Stocks Rider

Friday's Action and Updates on Open Trades

2009-05-31T23:03:00.000-07:00

Friday's last five minutes provided a rocket fuel boost to markets going sideways. It was confounding to say the least. If you think those last five or ten minutes smacked of conspiracy theory and a secret cartel trying to prop up the markets, you have a rather large company. The flaw in this theory is that such an action and the immediacy of its effects are too conspicuous and contradict the very definition of how a cartel works. If you want to call the government, the Fed and the treasury as the cartel, then you are right. The actions they are carrying out are really not that clandestine either - whether it is printing money, cutting the rates, tax breaks, triggering spending, launching massive liquidations through treasuries. Which one of this action is truly a secret? None. That is not to say some amount of program trading activity or even government assisted trading activity does not exist. But I feel to attribute all of the weird behaviour of the market to some kind of secret Area-51esque style machinations may be over stretching. Lets wait until more evidence comes through before we declare that everything under the sun is orchestrated and aliens run the US government. In the meantime, you can still find several opportunities to benefit.

Rainsford Yang at MarketTells.com has done an excellent analysis in his latest market commentary on the surges in the final few minutes. He has found that such a surge has actually happened eighteen times in the last nine months so it is not exactly a new phenomenon in recent times. However when you expand your horizon to the last five years, this behavior does appear as new. I asked him if he thought that principal program trading activity was the main culprit behind Friday's activities. His response - "(It is) certainly true that principal program activity (initiated by the likes of GS, etc) has been unusually high recently. But I don't think that's the reason for the last-minute craziness. We saw similarly heavy principal program activity back in 2004 & 2005 - see http://markettells.com/wp-content/chartsO0O/prgtradelt.gif - yet there were never the kind of final-minute moves like we've seen recently."

Updates on Open Positions:

My trades that I post on Twitter are doing well. My current open positions are VIX long, FAF short, CMCSK short, IMAX long. Other than IMAX, the other three trades are short term and I may be looking to get out soon given the continuation of choppiness in the markets.

Let me share my thoughts on IMAX. IMAX is a long term play and I have conviction in their growth story. This is just the beginning of their growth. With the advent of ginormous sized LCD TVs and home theater systems, the incentive to go to a theater can only be provided by something more obscenely ginormous and monstrous. This simple logic has lot of teeth in it and what makes IMAX so lucrative. Sweetening the deal further is the exponential increase in the rate of movies going the IMAX way.

I will be first to admit IMAX is speculative at best. The valuation and debt picture have received bad grades from analysts. But what is not being accounted for is the upside surprise in terms of growth. And that to me has a telling weight that underscores the IMAX story.

Having said all of this if IMAX makes an abnormally large move to the upside, I may not wait and bank some coin.

Good luck

Whipsaws

2009-05-18T19:15:00.000-07:00

It's become choppy in the last few days. I am posting my trades on Twitter. So far I am in black thanks to nimble shifts in the outlook as the markets whipsawed.

Admittedly there is confusion because of contradicting economic data, credit crisis still looming large and general lack of consumer confidence. However it is important to differentiate the triggers for short term trading from the indicators that shape the longer term macro economic views. To that end, Dr Brett has written a pithy but wonderful post. Check it out.

Update and Twitter

2009-04-28T01:08:00.000-07:00

Folks, I have been gone for a while. Sorry about that. Anyways, a few quick updates. I am on twitter and you can follow me here or you can see the updates on the right hand side on this Blog.

As some of you already know I sat out most of the market rout beginning November of last year (phew!). Am back trading but not so very often. However after becoming reckless with my portfolio last year letting it to rot with no active supervision, I am making the choicest of cuts thus trying to yield more profits.

My call for the Markets: we are seeing a very interesting mix of indicators between sentiment, put-call, weekly charts, options volume and Tick. I am Market neutral. I don't know if you have noticed but since the last three weeks we have had a pattern of up Fridays followed by down Mondays. As long as this continues, you can be assured we will remain in an uptrend purely from a pattern recognition point of view. However, there is a lot going on in the short term that makes it wise to play very safe.

If you read my twitter updates, my last few trades have been decent. I am currently short Nasdaq through QQQQ puts since end of Friday and will remain so until tomorrow or day after. After that I will take them off the table and be on the sidelines unless a clear pattern emerges in either direction.

Market Notes

2008-07-20T23:10:00.000-07:00

I covered all my S&P shorts past Friday. Needless to say holding the shorts for the last four weeks turned out to be a profitable venture. Do I think the market is not going down from here? I did not say that. But the degree of confidence in market direction for short term has decreased. Meaning the market could continue its current rally. However for short term, I see some volatile swings in the offing and you have to have nerves to digest them especially if you have position trades open overnight. That said, there is still a good deal of confidence that trend is still down for long term at least for now. Why not take some profits off the table and play with the extras on other trades I feel more confident about? In fact I will cover one such trade in the next post following this one soon.

Going back to market direction, if oil keeps going lower and dollar keeps moving higher or even remains stable, this will add to the impetus the market needs to continue its rally from here on.

Good luck
Krish

Do "Increasing Volume" in Short ETFs Really Justify Lower VIX?

2008-07-15T19:10:00.000-07:00

Recently there have been several articles that are trying to justify the relatively lower values in VIX with respect to calling market bottoms. One of the biggest reason thrown out there has been the "surging volume" in index ETF shorts. Examples - short ETFs from the Proshares Funds' ETFs - SDS, QID, SH, etc. aka ultrashort S&P, ultrashort QQQ, short S&P, etc. The argument is because these short ETFs are gaining popularity and volume, they are acting as a more known and well embraced hedge against the broader based portfolio. So far so good. But then it goes on to reason that this phenomenon has resulted in panic mitigation in equity stocks, which is what sentiment indicator like VIX tries to measure in a broader manner. Ergo, VIX is not flying at high values that you typically see at Market bottoms especially in the last one year.

I disagree. Why? The facts don't support the popular hypothesis. I went back to the last two intermediate bottoms (Jan 22 and March 17) and compared the volume of several short and ultra short ETFs with the volume in recent days including today when we saw something of a mini spike in VIX earlier in the morning. Let alone being significantly higher, the volume in these ETFs recently has been generally less than the previous two bottoms! I also looked at the average volume to ensure I was not focusing on too short a window and still it wouldn't confirm the fact that the average volume traded has been consistently increasing as compared to Jan and March bottoms.

Well a picture speaks a thousand words. So lets take the example of Ultrashort and Short ETFs for S&P and DOW offered by Proshares

The first figure above compares the total volume traded for Ultrashorts within three days of January 22 and March 17 with the Mid July timeframe. The blue bars represent SDS (Ultrashort S&P). The red bars represent DXD (Ultrashort Dow 30)

As I said, pictures speak volumes. Example a total of about 145 million SDS shares traded on Jan 18, 22 and 23, with Jan 22 being the midpoint of January bottom in Markets. A total of about 138 million SDS shares traded on March 14, 17, and 18, with March 18 being the midpoint of March bottom in Markets. And get this, a total of only about 127 million SDS shares have traded on July 11,14 and 15 when we saw the biggest spikes in VIX since the March bottom. Shouldn't the volume on July 11, 14 and 15 have traded higher not only because of the first big spike in VIX since March but also because of the claims that the volume in these ETFs is more than the time period around previous bottoms??

Here is another example with the simple (as opposed to ultra) shorts in S&P and DOW (SH and DOG respectively)

Again the figure compares the total volume traded within three days of Market bottoms in January and March with Mid July. The blue bars represent SH (Short S&P). The red bars represent DOG (Short DOW 30)

Again we see a similar picture. Example a total of about 2.68 million SH shares traded on Jan 18, 22 and 23. A total of about 1.96 million SH shares traded on March 14, 17, and 18. A total of 1.90 million SH shares have traded on July 11,14 and 15.

Conclusion: The panic spike is yet to come unless the obscenely ginormous manipulative power of Feds was successful in the last three days. Which wouldn't make sense because the Fed had more tools back in Jan and March and they still could not prevent the VIX spikes.

Keep in mind we may see a spike as early as tomorrow or as late as August. But based on the above analysis, I am inclined to conclude we have yet to see it.

good luck
Krish

Still No Time To Be A Hero

2008-07-14T17:13:00.000-07:00

Our strategy to remain on sidelines and short the cheaper index puts or buying index ETF shorts keeps on giving! If it wasn't for the enormous amount of government intervention in the last few days, what transpired with the banks, Freddie and Fannie came very close to getting stripped and receiving a kazillion lashes. And there are people who say we are in a free market country. What a joke! I don't know how many times I have uttered those three words in the last one week. Its not even funny anymore.

Only hindsight will tell if the intervention was a brilliant move or a kick in the face of the already fragile economy. I am one of those who believes we may benefit short term but the inevitable financial massacre has just been pushed to a later date and may contribute to an overall Black Swan incident. I hope I am wrong. But for now I am waiting for a bottom, not anticipating ..just waiting. I will start anticipating when I get my sentiment indicators high enough. With all due respects, am not stupid or stupidly rich enough to be a hero.

