Archive for 2009

Trading Strategies – Entry, Exit, Position Size

My strategies for trading are obviously going to be very different than Phil’s strategies. For one, I day-trade stocks and do not work with longer term option strategies.  My specific investment style is focused on short term investments that gain 2-5%. These rapid fire lucrative trades start to build up into a profitable long term virtual portfolio over time. The keys to my trading strategy are early entry, short term holds, and the earliest exit as possible.

Entry

I enter a stock based on what it can do in one to two days (maximum). When I look at a stock, I want to decide where it can be at the end of the day and whether I will be able to enter and exit it in this short term period for a 2-5% gain. Finding winners is the hardest part of day trading, while the entry, to me, is more of a system.

My entry strategy for a given equity depends on whether it has good fundamentals or bad fundamentals, as well as, whether the stock market looks to be moving upwards or downwards for the day. If a stock has good fundamentals for the day (good earnings, upgrades, bullish sector news) and the market looks like it is going to be green, the given stock will most likely gap up. On that gap up, some traders that were in the stock prior to the day will take profits. Usually on any gap up of 2% or higher, there will be a slight pullback in the first ten to fifteen minutes. This pullback is where I want to enter, because it will likely present the most discounted price that I will be able to get for the day, unless for some reason the market turns south.

If the market is looking particularly weak, I tend to stay away from stocks that have strong fundamentals because they probably won’t be able to have a lot of upward movement. Instead, I look to enter short on a stock that is either extremely overvalued, opening 10% up or more, or a stock that has bad fundamentals. When the market is looking red, I enter the stock almost right away. If there are poor fundamentals combined with a bad market, the stock has no reason to move up at the open
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The Week Ahead and Two Weekly Picks

A number of increasing stories and analysts seem to be growing more and more cautious about the stock market. It is not that most agree we are in a great position and the economy is recovering. What they all seem to be saying is that we moved pretty fast, and the market has become a bit OVERVALUED.

For example, I took a quick glance at Seeking Alpha tonight. On their "Macro View" section, the company has a market outlook section with stories about what direction writers believe the market is going. On it, the stories are 2:1 in a negative view of the market. Now, it is always easier to be a bear when the market gets much higher and looks ready for a correction, but if most people are thinking like this…doesn’t that mean its most likely market sentiment.

The market has made some ridiculously great profits, but this week might be a bit of a weaker week. Let’s rundown what is happening this week, what to expect, and what will shape this market’s red and green days.

To start, over the weekend, the big news we got was the shutting down of Colonial Bank. Colonial Bank was a major mortgage lender out of Montgomery, AL. The bank closing was the largest of the year, and the sixth largest of all time. The company had over $20 billion in assets. This is not some measly mom and pop joint. This was a large, second tier, regional bank. BB&T Corp. will be taking over the bank, but this should have some very adverse effects in the market. Especially, since financials have had such a strong run as of late.

One of the most defining economic data points for the week will be housing data. Monthly information on building permits, housing starts, and existing home sales for the month of July will be released. While I cannot venture to guess which way they will go, my one worry is that housing has had a great run. If the data is not exceptional, will it mean the housing sector could come unwinding. Plus, with how exceptional and unexpected last month’s numbers were, could the data be a bit overreaching.

Another important aspect of this week is the retail earnings. Big names in retail continue to release earnings. What we saw last week…
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Guest Post: Shining A Light On Expert Networks

Courtesy of Tyler Durden

Submitted by reader Hedgehod’s Repent

 





Just Who’s Buying This Rally?

Here’s an interesting article by Graham Summers that touches on an issue discussed earlier today – it does not take $2.7 trillion actual dollars to move the stock market up $2.7 trillion in apparent value.  As a corollary, it wouldn’t take that much selling to move it back down. – Ilene

Just Who’s Buying This Rally?

stock market bubble, ponzi schemeRoughly 30% of US household wealth was destroyed by the collapse in housing and the 2008 Crash. Currently it stands at about $15 trillion, down % from $22 trillion at the 2007 peak. For simplicity’s sake, we’ll call this “assets.”

