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.