down 9% from Monday’s open, as expected
- BA Feb $75 call is flat at .90, the $65 put is up .10 – no change, the stock is up just .65 for the week
- BCRX is down .33 with the call sold up .30 so even so far… Waiting for the conference on the 12th for this one to move
- BOOM flatlined
- BSX (Mon TOTD) was a 100% winner but my Intraday trade on the same stock for the .10 put went out for .40 – 400%
- CHK (Tues TOTD) April $27.50 is flat but a definate holder @ $5.90 – if you are nervous you can sell the Jan $32.50 for $1.30 but you will hate yourself if it runs up.
- COP is sadly flat from Monday
- CPN is up .04 this week, that’s 20% but this is a long position.
- CSCO was a goood one to stay away from, down 2%
- DELL Jan $27.50s are up another 25% raise stop to $4.50
- DHI – up 3% from Thurs call on builders
- ECA was flat on a bad oil day
- EK is flat from Tues re-pick way up from the original pick!
- ELN was up 30% but it never came in enough for me to buy this week but was a pick way back at $8.50!
- ERTS was down 2% today as expected
- GDT was flat to down as predicted
- GG picked up 6% for the week and I called the top on that one!
- GM puts went out at 20%, too dangerous to keep betting on
- HOV Jan $55 callis down to .70 – down .45
- HOV Jan $45put is $1.10 – flat
- GLW Jan $20s entered at $1.60 up .15 today
- IBM recovered too fast for us to get in 8-(
- INTC Jan $27.50s are .40, down .05
by Phil Davis - December 9th, 2005 2:04 pm
I was away for lunch and got stopped out of my RIMM put! I wish I had been there, I would have switched sides in a second…
So, good news for them I guess. Hopefully the stock will run up nicely into their upcoming earnings so I can short that.
SIRI is having a heck of a day, stay the course.
Oops, I guess today was the day to short PNRA!
Oil totally collapsed, it was all speculation and short covering!
GE is buying back stock, killing my puts there.
The INTCs were a great trade, the $25s went to .80 and I halfed out with the rest in for a free ride for next week.
If you made the RIMM spread trade and are worried:
Sell the RIMM January $72.50 put for $11.10, a $1 profit
Buy the RIMM January $70 put for $9.40, a $1 loss
See how that works – even when you are very wrong it doesn’t hurt much! I don’t think the stock will really break $70 but since I am less certain I will find better uses for the money.
GLW gave us a good entry and then gave us a nice 1% so far!
I just bought back the LLY $55 calls for .20 so I’m up .80 there and down (on paper) .30 on the April 50 (this is why we prefer the long calls on volatile trades). I could liquidate now for a 10% profit but I’m going to hold until $53 where I think it will commence going up. The smarter play is to get out with the profit though…
If you think gold looks expensive to you, try paying 64,000 yen for an ounce! That’s up from about 45,000 yen in July! I may have been a day ahead but I really have my finger on the sell trigger on this one.
by Phil Davis - December 9th, 2005 1:15 pm
My Trading Policies
(a book in progress)
Entering a position:
I do not generally enter a position when it is moving the wrong direction or if the market/sector is moving the wrong direction. I rarely take a full position right away. Generally, out of the list I share with you, I look for ones that go the WRONG way and then (after I check news and other factors to make sure my assumptions weren’t wrong) see if there is an opportunity to jump in as a contrarian, getting my options cheaper than I planned.
When entering a position I generally have a goal, say 100 contracts that I want to buy for my watch price or less. I usually put in a bid a dime under the asking price and hope for a pullback on my first 10 contracts then wait to see which way they go. If it takes off the way I thought, I buy 10 to 30 more (depending on confidence, my target price, why it is moving (news)…) at which point I usually will wait a day to see where it shakes out.
If a position goes my way quickly, this method means I only get 1/2 or less of what I intended but the profits usually make up for it. If it goes my way slowly, I build into a full position over the next few sessions.
If a position goes against me quickly, I only lose say 20% of 10-30% of what I intended to bet so I’m not devastated. At this point it gets complicated because I rechart, recheck and generally rethink but sometimes I will wait a bit (an hour, a day, a week) and add to my position at the lower price, reducing my base cost.
As a rule of thumb, if I’m not willing to put in more money when I am 20% down then I kill the trade entirely. At that point, I either move on or target a new entry, perhaps at 50% down but with options I often need to move into the next bracket by then (like an LVS trade we made where I started with $50 puts, which got smoked, and ended up with 150% of my original target in $55 puts).
by Phil Davis - December 9th, 2005 11:16 am
I’m going to create a permanent post here so I can just refer people back to it every time we talk oil.
