Archive for 2005

Thursday Thoughts

$60.55 is the magic number on my oil chart. A close above this on volume means buy buy buy on oil stocks again.

$520 on gold was already hit today. I called this back on 11/18 when gold was $485 so I wish I was playing the futures instead of just the gold stocks… See the 11/22 “Metallica Rules” article for my general gold thesis but the summary is get out for now! Too bad for us, the play is already on in Europe so we are late out of the gate but it is now time to exit gold positions for now.

On the copper front, 11/14 Trade of the Day, PD is another tragically undervalued company with a p/e of 8 and what is shaping up to be about 80% earnings growth for 2005. The stock is up a whopping 50% this year and should pull back from a technical standpoint but I’ve been hoping for another good entry point on this one for a while but it’s been almost straight up $25 since that article. PCU is just as good.

The cost of hiring all the people you need for the 12 Days of Christmas song (8 maids a milking, 10 Lords a leaping, etc.) is flat from last year (yes, they actually have people who spend time on this junk) so perhaps this is a statistic that the Fed can use to finally admit there is no major wage inflation!

TOL is not going down – this is GREAT news for the markets and all home builders. DHI is still my favorite.

I am sad to say my very bearish GE short is paying off.

Rearranging deck chairs on the Titanic = Rearranging board seats at GM

I am taking the RIMM Jan $55 puts for $1 or less in anticipation of something bad happening between now and earnings on 12/21. This is a very high risk trade as they are now in mediation with NTP!

Our 11/12 play on PLAY is going to pay off big today! Citibank did a 180 on the stock and set a price target of a whopping $39! We initiated this position on 11/10, way back when the stock was just $21… Early this month, 20% of the shares were shorted, I hope those poor bastards got out in time! I’m lucky I caught this today so I could…
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For Whom the Bell Tolls

TOL confirmed their sad forecast for 2006, cutting outlook by another 10%+.

This will punish many aspects of the market but also builders like DHI, who forecast big gains for next year.

Perspective time: TOL is expecting no less than$4.79 and as much as $5.27 for 2006. In 2004 the company earned $2.52 per share. 2005 comes in at $4.78, still surprising up .18, even after a year of analysts raising guidance. If you pretend 2005 never happened, you still have 2004-2006 growth of 25% per year. This is on a $34 stock with a p/e of 8.5!!!

This is not a trick as they have a 10 year growth history of 17% even if you throw out this year’s wild gains. The company has a PEG ratio of .49, need we say more?

Toll Brothers is a conservative forecaster and is heavily shorted (13%) and is now trading at the same price it started the year with. TOL’s “problems” are fairly unique to them as they are luxury home builders and they are running out of buildable, approvable land because they only want to build in the best neighborhoods and nice neighborhoods don’t want builders knocking down all their trees.

This stock will be a major buy when the FED actually stops raising rates so we can only hope the stock sells off some more today. At $34 though, this may be the most technically oversold stock I have ever seen so I will be looking for any reason to enter.

What is really tragic in this story is the way TOL and HOV are going to take down other fine home builders like DHI (11/16 pick @ $32, shorted at $36 on 11/29) who are forecasting 15% GROWTH next year.

DHI got slammed yesterday and should drop again today but that should be the end of the dip, even with the nasty UCLA forecast that there will be a “significant drop-off” in 2006.

Why does a TOL forecast get more weight than a DHI forecast? Because traders and analysts live in and know people who live in Toll Brothers’ homes. It’s that simple.

If TOL drops today then the whole sector is going down but there are only a few that I think are right for a real drop:

  • KBH – still above the 200 dma of $67
  • BZH – way too high with a p/e of


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Wednesday Wrap-Up

Not looking so good…

We broke my S&P downside target. This kind of reaction on very good economic news is a very bearish sign, although I do take some solace from the fact that both the DOW and the Nasdaq rejected attempts to go below 10,800 and 2,250. Still, as I said this morning, chances are the S&P will be a major drag until it gets back over 1,263.

The drop on the S&P has been on fairly low volume so far and TXN’s guidance was as good as anticipated but HOV beat estimates by 5% but gave the dreaded “reaffirm” without raising guidance so we need TOL and INTC to give us upside surprises tomorrow to get real traction.

