Posts Tagged ‘shorting stocks’

GIVING NEW MEANING TO “HERDING INVESTORS”

GIVING NEW MEANING TO “HERDING INVESTORS”

Courtesy of The Pragmatic Capitalist

Cows on pasture

We all know the Federal Reserve is trying to herd investors into equities as they keep asset values “higher than they otherwise would be”, but how’s this for herding investors?  One well known hedge fund manager has altered his entire strategy because of the Fed’s persistent actions (via the WSJ):

“A former hedge-fund manager who made a fortune shorting stocks has switched to the long side, and is raking in money in the process.

William von Mueffling surprised clients and competitors last June by announcing he would close his hedge funds and return $3.5 billion to investors. His firm, Cantillon Capital Management of New York, kept managing $1 billion in long-only assets, typically considered the unsexy piece of the business.

Now, the 42-year-old stock picker controls more money than he did before he closed his hedge funds. Cantillon has raised billions of dollars from pension funds in the U.S. and abroad, and from sovereign-wealth investors, according to clients and other people familiar with the matter.”

Von Mueffling couldn’t justify running the short end of the book as the Fed was priming the pump:

“After years of “long-short” investing, Mr. von Mueffling and his analysts and traders no longer short, or bet against, stocks at all. Instead, like a typical stock mutual fund, they stick to buying company shares they expect will rise. Mr. von Mueffling said the strategy is “the right long-term decision.”

“I’m not saying there aren’t overvalued stocks out there,” he said in an interview. “There are, but trying to short them when the government is printing money is a very, very challenging game,” he said, referring to, among other things, Federal Reserve programs to buy government bonds, which the Fed is widely expected to announce this week.”

That gives new meaning to “herding investors”.  I think sellers play an important role in the price discovery process.  After all, when the fundamentals of an asset are consistently in disequilibrium with its current valuation it makes the system that much more unstable.  Selling, and thus lower prices, can actually make the system more stable in the long-term.  This is just one more sign that nothing has really changed since the Greenspan Fed ended.  And that was a Fed run by a man who admitted that his model was flawed…. 


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Bears Go Into Hibernation – Stock Short Sales at 2-Year Low

Bears Go Into Hibernation – Stock Short Sales at 2-Year Low

Courtesy of Mish

Bear sleeping in den, using rolled up paper money as pillow

The summer stock market blast higher has wiped out the conviction of short sellers. Bears are back in hibernation and Stock Short Sales at 2-Year Low, Data Explorers Says.

Investors are exiting bearish bets on global equities, pushing bullish wagers on stocks to a two- year high versus short sales, according to Data Explorers.

The firm’s long-short ratio has risen to 9.5, having surged from 5.75 in September 2008 when Lehman Brothers Holdings Inc.’s collapse intensified the financial crisis, the London- and New York-based securities-research company said. The reading is the highest of the data that goes as far back as July 2008.

“Short sellers are now taking money off the table,” said Will Duff Gordon, a senior researcher at Data Explorers in London. “Perhaps the bears are going back into hibernation?”

Barton Biggs, the hedge fund manager who sold half his equity holdings at the start of July, said today that signs the U.S. economy will avoid a recession spurred him to build the stakes back up.

Whipsaw City

Many traders are getting whipsawed here. Chasing shorts lower and longs higher has certainly been the wrong approach most of this year.

Mike "Mish" Shedlock


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THREE THINGS I THINK I THINK