As I have said in the previous posts, I have taken half off my index puts or index shorts for profits and am letting the other half ride. I am STILL NOT opening any new long positions. But I will start studying and researching companies for some nice new long positions this week. The source energy aka God aka the Force aka the High aka the Feeling-You-Get-When-You-Put-A-Swab-In-Your-Itchy-Ear orchestrates such boring, mundane, drawling, slow-motion-train-wrecking and gut wrenching times for a reason - So that we can sit back on a lazy Tuesday evening and ask ourselves - while chickens are running with their heads cut off, what sweet stock/option is going to deserve my well deserved mint for the next couple of months?

Good luck
Krish

The Week of Reckoning

2008-07-08T00:31:00.000-07:00

I had some market index shorts in the form of S&P puts open since the last few weeks as mentioned before in this blog. I had anticipated the market fall and the strategy worked out well. While my long portfolio was water tortured by Mother Market, thankfully due to the shorts, I didn't fall off the cliff. I will be covering my shorts this week. So that you know. My theory is - although the bloodbath has continued, the final reckoning I am awaiting for should happen this week. Expect major spikes in VIX and/or a panic sell-off this week. There is no other way except for this grand climax. Just in case it doesn't happen due to some stupid reason like interventions, I want to book my profits while I am still very sure about my shorts. Besides, the level of speculation would increase to a degree that would be too uncomfortable for me to continue betting on the short side until the indicators become slightly less oversold or we continue on the next leg down. For now though, I am going in for the kill and I will be ready on the other side.

The google trends indicator mentioned couple of posts ago in combination with the VIX study and other indicators reflecting institutional participation or lack thereof, worked out really well allowing me to not to sway with the talking heads who have been calling a bottom since the last twenty sessions. Yeah..same sessions marking the market's continued obscene decline.

A great post from Dr Bret Steenbarger published today resonated with me. Dr Steenbarger surmises that by tracking certain sectors' ETFs you can get a good idea of whether the market is in a recessionary/risk-averse mode or recovery mode. The former would pursuade the participants to move to defensive stocks like consumer staples. The latter would encourage the participants to move to stocks that have been battered off late such as financial stocks. If my theory about the week of reckoning is correct, then in addition to watching for a panic sell off, I like Doc's idea to study the sectors to understand if we have truly come on the other side. If so, I may be interested in getting long some of the financial stocks later this week or early next week.

Good luck
Krish Rathi

Lack of Fear (you read it here first!)

2008-07-01T01:31:00.000-07:00

About a week and a half ago, I surmised how lack of fear is indicating the markets have still ways to go down using Google Trends indicator. While we saw that prediction unfold, many writers in financial publications and blogosphere also started talking about VIX and its inherent complacency off late.

Moving on, the markets remain in extreme oversold condition, and yet VIX remains stubbornly complacent. Even the google trends indicator discussed last week has remained flat to down. However lets not forget the seasonality. With the summer going on and lot of people taking off on vacations, the following of the markets and participation in them tend to thin down a bit. So a skeptic of VIX indicator might argue if there are not enough people, who is going to panic? On the other hand, a record outflow of money from Funds have been reported last week. So there is certain amount of wariness to keep money invested in the Equities.

I remain on sidelines. Anticipating the recent sell off, I had scooped up a few S&P puts in my personal portfolio that kept me from falling off the cliff in the recent bad days. You may want to buy some puts too as a hedge protection should the markets try to make another go at the trajectory down. These usually can be slightly pricier in this kind of a market as opposed to buying slightly out-of-money VIX options one or two months away. If you are not an options trader and more of a stocks investor/trader, then there are several ultra short ETFs to pick from as a good hedge.

Market's Schizophrenia

2008-06-22T21:37:00.000-07:00

Sorry for the gap recently. I am back!
The markets continue their Schizophrenia. In the last post I had surmised that March had put in some sort of tradeable bottom. That strategy worked great all the way till Mid May. In my prior posts late last year and earlier this year, I had warned that if there is a second shoe, then there has to be a third and a fourth and more. Well the sound of the falling knife is really the sound of those remaining shoes dropping, with most of the bad news coming from financials. As a result, the worst performing sector this year has been financials followed by housing. As a trader it is my job to identify opportunities where we can still make money with an in and out strategy, but as a long term investor I continue to remain on the sidelines as I had surmised back in January.

Right now my trading bets are small with extreme precision. I am not casting a big wide net because the market fluctuations and less capital don't allow that kind of luxury at least for now. But hey..when did that stop us?

Here is something interesting that I discovered while perusing Google trends. Google trends is a tool publicly available to see how hot is a given search word or a phrase. I put in the words "Stock Markets" in this tool and I got the below chart.

Notice the spikes closely related to the big plunges in the market. For example C is right around the Jan 22 bottom and D is right around the March 17 bottom. I wouldn't call it a 100% reliable indicator but it sure gives an idea of investor sentiment. The bigger the spike, the bigger the fear/concern and hence more chances the market may put some kind of a bottom. Lets see when the next spike comes in.

Speaking of plunges, this coming week is interesting. Expect a blood bath this week possibly earlier than later, but also expect some big swings on the upside as well. You are smiling if you are a day trader. You are cursing if you are an investor or a position trader. Either way, we will keep treading the markets carefully. So caution is still the name of the game. Will send out picks if I pick any interesting scan. But this is it for now. I am glad to be back.

Krish Rathi

(Update to the above post: I got a comment from an "anonymous" reader that my use of the term "Schizophrenia" that seem to imply I was disregarding the real definition of the term and may have been indifferent to the real plight. He also said "two identities" is not a symptom of Schizophrenia, which is what he thinks I was implying in the post above. First off, I apologize if my usage of the term has upset anyone. I have used it pretty much as a metaphor as English speaking journalists the world over use it to describe fairly different situations. I could have done a better job to describe the context. Let me take another shot. My context here refers to that particular symptom of schizophrenia which deals with perceptions of reality that are strikingly different from the reality seen and shared by others around them. Living in a world distorted by hallucinations and delusions, schizophrenia induces fright, anxiety and confusion. In that regards, I feel the markets has come close to demonstrating these features. First off, the credit crisis was completely underplayed, underestimated and as the shoes kept dropping, the markets have panicked when reality collided with the perceived view back in October and even in January, times when the prevailing notion was that all the skeletons are out of the closet, only to be met by surprises. Not only that, every day the economic data gets even superficially better, the market is very eager to forget the underlying bad news and rally on things like a revered talking head thinking we have reached the bottom of a particular sector, the government officials talking up the dollar, so on and so forth. Next day, reality kicks in with some bitter news about a bank restating their write downs, and the market dives down making you wonder why did it even went up in the first place. This to me does sound like a case of living in hallucination with all due respects. I certainly recognize the seriousness of the disease and don't wish to belittle its gravity. Its a metaphor in this context pretty much like "bastardization". I thank the anonymous reader for giving me this opportunity to research more on this disease, clarify and I hope he understands my intention.)

Taking some profits off the table

2008-04-10T11:00:00.000-07:00

The Markets did catch a great tradeable bottom! And they are still feeling pretty good. The monthly charts on S&P did a remarkable bullish hammer formation for March. In plain english it means there is a good chance the Market put an intermediate term bottom in March. This could be confirmed if April candles paint a bullish formation as a confirmation to March action.

The VIX trade published here and the ISRG trade published here did par excellence! I am closing my VIX trade for a profit of 94.67% and selling half off on ISRG for a profit of 170.56% today!

Is ISRG still a buy?
I think yes. And that is the reason why I sold only half of ISRG. The charts are quite bullish. What makes it extremely interesting is the earnings events on April 18th. I am betting on the upside.

Trade details

(1) Closed VIX (+VIXPF Option) at $7.30 (Purchase price $3.75)
(2) Closed Half off ISRG (+AXVDA Option) at $48.70 (Purchase price $18)

Good luck
Krish Rathi

Trade Update: Accenture

2008-03-26T12:29:00.000-07:00

I am buying Accenture Options. (If you are not an options trader, you could consider buying the stock i.e. ACN). The purchase was May 35 Calls for a price of $2.15. Accenture is reporting earnings tomorrow close of Market. It is not only a play upon Accenture's impressive quarter over quarter positive performance with positive expectations in the last call but also the weak dollar. Its a quick trade. We might get out of it depending on whether we get a lift off the earnings and how big it is.