The HOV trade worked already for the Dec or Jan spreads. The stock will trade down in the morning and then either recover or die depending on TOL’s report at 2pm.

Got stopped out of RIMM and GM with nice profits. I think the GM jump at the day’s end was a big overreaction to mediocre news but, with the stock testing an all-time low, I wasn’t going to chance it.

Despite massive efforts to drive the price down, GG keeps making small advances, MRB seems to have no such constraints and is up 4% again today.

Trade of the Day MSFT was especially sweet picking up .20 from a bad start, giving everyone nice entry points this morning.

Yesterday’s Trade of the Day #2 TMG had a nice 3% gain on a bad oil day! Somebody dumped out of the calls with a nice profit but always use a target price to maximize gains. Market orders on options are rarely a good idea! There is now a huge disparity between the bid and the ask on the March $7.50 calls but they should fetch .60 tomorrow for a nice 50% profit!

MOT had a nice comeback at the end of the day as well. The $23 line might hold.

On SHLD (Monday trade) the Dec $135s that were sold for $3 are now worth .10 and should be cancelled. That makes the Jan ’07 $105s a big win already since the base cost is now down to $26 and the call is still worth $32.10. You can exit this position with a 20%+ profit or sell the $125 calls for another $1.15 – it is too dangerous to
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Hump Day

1263 is the number of the day.

The S&P (a real index, unlike the dreary DOW) is floating right at the critical juncture of where it either turns and forms a hump that will drag down all markets or it soldiers on higher to take out its 2001 high of 1,300.

You can forget the other indexes, they are all quite comfortable going higher but the S&P shall lead the way. I say it has the legs for 1,330 before falling back considerably but we may have to watch a painful consolidation at this mark for a week or two (likely unitl options expire on the 16th).

It is now up to TOL, HOV, TXN and INTC all of whom announce today and tomorrow. Poor guidance from 1 in each sector may doom the market for the rest of the year. I think that INTC and TXN will guide up though and I can’t see how TOL can possibly be drearier than they were last month. 3 of 4 guiding up is all we need to spark a nice rally!

If you think oil is holding down the markets now, wait until the dollar weakens! These oil moves are in the face of tremendous dollar strength – even COP moved up this week (thank goodness, I was sweating out my Dec calls!). Today is the day I hope to sell if oil inventories show a build, because that will be another green light for the market.

My RIMM puts are smokin’ today as are the GMs, I hope to be exiting my puts by tomorrow because that will mean the market has regained its momentum up but, just in case is why you always should have a little of both!

I am standing by my Microsoft Trade of the Day as they finally lost that court case in South Korea but it is a case of “Sell the rumor, buy the news” in this case. There is no surprise here other than that the Korean courts could not be bought by Microsoft either. Actually, I think Microsoft is too damn scrupulous to engage in that sort of thing which is really nice actually…

Monster year for MTN coming up but the stock is already way high.

GG cannot be kept down but beware $520 gold, that may be time to pull the rug out from under the Saudis… I’m looking…
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TMG – Trade of the Day #2

I can’t get out of the oil patch today!

TransMontaigne rode out the hurricanes much better than expected but fears of disaster dropped this small ($300M) petroleum distribution company from $13 in August to the $7 we can get it for today.

Nobody tracks this poor little stock but their rates have gone way up but are less % per barrel than last year so no one is complaining. I’m complaining that I didn’t catch this in October when it was at $5 but wah, wah – so I’ll just buy it now.

First quarter profits, reflecting the new rates, were up 500% from last year on 45% more revenue. The trailing p/e is 5 and the forward p/e and PEG ratio are so low that Yahoo brings them up as an error.

The company is selling at .92 of book value with the whole market cap being $350M on sales of $8.5Bn. So if this company figures out how to make just one penny more per dollar of revenue, they will increase revenues by $85M – I like those kind of companies!

They are expanding so quickly that A/R is sucking up cash flow, not the worst problem in the world but it has skewed the books too make them look less attractive than they really are.