Now, consider that total US household debt stands at $13 trillion ($2.5 trillion in credit and $10.4 trillion in mortgage). As we noted in previous issues, consumers have only paid off about $50 billion in credit (about 2% of this).  Thus we have US household equity at about $2 trillion.

Because consumers can no longer use their homes as ATMs (the home equity line of credit era is over), if we’re going to track how much US household money has flowed into the stock market, we need to focus on money market funds: the proverbial “sidelines” of the stock market.

Well, since March 2009, only $400 billion has flowed out of money market funds. Even more interesting is the fact that individual investors are pouring more money into bonds and income plays rather than stocks: for July, only $4 billion flowed into stock mutual funds compared to $28 billion for bonds.

In spite of this lack of participation, the stock market has kicked off a $2.7 trillion rally since the March lows. With only $400 billion potentially coming from individual investors. we can deduce that US households have only contributed 14% or less of the market’s gains.

Where did the other 86% ($2.3 trillion) come from?

See the Fed’s Balance Sheet, Factors Supplying Reserve Funds. This is essentially the money the Fed has put into the system via various lending windows and liquidity swaps.

As of July 30, it stood at $2.01 trillion.

It’s not hard to see what’s going on here. The Fed lends out money to Wall Street banks. Wall Street banks then use the money to recapitalize their balance sheets and push the stock market higher, creating the illusion of “recovery” and “bull markets” in an effort to get US consumers to “buy in” or begin spending…
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Dragon-Kings, Black Swans And The Prediction Of Crises

Courtesy of Tyler Durden

Didier Sornette on “Dragon-Kings, Black Swans and the Prediction of Crises” – for all you Taleb fans:

This leads to two consequences, one pessimistic and the other one more optimistic. The first one is the unavoidable evidence that extreme events occur much more often than would be predicted or expected from the observations of small, medium and even large events. Thus, catastrophes and crises are with us all the time. On the other hand, we have argued that the dragon-kings reveal the presence of special mechanisms. These processes provide clues that allow us to  diagnose the maturation of a system towards a crisis, as we have documented in a series of examples in various systems.

We have emphasized the use of the concept of a “phase transition – bifurcation – catastrophe – tipping – point,” which is crucial to learn how to diagnose in advance the symptoms of the next great crisis, as most crises occur under only smooth changes of some control variables, without the need for an external shock of large magnitude.

 

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PE Bidders Not Allowed For Guaranty Financial Ahead Of Monday Deadline

Courtesy of Tyler Durden

The Financial Times is reporting that even as the FDIC probably managed to avert disaster by pushing off Colonial on to BB&T’s lap on Friday, its troubles keep escalating. Sheila Bair is trying hard to sell Texas’ Guaranty Financial ahead of a Monday deadline, however it may have used up its jokers on Colonial, which was supposed to be the “easy sell.”

Guaranty’s fate has become intertwined in recent weeks with that of Colonial Bank, an Alabama-based bank that was forcibly closed on Friday and largely sold to BB&T, another regional bank, in an FDIC-backed deal.

The FDIC, which is juggling failing banks around the US in an effort to minimise the fallout to consumers, had initially wanted to resolve Guaranty’s problems before Colonial’s by arranging a sale of Guaranty, which is struggling under the weight of burgeoning losses on homebuilder loans and mortgage-backed securities.

But regulators’ concerns over Colonial’s instability recently overtook their worries about Guaranty, because of Colonial’s deteriorating credit quality and its role in two federal investigations, so regulators contacted bidders and asked for offers for Colonial last week.

Regulators have been hoping that three banks that had bid for Colonial – Canada’s Toronto Dominion, JPMorgan and Spain’s BBVA – would step in instead as bidders for Guaranty.

Ironically, Sheila is doing as much as it can to prevent PE interest in the failed bank, effectively giving all the leverage in the hands of the banks, which are able to submit lowball bids, in the absence of other, truly interested parties:

At least one private equity consortium, which includes Blackstone, Carlyle, Oak Hill Capital, TPG and Gerald Ford, is considering a bid for Guaranty.

The FDIC, however, has long made clear that it prefers other banks as buyers of troubled financial institutions rather than private equity firms.

Heading into the weekend, the private equity firms had not been given access to Guaranty’s confidential financial data.