Good luck
Krish

Quick Update: Market Notes and Couple of Trades

2008-03-20T12:49:00.000-07:00

As I had mentioned in my last post, we did get a tradeable bottom. Today's action has been significant in the sense that there was institutional participation and the indices are making a higher low on the charts. It is still early to say whether the rally will go unimpeded because of major resistance in the soon to be higher planes, but as surmised before we had a tradeable bottom and we are continuing to exploit it. The VIX options trade is turning out to be profitable so far. I am keeping my VIX trade open for intermediate term. I have opened two new trades today:

(1) ISRG Call Options (If you are not an options trader, the trade would be ISRG stock): I bought April calls with a strike price of 310 for $18 per contract. I think ISRG has hit some good support area and looks at least until $325 as its next target within a month or two. This is assuming the market volatility won't shake this stock down. Remember when the indices suffer a lot, ISRG suffers simply because it is a member of NASDAQ 100, unless it is close to its earnings period, which is nowhere near. So I am also going to put a tight stop to take into account any unexpected volatile move down by the indices.

(2) POT Put Options (If you are not an options trader, the trade would be sell short POT stock): I bought April puts with a strike price of 145 for $10.40 per contract. Potash has had a very good run and in my opinion is nearing exhaustion. Couple that with the hit on commodities. I think commodities still have some way to go down. Many offer the argument that because India and China is still strong, commodities and ag stocks in general would do very well. Whether I agree with that argument or not, one thing is clear: nothing goes up in straight line. Besides the rich valuation of the stock worries me. Also take a look at the weekly charts. We have reached a double top on MACD with bearish downtrend initiating and Williams %R, one of my favorite momentum indicators has a downtrending slope that has still some room to go. Once again I will putting a tight stop to counter any major moves in unexpected direction.

Just like last year, I will soon be entering all my 2008 trades into a table and provide that hyper link for performance tracking.

Good luck

Krish

(ps would love to hear from readers on the comments section provided here)

Quick Update on a Quick Trade

2008-03-17T12:40:00.000-07:00

As I speculated in my last post, we saw lot of volatility but VIX is settling down to lower levels after spiking up to 36. Given that this was the last time VIX spiked up to and the FOMC meeting happening tomorrow sure to deliver some more positive news to market (they really don't have any other option), I am dipping slightly into some VIX trades as the market is forming a short term bottom here. Please remember this is not yet a complete confidence in Market hitting the long term bottom. But I think we have a tradeable bottom here. I might close this trade as soon as I realize profits of 30% or better which is quite likely as early as tomorrow or by end of this week. I will also put a close stop on this trade so that I don't take a negative hit by more than 20 %.

Here is the trade (please enter this only if you are an options trader. If you are not an options trader, you could bet on index ETFs such as IWW or IWM to play the Russell 2000 index on the long side)

$VIX.X April 30 Put options - Purchase price 3.75 or better (My purchase price as of now is 3.65)

Good luck
Krish

Truly Unprecedented

2008-03-16T19:18:00.000-07:00

Folks, its been a while since I last posted. But believe it or not all you missed was a roller coaster ride that would have left you nauseated had you participated in the market actively. In keeping with my message in January to remain on the sidelines, I truly benefitted by not losing more money..phew!

Today I am writing or rather I am inspired to write because of a significant event that has unfolded over the business wires this afternoon. Unless you were living in Mars or had your tv switched off thinking nothing important happens on Sunday afternoon, you probably know that JP Morgan is buying Bear Stearns. That is not the shocking part. It is buying for $2 a share! No that was not a typo. That is not the shocking part either. The shocking part is Bear Stearns seems to be going ahead with it and the transaction would go through. In my books that doesn't sound like a rescue unless Bear Stearns knows where all the yogurt is going to spread after hitting the fan and we don't. This is truly unprecedented! Back in October, it was surmised that if credit problems were truly as bad as some had thought, we would see at least one major investment bank and one mortgage company go belly up or sell themselves at a flea market. With the Countrywide and the Bear Stearns transactions, we finally have a confirmation on those ominous predictions.

By any means or by any measures, the Bear Stearns collapse is not only stunning but also too rapid. It happened before I could blink my eyes and say "buy 10,000 BSC puts!"

Big daddy Ben shares the emotion of the significance of this event. Fed just announced a discount cut and made borrowing available to primary dealers. And they are doing this just two days before the regularly scheduled FOMC meeting. If this doesn't spell the sense of urgency I don't know what does. This is most likely going to cause a havoc in the markets on Monday instead of actually helping it to bounce. Do not be surprise with more emergency actions and even a concerted action globally by central banks of other countries on Monday and Tuesday. (The dollar has already plunged to a 12 year low against yen.)

I just checked out the monthly charts of XLF, an ETF that tracks the major financial institutions. It is obviously no secret that XLF has been in a downtrend and its been a while since it already broke its 200 day moving average and even 200 week moving average. It has also recently broken down its 200 month moving average on the monthly chart, which stands currently at 25.6.

You would either have balls of steel, or you are a genius long term investor with no worries for margin calls because you are loaded, or you are plain stupid to actually put some money in financial stocks on Monday.

That said, if you still have an itch to put money in financial stocks, the safer bet is asian banks who have ADRs listed here. The reason is simply that the asian banks, especially Indian banks have different liability structure compared to US and European banks. Unless the contagion spreads into other areas and generally sags the global economy, these banks will most likely not face the lack of confidence or stress tests that the US banks are facing left and right. One such star is IBN (ICICI Bank Ltd). My strategy would be to allow it to fall a little more as it will in sympathy with what would happen in US markets and especially financial stocks in the next 48 hours. There will come a point then when IBN could become a great bargain once again.

So what should be the general strategy in terms of handling your portfolio you ask? I think what I said back in January still holds unfortunately. Lets watch the blood bath from the sidelines. Do not be surprised if there is a hard rally within 48 hours of market eventually finding a bottom. But you should participate in it only if you are a day trader or an active trader. Otherwise given the general downtrend, the market could still fall down until we see a convincing confirmation and those rallies could be used as an excuse to sell some of your profitable positions.

Fundamentally though, it would be senseless to predict anything for intermediate term after what transpired today. What we know is there are uncertainties and based on the purchase price of BSC, we don't even know the depth of uncertainties. The positive side is that such kind of events usually indicate a market bottom over a longer term horizon.

Hang in there, folks and yes, no new trades for now.

Good Luck
Krish

2007 Performance

2008-01-27T17:54:00.001-08:00

Although I am slightly late on my 2007 wrap up and I have already started posting for 2008 Markets, I thought I should share my 2007 performance.

I am glad to present the results of my 2007 portfolio after completing an audit and documentation. From its inception on 2/14/07 through 12/31/07, the portfolio yielded a 90% gain! Compare that with S&P's performance's of 0.8%, Nasdaq's 6.6% and Dow's 4.1% during the same time period. That makes me a happy camper. The portfolio closed list can be viewed by clicking this link*

What worked? - Stock picks, Timing, Exit Strategy Discipline and Lack of intense activity between October and December when the stocks suffered the most. I have also provided my thoughts in a slightly more informative manner that I think may benefit the beginner traders and investors alike. I had originally written it for a different portfolio I maintained at the Strategy Lab Board contest. The context is different but the lessons are similar. If you are a beginner trader or beginner to intermediate investor, I recommend to check it out.

I expect this year to be great too if we build on the lessons learned and always remain agile. Remember no matter what you can always make money!

Happy trading
Krish Rathi

Completely on the sidelines

2008-01-22T13:01:00.000-08:00

I have an update to my post from last night. As expected the massaccre began in the morning. In my last post I surmised if Ben cuts by 75 points, there is a good chance the massaccre shall stop. Well that is what happened. Although we are down for the day so far, Bulls can still claim victory because we have painted a bullish hammer coming at the lows on the daily chart, very similar to August 16th lows. In plain english in the epic battle between the bears and bulls the closing price ended much closer to the highs of the day than the lows of the day. Not to mention the fact that VIX finally obliged us with extreme levels, levels that some experts think are necessary to call at least a tradable bottom if not a long term bottom.

As a result of these developments, I took my opportunity and covered my put options I had opened on SPY selling at 5.15 (purchase price was 4.05) a 27 % profit.

Although in near future we may not likely have the kind of bleeding we had this morning there is absolutely no reason to be a bull right away. I have stepped on the sidelines as I indicated yesterday. I have also covered my short term positions. It is difficult to predict if we will still have a further downswing. Signs point to a short term bounce, but the regular certainty is not there. So it is better to keep my powder dry again. Now if you are planning to buy leap options or stocks that you may want to keep for a year or longer, please be my guest and buy those cheap suckers right away!

Hang in there
Krish Rathi

Need to be very careful this week!

2008-01-21T19:46:00.000-08:00

I know I have to still post my 2007 portfolio results, which by the way beat all the indices handily and extremely positive, but I am going to jump the gun and talk a bit about next week, since it is very important. I don't mean to scare you. Market indicators are giving a picture which says that we may jump off a cliff. Okay that may have scared a few. But the matter of fact is if you get a chance Monday morning, please don't get carried away by any sort of bounce..sell all or most of your profitable positions. If you don't then be prepared to ride one of the most volatile weeks we have ever seen. The good news is the conditions that lead to short term capitulation will soon lead to the eventual market rally. But for you to even ride through the down spike, you need to be either extremely brave or loaded or make sure you can cover every single margin or maintenance call with aplomb.