You can pick up the March $7.50 calls for .40 but for $7 you can also just buy the stock! First real resistance will be the 200 dma of $8.50 but that was pulled down for no good reason so it may be a long time before I want to let go of this one.

Good trading,

- Phil





Gold Rush

Gold is up at $512 continuing yesterday’s rampage. A run-up in gold scares the heck out of any investor over 50 as it has, for 1,000 years, been a sure sign of economic troubles. I think this logic is flawed because governments no longer hoard gold, it is held by people, less in Krugerands and more in jewelry.

We have a Global phenomenon of tens of millions of people, a burgeoning middle class, of outsource workers who are affluent in their own country. We complain about all the jobs that went overseas but those jobs do land somewhere and those workers do become consumers and the great circle of money continues.

In China, one Million people a year enter the “middle class”. Middle class in China isn’t as shabby as you might think with the classification applying to households with $18-36K in assets. About the growth can be seen in India. If we assume that we add 1M and all of Europe only adds 1M and the entire rest of the world only equals another 2M, then we still have 6M people a year moving into the “middle class”. That’s the entire working population of the US in two decades!

What do these people do when they enter the promised land? What did you do when you got your first job. They eat, they go to movies, they buy something nice for themselves… GOLD!!!

Not just gold of course, Louis Vitton, Gucci and Chanel are having great decades as well but you may not have one of those brands but I bet you have something made of gold!

Let’s say that each of our 6M new consumers just buy one little trinket for themselves, just $200 worth of gold. That’s 1,200M a year (3M ounces) or 5% of global production. You can only take another 5% of global production for so long before you start putting pressure on prices…The pressure is on for physical gold.

And production is not increasing, gold, like oil, is a scarce recourse and we have tapped all the easy stuff.

Demand is growing and production is falling.” That is according to the 2004 gold supply and demand trends report published by the World Gold Council which shows a contraction in supply against growth in demand. Don’t you wish you had read this report last year!

Don’t worry, it’s not too late – the…
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Tuesday’s Thoughts

The DOW should be on fire today. Productivity is up 4.7%, an incredible number that will be digested and lift the markets no later than tomorrow! Unit labor costs are down too, even GM should benefit from this report…

The Greenspan effect will wear down towards the end of the day today and, as long as the Fed stays quiet, could be completely forgotten by Wednesday. Also, time is getting tight for the Wall Streeters who need to boost their earnings by 12/31. You may have heard the term “Santa Clause Rally” but what people don’t realize is that Santa is visiting the traders whose bonuses depend on that year end percentage gain on their funds. If your bonus depends on making sure my stocks go higher, you are really going to buckle down and do it aren’t you? The entire 4% gain in the DOW last year occurred in the month of December!

The Nikkei and Hang Seng took big hits today, bearish behavior in the Asian pool causes money to flow into ours. Stuff like this used to take weeks or months to happen, with worldwide electronic trading the only delay is waiting for the next market to open. There is only so much investment money out there and it is amazingly fluid these days. One of the reason the financial media relentlessly attacks the housing market is because it ties up enormous amounts of non-fluid capital.

If you choose to invest $100,000 in a second home because it will appreciate by 25% a year, that means your stock broker misses out on $500 in commission or a mutual fund can’t play with your money and get 1% + 10% of your profits… Remember that when you are watching the “financial experts” telling you that there is a housing bubble and it can’t last. These are the same people who told you that there was no stock bubble in 1999!

Tomorrow we get earnings from HOV, an northeast home builder and Thursday we get TOL, who crashed the home market with lowered guidance by about 6% on November 8th. I think way too much weight was given to the lowered guidance as it compares to the 50% rise in sales and profits this year. The most conservative value I can apply to TOL is its 200 dma of $44 so at $36 I feel strongly enough about it…
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Monday Mop Up

What a mess today was!

Even the umbrella stocks took a beating today. GLW and VLO were the only ones that were up (I knew I should have added Starbucks!).

I thought I was catching a turn in the afternoon but it was just a bottom, that is no way to make money… Today it was the President who was stock market poison with his “stay the course” policy in Iraq and on Taxes. I did say on Saturday not to trade if the DOW was down today so it’s another one of those “do as I say, not as I do” things.