THREE THINGS I THINK I THINK

Courtesy of The Pragmatic Capitalist 

Investigating the

  • Just a few brief comments on the market at the current levels. I was relatively optimistic about the equity markets coming into the beginning of the year.  The themes that had dominated much of 2009 (better than expected earnings, accommodative Fed, continuing stimulus, etc) appeared to be largely intact.   To my surprise, the rally ran a bit farther than I expected, but Greece and the downturn in China were game changers in my opinion.  I was a few weeks early to lay my short positions, but the market ultimately came around to my thinking (better to be lucky than good).  Where are we now?  In my opinion, we have a global economy that ispre-Greece and a global economy that is post-Greece.  The dominoes appear to be lining up in an eerie fashion at this point in time – there are now dozens of negative catalysts in the coming 12 months (which I will detail in a soon to be released report).  Although the markets are once again oversold and at risk of a bounce the fundamentals are quickly deteriorating and my expectation of a weak second half appears to be right on cue.  I would continue to approach this market with a great deal of caution despite the current oversold conditions.
  • What do the Germans know? This short selling ban is very desperate looking.  I hate to speculate, but my gut tells me that they are beginning to realize how bad the situation is over there.  They now understand that the problems in the Euro cannot be solved through intra-country debt issuance and bailouts.  The short ban looks like one more act of desperation from a group of nations that have severely underestimated the problems they confront.  Unfortunately, I still don’t think they’ve realized that this is a currency crisis and not a solvency crisis.  That means they’ll continue to kick the can down the road and markets will battle with the turbulence.  This truly does have a very Bear Stearns feel to it.
  • Will we scare ourselves into a double dip or even a second great depression? Everyone and their mother appears to be in the same camp regarding all the very scary “money printing”.  I’ve never in my life heard the drumbeat so loud for fiscal austerity.  In fact,


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A few good shorts

Here’s what Allan is shorting. 

A few good shorts

X – Short Trade of the Week, April 12

*****  

FAS – Still floating above 100
 
******
 
GS – a break of 155, then 145, then…….
 
******
 
 BAC – too big too rude too arrogant to survive
 
******
 
 
C – some cheap puts if Sell pans out
 
*******
 

YHOO – fresh signal 

 

Allan’s newly launched newsletter, “Trend Following Trading Model,” goes with the trend-following trading system he’s been working on for years. Most trades last for weeks to months. Allan’s offering PSW readers a special 25% discount. Click here.  For a more detailed introduction to the Trend Following Trading Model newsletter and trading system, read this introductory article.

 

File photo of Apple Inc. CEO Steve Jobs at the end of the iPhone OS4 special event at Apple headquarters in Cupertino

p.s. Market Club sent out three videos yesterday on AppleOil and Gold.

Summary (but watch the videos):

Apple"the hottest stock in the world."

Oil: "crude oil has been very choppy."

Gold: "this market is setting itself up for a large move to the upside." But not tomorrow. 

 


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Bear Stearns Boogie Man Yet Again

Bear Stearns Boogie Man Yet Again

Courtesy of Mish

Once again a series of videos is making the rounds touting how evil short sellers destroyed Bear Stearns. I was asked to comment on this.

The video makes a bunch of assumptions

1. That whoever bought way out of the money Bear Stearns PUTs "knew" something and illegally acted on it.
2. The same institution that bought the PUTs was illegally shorting shares.
3. There is a conspiracy to protect those evil doers.

How The System Really Works

Fact #1: When someone buys PUTs the market maker or counterparty who sold them is short those PUTs. This is a mathematical statement of fact.
Fact #2: The market maker who sold the PUTs, shorts stocks as a hedge against those short PUTs.
Fact #3: The lower the share price, the more shares the market maker has to short to stay delta neutral.
Fact #4: Market Makers are not governed by naked shorting rules

The video alleges that it was the person buying way out of the money PUTs that was doing the shorting. The reality is the market makers who sold PUTs were most likely those doing the allegedly "illegal" naked shorting.

To stay delta neutral, the market makers were forced to short more shares the lower the price dropped. Also remember this happened with every PUT at every strike all the way down, not just on that batch of way out of the money PUTs.

It should not take a genius to figure out how easily this could spiral out of control.

Who Was Shorting?

It was probably Goldman Sachs, Citigroup, Morgan Stanley, Merrill Lynch or whoever sold the PUTs. Moreover, those market makers probably lost money shorting because of how quickly the stock plunged.

The irony is everyone blames the naked sellers for making a fortune by short selling when the PUT sellers lost more on the PUTs they were short than they gained shorting the shares.

Did Someone Know Something?

The video alleges that someone "knew something". Well someone did know something, and that something is what we all knew: Bear Stearns was not only the most leveraged of the large institutions, but also held the highest concentration of subprime mortgage garbage.

