What to do if you're invested

In light of the panic occurring in the markets, some have recently asked me for advice in terms of what to do if they've been invested over the last year. The simple answer is, if you haven't sold by now, today is definitely NOT the day to sell. Although as a trader, I understand that nothing is impossible with the market (including a quick drop to 8000), the metrics of this week's fall has reached historic proportions.

If you are an investor, my recommendation is to spend time researching and coming up with your "dream portfolio", if you do not already own it. Which, in my opinion, most people do not own, because most are invested heavily in mutual funds, which basically move with the indexes. I'm a proponent of active investing, as long as you're willing to do the work. In the end, you should have your own personal mutual fund when the dust clears. Owning a handful of fundamentally sound, growth stocks will seriously outperform any mutual fund or market. You may even find yourself ahead of where you were when the market was at the top!

Tips:
1. Avoid commodity related stocks. Oil CAN go back to $30 dollars, and it won't matter what OPEC does.
2. Avoid penny stocks or unknown small cap companies (the ones on sale right now are the names we all know. unprofitable small cap companies will always be around for you to play with later).
3. Buy a couple companies that are most likely to continue paying dividends.
4. I like China - big cap china names. (Notice how EDU has barely budged?)
5. I like Solar (although it remains to be seen whether they are traded as "commodity" related - if they are, then abandon ship)
6. Don't buy stocks just because they are down 80%, in fact, you should be buying stocks that have outperformed this crisis (down 15% for example). There is a reason for it. When the market comes back, they will continue to outperform and be the first to hit new highs.

What's going on?

The market appears to be in utter mayhem. As I've repeated time and time again, the more involved our government becomes, the farther we have to go on the downside. Never in history has a single move by the federal government correlated with the bottom of a market. The best way to interpret everything that's happening is: they have completely lost control.

In addition, I felt the short selling ban was probably one of the most foolish moves ever made by the SEC. In my opinion, it only caused the market to drop further. The buyers were basically playing cards with themselves. Short sellers were providing a great deal of stabilization in the market as they fell. And in fact, after tonight (short selling ban is lifted), I will make a near term guess that the market will finally show some signs of stabilization. The financials will remain the single #1 leader for the market at this time (up or down), and with the short selling restrictions lifted, we'll see. In fact, the market has gone nowhere but down since the day of the ban. Did you notice?

As I predicted months ago, Washington Mutual is now off the map (as well as a few others).
We also have some well loved sectors absolutely decimated (ie. solar, commodities). In fact the commodities sector will most likely go much lower from here. They have and always will be cyclical. Although I couldn't help but dabble in some FCX and RTP yesterday and today. It simply looks "too cheap". But always remember, it's not.

As far as the banks go, it's important to note that many of them have written down decades of profits in the recent turmoil. 30 years of earnings have now disappeared in the blink of an eye. When the government starts buying these assets, the losses will be sealed in stone. To be honest, I'm worried about Citibank. Who also happens to be the bank used by my broker. If citibank falls to below 10 dollars, I will most likely wire out my capital that day. Is it possible? YES! Especially with the Wachovia fiasco, citibank basically told the world that they might not be able to survive without Wachovia's deposit base.... scary.

The current fear in the financials resides in the fact that banks need to continue honoring capital withdrawals for daily activities of large corporations. It is entirely possible that a large corporation such as GE or Boeing could basically be unable to withdraw capital. Now imagine that there are tens of thousands of businesses worldwide who rely upon our banks to fund their activities. The commercial paper market has been dead recently, and large companies are not able to sell these short term securities as a means to fund operations. Thus the Fed announced they would begin buying commercial paper. This is simply not a good sign. Basically, if a large bank (ie. Bofa, or Citi) were to show signs of deterioration, and a few large corporations become panicky, we will see a CORPORATE bank run (moving hundred of billions in assets from the weaker institution to the "percieved" stronger), and a resulting failure leading to unimaginable consequences. This is NOT out of the question, given the current state of our financial system.

Notice the asian currencies are currently the strongest. More and more I am convinced that it is time to move assets to China. The RMB will continue to strengthen and earnings in US dollars are going to skyrocket, regardless of any slowdown. The spread between BIDU and GOOG continues to narrow. China's market has officially crashed, what better time to start picking some names?

Short Selling restrictions by the SEC

This may sound funny but what it worries me greatly that the SEC wants to impose additional restrictions on short selling. It almost confirms to me that the market will go much lower. Nothing can control a market - it moves on its own. All previous attempts to prop a falling market (ie, the fed, the economic stimulus plan) have not been successful.

On an unrelated note:
As I've mentioned before, I'm very wary of Washington Mutual as well, today we saw it go as low at $3.56. We saw IndyMac bank fail last week. The failure of WM will have much more of a profound impact, imo.

This is looking like more of a sharp rally within a major downtrend. I also mentioned in previous posts that we'd fall straight through 11,600 and we definitely did (all the way down to 10,800's). There was simply too much complacency. These rallies only serve to fuel a mindset that "buying the dip" will always be the right thing to do. However, any professional will probably understand how it will bite you in the end.

Right now, BIDU is one of my few points of interest on the long side. Their earnings report was spectacular, and China continues to impress in general during this earnings season. Although it's still important to be wary due to market conditions and also "expectations" for BIDU, i still don't believe it's impossible for BIDU to overtake GOOG soon in stock price (which means a > 150 point move up). GOOG disappointed us this time, yet BIDU impressed.

In addition, I was very impressed by ISRG's report... that company is seriously becoming a niche player with no competition in the robotic surgery market. Amazing uptake and recurring revenues. I can see that going to a new high above $360 a share if market conditions allow.

the BIDU and GOOG legacy continues

As we all know, GOOG missed earnings last week and got pummelled back down to around 470 now. BIDU also got taken down by the rest of the market but is holding up decently well just under 300 dollars a share. BIDU will be announcing earnings on Wednesday and a good report might just be the catalyst to take BIDU above GOOG's share price sometime in the next 3 months. We also have the chinese olympics coming up. But once again, it all depends on the report.

Market Troubles - careful now

Looks like we're heading straight back down to the lows of the year, in fact, the financial sector is now trading at the bottom reached on the Bear Stearns day. As mentioned earlier, Oil is going parabolic now, so remember it can go a LOT higher a lot faster than we can imagine in the near term. That also means the market could get rocked as well. Oil is rising even though the Fed has basically signalled that interest rates will probably not go any lower, and in fact, will go higher from here on out (the dollar has been rallying as a result). This is basically more fuel for the fire, that oil can go much higher here. Ouch. Near term, the bulls don't have much to rally on - so be careful out there.... Don't let the memory of a march through may rally cause you to buy, it's usually a trap. Of course, there is a CHANCE we are in a channel between 12,000-13,000 on the dow, but the financials doing so badly kinda makes those chances quite slim.

Washington mutual is trading at $6 a share.... SIX DOLLARS a share. Something is definitely up with WM. Like I've been mentioning repeatedly in the past, I don't believe Bear Stearns was the last casualty in this crisis. If a national consumer bank like WM were to go down, look out. I sure hope the FDIC has enough to cover us (not quite sure though actually).

Ok so here's the deal

Oil and commodities are going parabolic. I'm seeing insane moves in smallcap oil and energy names, ie PDO, etc. Usually this kind of stuff happens as we enter the final stages of a momentum group. Oil and energy has been rallying for years now. I don't think we are near the top price wise, but we are near the top time wise (over the next few months). When a sector goes parabolic it can spike higher than anyone can imagine. In fact, the most money can be made actually going long on a parabolic move because prices go vertical.

The broader market is getting hit by these issues but it's important to remember that commodities are always CYCLICAL. Oil going back to $35/barrel is not out of the question. In the near term however, we are going to be plagued by issues of inflation. The Fed simply cannot continue to drop rates in this environment, and will need to actually raise rates soon. The fact that the Fed minutes today showed that rates will most likely not go any lower but did not cause the dollar to rally or oil to fall (it actually dropped, and oil actually rallied) is quite worrisome.

Tomorrow will be a critical day. Sometimes the initial reaction to anything Fed related cannot be trusted, so we'll see if the market can stage a rally.

April Rally

The market has been doing exceptionally well, reacting to both good and bad news by moving higher. In fact, we are now up almost 1500 points on the Dow from the low set by the BSC news. As we now approach the 200 day moving average for all the averages, I expect a pause, as we digest these gains. I received calls from several people asking about the market in general recently, and explained that the market never behaves in an "expected" manner. The credit environment has not changed substantially, but I think the most encouraging factor in this entire ordeal is that our US dollar has actually rallied while the Fed has executed about $200 billion in TSLF's. Dollar stabilization in this type of environment, I believe has provided an underlying bid for the entire market.

Personally, I have been focusing my efforts on trend trading GOOG after the blowout earnings report. Today it finally hit 600.

On a side note, MA and V have been doing very well, which was unexpected for me. The only trading I did in these names was going long MA post earnings, and selling during the same day. MA hit 300 today. Overall, their relative performance to each other has been relatively similar. V is up from approximately 60 to 85, a whopping 41%, while MA has rallied from approximatel 210 to 300, or 45%. I still remain more bullish on MA than V, despite its share price. Ultimately I expect MA to greatly outperform V percentage wise. V is enjoying a great deal of post IPO hype.

For 2008, I still don't have a very optimistic view of our economy as a whole. Future earnings outlook has not been entirely bullish, and I believe we are in a holding pattern for another 3 months, when we get another round of earnings. Without the expectation of near term growth in earnings, i find it hard for institutions to become heavily involved in buying here. Without institutional support, we may see a steady drift lower. However, as a trader, I am always open to any and all scenarios that may occur. The most important thing to do is to recognize a trend and follow it, regardless of what kind of headlines you see out there.

Great Week for the Market

What a great showing for the bulls this week. As more earnings reports came in, they seemed to reaffirm that the end of the world is not at hand. Even with poor earnings from the financials, we're seeing recoveries (as in Merrill Lynch and Citigroup). Most impressive was GOOG, which basically destroyed any bearish thesis by proving that they were not suffering from a slowdown in paid clicks. Yesterday I told a friend when GOOG was at 501 that it could rally 100 points today, and it almost did. Next stop on the upside is in the 560 area.