One wonders why the artificial barrier, but then one remembers that other BHC’s have access to the Fed’s discount window, and if the artificially inflated loans on Guaranty’s balance sheet actually have to get repriced to par, the banks will have much better access to capital than some mere, capitalist…
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Coming Soon: Banking Crisis of Historic Proportions

Coming Soon: Banking Crisis of Historic Proportions

Courtesy of John Lounsbury writing at Seeking Alpha

With everyone (well, almost everyone – I am one of the lonely skeptics) convinced that we have stepped back from the "edge of the abyss", the title of this article may be viewed as laughable. When you connect the dots, as I will in this article, you will at least stop laughing, and, maybe, realize that we still have a big problem.

We have a confluence of five factors that have the potential to create damage to banking not seen in 80 years, and that includes the Great Depression. We’ll hit these factors one at a time.

First Factor: Banks Are Not Doing Enough Business

Commercial bank credit growth has dropped to 2%, according to Jesse’s Cafe Americain (here). The recent history of credit growth is shown in the following graph.

bank credit

Now, it is a good thing that banks are conserving capital, since they need to increase capital to offset bad loans.

the perfect storm (financial storm)But, if asset valuations deteriorate (and that is quite possible), the banks need to increase earnings to "earn their way" out of their problem. Interest paid by the Fed for reserves on deposit there (by the commercial banks) are not producing nearly the same level of income as new credit issued commercially under our fractional reserve banking system with much higher interest .

If credit issuance does not increase year over year, banks can not improve their financial condition unless the quality of their existing loan portfolio improves.

As discussed in the third factor, below, just the opposite is anticipated for loan portfolios.

So the first factor in this perfect storm is that the banks are not doing enough business.

Second Factor: Banks Are Failing at a Rate Not Anticipated Two Months Ago

In his article, Jesse mentions reports by Bloomberg that 150 banks are in trouble. Some of these will be larger than many of the 77 (mostly community) banks that have gone under FDIC receivership so far in 2009.

Banks mentioned being in trouble by Bloomberg (here) include Wisconsin’s Marshall & Ilsley Corp. (MI), Georgia’s Synovus Financial Corp. (SNV), Michigan’s Flagstar Bancorp (…
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Recent Capital Markets Transactions Update

Courtesy of Tyler Durden

Recent trends indicate that the pick up in corporate finance transactions, especially in the equity capital market may be petering off. After hitting an unprecedented high in June as the market reached the head of what had previously been seen as a fake head and shoulders formation, the July afterburners in the secondary market did not translate into primary market strength. Additionally, the August run rate indicates that the primary market may well have peaked in the May-June timeframe. In the current year the sector which has benefited the most from primary market issuance has unquestionably been Financials, where over $96 billion has been raised in the form of 251 issues. A distant second at less than half the total proceeds is Materials at $42 billion with 3968 unique deals, and bronze goes to real estate which managed to raise $37.5 billion in 162 deals. On the other end, the sector least in need (or least capable of raising) equity capital is telecommunications with just $3.6 billion in 29 deals and retail just above it at $3.8 billion in 43 deals. Yet retail is probably the sector that has benefited the most from the irrational exuberance over the past few months: could this be indicative that neither companies, nor potential investors take the overinflated retail valuations as conducive to a “value” primary entry point? If these companies are unable to capitalize on the ramp up in equities, what good is the use of company stock as valuation proxy? True, stocks can hit 1000x P/E but if this can not be converted into much needed corporate cash, what good is any such rally?

Yet what some may perceive as weakness in equity, has translated into strength for not only investment grade, but also high yield bonds. Primary market investors are gradually retracing and instead of looking at 20% returns promised by primary market operations, they are now content and much more interested with picking 5-10% returns.

LTM Investment grade bond issuance:

The sectors benefiting the most from a high yield issuance bonanza include Media and Entertainment, raising $15.6 billion in 36 deals, followed by Energy and Power and Materials, with $12.4 and $12.2 billion, in 38 and 28 deals, respectively.