You ask What am I doing? Although the model portfolio of this blog did exceptional last year, a yet another portfolio that mirrors close my own portfolio and which is slightly more experimental has suffered. So I have not bought a single new share or call option in the last few weeks. I have some amount of dry powder. I have couple of shorts open. I will swoop in and buy some good bargain values once the capitulation starts or a convincing rally begins. But until then I am hanging on the sidelines. You know that race they have in Madrid every year where the bulls trample bunches of participants. Well I am standing on the side and watching the blood bath with the only difference being instead of the bull, it is the bear. Hang in tight my buddies. This will be over soon but indicators tell a final blood letting has yet to happen.

There is a very small chance that we may not see the extreme conditions of capitulation and the market may well start rallying for a longer term. How to know if the rally is not a fake bounce or a dead cat bounce. Here are some tell tale signs: (a) Ben announces 75 % rate cut or a combination of 50 % cut and some massive money injecting measures. (b) A few more financial m&a occur signaling the smart money and big guys are seeing the light at the end of tunnel. (c) Earnings week has the CEOs talking beyond their product revenues and describing positive global trends are still here and improving every quarter giving positive guidance for 2008. (d) the CNBC talking heads start questioning the authenticity of the rally :)

Okay the final one was on the lighter side (only slightly though). But you get the picture? If you are more interested in the indicators giving the tell tale sign of why my fear has increased, here are some key factors - lack of VIX spikes and finally spikes begin last Thursday/Friday, data reflecting commitment of traders showing bearing undertones about professional money investment, open SPY put interest in tandem with options expiration last week giving a seasonal negative signal that occurs only during bear markets, last week's banks' earnings data and comments. We have gone way downhill but it seems we are not there still. And maybe this final downfall will finally trigger Ben to walk his talk. So you ask how can he screw up this time? If he cuts 25 or 50 basis points before the Fed meeting and leaves with comments such as "ummmm..yeeeeaaahhhh...inflation is concerning..and my beard needs a trim..and oh..we will take every sustantive action" and then goes to Princeton for an afternoon coffee with his nerdy colleagues. Ben, the futures market has already baked in all of this..so please. I don't know as much as you do but that has nothing to do with how you can screw up more than Alan. And that requires quite a talent my friend.

So Cuts may happen before the meeting and from that point on we have a rally at least for the short term assuming Ben surprises the odd makers who have already baked in at least a 50 % rate cut.

Because of that last point, you have to be very careful if you are considering shorting the markets. Be prepared for a huge rally anytime Ben announces unpredictable measures and unpredictable cut amount. I would be suprised if this would be the first thing Ben does on Tuesday but who knows. Your best bet: keep your powder dry. Be on the sidelines and let the massaccre begin. Then when the blood is flowing everywhere, you go out there and pick your diamonds from the street.

Krish Rathi

New positions
SPY Feb Put 133 Strike Price: Purchased for $4.05

Hindsight is a B****!

2007-12-27T11:31:00.000-08:00

This is the final blog from the Strategy Lab Open Contest I am participating in. I thought that you will find it useful too. (At the end of this contest, I will be returning to more frequent blogging on this website. I will also be closing out most of my positions for the year 2007 today and tomorrow and document the final portfolio standing for 2007 right after that):

Its fitting we come to the end of the contest in the heart of the winter season. It is time to reflect. What went right. What went wrong. And what went sideways. Most importantly, I believe it is the lesson learnt from each trade and carried over to the next one, that makes you a better investor or a trader.

I would like to hit you with my bullet "isms" that I have learnt from this contest and in general investing and trading

(1) In the End, Agility Wins - I have learnt that if you don't change your strategy with changing times, you will become irrelevant. The contest offered an excellent microcosm of this often overlooked investing philosophy. At the beginning of the contest, the market was in a general uptrend. What would have paid off most would have been to bet on reliable up-trending horsemen like high beta stocks and commodity stocks. Then by the middle of the contest, the market got into this ominous downswing first and remained fairly volatile. What would have paid off most during this phase of the market was risk management. Not knowing the eventual direction of the market, it was important to book your profits on your highly profitable positions and let a small portion ride just in case the market would trend back up. Also it would have helped to identify the failing sectors (finance, for example) and bet against them or pull them out of your portfolio. Towards the end of the contest, we swung to a definitive downswing. What would have paid off most would have been to turn bearish along with selective stock picking and risk management. More specifically, it would have helped to protect your profits, purchase index ultrashorts and still up-trending stocks like solar companies.
In other words you needed to be a trend trader in the beginning of the contest, a risk managing trader during the middle of contest and a stock picker towards the end of the contest to have finished in one of the top slots.
Isn't that amazing? One short contest taught us to adopt different avatars during the different stages of this market. In other words, you had to be agile and you had to be on top of everything. The market's swings worked in favor of providing us with this wonderful opportunity to learn about the importance of the agility I am talking above.
I believe that most of us who came in the top 50 or even top 100 were able to exhibit the above characteristics of agility. This disciplined and flexible behavior allowed us to successfully perform and even handily beat the indices. It is a great feat indeed and while not all of us can be on top, I would like to personally congratulate each and every one of these successful contestants. Hats off to you, my friends

(2) Complacency Is Fatal - Personally my biggest failure in this contest was I let it slip from my attention during the middle phase of the contest as I juggled my priorities with a full time job. Although it seems I will end up finishing in the top 50 or top 75, had I shown the same alertness throughout the contest as in the last thirty days, I would have been far ahead. (side note - curiously though in the last two days my rank is not even visible although marketocracy's percentage gain clearly shows I am in the top 50 with full compliance. I have followed up with the help desk at Strategy Lab Open). I offer no excuses of course. The moral of the story is - you signed up for it. You better show a commitment. Now that I have more confidence in my trading skills and if the strategy lab open board allows me to, I would like to enter their round 2, apply my lessons with full vigor and win.

(3) General Sense Of Sector Behavior Is As Important As Picking Stocks - Many experts offer the advice that if you have picked your stocks right, you don't have to worry about the direction of the market. I have a problem with this theory and the contest offered great examples in that respect. First, it is a vague and general advice that can only be proved, but never disproved. I get scared of such pieces of advice just like a non-practical Zen saying. Second, most of the time the stocks that fall in this category usually happen to be story stocks or biotech stocks. Third, during the duration of the contest when the markets tanked more than once, it also took down with it the stocks of exceptionally well run companies. Example - Goldman Sachs was the best run financial company in the face of turmoil the markets faced during the last few months. Yet it was punished alongside the likes of companies like Morgan Stanley and Bear Stearns that were far less impressively managing the whole sub-prime mess. Granted, it didn't tank as much but its stock was relegated to macro-event trading by active traders who knew how to take advantage of the stock channeling between its support and resistance with the directions being triggered by the sub-prime events that Goldman wasn't as major a contributor to. This and several other examples clearly crystallize a trading strategy - when you buy the stock of a company, also study the trend of the sector it belongs to.

(4) Intuition Should Be Listened To- This may be slightly more controversial as there is no definite logic to it, but I believe in it. At the end of the day after doing your research and due diligence before you execute the trade, I have learnt that it helps to ask yourself - "What is my gut telling me about this trade? Am I feeling uneasy? Am I feeling good?" I believe that your intuition is your biggest "finishing" weapon before you actually execute a trade. This is something that may take a life time to perfect but I think as you keep fine tuning it you start reaping advantages along your way.

(5) Say No To Trading When You Are Desperate or Frustrated- This is almost another version of point 4 but I felt to split it out just in case you find the above point not too practical to follow. Very simply, if you are feeling icky or if you are desperately trading because you just had a major loss and if you think you are looking like someone chasing the big bad truck of momentum, that is a fairly reliable sign to really take a pause before hitting the Enter button.

(6) Best Way To Make Money Is To Actually Sell Some Of Your Profitable Stocks- I feel this maxim is much talked about but least paid attention to. If you have made profits, I have learnt that it helps to book them. It is understandable that you don't want to miss out on a great uptrend. So how do you get the best of both the worlds? Most of successful traders follow the half off strategy that has helped me too - they set a certain profit goal on each stock. When the stock reaches that goal and if the trader feels it still has a potential to go a long way, they sell half of the position and let the other half ride with a stop loss. This is helpful in two ways - it allows you to book profits and make money as a result of the discipline. At the same time you don't feel left out because you are riding the uptrend wave on the remaining half of your position.

(7) Investing And Trading Are As Similar To Each Other As A Chinese Solar Stock And A Muni Bond - I have learnt that it helps to know the difference between investing or trading and what is it that you are personally good at. It doesn't matter what your style is ..what matters is you don't pretend it to be otherwise. Both of them require different strategies and different discipline. Sometimes you can learn about the investing philosophy while being a trader and vice versa. But the bottom-line is your blueprint has to match with your investment philosophy. This contest was more about trading. That said, the contest was unique in the sense that it did offer some wonderful insights into investment side as it provided people a platform to make a case of well run companies through the blogging platform.