It is not clear what school of economics our CEO President ascribes to where “spend more, collect less” is a long-term strategy. Of course the economy is is growing when the government leaves all that money on the table but it just can’t continue forever (stop me, I sound like Greenspan). The bottom line is that investors want to hear a real plan not “all is well, pay no attention to that deficit behind the curtain.”

Lucky for me I was in heavy bear mode:

Trade of the Day BSX was down 3.5%, the best part is that we had all morning to pick it up at its high! The Jan $25 put doubled today and still looks attractive at $1 but, if you doubled you really should half out at least….

LEXR got whacked but SNDK escaped the carnage in that sector. I would stay away from both of these stocks though, too unpredictable.

We are out of LVS with a very nice 330% profit!

I am so glad I still have my RIMM puts!

WAG almost recovered but not quite, just gotta hope that flushed out the nervous nellys.

BA also held up nicely, the planes China is buying from Airbus are very low margin and Airbus promised to build a plant in China so the whole deal is a wash (but may work out long term). The calls were an easy pick up today but we will have to wait for the puts – do not overpay – it makes it too hard to win!

GM recovered for all the wrong reasons, they raised cash by selling a part of their golden goose – GMAC! That is a carcass that will be picked clean very quickly and will leave them with a pile of
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Vegas Baby!

Time to think about taking the money and running on last Tuesday’s trade of the day.

With our $1.50 put at $5.40 (350%) this is no place to get greedy. I am putting a stop at $5 just in case it breaks the 200 dma of $39 but, with the stock already hovering at 3% down today, I’m not that sure it will keep down this trend. From a straight stock perspective, a break above $40 would be a surprising change of direction

I’m confident enough that I’m willing to bet 10% of my gain but not more than that. If it comes up I will be happy to reenter with a longer put.

This trade will pay for a really nice Vegas vacation but we are not done milking this cow!





Need a Quick 12%?

BCRX is consolidating nicely at $15. The option prices are outrageous at $1.60 for the January 15s. The best move is to buy this hot biotech stock and sell the Jan $15 calls for $1.60.

If you buy the stock and wait 30 days, you have protection all the way down to the 50 dma of $13.40 and, if you get called away you pocket $1.75 on $14.85 spent. Not bad for a month!

If the stock goes down on you, you can roll into the $12.50 or just buy out the call you sold.





 
 
 

Phil's Favorites

A bee economist explains honey bees' vital role in growing tasty almonds

 

A bee economist explains honey bees' vital role in growing tasty almonds

A honey bee sniffs a cherry blossom. AP Photo/Patrick Pleul

Courtesy of Brittney Goodrich, Auburn University

It’s sometimes reported that one in every three bites of food depends on bees. As is often the case when an easy to grasp notion spreads, there’s a dose of truth and a dollop of exaggeration.

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Zero Hedge

Death Of A Nation: Drug Overdose Deaths Jump To Record 72,000 Last Year

Courtesy of ZeroHedge. View original post here.

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Digital Currencies

Bitcoin's rollercoaster ride reflects the biggest issue facing cryptocurrencies: regulation

 

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The Top 10 Wildest Campaigns Of 2018: Starboard's Stake In Symantec

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This week’s column is a continuation of our 10 “wildest campaigns” of 2018. Find the first part here.

Q2 hedge fund letters, conference, scoops etc

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Small Caps attempting 20-year breakout, says Joe Friday

Courtesy of Chris Kimble.

CLICK ON CHART TO ENLARGE

The Russell 2000 trend remains solidly higher, as it has created a series of higher lows and higher highs inside of rising channel (1) over the past 25-years.

Small caps have been an upside leader in 2018, as they are very near all-time highs.

We applied Fibonacci extension levels to the 2007 highs and 2009 lows at each (2).

Joe Friday Just The Facts Ma’am- Small caps are attempting a dual breakout at (3). 

This is a price point that small-cap bulls would LOVE to see strength and a breakout take place, as monthly momentum is lofty.

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Biotech

Nanomedicine could revolutionise the way we treat TB. Here's how

Reminder: Pharmboy and Ilene are available to chat with Members, comments are found below each post.

 

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Members' Corner

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

 

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Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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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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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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