Whenever I am going to make an oil trade I strictly enforce the Valero Rule.
You may hear a rumor or you may see a price spike or you may have information but you will never have anything on the guys who trade this stock!
The rule is very simple:
Do not take a long position when VLO is going down.
Do not take a short position when VLO is going up.
To confirm the Valero rule and make a trade I usually look at XOM, a lagging indicator and the OGX, a middle indicator of the whole market and, of course, the actual price of oil.
When all of these factors are moving positive, I am confident buying – when moving negative, I will short with a vengeance.
When Valero changes direction, take your bets off the table!!!
The price action of Valero is like a window into oil arbitrage as the company, a massive refiner, buys oil on the spot market, adds value to it and then sells the refined products on the open market.
One look at the stock’s appreciation over the years tells you not only are they good at their jobs but they also seem to get better and better at it each year! So today it saved me from bad oil trades (I was bullish this morning) by opening down .75 despite the fact that crude was up .35.
How do they know? I don’t know, I just know that after obsessing on this for over a year I now just accept the fact that they are much better at this than I am so I follow the Valero rule pretty religiously. Whenever I make an oil trade or talk about one, I try to remember to say that it is subject to the Valero rule but now I will be able to point to the article rather than rehash the basics each time.
by Phil Davis - December 9th, 2005 5:03 am
Grrrrr. I’m very bearish this morning.
Oil is flying up. Nat Gas is out of control (weather change + short squeeze). Gold is at $527. Intel guided down the top of their range…
Today’s NY snow will ramp oil up even further. HD will take off soon as it occurs to people that they sell salt and snow blowers.
Luckily these (other than Intel, were my plays but I still would have rather seen nice rally conditions, it’s so much more fun!). Intel’s problem is that, although they are shipping a lot of units, the units cost less. Moore’s law has driven chip prices down faster than our need for more powerful chips has increased so we have moved into a bad range for Intel.
I don’t see that this is really bad for tech but it may take the market a day or two to figure this out. Yesterday the Nikkei dropped 300 pts on a sell off that was initiated by a trading error. Today the market is back 220 pts already – I look at this week’s sell of as a trading error as well but I am maintaining a cautious stance.
Consumer sentiment is out at 9:45 and that will be the market mover of the day – hopefully up.
Mondays TOTD CHK is still in good shape. The April $27.50s should see some real appreciation from our $5.90 entry point. Alternate pick NBR is doing quite well too, up 4% yesterday.
It looks like we will get called away on the BCRX play as well. I knew it was going to be a quick 12%, I just didn’t think it would only take 4 days to achieve it!
Something very strange is going on with our short pick LVS. One of the other bidders on a Singapore project dropped out and the rumors about who did what to who sent the stock flying down 8% in the after hours yesterday. To me it looks like LVS is still standing along with HET and WYNN.
It is possible that LVS people were hoping Tabcorp would be a partner because I can’t see how LVS can fund this project without dilution. I don’t expect that kind of drop to last into the open but it will be interesting to see where it goes today.
by Phil Davis - December 8th, 2005 4:03 pm
Ouch! Another bad day – IF YOU THINK THE DOW MATTERS!!!
The NYSE was up 13 pts and the R2K was up 2, the 10 year note dropped and the Nas was down 5.5 and the S&P was down 1.6 – This is not a bad day, this is a mixed day…
Congress extended the dividend tax cut which, in a logical world, should be a big positive for the markets but we will have to wait and see.
The ability of these other indexes to overcome the headline disaster of the Dow and a Nas that was dragged down by NSM, TXN and INTC is amazing. MWD came out with a negative call on the semis that put a stake through the heart of the Nasdaq and S&P.
CNBC is ridiculous with a slew of headlines about THE BEAR MARKET! Now I am a bit bearish at the moment but today is the kind of day that gives me hope.
Merck is now officially screwed. I should have been more aggressive this morning and called a short rather than just a sell on the up position. Apparently somebody sort of kind of deleted data that linked Vioxx to heart attacks in the New England Journal of Medicine.
We are talking ugly investigation and perhaps SEC involvement here. Merck may revisit its low of $25 over this mess!
There is still time to take a put position tomorrow but it will be expensive – I grabbed the current $30s but I wouldn’t advise chasing them.
Intel is not guiding up… There goes my call (this is why we don’t do current month calls, I still have 35 days to win). They are already down $1+ after hours but I think they will hold $25. If so I will have confidence to buy this cheap into earnings. There is a conference call coming up on the 13th that will clarify this.