Also other institutions could see or at least feared a run on the bank at Bear…
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Stealth Bear

Stealth Bear

Courtesy of Tim Knight’s Slope of Hope

I did my usual routine yesterday, going through all my charts. I found 100 new opportunities, but it is still decidedly lop-sided. 73 of them are bearish, and 27 of them are bullish. And, I’ve got to say, the bearish ones tend to be large, widely-traded outfits whereas the bullish ones are these weird little firms no one has ever heard of. So, frankly, I’m not sure what components of the indexes keep finding the strength to rise. The real strength is in all the lame, scummy stocks – – not the quality end of the spectrum.

I did notice that there are several instances of sectors that Slopers were trying to short for a long time and, finally, just gave up on in disgust. The "casual dining" sector is a perfect example of this. Some here will remember how during the Spring we kept trying to short the likes of DIN, EAT, and other eating establishments, all while the stocks kept exploding higher. (The basic theory was that people were depressed about the state of things and wanted to shove low-cost, high-calorie food into their mouths; why else would anyone elect to go to a place like the International House of Pancakes?)

The funny thing is that, after people gave up on them, they did indeed start to fall. In fact, they peaked way back in April! Just take a look at this one:

0906-din

The graph may not look that dramatic, but the stock lost 43% of its value over the past four months. That’s the kind of "performance" I’d like to see from my shorts.

The point is that the vast majority of my shorts and my potential shorts look exactly like this stock did in April. What’s agonizing and frustrating is waiting for the damned things to actually break.


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How To Short Sell Penny Stocks?

How To Short Sell Penny Stocks?

penny stocksAdapted from a post by Timothy Sykes on Tue 21st of July, with a timely update. – Ilene

That’s what I do for a living, check out a recent guest blog post at INO.com.

"We ALL get the emails, “UOMO is going up big, buy today” , “If you’re looking for 3000% gains go long XYZ”…the dreded penny stock pump and dump! The pump and dump often plagues new traders looking for huge returns and veterans trying to play them along with the “pumper”. But it’s often very risky and millions are lost everytime the “pump” is on. But there’s one person I personally know (I was able to have a nice sushi lunch in NY with him) who trades the “pump and dump’s” and makes a KILLING doing it! You’ve all heard about him and his name is Tim Sykes. Love him or hate him, he’s one of, if not the best person out there for penny stock info and trading."  Brad of INO, MarketClub.

====================================================================
Timothy:  People often ask me what I do for a living and I love to see the look on their face when I say, “I short sell and write about hyped up and manipulated Penny Stocks

When I first started blogging in 2007, Investopedia said it was not possible to short sell Penny Stocks. They have since changed their minds now that my big mouth has been shouting at the top of my lungs, you can short stocks under $5, it’s not as risky as you might assume, but only if you know what you’re doing.

The key to my survival and success in a decade-long career in this greatly misunderstood niche has been to be wary of everyone and every company. Most people buy Penny Stocks thinking that they have a shot at turning a few hundred or thousand dollars into millions. Certain financial websites that title articles “The Next Million Dollar Penny Stock” look to take advantage of that.

I take it one step further, looking to take advantage of those gullible suckers as they fail to realize the odds of a $1 stock becoming a $100 stock, let alone a $5 or $10 stock, are horrific. Mainly due to the fact that ALL stocks trading under $5 are flawed in some way (that’s why their stock…
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Phil's Favorites

Peloton IPO Guide... And Why It Makes No Sense

Courtesy of ZeroHedge

By Scott Willis via Grizzle.com

BOTTOM LINE

At the end of the day, Peloton is a gym membership pretending to be a tech company.

We fully admit the product is exciting and unique in the market, but Peloton still faces the same problem...



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Zero Hedge

Peloton IPO Guide... And Why It Makes No Sense

Courtesy of ZeroHedge

By Scott Willis via Grizzle.com

BOTTOM LINE

At the end of the day, Peloton is a gym membership pretending to be a tech company.

We fully admit the product is exciting and unique in the market, but Peloton still faces the same problem...



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Digital Currencies

Buyer beware: How Libra differs from Bitcoin

 

Buyer beware: How Libra differs from Bitcoin

Recent revelations about the lack of privacy protections in place at the companies involved in Facebook’s new Libra crytocurrency raise concerns about how much trust users can place in Libra. (Shutterstock)

Courtesy of Alfred Lehar, University of Calgary

Facebook, the largest social network in the world, stunned the world earlier this year with the announcement of its own cryptocurrency, Libra.