Next up is BIDU's earnings report next week. The gap between BIDU and GOOG closed to an all time low yesterday, with BIDU at 327 and GOOG in the 440's. Today we are back at a 200 point gap. I still think we're going to see a closure, but not this week as expected. Earnings season continues in full force the next few weeks, we'll continue to see a lot of volatility. Have a great weekend.

GE earnings pulling us down

As mentioned before, no matter how well the market behaves, bad earnings and guidance will drag us lower, and currently the dow is down nearly 200 points on GE's earnings miss/guidance. Next week we have many more reports coming in and quite frankly I don't think they are going to be pretty. Maybe we'll price them in today, but long term I don't see a solid bottom here.

Market Consolidation

Looks like over the past few days, the market has been consolidating its gains. This is quite normal considering how volatile the environment has been.

Things to be aware of
1. Oil continues to go higher
2. Wamu raises 7 billion to remain above its required reserve ratio - Moody's upgrades outlook to "stable", for now.
3. Solar is still hot - FSLR just hit a new high yesterday of about 291+
4. BIDU continues to gain on GOOG

Earnings season comes in full swing in the next couple of weeks. I think the we've been in a holding period until we have more indications. If we find that companies reporting less than expected numbers continue to rally higher, it will be a great sign for the market. I expect that we'll see a large move in the market soon, due to the recent limited volatility. Short term, it looks like we want to go higher, but it's important to maintain a balanced perspective.

Personally I continue to be wary of any positive momentum we see here, however. Our financial system remains caught in a liquidity crisis, and I don't believe that recent moves by the Fed can truly repair the damage so quickly (repercussions will follow). Credit has been and will continue to be the lifeblood of today's economy - the rapid loss of credit continues to bear down on every segment of society. Although we're holding up pretty well, the data continues to be bad. Remember that stocks are moved by earnings and guidance. No matter how oversold we might be and no matter how "calm" things seem, bad earnings and guidance WILL drag the market down. What we're seeing here could be a flushing out of short sellers (as an anecdote, I'm seeing that a few unshortable stocks have become shortable, which means supply is back). Markets never bottom out because of short sellers, they bottom out because people truly give up on stocks. I haven't felt any sentiment of this nature since last August yet.

Back from a break

Apologize for the lack of posts - been very busy with other things lately. Still involved with the market however.

We've been rallying on no news/bad news, which is always a good sign. As mentioned before, the low set by the bear stearns incident and the ensuing rally was a signal for a possible bottom. We also had a couple of huge follow through up days, which is also bullish. Pullbacks have been on low volume. Overall it's "safe"r again to be on the long side in the near term.

We are seeing some major divergence between goog and bidu again, and as earnings approach, i'm becoming more and more convinced we may see share price parity between the two within a couple of months.

Personal Trading Goals

As this year progresses, a few goals that I hope to achieve include the following:

1. Trade with the trend and increase the time horizon (when we finally find a trend, that is).
2. Cut losses quicker - have a hard stop no matter what
3. Don't let winners turn into losers.
4. Do not allow greater than a 10% drawdown/month

In all this volatility, I've fooled myself several times this year into believing that there is a trend anywhere. As a result, I've turned huge winners into losses. The most important thing in this kind of environment is to truly have no belief as to a general direction, but to take profits when they appear.

My equity is ahead by 42% for the year, but I did scale back my starting cash level on 1/1/2008. However the disappointment is that I was actually up 60% earlier in February, and this kind of drawdown is not acceptable.

Today's Action

We gave back a large portion of yesterday's gains. As I said before, 2/3 scenarios were bullish and only 1 was bearish - which was what occurred. One important thing to note is that with the Fed rate cut over, there are few positive catalysts on the horizon for a while. Basically, if the shorts regain control of the market, the Fed may have finally run out of tricks. Buyers are going to have to show strength outside of fed intervention or this market will succumb. We're back to a wait and see mode.

BIDU Breakdown Alert

Bidu is on high alert for major breakdown - shorts gather round

UPDATE
from 238 to 230 in span of 30 minutes

UPDATE 2
From 230-220 with panic selling at the close. Thats a classic.

Market Update

The best scenario for the market is for it to hold yesterday's gains or to extend the gains even further. Risk reward therefore favors the bulls, as 2/3 scenarios are bullsih.

Update on VISA

A friend of mine yesterday (not a trader) told me V was going straight to 100 dollars today. It's fairly easy to gauge by these types of statements when the hype is overdone. If you look at the intraday chart, you'll notice that Visa opened up at 65 and proceeded to lose 10 dollars within an hour. Personally, I can only say that the company is fairly well valued at this price. Can it become overvalued (in otherwords, will the price go higher), it's possible, but if you've noticed recently, we aren't in that type of market right now. In addition, who is to say that MA is not overvalued in itself? Be aware of all scenarios. Overall, it was a good trade to buy MA in anticipation of Visa, but now that it's happened, it's wait and see. Don't ever discount any possible outcome (up or down).

Visa Update

I'm not sure how accurate this is, but it appears that the first trade might be in the vicinity of $60-$75/share for Visa. I'm currently long MA at 212.86 short term only (today is the culmination of what I expected to happen). I'm not going to touch Visa today though, looks like retail investors are a bit too giddy. Everything has finally come together as expected for the banks, however. The hype has allowed them to dump 406 million shares onto new investors without an issue. And what caused the hype - is MA's performance over the last couple of years.

We'll see where the opening trade is.

Update - sold MA at 215.5

Is it ok to buy stocks yet?

Ok. From the market's action in the last couple of days, I think we've finally hit at least a temporary "safe" spot. Here are the pros and cons:

1. The fed cut rates by less than the expected full point today (3/4 point) and still the market managed a huge rally. Although I'm not so sure how the 1/4 point cut on Sunday night plays into this. The market still managed a nice rally, and more importantly, the Yen came back to 100 yen/dollar. The dollar had recently fetched 96 yen, and even with the fed rate cut, the fact that the dollar rallied shows that we most likely overreacted to everything.
2. Yesterday we had probably the most disturbing news to date, which was the buyout of BSC for $2 by JPM. Still we managed to rally from the depths. If this couldn't bring the market down below support, what can?

Cons:
1. The PPI report was terrible today - it basically showed large increases in producer prices, while the CPI was flat last week. This MIGHT predict a general corporate margin squeeze.
2. This is STILL a fed rate cut induced rally, and as we've seen before, none of these rallies have sustained themselves in the last 8 months (although they have been quite powerful), we still managed to go lower. Will this one be any different, or will we head lower again in a couple of weeks? It remains very likely that we'll continue to hear more bad news every week, whether it be about real estate, banks having liquidity issues, etc. I'd like to see us rally on something NOT Fed related for a change.

With this, I have to hand it to the Fed. Although we like to bash them for any decision they make, they have taken quite an aggressive approach to dealing with our current credit crisis. This is in contrast to the Bank of Japan back in the 90's, when they underwent a similar, but far worse situation. The Bank of Japan pretty much sat on their hands while everything went downhill. We have an active Fed, and whether or not this will make a difference during this cycle will most likely become a solid lesson in macroeconomic management for many nations.

Overall, I don't expect us to move straight up from here, but it's possible that we might finally be able to buy on the dips for a little while. It will be important to see if we can hold another large rally tomorrow, or at least consolidate our gains and not lose ground. Keep an eye on those newswires!

Oh and on a side note - BIDU and many other China related names have most likely suffered relative weakness due to the recent unrest in Tibet. Tonight there was a resolution to the protest (protesters surrendered for leniency) so keep an eye on BIDU and the FXI.

Visa Prices at $44

Therefore the company is valued at approximately $33 billion. MA is currently valued at $27 billion. It's difficult to say how the market will react to this, but basically MA will follow V's lead tomorrow. If it pops big, MA will probably go with it. If V performs poorly, it could drag MA down as well. I personally continue to prefer MA in all instances. Quite often the "star" company in a sector continues to be the leader regardless of new issues that IPO. However, I'd still remain cautious due to the hype. MA had a nice rally today in anticipation of the IPO, and officially closed only a few points below its all time high. Overall, if you held on to MA throughout this entire mess, you woulda come out pretty well ahead of the pack.

Remember that there are 406 million shares being offered, and generally larger number of shares = larger overhead supply.

One thing to note is that this IPO is actually going to be very important to the market since many shares are actually being sold by member banks, whom we know are in need of liquidity. Couldn't come at a better time!

UPDATE
MA is trading fractionally higher after news of the pricing, which means that investors are not concerned about the valuation comparison. We can probably expect a gap up in MA shares tomorrow. How much of it is due to Cramer's buy recommendation on MA, I'm not sure.

Visa and Mastercard

okay, tomorrow Visa prices their ipo. I know a lot of people are excited about IPO's but I would give a word of caution here. The pricing of Visa at $37-$42/share, if it remains that low, will purposefully leave a lot of money on the table (they want a nice pop so it will "look" like a solid performer). I'm fairly certain that V will price higher, maybe around $48/share. I'm also fairly certain that it will be difficult to make any money on Visa because it will most likely open up at a premium price (maybe around 20-25%?). Now in regards to MA, it's very important to note that their valuations are going to be linked. If V does not do well, or prices low, it's very bad for MA. At the proposed IPO price of $39.50/share (between 37-42), Visa is valued almost equivalent to MA in terms of market cap. We all know Visa has much higher transaction volume and is the bigger company. This would imply that MA is overvalued and we could see a big drop in MA. Whatever happens, be careful. I personally don't recommend getting into hyped up situations. Yes, wednesday morning might be exciting, but more often than not, reality and valuations come into play and pour water on the fire. My theory was that MA would continue to be strong leading up to the Visa IPO. Essentially, it has sustained the downside we've seen in most of the financial names. At this point, now that the IPO is upon us, it's a good idea to "wait and see". Also remember that the markets in general remain in turmoil, so all the more reason for caution. I'll continue to post updated opinions, especially after the IPO prices tomorrow (the price is very important here).

Bye Bye Bear Stearns

Unbelievable how quickly something like this could happen to such a large financial institution. News is that JP Morgan will buy Bear Stearns at a much lower price than the $30 it closed at on Friday, and if the deal falls through, Bear will file for bankruptcy immediately. How will the market react tomorrow?