(8) There is no such thing as a lost opportunity - During our lifetime we should be getting plentiful of opportunities to exercise our strategies. So there is no hurry as there is no such thing as a lost opportunity. There is such a thing as lost money though. The worst feeling is when you suddenly realize a golden opportunity but you don't have enough money to play it because you put it all on a less researched trade just because you wanted to catch it before the trend was over. I have learnt that the house always wins except in one case - when you can manage your risks and still make confident bets. Its smooth sailing from that point on.

Here is to success, good luck and a great new 2008 to all you wonderful people!

Krish Rathi

After the Cuts - The Story Isn't Over

2007-12-12T05:40:00.000-08:00

The following is excerpted from my blog posted yesterday at the Strategy Lab Open Contest I am participating in:

I had been postulating that the Feds would certainly cut and they may use shock and awe again. The Fed did cut but didn't go with the shock and awe immediately. However, the story is far from over. I had also mentioned that the Fed could induce the shock and awe in a different way this time - doing some more radical moves in the coming days such as bigger liquidity injections into the markets or another surprise cut before the January announcement. The latter may sound outlandish while the former is very very possible. But the fact is both of these remain possibilities along with any kind of a measure where the Fed could show some nimbleness just to let the markets know they are still in control. And if it doesn't, you can start counting Ben's last few days.

Now what after the cuts? - The markets tanked because it wasn't an immediate shock and awe. Unfortunately the deep plunge didn't give me enough chance to place all the ultra shorts trades I was fantasizing about. But I chased the momentum before it was too late, and immediately added the ultra shorts on Russell 2000. Other than that, I have kept all other positions unchanged. I will sell these shorts in a day or two and here is why.

I still believe we have more of upside left than downside beyond a 1-2 day horizon as I mentioned in the post just before the cuts. One thing is for sure - as the market digests the Fed speak, they will realize that hey that wicked "uncertainty" phrase leaves the possibility for more rate cuts. Meaning the easing will continue. This along with lot of money on the sidelines will have to play together and create a positive atmosphere as we go into the year end.
In one of my prior posts I had also mentioned that 1475 is the key level for S&P 500. We are very close to that at the Market's close (1477 and change). Not to mention there is lot of support at 1460 and 1440 levels too.

Finally, notice how the markets behaved after the last two cuts. It surged and then tanked in the coming weeks. We are to a certain extent seeing the reversal today. And the only way for the reversal to play is to eventually surge in intermediate term. The big question is - will it be soon enough so that some of us strategy lab contestants can recover on their existing positions? I say yes.

And one last thought. Hey Ben, if you are reading this, two things - (a) it is spelled as a "cut" not with a silent 0.25 but a loud "0.5", and (b) all along I was thinking you knew something that I didn't. Your notes with a generous usage of the word "uncertainty" makes me think I was wrong. And that is scary, Mr Chairman.

Krish Rathi

The "Ben"evolence continues

2007-11-30T11:03:00.000-08:00

The fed cuts are still days away (no..that wasn't a freudian slip). But you should have listened to Ben today in the first part of his speech. It seemed like he wouldn't even wait for December 11th! The guy reminds me of a lean, mean hunter on a prowl. In a tip of a hat to his colleague's speech from yesterday, Ben confirmed the credit situation is deteriorating and almost trying to whisper in your ears - "we will do whatever it takes and oh yeah (pointing at a slippery rat called rate with a ginsu knife)..that too!". He seemed to be overflowing with emotions. Okay okay his face that looks mega botoxed didn't give much away. But what did you think? We are talking about a guy whose expressions are flatter than a flitter! Anyways, he later contained the "help we are all screwed!" emotion by adding that the fed will be looking at the new data that will be released before 12/11. Really, Mr Ben? Please explain to me if that was so, why would you stick your neck so far out with the whole doom and gloom portrayal. You could have just said "a lot depends - and I mean a lot, you crazy econ perves! - on the labor report and PCE report before we can truly say what we need to do in short term". Instead Mr Ben chose to paint a very grim picture of the economy first as if almost to get his excuse / alibi ready in case of a shock and awe on 12/11. We live in such exciting times! Anyways, the words that stood out most were "alert", "turmoil", "reversal from September" and "flexible". And no I am not really taking them out of context. The words were the context! So the bottom line to me was the gist of the speech didn't just translate into a single rate cut but - surprise! - it sounded like more cuts than what the fed fund futures are predicting right now. This means Ben wants to give us a shock and awe which sounds increasingly characteristic of the new fed. 25 points is not shock and awe. Think 50..heck think 75! Yes you know what I am talking about.

Okay so how are you gonna play this? I will tell you how I am playing it.

First nothing is guaranteed. So it is important that I remain agile and make some solid picks after a lot of research with a slight bias towards the conclusions made in this post. This is what I am trying to follow. I also explained some basic tenets of this strategy in a prior post in the strategy lab contest I am participating. (More about this contest later but needless to say it has taken my time away to post in my regular blogs. Wherever I can I try to put the same posts here but my trade picks are different there).

If you put the essence of the above speech in combination with the generally bullish move in the markets since the last three days, you would feel there are a few more solid uptrend days fairly soon. My overall sense has also turned slightly bullish albeit for a short time. While I can't predict the intermediate term direction, I do feel that 1475 in S&P seems to be the key level. I will be carefully watching that level and based on which way we turn, adjust my trades accordingly. I am planning to keep my hedge bets intact but reduce position sizes. Bottom line - even after all the bullish events with my own bias towards a short term upside, unless we go farther away from 1475 regardless of the direction, we cannot be too complacent about the direction of the market. So be careful out there. you never know when and where is the next sharp turn. And Mr Market doesn't even put a sign on the road.

If There Is A Second Shoe, There Has To Be A Third And A Fourth

2007-10-19T20:28:00.000-07:00

Amazing! That is the only way to describe the market activity today. Okay so if you have followed the markets closely I am going to spare you with all the metaphors or worn down phrases like "throwing the baby out with the bath water". I am as bored of them as you probably are. So let me cut to the chase here. Market fall was not a surprise as we surmised in my prior few posts.

It is very simple folks - when it comes to credit issues and subprime mess, if there is a second shoe, there has to be a third and a fourth too. This is exactly what is unfolding. The smart money knew to pay heed to the ominous signs arising from the German bank's announcement of paper mess and the nervous tone from Bank of America's earning conference call. They also knew how over extended we were. Today was a long process that was in making over the last few sessions as the volume kept going anemic. And finally when the volume picked up it was on the other side of most bets. One look at today's declining volume over the upside volume would have painted the picture for you not to mention the extreme NYSE tick reading. It was out and out a clear signal that the big guys were selling into the market.

The big question is will this continue? - You bet. But I think this is extremely healthy. Think of it as detoxification of the markets. For short term, expect the next week to be choppy.

Our portfolio has not had much activity as you can see precisely because i was expecting this chopppiness. And in spite of that we did fairly well. I didn't sell off gold contrary to what I posted in my previous message because the trailing stop didn't trigger. Which actually turned out lucky given the monstrous rise in gold since the last post. Also Intuit Surgical once again gave a blow out quarter and I am thankful that we held off on some ISRG that reaped the gains.

I am going to follow up with a more detailed post sometime next week or this Sunday with my picks as I finally see an opportunity to get back into the market and buy some really good companies at a discount.

In my next post I will also have the updated portfolio holdings or I may revise this one and add the portfolio list by weekend.

take care and hangin there
Krish Rathi

The Enigma of "Ben"evolence

2007-09-24T01:49:00.000-07:00

My portfolio benefited from the cuts. I had bought a few rate cut sensitive positions such as GS and XLE to make a quick profit as mentioned in my last post. Refusing to be a Pig, I have sold half off of the positions that moved higher and monitoring a trailing stop on others such as the Goldman trade I documented in my mini-update post. I also placed trades on some stocks that I think would move nicely in the next few months such as AGE, DKS. AG Edwards and Dicks Sporting both have good charts, great price action and lot of support. In addition, these stocks stand out because the underlying fundamentals remain good. Dicks Sporting seems to be expensive but as I mentioned in my last post, it has a significant percentage of float that is short (17%). So we could take advantage of some good short squeeze in days to come. We already witnessed some of it in the aftermath of cuts. But there is more squeeze left in the sucker. On the short side, it was a very good call to cover the short trade on BZH just before the rate cuts although I think we could reenter the same trade after the initial euphoria dies out. And that brings me to the benevolency of Mr Ben and the cuts.