Ironically, only 2 real estate high yield deals have been completed to date for $822 million, with consumer services, and retail both…
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Collapse Of The “Ownership Society”

Collapse Of The "Ownership Society"

Courtesy of Mish

Bush’s "ownership society" has collapsed under the dead weight of debt. There is too much debt and too little income to support it. Please consider President shifts focus to renting, not owning.

The Obama administration, in a major shift on housing policy, is abandoning George W. Bush’s vision of creating an “ownership society’’ and instead plans to pump $4.25 billion of economic stimulus money into creating tens of thousands of federally subsidized rental units in American cities.

The idea is to pay for the construction of low-rise rental apartment buildings and town houses, as well as the purchase of foreclosed homes that can be refurbished and rented to low- and moderate-income families at affordable rates.

Analysts say the approach takes a wrecking ball to Bush’s heavy emphasis on encouraging homeownership as a way to create national wealth and provide upward mobility for low- and working-class families, especially minorities. Housing and Urban Development Secretary Shaun Donovan’s recalibration of federal housing policy, they said, shows that the Obama White House has acknowledged that not everyone can or should own a home.

In addition to an ideological shift, the move is a practical response to skyrocketing foreclosure rates, tight credit, and the economic crisis.

Barney Frank The Hypocrite

"I’ve always said the American dream should be a home – not homeownership," said Representative Barney Frank, chairman of the House Financial Services Committee and one of the earliest critics of the Bush administration’s push to put mortgages in the hands of low- and moderate-income people.

What a distortion of reality. Barney Frank was in the pocket of Fannie Mae and Freddie make and their biggest supporter for years. Now he plays on semantics in an unbelievable lie. He would have been better off keeping his mouth shut, but political hacks seldom if ever can.

It’s Better To Rent

The "Rentership Society" as Calculated Risk dubs it, reminds me of a chart I put together way back in Spring of 2005. Note the lower right hand corner of the top chart.

 

San Diego Home Prices (with thanks to piggington)

The above charts are from It’s a Totally New Paradigm written March 26, 2005. Here are some excerpts from that post.

  • Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors says that "South Florida is


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Guest Post: The Blue Tulip

Courtesy of Tyler Durden

The Blue Tulip (pdf) submitted by Ted Ely

 

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The Blue Tulip 8-11-09.pdf 29.95 KB




 
 
 

Zero Hedge

China Bans Websites From Original Reporting

Courtesy of ZeroHedge. View original post here.

It was about six months ago when global stock markets were crashing, that China tightened its control on local media, and ordered the local press and news outlets to stick to "positive reporting" or else "risk the stability of the country."  As we reported back in February "China is now openly declaring war on anyone who dares to even suggest tha...



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Phil's Favorites

Politics & Your Money

 

Politics & Your Money

Courtesy of Wade of Investing Caffeine

Will you be able to retire, and what impact will the elections have on your financial future? Answering these questions can be a scary endeavor. And unless you have been living in a cave, you may have noticed we are in the middle of a heated U.S. presidential election campaign between Donald Trump and Hillary Clinton. Regardless of which side of the political fence you stand on, the prospects of your retirement are much more likely to be impacted by your personal actions than by the actions of Washington politicians.

Even if you despise politics and were living in a cave (with WiFi access), there’s a high probability you would be overloaded with detailed and dogmatic online editorials from overcon...



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Market News

News You Can Use From Phil's Stock World

 

Financial Markets and Economy

Buying the Deepest Stock Dips in 2016 Returned Three Times S&P 500 (Bloomberg)

It’s been a great year for catching falling knives.

Big Week Ahead Highlighted By Fed Meeting, Key Earnings, GDP Estimate (Forbes)

The recipe for this coming week? A stew of earnings, peppered with data and a Fed meeting. Also ahead: A first look at estimated Q2 gross domestic product.

...



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Chart School

World Markets Weekend Update: The Global Rally Moderates

Courtesy of Doug Short's Advisor Perspectives.

The global rally in equities Moderated last week. The average gain of the eight indexes on our world watch list was a respectable 0.41%, down from the previous week's steroidal 3.87% average. Hong Kong's Hang Seng was the top performer with a 1.41% advance. At the other end, the chronic laggard Shanghai Composite fell 1.36%.