Another issue I think we need to be careful with is this: Last Friday's CPI number was flat. Although the market appeared happy to hear the news, it is in fact a very dangerous reading. What is worse for the economy than inflation? Deflation. Whether or not future readings will confirm the possibility remains to be seen. However, as mentioned earlier - corporate profits = CPI- PPI. With commodities prices surging, and demand falling, the corporate world could be in for a shock, as margins are squeezed.

Will be exciting to see how the market acts tomorrow as usual.

UPDATE
JP Morgan buys Bear Stearns for $2 per share. This reflects the incredibly uncertain nature of our financial system at this time. It's hard to believe BSC traded at over 68 dollars just 3 days ago, and is now locked in at $2.

This also reflects how incredibly fragile and reliant upon cash the banking system is. "Cash is King" has never meant so much. Sometimes we forget that all banks have a FINITE amount of cash, regardless of how much money the fed is willing to print. I continue to stress caution with respect to your own bank accounts. Washington Mutual continues to be on my watchlist for the next catastrophe.

Bear Stearns

This is seriously a big problem for the financial system. I don't see how the market could possibly hold up this afternoon going into this weekend, with something like this looming. I don't think anyone can predict how this will affect not only Bear Stearns, but a plethora of other institutions should they get into liquidity issues. What they are experiencing now is a classic "run", with all investors wanting to withdraw funds.

I still think we need to be wary of Washington Mutual as well. Which in my opinion will be much worse.

Oh btw,
1 dollar = 99 yen. Amazing

BIDU Wrecking on GOOG again

Gap is now 169 points. To put this in perspective, if I would have held my short on GOOG and held my long on BIDU back in January, I'd be up about 80 dollars per share on that trade. I'm pretty sure this is also historically the smallest spread between BIDU and GOOG.

Awesome Rally today

Amazing boost of liquidity by Fed. We're printing money now. According to Kirk, the market closed yesterday at the oversold bottom of the current bollinger bands, we were due for a snapback. I rode BIDU from 248 to 257 which a huge position and I'm out except for a few shares I kept just in case we finish a nice trend day higher.


The market today was being led by Bear Sterns BSC - it was one WILD day for those traders today. It took a huge dive from 68 to 56 intraday basically either
1. shakeout of overexcited longs from this morning's fed headlines
2. manipulation to allow a major player to cover their shorts in the market.

As BSC went, so went the market, and now that they've recovered back to 64ish, dow is up 360 points.

I expect BIDU to at the very least test 260, but I had to sell most of my position due to caution and wanting to lock in the profits. The recent market volatility especially in the last hour has been forcing traders to question every single tick, including me.

UPDATE
Sold the rest of my BIDU at 260.27

See you tomorrow!

BIDU GOOG Spread

More fun: BIDU gains another 14 points on GOOG - gap now down to 173 points between them. Was 187 points last friday. How far can this go? Pairs traders can't be happy with this one.

Washington Mutual

By looking at the stock - looks like it could be our first large national bank to go bankrupt. Not saying it will, but it's trading like a stock heading for bankruptcy. If you have an account with them, it might not be a bad idea to "diversify" your banks, at least until all this blows over.

News is, they are seeking an emergency capital infusion. I'm surprised this is not the big headline for the day. Jobs report was bad, but this could be much worse near term.

My assessment? It's probably going to be fine - 99% chance nothing happens. But we've seen enough black swans recently that all scenarios need to be given credence. Northern Rock was bailed out by the Bank of England right?

90% Chance Emergency Rate Cut Today

That was an unbelievably bad jobs report.

UPDATE

Couldn't help but go long a large GOOG position when the market had its early short covering rally. Final sale at 438.99 - out for now.

Market has now dropped about 140 points off the high.

For Fun: GOOG BIDU Gap currently 187 points, down from 190 yesterday.

Finally a tradeable trend day - and tomorrow...

We have the almighty jobs report. The dow is now back to near 12,000 flat, could the news tomorrow be the nail in the coffin? Things are looking very ominous now. No reason to be holding any longs tonight.

Even with a decent jobs report - tomorrow is friday, who wants to hold into the weekend?

Regardless, all shorts are covered and my account is back to cash.

See you tomorrow.

We haven't had a trend day in a LONG time

Looks like we might get one on the downside today for once.

More Losses

Thornburg Mortgage, which was considered one of the safest, announced massive margin calls on their losses, another casualty. In addition, UBS announced billions more in possible write-downs due to the sale of a large chunk of their Alt-A portfolio. This kind of stuff is going to be going on for quite some time. When will the market finally get tired of it and sell off in a big way?

For those who are interested in "investing" in well known companies, this truly will be a good year to stay out of the market in general. One way I look at it is this. Try to imagine what the financial headlines be saying at the end of 2008. We've been in a bull market for years. If there's any year for market headlines to agonize over losses across the board, it's 2008. At best, the market will be going nowhere, so why tie up hard earned dollars in this environment?

In this crisis of liquidity, the stock market is eventually going to be recognized as the last "storehouse" of dollars. Kind of like one big ATM. As more banks/investment companies/hedge funds receive margin calls on their non-equities investments, guess where the money's going to come from?

GOOG BIDU Divergence again

Gap yesterday 200 points
Gap Today 190

Pairs traders must be getting nervous

Over the last year, BIDU has outperformed GOOG by 150%. GOOG has now officially lost all of its gains.

Wouldn't it be funny if

The ABK halt is due to a ratings cut rather than capital infusion?

Update - so they've announced a common stock shelf offering - to raise 2 billion dollars, they would need to issue 200 million shares? If this is to retail investors - who's going to buy these securities?

Renesolar SOL

Funny stock symbol, but this is one I'd like to highlight. This is a recent IPO trading below its offer price of $13 (currently trading at $10). This one has mainly been kept under the radar. Part of the reason might be that it's already listed on London's AIM exchange prior to the US IPO, so some may regard it as not a "true" IPO. Even when it priced at $13, it was already at a discount to the share price in London. So obviously this is not a hyped company, and has been sold off rather hard. It's important to note that most of the solars have recently been trading like a broken sector (especially after STP's earnings disappointment). The reason why I'm interested in SOL is because it's scheduled to begin producing polysilicon sometime this year, with results of trials coming soon. Polysilicon, as we all know, is as good as gold right now, with prices of over $450/kg. That's why WFR (MEMC Electronic Materials) is holding up very well in this market, they are a major producer of polysilicon with very little competition. Practically none of the other chinese solar companies are currently able to produce their own raw material. Renesolar appears to be focusing its efforts on getting there. However, it's important to note that polysilicon production is an extremely difficult process and requires a great deal of technological expertise in order to produce high grade, useable feedstock. So in all honesty, it's still a longshot for this company to be able to truly succeed in this endeavor. Recouping the cost of building the facilities and engineering will most likely take quite some time. Another similar company hoping to begin polysilicon production is HOKU, and we all know that they are still waiting to finish construction of their facility.

The risks? It could be possible that by the time their operations come on line, the price of polysilicon will already been falling. The industry may not be as "hot" as it is now. There are many other companies working towards production as well, so there's the threat of competition. In addition, they may suffer multiple setbacks before being able to produce quality polysilicon. Also, any further selloff in the solar sector will most likely also affect SOL.

SOL states that sometime in the first quarter, they may be able to begin test production - any announcement could be a possible catalyst for this company. Other than that, the company is profitable and is growing at a rapid clip. This could be one company to keep on the radar.

Another ABK related short covering rally

The market managed to reverse almost 200 points of losses within the last hour of trading thanks to commentary on cnbc about a rescue plan materializing by tomorrow morning for ABK. Its amazing how much weight the market is giving to these bond insurers. The market seems misguided on the entire issue, but it's important to trade with the market, not against it. I was getting nowhere all day with my trades until I established a final large long position in BIDU at 238.5, and watch it rally almost 10 points higher in the last hour.

We'll see if any rescue plan materializes tomorrow, but I highly doubt they can fool the market much longer.

Btw, are you noticing the divergence between BIDU and GOOG? Is the catch up game starting? Rarely is the spread under 200 points between GOOG and BIDU, but we have that today. Pairs traders should be jumping on this opportunity to buy GOOG and short BIDU here. Will be interesting to see how this plays out.

Can't "Save" Citibank?

This morning a major investor and rescue funding provider Abu Dhabi headed by Prince Alwaleed stated that his multi billion investment in Citibank won't be enough to "rescue" the bank. There are several interpretations of such a statement, but they range from being ominous to downright catastrophic. The global financial system is in serious trouble and headlines like these are not going to slow down any time soon. The S+P500 is currently trading around 1320 - which is a huge support level - be careful around here.

What a week! And the mortgage mess goes on

On Wednesday, with the market recently completing a 500 point dow rally from Friday, I received a call from a friend who asked if the coast was clear to get back into the market. I explained to him that it was absolutely not a time to buy in, and interestingly enough we had a 450 point decline in the following 2 days. As I continue to repeat time and time again, the macroeconomic risks are absolutely incredible in our current environment. I simply cannot see how we're going to get through this mess without a HUGE government bailout, and even then, I still don't see how catastrophe won't ensue when the dollar gets tossed out with the trash.

Ambak, MBIA are only a sideshow here. The government states that they want to help facilitate housing price stability, by raising GSE caps and dropping interest rates. I'm going to say this now - they CANNOT and will not be able to achieve that goal. Monthly housing costs even at today's reduced prices are simply not affordable to 85% of Americans who work 40 hours a week and make between $15 to $30 per hour. And even in cases where it may be affordable, it simply doesn't make sense to devote such a large percentage of monthly income to housing payments. Even rental costs are pushing the average individual to the limit. No matter how we slice and dice the numbers, they just don't add up. Over the last 7 years, housing prices have more than tripled, or gone up 200%+, in overheated areas. Monthly mortgage payments have therefore risen over 250%. To put this into perspective - my monthly salary has risen only about 25% in the last 5 years. Never in history has housing required such a large chunk of our monthly income.