Some odd observations. First off, I am a tiny tiny creature as compared to the immense analytical prowess, intelligence, and sophistication of the intricately vast machinery at the disposal of federal reserve. Not to mention the horsepower of all the Governers' combined experiences. So it follows there has to be at least some logic behind the rate cut decision, and I don't want to sound I am questioning that. Anybody who does that is trying to show off limited knowledge unless they have the access to the same machinery and data that Ben has.

That said, here is my question - if the Fed thought that we are in such a dire need for a rate cut that made them slash 50 points, why did they wait till the FOMC meeting? The only logical explanation seems to be that from Fed's point of view, 50 points must not be that dire after all in the overall context and in the big scheme of things to come. And if so, I would reason that there may be more to come.

Secondly, isn't it odd that the evening before the fed announcements, E*Trade and Bank of America would come up with announcements (here and here) that could have been made days earlier or days after? It seems it was an obvious overture. Maybe a last ditch effort to sway Fed opinion? In fact, in days leading to FOMC a few other major institutions seem to be releasing bad news too that were in hiatus since end of August. They looked like setting a stage for Fed in a way that when the rate cuts happen, the upward swing of markets continue unabated at least for some time.

Finally will someone tell me if Ben just loves to slaughter the short traders as mercilessly as possible? That was a rhetorical question by the way. Remember the Thursday of August 16th when Fed announced the discount rates slash? That was timed just before the options expiration and just after one of the biggest drops of recent times. Obviously it was designed for maximum effect. The shorts were butchered. Yesterday there was an unusual number of shorts and VIX calls going into September expiration. Coincidentally, maximum effect would not have been 25 points. Maximum effect would be a cut deep and wide. Although I am in awe of Ben taking the bear by its horns (excuse the misplaced pun here) with great timing two consequtive times, the coincidences seem to be building up. Some experts believe it is normal and in the very nature of the rate cuts that they happen not only as a result of analysis of sophisticated data elements but also when the Markets are in deep red to deliver maximum effect. By the way, this also explains why the Market moved up 300 points instead of declining on fears from a 50 basis points. This whole phenomenon of Fed's powers to manipulate the markets may only exist at the beginning of a series of rate cuts though because more and more rate cuts just indicate the Fed is stretched to its limit and that may not be a good thing. My conclusion is it almost seems the Fed is telling us that it is okay to go with what I consider as the grand daddy of all assumptions - that the market is a leading indicator of the overall economy.

And finally if indeed the Fed wants us to believe the Market is a leading indicator, then isn't it at least mildly perverse to think that most of the data that Fed pores over may largely comprise of lagging indicators?

Believe it or not the above rant could translate into an anectodal yet logical strategy to trade. Given the above discussion, it may only seem logical to try to position your bets on the long side just before the FOMC meetings especially if they are close to options expiration days. No guarantees of course because the Fed could cut a rate in between, but this concept is still worth a try.

New Trades
Tomorrow and day after, if the market shakes out some of the euphoria, I will enter some new positions and close some existing ones. Here is what I have on my radar.

Sell remaining GS by putting a trailing stop. For me, GS was a pure trade and given the duration of this contest, didn't make sense to hold it longer. I do thing it is a good long term investment outside of this contest.

HOC: Holly corporation. Sitting and trying to form a weekly base around 65.5. Even one point up on a weekly basis would push it above the middle bollinger band on the weekly charts and that is a very good sign. I may look into buying it between 66 and 67 depending on daily and hourly price action.

CCL: Carnival Corporation. Beautiful chart patterns. It actually works really well with what I think above oil prices eventually finding a ceiling and coming down.

There are couple of technology stocks I am looking at too and will post later in details. I am going to look at how the markets shake out this week and then start placing orders at attractive entries.

Please note due to full time job, some times I announce my trades after I have secured the position but usually the same day. Having said that, I am hoping my posts give you some ideas to consider for your own trading.

(ps no updated portfolio attached tonight due to busy work load at full time job. Will update it soon. In the meantime you can refer the portfolio list's last revision in my prior post.)

Good luck
Krish

Quick Mini Update - Sold Half of GS Calls for 120% Gain

2007-09-19T08:08:00.000-07:00

Our position on Goldman Sachs worked like a charm as we picked it up at a perfect time in my last post. We don't know how long the euphoria will last and when will investors start seeing the dark side of the equation. But rest assured the mess is still not over. For now we will joyously sing and dance with the market and take half off the table. So I just sold half of my GS January Calls for a 120% gain at an option price of $24.2 (Initial price $11 as documented in the last post). Most of my detailed commentary from my last post still holds. Check it out for observations and detailed portfolio listing. I will post my usual and more detailed commentary update along with updated portfolio listing by weekend. Oh one more thing - I am letting the rest of the GS positions ride the wave and have put a tight trailing stop. Enjoy.

The One Millionth Opinion on Fed Cuts

2007-09-13T01:18:00.000-07:00

Fed Cuts
Much has been said about the Fed cuts. For me, it boils down to two things - (a) Is there something tradable in short term? (b) Is there a significant macroeconomic effect as a result of the single cut?

The answer to (a) is simple - yes. The answer to (b) is not simple but does exist - none.

Lets quickly talk about (a). Yes there are some bold trades. Financials are poised to rise. I am trading till the day of the cut and then selling into the news. But wait, there is more. You remember our gold ETF position that is open in the portfolio? It has risen nicely, hasn't it? Well guess what..next week would be the time to sell! Sounds counter-intuitive given the rates are gonna cut and the dollar is diving but this is the time to sell it! Will we miss a few points up - probably. But you are selling into a rally a metal commodity that has been very volatile and seems to have strong technical resistance in the 710-720 range. At a more fundamental level, the rate cuts would most likely be puny, which means that the hangover effects would drag gold down and it is quite possible that the dollar slide may halt at least temporarily.

Now lets come to (b) i.e. significant economic impacts of a single rate cut. In my recollection of recent history a single rate cut has not done much in terms of making a dent beyond short term moves in the market. Besides, I would argue the effects of a rate cut are not seen until at least a few weeks after, if not months, in terms of impacts to economy. In other words I see no reason to be too scared or too euphoric about the impending rate cut especially if it is only 25 points from a long term perspective. Let the crazy news anchors go ga-ga over it.

On the other hand if this rate cut marks the beginning of additional rate cuts, which even though remote, is a possibility, then the event could be a catalyst to set a ball rolling that we don't know where it would end. The conflicting signals of deflationary and inflationary data make it slightly risky to accurately predict where it all ends should there be successive rate cuts.

Portfolio and Market Commentary
Lets talk about our portfolio standing. If you remember from my past posts, I have been maintaining neutral to bearish trend since July and it has served us well in our stock picking. While individual investor is getting frustrated over the market uncertainty, our portfolio is up by 72.53% in closed positions and up by 26.68% in open positions. Something to feel good about, isn't it?

Next week, I will watch the financial earnings as closely as the fed cuts since I believe the earnings would give me more meat than the Fed.

S&P is still in a range bound mode. The range is getting tighter. In other words, it has to break out one direction or the other. Some chartists may argue they are seeing wedges or triangles in the charts and S&P wants to go higher. That may be so but for the next month or so, we will get out of the business of predicting and focus on short term trades and capital preservation should market head down few days after the cuts.

New Trades

I have closed our oh-so-beautiful BZH short position for a whopping 78% gain. Also closed the SNDK call option when it hit my 25 % trailing stop loss for a 25.77% Loss. I initiated today an agile options trade on couple of financial stocks such as Goldman to leverage off of the rate cut event. I also initiated an agile trade on Apple options. Finally, I opened a stock trade in Dicks Sporting.

GS Long (Oct 185 Call Option) - I am betting on Goldman reporting positive results next week. Once again the idea is to buy now and sell into the news. Keep in mind we don't want to keep anything open precariously long enough, unless it is for a really long haul. Which brings me to my next trade.

AAPL Long (Oct 125 Call Option) - Apple hit support while going down and is rising back up again. Again a short term trade and hence I am using options. Will get out after pocketing upside momentum or stop loss.

DKS Long - Really solid fundamentals. In spite of growing revenues and a good growth story, traders continue to short this stock. They are somewhat justified since the stock price has become expensive with the PE ratios much higher than the industry average. But get this - more than 17 % of float is shorted. This means it will take 7 days to cover. In other words, when the upside happens, it will be a big short squeeze. And that is what we are banking on in this particular trade.

Some of the readers have suggested I use a different way of tracking the portfolio return which would show more realistic and bigger returns than the approach I currently use. I currently use a simplified model where I buy 1000 shares or 10 contracts. I am looking into it and will post something if I am able to find some time to remodel the portfolio.

Speaking of improvements I have now find a way to list the open and closed lists through an online spreadsheet application. This saves me from the hassle of creating and formatting the lists manually on the blog. Unveiling it for the first time in this current blog below. It is still not there in its final form as you have to scroll up and down to see the list in its entirety. I am figuring out how to expand the widths without making it look ugly and will update again later. I hope you find it more readable than the previous format.