Money flowing out of semis is great news for PLAY! They are exempt from demand issues because their biggest customer can’t make IPods fast enough to quell demand.
Money will be flowing back into oil as it passed my $60.55 target in heavy trading (as we know, no big oil trader misses this blog!).
by Phil Davis - December 8th, 2005 12:17 pm
Why is oil up on high inventory levels?
Mexico is increasing its gasoline imports by 20% FROM the US due to slowing oil flows from Europe and South America.
Game on for oil I think but let’s wait until we hit my target $60.55 per bbl before going too crazy. TMG didn’t wait though, Monday’s Trade of the Day #2 is up another 3% today. No major reason to sell it yet.
Another Blah day overall – gotta wait until 2pm when they read the tea leaves from the Fed minutes to get anything going but oil prices are ticking everyone off.
Still waiting for a pullback to get out of Gold, huge momentum today but MRB is just sitting there waiting for some nice person to buy it… Targets were raised today on Barrick and Placer Dome by CSFB, who usually know what they are doing but our pick, GG, has been moving better today.
GM is trashing the dow but making me very happy!
For .10 I’m gambling on some December TWX $18 calls.
TASRE has started turning up 3%, no news so financials must be forthcoming, that was a pretty good call yesterday!
PLAY is up 6% on this lousy day – I love that stock…
Somebody who sells “Coal Scrubbers” and let me know! There are a bunch of power plants who are going to have to convert off gas asap! BTU and ACI will benefit from this as well.
The sale on EK is coming to an end, thank you for shopping at Bear Mart!
Due to yesterday’s action, I am stopping out of GM puts at $22.40 but I think it will challenge the low of $20.60 soon.
I own Ebay and I am stunned at how cheap it is trading for. Revenues and earnings are up 25% this year and, other than the Skype acquisition, there are no blemishes… Chart-wise it looks like it will be going between $22 and $38.50 before it turns back – I hope not but, if it does break below $43.35, that is what will happen.
Trade of the Day SIRI is up 2% already the calls opened at $1.70 and are up .15 so far!
I guess I overpaid for my first batch of INTC. Another round at .35 then…
by Phil Davis - December 8th, 2005 9:13 am
I decided against CSCO because there is a ridiculous amount of call volume trading on the stock, this can limit it’s upside. The only reasonable play I see on this one is the Jan ’08 $15 calls for $5 but that’s a $2.20 premium so you may as well just buy the $17.78 stock. It will hit $19 at some point, I’m just not sure when… In general, it is a silly stock not to own!
Last 2 times PNRA was this oversold it dropped more than $10 within 2 months. Sales are up, guidance is boosted so I will watch this closely for a put entry point.
I’m taking the INTC Jan $27.50s for .50 – high risk/high reward trade.
TXN may have climbed too high but I wouldn’t short it.
MSTR is annoying the 28% short crowd to no end. It should go back to at least $79 as 10/27 earnings were not that bad.
If COP holds $63 then I will feel very good about it!
Bob Toll on CNBC just said “I wish I had inventory to sell. We are sold out for 12 months in most of our communities – our problem is finding places to put up more homes to sell.” I will be speaking to him about using my words without permission…
Just bought the SHLD $125 calls for $1.80, just a day trade with a 15% trailing stop.
by Phil Davis - December 8th, 2005 7:43 am
Howard was on 60 Minutes and Mel is raising prices for the 2nd time this year – no analyst expected that! I hit SIRI on the nose on 11/14 and 11/29 with buy calls at the bottoms and we were rewarded for toughing out the drop on 12/1. That trade is up about 10% so far but I’m holding out until 20% at least for the March $6 calls which are still a good buy at $1.85.
Much as I hate to plug them, the link to the video can be found at: http://www.foxnews.com/
Today is really the day to buy as Stern slipped yesterday on O’Reilly 2 major facts.
- He is not getting paid $100M per year (this was a ridiculous rumor)
- Sirius will end the year with 3.1M subscribers – ahead of estimates!
With revenue growth at 400% y/y, a 10% rate increase should yield another 200% next year, even if subscriptions disappoint (if they don’t, look out!). With a low turnover rate (I just had to rent a car and spent 15 minutes getting the sirius out of my car so I wouldn’t have to drive without it!) you can be fairly sure that the last quarter revs will be the minimum for the next quarter so a 10% increase will be very powerful.
There will be an IPO for CSR – XMSR’s Canada division, that will do well, but Stern was banned from Canadian radio a few years ago and Sirius is already tearing up that market.