The fallout from this situation? Foreclosures and defaults will continue to roll in. Therefore rescuing ABK and MBIA by providing a few billion dollars of liquidity is not going to work. Warren Buffett himself is unwilling to touch mortgage related issues. He recently referred to mortgage assets as "toxic paper". Quite frankly, it's only a matter of time before Moody's or S+P cuts ABK and MBI's ratings. But to be honest, their demise may only be foreshadowings of even greater disasters to come. Hundreds of billions in writedowns are looming. If even high-grade AAA rated TAX FREE MUNICIPAL BONDS (close to the best of the best) have not been able to find a market in this environment (as in the Auction Rate Securities Failures), what are we to make of the trillions held in mortgage backed assets?

Doing taxes as a Trader

Is definitely more work - spent the last 2 days working on my Schedule D. Looks like the market is as volatile as ever. I think we finally got enough bad news to drag the market lower this morning. For a while it felt like bad news = good news for the market! Also, it's important to note that usually, prices move enough in a direction to cause everyone's sentiment to turn, then it finally goes the other way. It tends to frustrate the masses emotionally, and that's why investing/trading is so difficult.

Tuesday Feb 26th, After Market Close

We have another rally today in the markets sparked initially by IBM's buyback announcement early in the AM. I was able to do pretty well with a large long position in BIDU at 231, closed out at various prices above 239. My final sale was actually 241.62, which I am happy with, as one of my goals this year is to truly attempt to capture a larger portion of a move. Near term, the market SEEMS overbought, especially given the current environment, but I would not be surprised to see the market consolidate the recent gains tomorrow by trading fairly flat, rather than fall or rise precipitously. Tomorrow we have durable goods at 8:30 am ET, new home sales at 10:00 am.

See you tomorrow

Intraday Reverse Head + Shoulders BIDU?

The chart for Bidu this morning is looking very interesting - s

Bond Insurer Rally and the Housing Picture

We ended the day with another rally off positive news for the bond insurers ABK and MBI. S+P reaffirmed their AAA ratings, allowing them to stay in business, and temporarily aiding the value of bank-held mortgage assets. After Cramer made his statement a few weeks ago on the importance of the bond insurers to the overall health of the market, any news on the group has tended to cause a large market reaction.

My personal opinion is that all of this remains a side show, but we must continue to respect the market, and the majority of participants who also place credence on such news. The fact that the market is rallying off any signs of improvement in the bond insurer picture shows that we've been pricing in the worst. The next piece of news will most likely be the much talked about $3 billion bailout for ABK - and I also expect another rally when details of this deal hits the wires. In addition, will Moody's have something else to say about the insurers this week as well?

The housing market remains the most important unknown factor in the entire equation. More importantly, the default rate amongst mortgages will be watched closely. As more defaults come in, the credit ratings of our beloved bond insurers will continue to be threatened. Most don't believe that we are anywhere near the end here. The story remains that if housing prices don't stabilize, more and more homeowners will be worn out and forced to short sell or simply walk away. I personally think that housing prices will need to reach a point where the monthly cost of a 30 year fixed mortgage with 10-20% down is similar to the cost of renting for the same property (after tax benefits are included). The rental market is a much more fluid and dynamic environment which more accurately depicts what is truly affordable to the general public for housing. In overheated markets, there continues to exist a large gap between rent and mortage costs.

Wikipedia - US average PRETAX household income here:
http://en.wikipedia.org/wiki/Household_income_in_the_United_States
It appears low, but the median household income is $48,000, the top 20% > $88,000 (where most homeownership lies), and the top 3% = $155,000.
The median home sales price in 2007 is around 300k.

Another wildcard is the economy. In periods of recession, rents actually may go down, as individual housing budgets contract. In addition, we must pay attention to interest rate trends, as well as the availability of a 20-30% downpayment from homebuyers. The current credit crisis has drastically cut the lending environment from which buyers can qualify, basically leaving a gaping hole between would be buyers and sellers.


So what's next for the market? I continue to have a negative bias based on macroeconomic risks, as positive catalysts will be fewer and farther between as this year moves on. If and when the market breaks lower, I suspect we may not actually need a major piece of news, it will occur as a technical plunge. It's difficult to even call the market oversold at this point either. The outlook for even great companies such as GOOG or AAPL has noticeably deteriorated after their recent earnings reports. However it's important to trade with the market, and I suspect we may have some "collateral" upward movement in the market for now. Tomorrow we have the Core PPI and Consumer Confidence numbers. I think with last weeks' reaction to the CPI we will need to pay closer attention to these numbers. Remember that CPI-PPI = corporate profit margins. See you tomorrow!

Mortgage Rates and Auction Rate Securities

A lot of people have been pointing out that mortgage rates dipped to 5% after the rate cut and have now moved back into the 6%+ range. We recently had CPI numbers which showed inflation is running at over 4% year over year. Regardless of the Fed rate cuts, with inflation heading higher, it's difficult to imagine banks being willing to lend when the returns may not even match the inflation rate. The way the dollar is going, and with costs for food and energy rising as they are, it's doubtful that prices will stabilize anytime soon. We are due for more rate cuts at the next Fed meeting - (they are expected to cut another 50 bp). If rates go anywhere near 5% again, it's probably a good idea to take advantage of it ASAP. The economy and the financial environment is definitely changing for the US, and historically low interest rates may not be around much longer. It's important to remember that there was a point in time (in the 80's) when mortgage rates were 18%! Things were different back then, but it certainly illustrates the point that we've been living in a euphoric "goldilocks" economy for a while now.

Another big item on the headlines recently are the lack of a market for Auction Rate Securities (ARS). I think they are undergoing a fire sale and if you have cash around - like a lot of hedge funds, they are making a quick killing in this market. They are actually great investments, but the lack of liquidity is leading to some panic selling in secondary markets by owners who need their cash. Most of these are municipal bonds which are also TAX EXEMPT, and many are paying an extremely high interest rate at this time due to the illiquid market. I wish I had that much free cash around.

Friday, Feb 22nd After Market Close

Nice rally on the Ambak bailout news at the end of the day. I somehow had a feeling the market would rally its way out of the mess again - I was short BIDU most of the day, and managed to capture most of the profits by covering before the runup. And so we escape again. We'll see how it all plays out next week - we've yet to see the market rally without "news" - so I think we're still heading lower in the near term.

A bond insurer bailout by the banks kinda resembles bucketing the water out of a leaky boat, at best a temporary reprieve. But no matter what your opinion may be, when it comes to trading it's important to respect both sides of the battle. See you next week!

Friday, Feb 22nd Morning Update

Something tells me that we aren't going to retest the lows - we're going to blow right through it. This market is far too complacent.

Thursday, February 21st, After Market Close

The market sold off pretty nicely today and proceeded to erase yesterday's gains. A bad report from the Philly Fed index was a possible catalyst. RIMM was in play today after providing upside subscriber growth numbers, but was not able to make any headway given the market's malaise.

Some out of the money puts are probably a good bet right now. I'm considering buying some for AAPL, maybe the 110's.

VDSI was wiped out today after missing earnings. I went ahead and opened a long position at 11.39 at the end of the day. The company has heavy institutional and insider ownership, and this MAY finally be the bottom for this one. I've been watching this one for a long time and have been waiting for a buying opportunity like today. This is still considered knife catching, by the way and the risks are still high considering the selloff.

See you tomorrow!

The Buy Side Thesis

It has been interesting to the resiliency in the face of all the current market turmoil. As I mentioned previously, although I'm generally bearish on the market, it's good exercise to consider the other side of the coin.

True buyers (excluding short sellers) must have a thesis for their position. In light of the subprime mortgage mess, the credit crunch, and the fact that most of the nations banks have now written down practically all earned income from the last 8 years, the market appears to be holding up well. The homebuilding sector has been paradoxically rallying hard for most of 2008.

Here are a list of reasons to buy here:
1. Interest rates are low and will most likely continue to head lower.
2. Therefore, cheap capital is available.
3. We ARE or WERE in the midst of a global economic boom, until last August apparently.
4. Recent blips in the economy are more a result of the credit crunch and perceived fear by lenders due to the subprime mess rather than actual deterioration in all other parts of the system.
5. Housing will stabilize as greedy speculators are flushed out
6. There's more to the economy than housing, and frozen lenders will hate to miss out on major lending profits - given the atmosphere of low interest rates and cheap capital.
7. Lenders will therefore start lending again, only this time with higher standards, leading to better quality paper.
8. IF we are still in the midst of a global boom, the financial sector on a forward basis is CHEAP.
9. In other words, we've "fooled" the fed into cutting rates and we're at the beginnings of another boom.
10. Many players are net short - more fuel for the coming fire.

Tuesday, Feb 19th, After Market Close

Looks like the market finally succumbed by the end of the day. I was able to do pretty well with a large short position in BIDU, which I closed out at the end of the day. The nasdaq was underperforming the entire day.

Tomorrow morning we have the CPI report. If the numbers come in nicely, the market might find some support as it will continue to "allow" for more rate cuts by the Fed. However, even if the inflation numbers come in poorly, I don't expect a huge market reaction, as the Fed is currently more focused on the economy rather than inflation.

Overall, still can't find a good reason to buy anything here. Possible positive catalysts/support I can imagine are:
1. Announcement of major investment in the US financial system by sovereign wealth funds overseas.
2. Large short positions in general providing support during squeezes
3. A large merger deal from last year actually going through
4. Improvement in the housing market - large number of actual completed refinancings

Reasons for fear?
1. INSOLVENCY of any nature, and resulting direct government bailout announcements
2. Further write downs
3. continued economic deterioration as evidenced by data


Bonds have really sold off lately - but the question remains whether or not this is merely a temporary reprieve in sentiment, as we prepare for further downside in the equities markets.

Where are the buyers coming from?

In the midst of all the horrors plaguing the market, somehow we still manage to rally. This is a good time to truly examine all the catalysts driving the market higher or lower. I personally feel there is no where to go but down, but the most important thing to understand is that our personal opinions do not matter whatsoever. The market will go where it wants to go. I'll probably do some research on any possible positive catalysts coming in the near future later today.

Trade Trade Trade

I apologize again for the lack of posts. Most of my trading over the last few days has been comprised of countless minute by minute long/short scalps. BIDU and FSLR earnings definitely provided some excitement. When the market clearly has no trend, this is the only way to trade.

Overall, still quite bearish on the market in the near term. Just can't think of any catalysts to truly buy even for a short upswing. Warren Buffett offered to take over municipal bond portions of the monoline insurers portfolios. Well gee, if he were to take that, what would they be left with? Municipal bond insurance is the best paper they've got. The market rallied off the news, but lets get real here. The monolines are toast without a serious bailout of the bad mortgage paper.