Happy trading
Krish

Quick Mini Update - Sold Half ISRG Jan Option for 910% Profits

2007-09-04T07:45:00.000-07:00

Just closed half of ISRG position at 910% profit and have put a trailing stop of 20% on the remaining positions for now. I also traded AAPL right after I posted my last update. Made a whopping 20% plus profit on the regular stock position. But because I failed to update my blog when I bought it as per my own rules, I am not going to take the credit for it in this blog's portfolio. I think that is fair. More detailed commentary to follow later this week with an updated open and closed list. Be very careful today as it is the day after Labor holiday and this should give you a good indication of where the market is headed in near term as more traders emerge out of their slumber. Good luck and have a great day.

Meet Me At The Cross-roads

2007-08-21T22:38:00.000-07:00

Technically we are at cross-roads. Wednesday or possibly Thursday may turn out to be an important direction-indicating day from a short term view. Why you may ask? The charts paint the story. The best example is the S&P 500 charts. The daily chart is hitting against the 200 day moving average (MA). The same MA that barely two weeks ago was a major support is now a major resistance. The weekly and monthly charts are slightly encouraging too with some potential upside. But the candles are looking, shall we say highly under-nourished? Bottomline - pay a close eye not only to the close tomorrow but also to the lower and higher end of the candle. If there is a decisive move on either side with sustained action for the following 2-3 days, it could be used with reasonable reliability to portend the short-term action. Note that 1454 is the 200 day MA. My personal bias is towards the upside due to other technical indicators flashing a buy. But I have learnt not to ever take 200 day MA for granted..ever! If there was one single MA that you had to use, it would be 200 day. It is not overused and abused as much as the 10, 20 or even 50 day MAs due to obvious reason that most of the traders don't have patience for it, which makes it all the more meaningful to determine bounces or fall throughs. Also notice how major news events always seem to happen around a 200 day MA. Spooky, isn't it?

Technical speak aside, the markets would finally have gotten time to digest fed actions and fed speak in the last few days. Needless to say, it was a potpourri and media has remain divided as I elaborated in my last post. Not only that, the last few days have also seen institutional buyers gradually step back in as evidenced by the NYSE Tickscore, usage of which was first pioneered by Bret Steenbarger. The rest of the week could tell us if the institutions are finally gonna get off the fences and join the procession with greater numbers.

Finally the Feds are on offensive right now. My experience suggests it is better to align with them on for the short-term as also voiced in my last post.

Note that I am only suggesting betting on short-term direction and not intermediate term direction. For intermediate direction, situation is still murky. And thats true not just from a technical point of view but also fundamentally as more dirt or uncertainty would likely come out from the mortgage muck (Keep in mind we may also see guidance from brokerage houses in the next two weeks who would almost certainly be prudent. And you know what prudence means in the current markets!).

And then there is the whole fed angle and what it means in intermediate term. Lets suppose the Fed actually cuts the rates yadi yada yada, which the futures are betting with a certainty it would. How would the Fed really know by early September, the outcome of something that is still unwinding at that point in time? It would be interesting to understand what happens when the Fed takes action in the midst of a situation that has still not unfolded completely i.e. lack of enough data points. Some argue this may lead to a negative trend. I found one of the better illustration of this hypothesis in this article from Doug Kass in theStreet.com who recently got sorta pooh-poohed for his bearish undertones on a CNBC show.

New Picks

AAPL Long - This is based on technicals and the fact that Apple got dragged down along with other stocks. Redemption trades by the Hedgies may have also taken a bite out of it. At current prices, it looks attractive for a quick trade. Candles are pointing upwards with the rest of the technical indicators. That said, it is hitting against its 10-week resistance and its 20 day MA. Ergo, we are gonna keep a tight stop on it. 5 % decline and we sell the sucker. I will later post a mini-update when I am able to buy it successfully. My entry point is 129 or lower. I am guessing the futures will be higher driving the prices higher in the morning and the best entry point would be during a pull back after an initial surge of the morning, if there is a pull back.

A Stray Thought
How do you know the difference between someone feeling young or old? My answer - If you are young, technology tries to keep up with you and if you are old, you try to keep up with the technology

Stay young :)

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Rathi Portfolio Holdings

Open List

BZH (Stock) - Sell Short - Opened on 2/14/07 at $41.54. Currently at $11.21 with 73.01% Gain
ISRG (Option) Jan08 130 Call - Buy Long-Opened on 3/8/07 at $9.60. Current at $79.50 with 728.13% Gain
GLD (Stock) - Buy Long - Opened on 7/10/07 at $65.61. Currently at $65.07 with 0.82% Loss
PLUG (Stock) - Buy Long - Opened on 7/16/07 at $3.25. Currently at $2.56 with 21.23% Loss
SNDK (Option) Jan 08 50 Call - Buy Long - Opened today on 8/20/07 at $9.70. Currently at $9.30 with 4.12% Loss
ANF (Option) Sep 07 70 Call - Buy Long - Opened today on 8/20/07 at $9.60. Currently at $10.80 with 12.5% Gain
AAPL (Stock) - Not yet bought.

Closed List

CRDN (Stock) - Buy Long - Opened on 2/14/07 at $56.44. Closed on 07 at $79.37 with 40.63% Gain
TSO (Option) Jan 50 call - Buy Long-Opened on 7/10/07 at $14.40. Closed on 7/14/07 at $12.70 with 11.81% Loss
CTXS (Option) Jan 08 30 Call - Buy Long - Opened on 7/18/07 at $6.90. Closed on 7/23/07 at $9.20 with 33.33% gain

Total Percentage Gain/Loss of Closed List Since Inception: 32.7% Gain

Could Someone Please Tell Countrywide and Ditech to stop their TV Ads?

2007-08-19T21:37:00.000-07:00

Market Commentary

In a recent businessweek article, the 1920 Economist Knight was aptly referenced for his understanding of the difference between Risk, which the Markets know how to deal with, and Uncertainty, which the Markets don't - "Risk is what you face when you have a basic understanding of how things work but there's a degree of randomness or luck involved. Knightian uncertainty is when you're really just stumbling around in the dark."

I believe we are currently in the latter category. We are stumbling in the dark. It is not often that I have seen the media, be it the veterans in financial journalism or blogs like this one, so divided over the fate of market over the next two to three months. Parallels are being drawn to 98 drawdown and 87 crash. Some examples are here, here, and here. Speculations are being made on either side of actual fed fund rate reduction (the fed fund futures seem to be pricing in at least 50 basis points rate cut by the next FOMC meeting). Some examples are here, here and here.

Everything said and done, what do we need to know in terms of the market direction? My feel is last Thursday or Friday could not be picked as an absolute bottom. How many times have you seen a market stage a V-shaped recovery? The fact that we may revisit the bottoms or close to those levels is also bolstered by the degree of uncertainty as to what is exactly going on. Could we see a short term recovery period? Yes that is highly possible. Would it be sustainable? My answer would be no..not until we get back close to the bottom of last week.

At times like this, it makes sense to also keep an eye on the longer term trend. I would opine that the longer term still remains bullish. Besides I would consider it stupid to ignore a stance by Fed that pretty much says "we will take whatever actions necessary to keep the markets stable" (paraphrasing from here, here and here). Okay so the Fed may not be the best timers in terms of their actions but you at least know that they are not asleep. And that speaks volumes. There are two things you never bet against - the tape and the Feds. Bottomline - I will trade for short term in volatility and good stock picks. I will trade with a bullish intent for the long term.

If you need to understand more on the underpinnings of how the Fed is currently thinking without the interpretations of journalists, a new academic paper has been published on the Fed site on households becoming indebted relative to their assets. I am sure there are going to be lot of interpretations. To me, it seems to indicate Fed's inclination towards further rate cuts. Seems like one of their key objectives is to make access to credit for the little man, easy. Hmmmmm...

New Picks

Finally after a long draught, I have not one but two new picks!

ANF Long - Abercombie reports earnings August 22nd. This is a short term trade by buying September options. I am betting that the earnings report will have a surprise to the upside. Fundamentally, ANF can't seem to stop doing the right things in expanding and honing at the same time, their core competencies in targeting the young demographics. You know what is really interesting about young teenagers? They are likely to spend more money on clothes than their parents. And it is NOT their money! So there is no remorse in buying. Positive vibrations, anyone? And nobody knows better to capitalize this simple fact than ANF. I don't mean to imply every teenager gets a generous allowance from their parents or that ANF is completely banking on reckless spending but then this psychology plays into ANF's hands especially when they are firing on rest of the cylinders so pretty well. For numbers, go to any financial site and you will be impressed. Two things that I would highlight here in favor of ANF are its extremely strong brand and the best profit margins in the Industry (currently at 12.52%). Not to mention a consistent revenue growth that has outpaced the industry average. Because of all this and the past earnings estimates, there is a very good chance the earnings report this week may give a reasonable lift to the stock.