A Closer Look at the Last Four Weeks

The tables below provide a concise overview of performance comparisons over the past four weeks for these eight major indexes. We've also included the average for each week so that we can evaluate the performance of a specific index relative to the overall mean and better understand weekly volatility. The colors for each index name help us visualize the compara...



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ValueWalk

Relypsa Inc (RLYP) Soars On Galenica Bid

By Jacob Wolinsky. Originally published at ValueWalk.

Relypsa Inc (NDAQ:RLYP) — to be acquired by Galenica AG (VTX:GALN) for $32 per share in cash is soaring this morning up about 58 percent at the time of this writing in early morning. On the other hand shares of Galenica are down on the announcement by about 8 percent. What are the details of the deal? Here is what the sell side analysts are saying about the pharma news.

Relypsa Inc (NDAQ:RLYP) bid – analysts react

Cantor Fitzgerald

Relypsa will be acquired by Galenica for $32 per share, a 59% premium over the last closing price. We have thought that Relypsa would likely be acquired at some point, given the opportunity to grow Veltassa to be a significant commercial brand, ...



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Kimble Charting Solutions

Doc Copper going to peak again at 200 Day moving ave?

Courtesy of Chris Kimble.

Doc Copper is often viewed as a leading indicator, for global growth or lack of.

The 200 day moving average is often viewed as the line in the sand to determine if an asset is in an up or down trend.

Is Doc Copper climbing above its 200 day moving average a good or bad sign?

Below looks at Doc Copper over the past decade with the 200 MA applied.

CLICK ON CHART TO ENLARGE

Copper peaked in 2011 and since, has continued to create a series of ...



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Digital Currencies

Demystifying the blockchain: a basic user guide

 

Demystifying the blockchain: a basic user guide

By Philippa Ryan, University of Technology Sydney

Companies around the world are exploring blockchain, the technology underpinning digital currency bitcoin. In this Blockchain unleashed series, we investigate the many possible use cases for the blockchain, from the novel to the transformative.

Most people agree we do not need to know how a television works to enjoy using one. This is true of many existing and emerging technologies. Most of us happily drive cars, use mobile phones and send emails without knowing how they work. With this in mind, here is a tech-free user guide to the blockchain - the technology infrastructure behind bitcoin...



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OpTrader

Swing trading portfolio - week of July 18th, 2016

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Mapping The Market

No wonder Saudis are selling as much as they can!

Courtesy of Jean-Luc

We are getting much more energy efficient – no wonder Saudis are selling as much as they can! Who wants to be the one with trillions of dollars of oil in the ground unwanted:

http://arstechnica.com/science/2016/07/the-amount-of-energy-needed-to-run-the-worlds-economy-is-decreasing-on-average/#p3

...

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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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Biotech

This Is Why Biotech Stocks May Explode Again

Reminder: Pharmboy and Ilene are available to chat with Members.

Here's an interesting article from Investor's Business Daily arguing that biotech stocks are beginning to recover from their recent declines, notwithstanding current weakness.

This Is Why Biotech Stocks May Explode Again

By 

Excerpt:

After a three-year bull run that more than quadrupled its value by its peak last July, IBD’s Medical-Biomed/Biotech Industry Group plunged 50% by early February, hurt by backlashes against high drug prices and mergers that seek to lower corporate taxes.

...



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Promotions

PSW is more than just stock talk!

 

We know you love coming here for our Stocks & Options education, strategy and trade ideas, and for Phil's daily commentary which you can't live without, but there's more!

PhilStockWorld.com features the most important and most interesting news items from around the web, all day, every day!

News: If you missed it, you can probably find it in our Market News section. We sift through piles of news so you don't have to.   

If you are looking for non-mainstream, provocatively-narrated news and opinion pieces which promise to make you think -- we feature Zero Hedge, ...



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Help One Of Our Own PSW Members

"Hello PSW Members –

This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible.  Feel free to contact me directly at jennifersurovy@yahoo.com with any questions.

Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts.  After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.)  Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.

http://www.youcaring.com/medical-fundraiser/help-get-shadowfax-out-from-the-darkness-of-medical-bills-/126743

Thank you for you time!




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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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