A lot of people have been asking about investing in the "cheap" financials - all I can say is, avoid avoid avoid. When investing - there isn't any reason to join a crowd of unhappy people (most likely you'll get into a scuffle). Wait for an absolute meltdown before getting interested in these names. There seems to be no end to the bad news. Lets wait for something big to happen before getting in - for example a large US bank going bankrupt - causing a market meltdown.

Feb 11-15th, The Coming Week

From recent market action, I'm not too optimistic about the coming week. It's difficult to see how we'll avoid a retest of our panic lows of a couple weeks ago. We've got a number of economic reports this week, including retail sales/business inventories on Wednesday which will probably carry a lot of weight. We've also got industrial production, capacity utilization, and preliminary Michigan Sentiment numbers on Friday, not to mention options expiration. Personally, I would avoid "investing" in anything here until I see that the market can demonstrate strength in the midst of bad news. I would call it "market sensitivity". Currently we're in an ultra sensitive state - any bad news can lead to a precipitous drop. Eventually the market will become "insensitive" to further bad news, representing "priced-in" risk. So I'd pay close attention to economic data and resulting market reactions over the next few weeks. Once the market can shrug off bad data, or even move up, it's probably safer to assume that we've found a short term bottom. You can find a list of upcoming economic releases at most financial portals, including finance.yahoo.com.

Speaking of Yahoo - it will be interesting to see the market's reaction to YHOO's rejection of MSFT's $44 billion bid tomorrow morning.

Importance of a Balanced View

One of the most important lessons to learn in trading is to always maintain a balanced view. In the development of a trader, I think it's ok to be "bullish" about certain equities, but one must always remember to ask "what could go wrong with this picture?". If you've noticed, whenever I express a positive opinion on a certain stock, I always try to also provide the downside scenario. If, as an investor or a trader, you cannot come up with at least a few downside risks to each long investment you make, you're probably being overly optimistic, and should your investment lose value, you're more likely to hold onto it instead of respecting stop losses and admitting defeat. There simply is no such thing as a "sure thing" in the stock market. Buyers and sellers exist for this exact reason. In fact, stocks are bought and sold whenever the buyer believes that there is no further downside, and the seller believes there is no further upside. That means that when you buy a stock, the individual who sold it to you has a completely opposite opinion!

In the early days of my trading career, it was very easy to become attracted to "hype" and "news". I can't tell you how many "hot" stocks have turned into major trading losses. Nowadays, I generally approach both hype and news with extreme caution. In fact I prefer to avoid trading names with recent news, as it tends to throw a wrench into the natural movement of a stock. Whenever "news" is out, it's important to objectively analyze its contents, and ask difficult questions. Skepticism is a necessary trait for successful investors. I think it's common for many to wake up to CNBC in the morning to find the big premarket gainers, usually due to an "analyst upgrade", "positive preannouncement", "successful clinical trial", "exciting new product/alliance". It's important to realize that such announcements are enticing new investors to trade stocks in which they have no prior experience, usually a recipe for disaster.

I believe it's important for traders to understand and participate in short selling. Although it is true that short selling has its own types of inherent risk (unlimited losses, brokers may force cover, etc.), a trader who is able sell short as well as buy long maintains a more balanced perspective. Permabulls (those who only initiate buy orders) are always disappointed when they miss a market rally, or whenever a stock moves higher without them. They find it hard to understand that markets can move down beyond their expectations. Permabears (short sellers only), the opposite. A true trader, who is able to employ both tactics, sees opportunity in all market trends. The market inherently moves up and down, but having a one sided bias leads to a great deal of confusion and inflexible behavior which is never good for any trading account. Many professional traders actually reverse directions completely in the course of a trade (after buying a stock, selling it for a profit and going short, and vice versa.) Always strive to maintain a balanced perspective.

Friday, January 8th, Morning Update

Apologize for the lack of updates. Once again, work has been incredibly busy and I haven't been able to stay involved as much as I'd like.

Quick update - I sold ICE at 123 yesterday, from the purchase at 117. It went a lot higher, but thats the way the market goes. CME also rebounded as much at 60 points or so. I was able to catch some of the upside but mainly stayed on the sidelines, as I usually don't trade CME. Don't play with what you don't know.

Things are not looking to good right now. I continue to reiterate that we are running out of catalysts to prevent a retest of our recent lows. It seems persistent short covering is helping the market stay afloat, but how much longer will this environment hold? Yesterday was probably the most manic depressive day I've seen in the market in a while - green and red all day. Eventually one side will need to give. We'll see how it turns out. If you're a long term investor, there is absolutely no reason to get involved here. Next week is options expiration.

This morning, I sold BIDU short at 236.75, covered at 231. Thats probably going to be it for the day.

CME down $103

It may seem like the end of the world for this stock, but percentage wise, about 17%, since it closed at $588 yesterday. As I mentioned previously, you can look at it as a $58.8 going to $48.5 or a $5.88 stock going to $4.85. When you see those numbers some of you will probably notice that you've seen many $5.88 stocks go to $4.85 fairly regularly. Whereas the $103 dollar drop in CME will probably get the headlines. This is the dangerous volatility I generally like to avoid in low priced stocks.

My personal opinion of CME's fiasco? I think even if they were asked to keep their clearing business separate, it would definitely lead to a decrease in overall margins over the long haul, but there are most likely a number of options available. And that's only if the DOJ letter even leads to a formal action, which could take years. Even in a worst case scenario, CME will probably need to sell their clearing business which could unlock a great deal of value.

As a side idea, I would look at a little known company named PNSN (Penson Worldwide), a pureplay clearing firm. They just beat earnings nicely and was up about 20% today. The CME news might just spike some interest in this long beaten down company.

CME ICE NMX

Major drop in the exchanges due to news that there may be possible legal action to disallow the ownership of clearing houses within the exchange, due to blockage of competition. I think the exchanges are a buying opportunity here, as I doubt this will actually come to pass. They are down about 7-10% today, but caution is warranted, due to the size of the fall.

Update
I'm in a very small position ICE at 117.25

Tuesday, February 5th, After Market Close

The market fell fairly dramatically today due to the ISM number. I think as I've reiterated before, the market will continue to be ultra-sensitive to economic data. In addition, it's good to remember that fed rate cuts will not be there to save the market every time something like this occurs.

Some of my favorite stocks are now back in discussion after the plunge today:

ICE closed at 124.65. As explained previously - even companies marked for a buyout can continue falling if market conditions are bad. We have news out after hours that BHP Billiton is offering 3.4 shares for each share of Rio Tinto. Once again, I think the lack of a cash component in many buyout offers we're seeing is troubling. However, what else do we expect in this liquidity environment?

EJ is now at 17. Btw, they priced a secondary offering at $17 (7 million shares I believe). These shares will be available for trading "on or about february 6th" according to the prospectus. Most of the proceeds will be going to the company for continuing operations, which is a good thing. They will most likely have a blowout quarter, as they preannounced back late last year, but this is expected. For those of you who have had experience with secondaries, one common scenario is that a stock will fall in anticipation of the shares coming public, but in fact finds a bottom via this process and moves higher after the offering is complete. I am a bit disappointed that they had to price the secondary at $17, given that the stock had risen above $30 last year. Many investors find it bearish that they opt for a secondary at a time when their stock price is low, because it might reflect a "need" for the cash. (Why now, do they anticipate the stock to fall further?) Their balance sheet "looks" great after the secondary- they will have $384m in cash, or roughly $4/share. We'll see how this one plays out, but once again I am a long term bull on this one. I don't think the China real estate story is over yet, I think the bad publicity from the troubled US housing market might just be giving us an opportunity here.

MA closed at 206.8 after having risen as high as 222 after earnings. This one will continue to be hammered whenever we have bad economic data, as many investors view MA as highly dependent upon the strength of the economy.

Tuesday February 5th, ISM bomb

Apologize for the lack of updates. Work was extremely busy yesterday.

As mentioned last friday - the market was in overbought territory, and we're seeing an expected pullback.

ISM was released earlier than expected this morning, and came in at 41, a much worse than expected reading. Very interesting reading - not sure if it's accurate, but the market is using it as a good excuse to take profits.

Another volatile day. Eventually the market will stabilize, but meanwhile traders are making the most of it.

GOOG is showing some relative strength today. It has dropped over 250 points in 1 month, and "looks" oversold. Don't know if the market can recover from the bad data, but if it does, GOOG could rally quite nicely.

Friday February 1st, After Market Close

Another wild day in the markets. After reversing my trades on BIDU and GOOG in the morning, I actually went long a large position in BIDU at 265 and sold 2 lots between 272 and 273 for a sizeable gain. I also have established an entry long position in EJ at $18.28. Overall this has been a great week for trading.

Near term - we need to understand that the market has had a strong rally this week. On the positive side, we've seen somewhat of a broad rotation out of technology (+3.7% on the Nasdaq 100) and into the financials (+4.8% on the S&P), as evidenced by the outperformance of the beaten down financial sector. Even with the gains in the NDX, looking at the leaders, you would wonder where the gains are coming from, as GOOG, AAPL, RIMM, AMZN remain fairly beaten down here. On the more bearish note, the gains in the S&P should be expected, given that interest rates fell 125 bp in less than 2 weeks. In fact, you might argue that they have not rallied as much as they should have. In addition, many names are now either brushing up against or have just rallied past their 50 day moving average, by spiking through the 5,10, and 20 DMA. From intraday low to high, the Dow has rallied over 1100 points. It looks as though the market could be due for a breather. I think many of the shorts have probably given up at this point and this may be the perfect short entry if this market is to continue downward.

Volume wise, we actually had some decent volume in the last 2 days in the financials.
Overall I would be careful here if I was long this market and have a short term trading perspective. In bear markets, if you look back in chart history, there are very sharp rallies but ultimately they fail. The environment remains treacherous and I would not be surprised to have some nasty headlines come out before the market opens on Monday. Be careful out there and have a great weekend. I'll probably be back with some thoughts if time permits.

reversed

haha had to reverse bidu goog trade - price not supporting

Riskiest trade here it goes

Long BIDU, Short GOOG - going to test the longshot. BIDU has a much lower float than GOOG and today is as good as any day for the thesis to play out. Will reverse this trade if price action doesn't play out...