The launch has raised questions about the difference between Libra and existing cryptocurrencies, as well as the implications of private companies competing with s...



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Lee's Free Thinking

Look Out Bears! Fed New QE Now Up to $165 Billion

Courtesy of Lee Adler

I have been warning for months that the Fed would need new QE to counter the impact of massive waves of Treasury supply. I thought that that would come later, rather than sooner. Sorry folks, wrong about that. The NY Fed announced another round of new TOMO (Temporary Open Market Operations) today.

In addition to the $75 billion in overnight repos that the Fed issued and has been rolling over since Tuesday, next week the Fed will issue another $90 billion. They’ll come in the form of three $30 billion, 14 day repos to be offered next week.

That brings the new Fed QE to a total of $165 billion. Even in the worst days of the financial crisis, I can’t remember the Fed ballooning its balance sheet by $165 bi...



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The Technical Traders

Is A Price Revaluation Event About To Happen?

Courtesy of Technical Traders

Skilled technical traders must be aware that price is setting up for a breakout or breakdown event with recent Doji, Hammer
and other narrow range price bars.  These types of Japanese Candlestick patterns are warnings that price is coiling into
a tight range and the more we see them in a series, the more likely price is building up some type of explosive price breakout/breakdown move in the near future.  The ES (S&P 500 E-mini futures) chart is a perfect example of these types of price bars on the Daily chart (see below).

Tri-Star Tops, Three River Evening Star patterns, Hammers/Hangmen and Dojis are all very common near extreme price peaks and troughs.  The rea...



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Kimble Charting Solutions

India About To Experience Major Strength? Possible Says Joe Friday

Courtesy of Chris Kimble

If one invested in the India ETF (INDA) back in January of 2012, your total 7-year return would be 24%. During the same time frame, the S&P 500 made 124%. The 7-year spread between the two is a large 100%!

Are things about to improve for the INDA ETF and could it be time for the relative weakness to change? Possible!

This chart looks at the INDA/SPX ratio since early 2012. The ratio continues to be in a major downtrend.

The ratio hit a 7-year low a few months ago and this week it kissed those lows again at (1). The ratio near weeks end is attempting to...



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Insider Scoop

10 Biggest Price Target Changes For Friday

Courtesy of Benzinga

  • Credit Suisse raised IHS Markit Ltd (NYSE: INFO) price target from $68 to $76. IHS Markit shares closed at $67.75 on Thursday.
  • Wedbush boosted Restoration Hardware Holdings, Inc (NYSE: RH) price target from $170 to $185. RH shares closed at $169.49 on Thursday.
  • Mizuho lifted Seagate Technology PLC (NASDAQ: STX) price target from $46 to $50. Seagate shares closed at $52.94 on Thursday.
  • UBS raised the price target for Weight Watchers Intern...


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Chart School

Crude Oil Cycle Bottom aligns with Saudi Oil Attack

Courtesy of Read the Ticker

Do the cycles know? Funny how cycle lows attract the need for higher prices, no matter what the news is!

These are the questions before markets on on Monday 16th Aug 2019:

1) A much higher oil price in quick time can not be tolerated by the consumer, as it gives birth to much higher inflation and a tax on the average Joe disposable income. This is recessionary pressure.

2) With (1) above the real issue will be the higher interest rate and US dollar effect on the SP500 near all time highs.

3) A moderately higher oil price is likely to be absorbed and be bullish as it creates income for struggling energy companies and the inflation shock may be muted. 

We shall see. 

...

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Biotech

The Big Pharma Takeover of Medical Cannabis

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

 

The Big Pharma Takeover of Medical Cannabis

Courtesy of  , Visual Capitalist

The Big Pharma Takeover of Medical Cannabis

As evidence of cannabis’ many benefits mounts, so does the interest from the global pharmaceutical industry, known as Big Pharma. The entrance of such behemoths will radically transform the cannabis industry—once heavily stigmatized, it is now a potentially game-changing source of growth for countless co...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

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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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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