This is probably the riskiest trade ever, because the "correct" thing to do is buy GOOG and sell BIDU.

On a correlated pair like BIDU and GOOG, it's extremely difficult for them to break out of the correlation. There are programs written to trade the pair and maintain the spread. But when it is broken, it can pay off big. I would say I've got less than a 10% chance of this working out, and it may be too obvious and too soon for this to play out today.

Friday, February 1st, Amazing Morning Premarket

Absolutely incredible
1. MSFT's $31 buyout offer for YHOO - a 60% premium
2. CNBC states group of banks looking to bailout portfolio insurers.
3. Futures up massively
4. Jobs report comes and -17k vs 70k ouch - however prior was revised to 82k vs 18k

Funny how I mentioned BIDU vs GOOG last night, didn't expect the YHOO catalyst to take a step so quickly in that direction - BIDU was trading as high as $300 this morning +$20 on the buyout announcement, while GOOG traded in the $518 range, down greater than -$40 on missed earnings.

We've got another wild day coming up.

Thursday, January 31st, After Market Close: BIDU GOOG

What a day. We had a massive rally due to positive commentary regarding the portfolio insurers. GOOG misses earnings after hours and ISRG soars.

My longshot personal theory is that BIDU will overtake GOOG in stock price some time this year. Chances are slim but you learn eventually that anything can and will happen in the market. The catalyst might be BIDU's earnings report coming on February 13th. Remember, marketcap wise, BIDU is a $9.5 billion dollar company. GOOG is $170 billion - approximately 18 times as large. If BIDU can prove that it continues to grow at a much faster clip than GOOG, even at $500 a share, BIDU is still valued at 1/10th of GOOG's market cap. Understandably, revenue estimates at BIDU are about $500m for 2008, while GOOG's revenue is almost $17 BILLION, almost 34 times a large, so definitely there is some catching up to do and valuation is definitely the biggest risk factor here. However, BIDU's is estimated to grow at twice the growth rate of GOOG, and may still be accelerating, while GOOG's slope may finally be coming down a bit, as the US becomes saturated. China's internet user base is still in its fledgling stages as a proportion of population, and BIDU's search capabilities are still preferred by the chinese as BIDU continues to gain marketshare. This will continue to be an extremely interesting story to watch.

MBI ABK and Update

Seems like they are the heartbeat of the market right now.

I couldn't resist picking up some ICE this morning at 132.42.

UPDATE
Out ICE 138.01 +$5.59

Looks like we're having another "delayed" FOMC reaction haha. We'll see if it can hold. Continue to hear positive comments on MBI as well.

Update

Out MA 205 +$8. Amazing - will probably move higher today but had to take the profit.
Still Holding GOOG, BIDU, FMCN - will most likely exit FMCN and BIDU early.

UPDATE
Out BIDU 350.51 -$-1.61
Out GOOG 338.25 -$.57
Out FMCN 44.13 -$.22

The MA gains well surpassed the losses, must be nimble on a day like this. We also have the PMI report due out.

Thursday, January 31st Premarket

Ouch on the initial claims - 375k vs 319k. Dow futures plunge 100 points on the news. Picked up some MA $197 on the dip. MA blew away earnings as usual. Another volatile day coming up.

Also, MBIA announces $2.3B in write downs and worse than expected loss.

Wednesday January 30th, Evening Update

Should've held the AMZN puts, but I make it a rule not to be net long or short before an earnings report. I picked up some GOOG at $538.82 average after hours due to the AMZN mess. I also picked up some BIDU at $252.12. Was able to grab some FMCN at 44.35. All are going to be overnight scalp trades for tomorrow morning. Near term I'm bearish on all of them actually.

We have GOOG earnings tomorrow night. Also ISRG, which has recently suffered a fairly massive selloff. I like the company due to its proprietary technology, but it seems the market is taking anything with a high valuation to the woodshed. AMZN had decent earnings and guidance, but still sold off.

We have some economic data tomorrow morning so watch out for that. Otherwise, I'm curious as to whether we're going to see another delayed FOMC reaction like we've been experiencing (fall on the rate cut first, then rally). I must say that even though the 50 bp cut was largely expected by the market, I'm still actually glad to see it happen!

Was so busy trading BIDU after FED

Did not initiate the AMZN straddle. I had some of the $70 puts but sold them at the closing bell for a tiny profit.

Wednesday January 30th, Morning

The GDP report had a limited effect on futures. The market is mainly waiting for the Fed meeting and I expect to see a 50 bp rate cut. How the market reacts is still going to be interesting, as this is largely expected.

Tonight I'm looking to play the AMZN earnings report by using options to obtain a Straddle position. With most Fed meetings, we get a whiplash effect after the announcement is made, so hopefully I'll be able to pick up some cheap puts when the market rallies, and some cheap calls when the market drops. As always, depends if the conditions are correct - if I don't see any opportunity to establish both positions I won't be participating at all.

Scoring Big is BAD

I'm sure a lot of traders would respond to that statement with a "what are you nuts??". I will repeat - going for the big win and scoring massive profits is NOT good for trading. But let me clarify that.

I can tell you for a fact that many "traders" score big one day gains, by taking oversized positions outside of their normal trading routine. I've experienced that a few times myself. But in the early days of my trading, I would generally find a way to end up trading away practically the entire profit within a short period of time. The reason for this is that generally speaking - for novice traders, a big score only creates a false sense of confidence, often leading them to scale up their trades and lose all sight of risk management in subsequent positions. I'm sure many of you can completely identify with what I'm saying. In fact, I would even go so far as to say that any trader that in the course of a normal day ends up making an enormous profit 5-10x beyond their "average" daily gain is NOT managing risk well and will most likely blow up. I encourage traders to actually be concerned whenever they see such a large (yes, even positive) fluctuation in their portfolio.

As I continue to reiterate time and time again, trading is not a game of playing the lottery. CONSISTENCY and the ability to crank out an expected gain with each trade. If you find that your trades constantly take your portfolio to unexpected levels (up or down), you're probably taking positions too large for your trading tolerance.

Make your trading boring. The best traders will tell you that trading is a boring activity. They see setups come and go all day long and will even pass them up on a regular basis. The only way to make trading boring is to take positions of a small enough size. This is the first step. As I read in a book by Jesse Livermore, if you're having trouble sleeping due to the size of your positions, "sell to the sleeping point". That point is actually quite distinct for each person depending on their individual capitalization, etc. Make yourself comfortable in the market. If you're in the market to "have fun", be prepared to lose.

Jesse Livermore was a great trader back in the early 1900's. He made $100 million in 1929 by shorting the market during the crash. It's hard to imagine how much that would have been worth in today's dollars. However, within 20 years, his wild trading led him to lose the entire amount. His life ended when he shot himself. He obviously did not follow his own advice. If you ever get the chance to read his book "Reminiscences of a Stock Operator", you will notice that his method of building astronomical positions placed him in extremely precarious situations. By the way, if you'd like to read his book, do a search for "Jesse Livermore" at http://www.wikipedia.org/. I think the book is free. It's an intriguing read, but I beg to differ when it comes to his trading style. However, the book is filled with amazing insights into the world of large traders.

"Big" gains and "big" losses are one in the same. They have no place in the portfolio of an experienced trader. There are a number of people who have recently blown up their portfolio with the hiccup we experienced last week. You often hear of a trader suffering a big loss and then subsequently go "all or nothing" in an attempt to recoup their losses. And we know how that can turn out. Large positions tend to give rise to larger positions and so on. When you score "big", ask yourself - how did this happen? Were you trading within your limits? Often you'll find the answer to the question is no.

As a note of encouragement to anyone who experienced major losses last week: Even if you suffered a major haircut in your portfolio, you will be surprised just how quickly small, consistent gains can add up to big gains in a very short period of time. Make your trading boring - it's a good thing. In fact, it's probably the only way to stay around. Unfortunately many traders do not survive this part of the learning process.

GOOG out at 545 +$3.75

Also went in multiple buys average BIDU 261.19 out 263.26 +$2.07.

Cautiously bought GOOG at 541.25 After YHOO Earnings

I didn't see anything in the YHOO press release regarding a slowdown in the internet used as an excuse for poor performance. But the conference call is still upcoming so I'm looking for a scalp trade again.

YHOO Earnings tonight GDP Tomorrow

So all traders who are holding BIDU, GOOG be aware. I have a feeling YHOO will trade up tonight after earnings, but if it drops for any reason, watch the announcement. If they announce any type of apparent slowdown in internet usage due to the "economy", the internet sector could get rocked. I'm sure today's selling in GOOG and BIDU are reflecting some risk reduction ahead of YHOO's earnings.

Also GDP is tomorrow - 8:30 am ET sharp.

Sold FMCN 46.55 +$.41

Picked up FMCN $46.14 for quick scalp

ICE Sold at 139.95 and Comments on Buyouts

+$1.30

Looks like we have a seller keeping us around 140. Once the selling is done, it could move higher, however, I'm not going to go up against someone with more money than me.

As bullish as I may be about a buyout of ICE, it doesn't mean I become a holder of the stock until the price becomes favorable. Experienced traders know that often times a stock can move much lower during the "rumor" period, and even with a buyout announcement, if you got in too early, the final offer price could be lower than what you initially paid. NMX is the perfect example. Many buyers were sucked in between 130-150 the entire "rumor" period over the last several months. The buyout value announced yesterday is $119, basically lower than anyone who bought on the hype, sealing in the losses.

Tuesday Jan 29th, Back with ICE 138.65

Low Priced, Dollar and Penny Stocks

As you may have noticed, most of my trading involves higher priced stocks - many are over $100/share and I have no qualms with regularly trading stocks such as BIDU/GOOG, which are 200 and 500 dollar stocks. I am also a buy-side investor (I prefer going long rather than short selling).

When I started trading years ago, I learned many a lesson by attempting to trade penny stocks, dollar stocks or other names which were around the $5 level. Now I'm not saying that you can't make money off these names, but there are some intrinsic qualities of these names that make them surprisingly dangerous, regardless of their low price.

1. Low Priced stocks attract poorly capitalized traders and often lure them into accumulating large positions. Basically the crowd consists of a fairly large number of "lottery ticket" buyers, hoping to double or triple or quadruple their money in short order. "Its only 2 dollars! How much could I possibly lose?" or "It's only 2 dollars, if it only goes up 2 dollars I've doubled my money!". So when the novice trader begins by buying 500 shares of a 2 dollar stock for $1000, they quickly double their bet when it falls to $1.90. When it rises back to 2 dollars, they suddenly feel that their position was in fact too small, and they buy another 1000 shares. Before you know it, you have a position of 5000 shares of a $2 stock, and every dime loses you $500.
1b. In fact, low priced stocks which have come down from higher levels are generally held by "bagholders" who have accumulated the stock with each downward move, further exacerbating the fact that it is a crowd of unhappy investors.
2. Low priced stocks are in fact much more volatile than high priced stocks. Consider this: when a $2 stock drops to $1.90, it has in fact dropped 5%. The seemingly "small" drop of 10 cents, can wipe out 5% of any investment within 1 day. Comparatively, it is the equivalent of a $200 stock dropping to $190. And to imagine that they drop and rise by 10 cents or more, several times a day, and within a matter of minutes! Combined with the fact that many traders are holding large accumulated positions and it's a recipe for disaster.
3. Low Priced stocks are easily manipulated. It doesn't take much capital to actually account for the entire day's volume in a dollar stock. Many $2 stocks have total daily volumes averaging 1 million shares. Which means that any boiler room or manipulative fund with $2 million in capital can effectively control that day's share volume.
4. Very few dollar stocks ever break out of their range and truly demonstrate "lottery ticket"-like gains. One in a thousand? Scoring a 10 bagger is not the goal of trading. You simply cannot rely upon that for your living. What about the other 1000 stocks that never go anywhere, and in fact disappear into oblivion? Many of these names end up being delisted and or end up in bankruptcy.
5. Low Priced stocks are low for a reason. They are simply unloved and should essentially be viewed that way. If we have been in a bull market for the last 6 years and your favorite stock is still at $3.50 .... need I explain further? Basically if we've been in a bull market for 6 years, a strong stock better be expensive by now. We haven't seen many stock splits in a while either.


So what do we do with low priced stocks?
1. If you want to participate in the "lottery" - View them as long term options contracts. ie. Biotech companies. Only invest what you don't need, don't consider them as trades.
2. View every large move with suspicion
3. They are better treated as short selling targets
4. simply avoid them?

Once again, as a disclaimer, I'm sure there are great traders who only trade these stocks and they do well. I would venture to say that these traders are extremely skilled and experienced. I would also bet that they are most likely NOT purely long biased.

Instead, I urge traders to move decimals when viewing stock prices. When GOOG moves from $565 to $550, (During times of volatility), it essentially is the same as a $5.65 stock moving to $5.50 (which happens in a matter of minutes or hours). Depending on how you look at it, GOOG is the safer trade! Ie. Google at $550 can be viewed as a $5.50 stock, if it makes you feel better, you simply adjust the number of shares you would purchase. The difference is that GOOG is actually a valued company in the eyes of shareholders, and has much more favorable ratios when compared to the "beloved" dollar stocks. High priced stocks are generally owned by a happy and content crowd - as a majority of holders are most likely profitable during the course of the stock's rise. They actually hope for dips as opportunities to accumulate more. And they won't disappear into oblivion any time soon.

VMW

Down $12 after earnings. As I said - I'm a bear on VMW, as many traders probably are.

End of Day Trade Update

Ok, closed out FMCN at 48.73 for a +$.64
Closed out AAPL at 129.45 for +$.65
Closed out ICE 140.89 - lost 1/2 position to 136.2 essentially for -$2.34

Due to position sizing, my gains in late day trading in AAPL and FMCN made up for my loss in ICE. Decided not to re-enter ICE at end of day. Cash is king in this environment.

Overall quite happy with today's performance. Late day surge in the markets definitely helped. We'll see how VMW's earnings are tonight. FYI i'm a bear on VMW. We also have SNDK coming out tonight.

ICE update

out 1/2 position at 136.2, re-enter at end of day

UPDATE
as soon as I sold my 1/2 position, ICE starts moving back up and is now at 137.50. Which is exactly why I suggest not going "all in" or "all out", holding a 1/2 position has kept me in play, while decreasing my overall exposure. I still intend to re-enter the full position at the close of trading.

UPDATE #2
ICE is now back at 140.35. Glad i'm still holding a 1/2 position. Picked up some AAPL shares on the dip at 128.80 as well. Still holding FMCN from 48.09. I might liquidate these position at the close actually, as they are doing fairly well with the overall market strength.

ICE, CME and NMX

This morning CME confirmed talks to buyout NMX at around $119/share. ICE gapped up premarket in sympathy up to 154 or so. It's currently trading at $140. There is fear that:
1. since CME is working with NMX, there won't be an acquisition of ICE by CME.
2. CME and NMX poses a competitive threat to ICE.

My theory continues that ICE will be acquired by another player sometime this year (once we get some credit stability). NYX or even a foreign exchange could be a likely acquirer. ICE is still the better exchange, in my opinion. Don't trust everything you see. I've gone long a few shares of ICE at 140.89, but there is a lot of risk in this trade, as obviously someone wants ICE lower it seems.

In addition, an additional risk is to note that the buyout terms are:
$36 in cash, and .1323 shares of CME/share of NMX
The market may also be reacting negatively due to the share portion of the buyout. Most shareholders obviously want cash for the transaction, but in this credit environment, this is going to be rare/nonexistent. The realization of this truth is also dampening ICE, as I suspect a good portion of the stock's valuation was based upon investors betting on a majority cash buyout.

In other words, be careful.

Comments on First Hour Volatility

I think it is important for all traders to keep in mind that the first hour is always quite volatile. The reason for this volatility includes repositioning by many traders from overnight as well as digestion of economic and corporate premarket news. Mini "panics" often occur as well as the volatility tends to shake out unprepared traders. In addition, since the first hour tends to "set the tone" for the rest of the day, it is also used as a tool for manipulation by institutional traders. For example "pump and dump" and "dump and pump" schemes generally occur during this hour (for purposes of accumulation or distribution). Many traders will simply avoid trading at this time due to the lack of visibility and trending. Although great opportunities can be had, I generally recommend avoiding the fray, and only trade when there is a good amount of evidence to support your position.

Monday, January 28th, Morning Update

Even with overseas markets posting large losses, we've managed to hold up. One thing to always remember is that the US usually, and I mean usually, leads the rest of the world's markets. We've only had a few instances where overseas markets had a large impact on US indexes, including the large China drop last year, and last weekend. In addition, US markets are usually the most stable in comparison to the rest of the world. Take for example the Nikkei 225 - from high to low it has gone from 18000+ and has gone as low as 12,500 recently, a fall of about 30%. Whereas for the Dow, we've gone from 14,200 to around 11,600, about 18%.

This morning, I placed a few trades, including taking a large position in AAPL at 127.61, and selling at 131.63, for a gain of +$4.02. I also went long BIDU a small position at 287.23, sold at 293.34, + $6.11.

I am holding a long positon in FMCN currently at 48.09.

Some thoughts on the "Stimulus Package"

I know that I've openly bashed the government stimulus package - which is to give away $150 billion to taxpayers. I was thinking about it again today and thought I'd give it a positive light as well. I would say I'm neutral now. Lets think about what this package means:

When every taxpayer/couple receives a check for $600/$1200 (and those with children, even more), what are they going to do with it? Spend it immediately? Pay back some debt? Keep it in the bank? The answer is - "all of the above". What does this mean for the economy? Does it mean that consumer spending will suddenly start uptrending again? I don't think so. But there is a caveat - What the government is doing is practically giving away $150 billion back to the nation's banking system. All within the next couple of months. Because when you give money away, where does it go? Under the mattress? (maybe) - but most likely the bank account. In addition, given that most of our population is in debt (credit cards, etc), a good portion of the stimulus package will go towards paying down debt, which basically means what? Once again the money returns to the lenders - who are also called the Banks. Thirdly, if the consumer ends up spending this rebate on goods from your neighborhood store, where does the neighborhood store end up putting the money? I think I've made my point. And the government is doing this without calling it a "bailout". The only question is, how significant is $150 billion of liquidity? I'm not sure - maybe someone who has done a quantitative assessment of our banking industry can answer that. But if liquidity for the financial sector is the issue here, I would say this at least tries to address the issue.

So while on the surface I think the "stimulus package" sounds fairly foolish - maybe there is something to it.

Midday Update

It almost seems to easy for the market to give us a textbook pullback on higher volume... but sometimes the expected DOES happen! Looks like they are going to want to post a loss for the day. Things are getting quite interesting going into the final hour. Unfortunately I have a lunch meeting (i'm on the west coast) and won't be able to participate much in this afternoon's action.

Friday, January 25th, Market Update

We had a nice fade of the gap up this morning from about +100 on the dow, went as low as -60, 160 point swing. We're currently back in the mid range. My expectations are that the market closes higher again today. A lot of traders are probably rushing the short selling a bit here, and they will continue to buoy the market. I think the market obviously needs to retrace a bit of the 800 point rally low to high we've seen, but don't think today will be the day quite yet. Patience is key. Still a trader's market though. Placed a couple trades this morning for some quick profits, all cash again. I'll be back in the last hour.

Thursday January 24th After Market

The markets have now worked their way back to a trendline. In addition we have decent earnings out from MSFT after hours. I sold my CLWR holdings at 12.16 from my purchase at 11.15 for +$1.01. I also ended up going long MA at 187.07 and sold at 188.71 for +$1.64. Not a bad day today going with the trend. After hours I also scalped a short on BIDU at 315 and covered at 311.6 for a +$3.40 after the MSFT spike occurred. BIDU has now rallied about 80 points off the low around 235!

All cash again and ready for another day.
I'm liking what we see here, but this rally needs to retest some previous levels.

Some Tips on Position Size and Watch lists

Position Size
A lot of traders are probably blowing up their accounts right now by not adjusting to the
volatility correctly. When I say adjusting to volatility, the key is to decrease position size. When stocks start to swing 20-30 dollars in one day, even 100 shares can be quite damaging to performance (depending on your level of risk). A trader who continues to trade with their normal position size on each trade (ie, 1000-2000 shares) will probably be experiencing gargantuan swings in portfolio value, leading to emotional trading and possibly major disappointment. I've been initiating positions at approximately 1/5th my usual size. In addition, it is a very good idea to never take a full position from the outset. I recommend splitting up your buys/sells into 3-4 entries. Even if you complete all your trades within 10 minutes, it is still a good practice. In fact, it's good to buy and support your buy by placing another order with a bid slightly below your purchase price. For example, if I buy 100 shares of BIDU at 281.5, I'll follow it up with another 100 share buy order at 281, and so on (this is assuming my final position amount is 400 shares for example). Even if the stock starts moving higher, you can always continue to stay on the bid, thereby supporting your position, and conserving your powder. If you're on the right side of the trade, it should go a lot further than you imagine. And I can't stress how important it is to respect your stop orders during times like these.

Watch Lists
I also think it's a good idea to organize your stock watch lists very carefully. Always keep stocks divided by sectors (ie Solar, Materials, Retail, Financials, etc). In addition, have your watchlist clearly defined on a daily basis as to which sectors/stocks you are bullish on (want to buy), and which you are bearish (want to short). I would also encourage the creation of a "buy" list and a "sell" list on a daily basis. Organization is absolutely key in being able to have a clear view of how the market is behaving every day.

Thursday January 24th, Morning Update

Okay here's the deal. Now that interest rates have fallen - companies which were rumored for buyouts are now in play. For example - ICE, CLWR. In addition, this is very bullish for Blackstone (BX), as they might be able to pull a few deals through that have been suffering. I can't reiterate how important the drop in retail interest rates is to the economy and the market. Not saying it's all clear from here though. We are extremely oversold and need to hit some moving average lines.

I had a surprisingly great morning
FSLR in 157.55 out 169.20 for approx$12/share profit
WFR in 67.82 out 71.8 for $4/share profit

ICE i'm in at 145.16
FMCN i'm in at 48.36
CLWR i'm in at 11.15

Update
ICE Out at 147.53 +2.37
FMCN out at 49.45 +1.09

Holding CLWR

I was blown away that FSLR went as low as 149 after I sold at 169 - classic pump and dump scheme. SPWR guided revenues lower than expected... the shorts were waiting for this day. Still bullish on solar though - we'll see how they fare today. SPWR's forward PE is around 30 now - for a sector that's growing at 100% yoy, seems fairly undervalued. Also, as the cost of polysilicon begins to stabilize/drop, their margins should greatly improve. We have earnings from WFR tonight.

January 23rd, After Market - What a day!

What a day! Unfortunately or not, I was busy with meetings at work and was not able to participate in much of the action at all. The nasdaq 100 names looked like they were taking some serious damage - including GOOG which remains quite beaten down even on the +300 point dow close. For a while there it seemed like the market was about to completely go under.

I glanced at newswires and noticed that mortgage rates have finally come down to record levels due to the rate cut, and I'm quite surprised and optimistic. I'm not sure if that was the actual reason for our 600 point rally off the lows, but my personal opinion is that if mortgage rates are finally down (5.31%?), it will help a lot of things. If homeowners can finally refinance their homes and stop the foreclosure rate, the credit quality of assets held by banks can finally stabilize. That in turn will seriously help alleviate the liquidity crisis we've been experiencing. Does that mean I'm completely bullish on the equity market? Not sure yet, but this was a pretty convincing day that we may have put in a near term bottom. In addition, the market seemed to recover without any real other news - correct me if i'm wrong.

I was able to pull off a nice trade on BIDU and FMCN into the close, which I've liquidated by now. 100% cash and ready for tomorrow. The market will always be here.

Wednesday, January 23rd, Premarket

Futures are currently down 240 points on the dow. I'll reiterate again, if this market takes another dive, especially today, what could possibly save it? The fed isn't about to cut rates another percentage point. In fact, I think yesterday's rate cut effect is actually partially responsible for this morning's losses. The Yen is currently trading at 105.16 and the Euro went from 1.44 to 1.46 - Anytime we see a rally in the yen, it reflects an unwinding of the carry trade.

To find a POSSIBLE area of support for the dow and S+P, I would look at yesterday's futures - they essentially were trading as low as 11,400 on the dow, and 1256 on the S+P. Which represents a drop of 500+ points on the dow and another 60 points on the S+P. Not saying we'll get there today, but it doesn't look too difficult given the futures we're seeing. Even at that level, I wouldn't call us anywhere near a bottom - the futures only stopped falling because of the fed rate cut.

I will probably short any sudden signs of strength we see today - i'll keep u posted.

January 22nd Market Update After Hours

The rest of the world must hate us. Many markets dropped over 10% - ie Hang Seng fell almost 3,500 points in 2 days due to a "US recession". Meanwhile we had a holiday and today we dodged another bullet with an emergency fed rate cut to close 1% lower only. Sorry world. But look at the bright side - we'll most likely help global markets stabilize at least temporarily tonight.

We had a short covering rally most of the day from the big morning gap down. I sold most of my holdings early for some losses, only to watch them rise throughout the day. However, as a trader, I could care less. As I mentioned before, consistency is key, and I had to manage risk, even if it means taking a loss. That is one discipline that must be kept by anyone who calls themself a trader. Learning to take a loss is one of the hardest lessons to learn. Survival is key - the market will always be there, bad traders and bagholders will not. In fact, I was able to recoup some of the losses by other well timed daytrades throughout the day (besides my failed attempt at shorting BIDU).

My assessment of the current situation? The market was due for a crash this morning, which was only averted by a large fed rate cut in the early morning. My personal opinion is that the market must complete its natural course, regardless of any external intervention. We may see some stability here, but remember this:
The next time we fall, the fed is running out of juice and will not be able to "save" the market. In fact, we didn't even close green today after a 75 bp cut! What "would have happened" today is still bound to happen to us IMO. The fed really botched it up this time by cutting rates only after a worldwide collapse. In fact, the sheer enormity of this cut may be interpreted as a loss of control by our monetary system. I also don't believe that this rate cut will actually help our frozen financial system. There simply isn't any liquidity - we really need to keep our fingers crossed and borrowers need to show some integrity. Lets hope the defaults don't keep rolling in.

Short term, I think today's recovery and "mere" 1% losses will greatly boost the global market's confidence level. I expect to see a rally in overseas markets, which will then possibly spill over into tomorrow's open. AAPL guided lower and is trading down 11% after hours btw.

Keep gathering your list of loved stocks. Get ready to buy when they are completely hated. I honestly think that time is coming soon.

covered reamining position 272

Covered 1/2 position at 266.82

After seeing it rally as high as 274, time to take some risk off the table..

This volume is anemic and the price/volume pattern continues to look weak, so continuing to hold 1/2 position short.

BIDU update

BIDU never saw 235 again premarket so I did not execute a long side trade. However, I actually opened a short position at 265.5. It looks like the mythical PPT (Plunge Protection Team) is in full force, but I simply cannot believe that we can cheat death so easily. We rallied about 400 points off the lows now which I suspect is a short squeeze as mentioned earlier. Volume does not seem like it's there to really make this a meaningful rally.

Okay here is the plan

Now that futures have deteriorated to -470, I will re-establish my long position in BIDU if it approaches 235 prior to the open- a very small one. I expect a fade of the gap down as we approach the open.

Update:
Okay, if we can see a continued deterioration, I can envision a quick gap fade after the open, which will be good for a few points. The rate cut can fuel a short squeeze if the market appears to be stabilizing itself. This is an extremely short term play.

Just Liquidated on the Fed Rate Cut

Even with relatively small position sizes, I was in pain this morning. However, I could not believe my eyes when the Fed cut rates by 75 basis points
Liquidated BIDU at 261.44 - from my buy at 255.77 for +$5.67
JRJC at 11 from buy at 12.8 for -$1.80
EJ at 17 from buy at 18.88 for -$1.88
MELI at 43.75 from buy at 45.74 for -$1.99

I liquidated SPWR at 64.75 from 73.77 prior to the cut, due to major solar weakness overseas in QCE.DE and SWV.DE. It popped to around the 68 level, but I'm not complaining.

Regardless of any rate cut, it's important to cut losses on a day like this to regain a balanced view throughout the trading day and I consider it fortunate to have been able to escape my largest holding which was BIDU with an actual gain.

Even as I type this, reversing my positions and going short would have been a good move. I'll be on the sidelines however. It is important to note that the Fed has essentially used up all of its powder this morning... as I've been mentioning repeatedly, it will be very interesting to see if this rate cut has any lasting positive effect.


UPDATE:
Immediately after this post was placed - futures have not been able to sustain the rally - BIDU is now trading at 238 - a full 23 points below my sale price! whew.

Get Ready for Panic Tuesday!

The capitulation day I mentioned yesterday appears to actually be ready to happen tomorrow. As mentioned earlier I stated that the losses will likely be much greater and higher in volume than experienced back last August. Dow futures are down 540 points, S+P futures are down 60, and Nasdaq futures down 75 as we speak. I haven't seen these kinds of numbers since the crash of 2000! If the S+P were to open down 60 points as futures indicate currently, it will be opening at around 1260, or the 20% loss mark which represents an official bear market. the 20% mark for the nasdaq and dow are 2,288 and 11,424 respectively. I honestly believe we will need to "post" these numbers, which means that the market will need to close at or near these levels. That would signal a closing loss of 675 points on the dow, 60 points on the s+p, and 50 points on the nasdaq.

It will be extremely interesting to watch the world markets tonight, as fortunately (or not), the US markets are closed today. If we see a significant rebound overseas or at least some kind of stabilization, the futures could easily improve prior to the open tomorrow. We could also see some kind of response from the feds today or tomorrow morning. However, if none of this materializes, I expect the market to surpass those point losses at some point during the day (dow -1,000?), but stage a minor recovery by the close of trading as sidelined cash, a fed announcement, or short covering occurs. As for my positions, I expect to lose all of the gains from friday and more, but fortunately my position sizes are small relative to my normal trading size due to caution, so I'm looking forward to liquidating them early premarket especially if we have some positive developments by tomorrow morning overseas or otherwise, and moving forward with what will be an amazing day of volatility. History is unfolding as we speak!