The Trade on ANF - Bought September calls with strike price of 70 at 9.60. You will possibly end up getting the same price if you put in your orders as soon as the day begins since the market action was flat to down towards the close for this stock.

SNDK Long - This is again a short term trade plus the stock has good fundamentals going for it. I will admit though my trade on this one is primarily based on chart patterns. The daily and weekly charts are showing bullish signs along with half a dozen reliable technical indicators.

The Trade on SNDK - Bought January calls with strike price of 50 at 9.70. Again there is a good chance you might get the same trade in the morning since this is where the last price was.

Please note both the above trades are very short term and I wouldn't risk playing them if you are not adept at options trading or not disciplined enough to put tight stops. SNDK is more speculative than ANF.

Some Stray Thoughts
Okay I have to vent but I will keep it brief. If I had to pick my favorite financial publication, it has to be hands down - Barron's. And yet reading the cover of this week's issue made me slightly queasy. To quickly summarize, it blasted Cramer (Jim Cramer of Mad Money, CNBC) and went all out to discredit his stock picking ability. Now I am not a big fan of Cramer and I agree many of his picks stink. But the man has wealth of insider knowledge and a wonderful insight on position and intermediate term trading. He in fact says not to buy his picks the next day due to the fabled "Cramer bounce" and also tells you to do your homework. What made me queasy was not that I feel very bad for Cramer but the fact that a publication that I put on pedestal in terms of credibility had to take a cheap shot when there was absolutely no need to. It was a cheap shot in more ways than one. To a certain extent Cramer may have deserved it because he underplays the role of timing in his stock picks. But he definitely doesn't deserve something like getting anointed with a dunce cap on the cover of a reputable financial publication. Allright I promised to keep this one brief so I will end my rant here. I will continue to be a big fan of Barrons though and I hope such pieces of journalism are far and between. Or wait a second .. Mr. Murdoch, have you already started interfering? :)

Open List

BZH (Stock) - Sell Short - Opened on 2/14/07 at $41.54. Currently at $11.35 with 72.68% Gain
ISRG (Option) Jan08 130 Call - Buy Long-Opened on 3/8/07 at $9.60. Current at $66.70 with 594.79% Gain
GLD (Stock) - Buy Long - Opened on 7/10/07 at $65.61. Currently at $65.12 with 0.75% Loss
PLUG (Stock) - Buy Long - Opened on 7/16/07 at $3.25. Currently at $2.64 with 18.77% Loss
SNDK (Option) Jan 08 50 Call - Buy Long - Opened today on 8/20/07 at $9.70
ANF (Option) Sep 07 70 Call - Buy Long - Opened today on 8/20/07 at $9.60

Closed List

CRDN (Stock) - Buy Long - Opened on 2/14/07 at $56.44. Closed on 07 at $79.37 with 40.63% Gain
TSO (Option) Jan 50 call - Buy Long-Opened on 7/10/07 at $14.40. Closed on 7/14/07 at $12.70 with 11.81% Loss
CTXS (Option) Jan 08 30 Call - Buy Long - Opened on 7/18/07 at $6.90. Closed on 7/23/07 at $9.20 with 33.33% gain

Total Percentage Gain/Loss of Closed List Since Inception: 32.7% Gain

Volatility Is The New Black

2007-08-12T23:53:00.000-07:00

My last post correctly predicted the past week's ebb and flow. It almost seems we had formed a pattern in the last few weeks where the markets would rally in the first half of the week and exhaustion and fear would set in by the end of the week. The bottomline though is predictions aside, the next few weeks consist of wide swings on either side. If you trade in volatility you could mint right now but trading volatility requires nerves of steel.

No new trades for our portfolio for now. I continue to hold my longs. GLD is looking it may continue with its own big swings as it kept demonstrating so in the past couple of weeks. I am long term bullish on gold though. As for our BZH short, many seem to be surprised to see a housing stock rise amid the turmoil. I think this is a fake out rally. BZH could rise more before it soon begins its downtrend again. It helps though to know that we are still up by more than 60 % in BZH in spite of its recent rally.

If I get time from my work on Monday evening, I might be looking to place some new short term trades. I will keep you posted.

Good luck and Hang in there
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Open List

BZH (Stock) - Sell Short - Opened on 2/14/07 at $41.54. Currently at $11.30 with 63.43% Gain
ISRG (Option) Jan08 130 Call - Buy Long-Opened on 3/8/07 at $9.60. Current at $72.40 with 654.17% Gain
GLD (Stock) - Buy Long - Opened on 7/10/07 at $65.61. Currently at $66.57 with 1.46% Gain
PLUG (Stock) - Buy Long - Opened on 7/16/07 at $3.25. Currently at $2.77 with 14.77% Loss

Closed List

CRDN (Stock) - Buy Long - Opened on 2/14/07 at $56.44. Closed on 07 at $79.37 with 40.63% Gain
TSO (Option) Jan 50 call - Buy Long-Opened on 7/10/07 at $14.40. Closed on 7/14/07 at $12.70 with 11.81% Loss
CTXS (Option) Jan 08 30 Call - Buy Long - Opened on 7/18/07 at $6.90. Closed on 7/23/07 at $9.20 with 33.33% gain

Total Percentage Gain/Loss of Closed List Since Inception: 32.7% Gain

Update - Market Commentary and Open Positions

2007-08-06T01:07:00.000-07:00

Market Commentary

It is time to continue to hang tight and place trades accordingly. My past posts have had a bearish stance and sure enough the markets have behaved in line with that expectation. Going forward, I am surely not betting on a bullish trend. Expect Volatility to remain high and expect the market swings to the extreme. My post about last week expected to see a relief rally in the first half of the week. Last week turned out to be just that with the rally in the first half and the sell off happening in the second half. We have turned outlandishly oversold in the short term and there is an inkling that we could see a relief rally again in the first half of the week. There are two other factors that may also support the manifestation of rally and possibly lend credence to it. First the Fed Committee's statements and second, the Cisco earnings. A lot of experts and smart money are betting on the fact that given the wreck in credit markets, it is highly likely the Fed will make a statement to show preparedness to fight further onslaught of credit issues, if not cut the rates immediately. Secondly, the tech bellweather Cisco will report its earnings the same day. Wall Street earnestly listens to John Chambers partially because it believes nobody paints a better picture of tech capex spending as the Cisco earnings and guidance. These two could be another reason of the probability of a rally next week if they indicate preparedness to fight and paint a picture of optimism at the same time.

That said, I would still question the sustainability of this rally. Not because I am intrinsically pessimistic. But simply because it is too early to predict until the drama of credit market unfolds further. We don't need to be heroes trying to pick a bottom right now. We could do short term trading on rallies but that's about it. Or we could pick some really strong stocks on the long side and short some weak links.

A quick note on open ISRG position

In a past post, I mentioned we will keep a close watch on ISRG and pocket some profits by taking half off the table at the right time. The right time is not here yet. In a very encouraging move, ISRG has started forming a base just above 200. This may result in another shot at an upswing. We could potentially see this upswing as early as next week. If ISRG falls below $200 support, I will take half off the table and lock in some profits.

A quick note on open BZH position

I picked BZH short in the first post of this blog back in February 2007. It has gained a whopping 72 %. BZH had to face some ugly rumors this week. While the rumors were unfounded, the fear gripping the markets BZH is in is very real and this stock is in a very precarious position not to mention its consistently unimpressive earnings. We will however soon look for cover if there is what I would call a false buoyancy in the housing market

A quick note on Open PLUG position

PLUG will be closed soon sometime this week given the worsening situation. I will provide more explanation with the trade during that update.

No new trades for now. Hold. We will come back with some trades at a good entry point most likely mid week.

The Rathi Portfolio Holdings

Open List

BZH (Stock) - Sell Short - Opened on 2/14/07 at $41.54. Currently at $11.30 with 72.80% Gain
ISRG (Option) Jan08 130 Call - Buy Long-Opened on 3/8/07 at $9.60. Current at $87.50 with 811.00% Gain
GLD (Stock) - Buy Long - Opened on 7/10/07 at $65.61. Currently at $66.69 with 1.65% Gain
PLUG (Stock) - Buy Long - Opened on 7/16/07 at $3.25. Currently at $2.76 with 15% Loss

Closed List

CRDN (Stock) - Buy Long - Opened on 2/14/07 at $56.44. Closed on 07 at $79.37 with 40.63% Gain
TSO (Option) Jan 50 call - Buy Long-Opened on 7/10/07 at $14.40. Closed on 7/14/07 at $12.70 with 11.81% Loss
CTXS (Option) Jan 08 30 Call - Buy Long - Opened on 7/18/07 at $6.90. Closed on 7/23/07 at $9.20 with 33.33% Gain

Total Percentage Gain/Loss of Closed List Since Inception: 32.7% Gain

The Roller Coaster Has Just Started

2007-07-28T19:20:00.000-07:00

Portfolio Performance

The markets swooned but if you were holding the trades from the porfolio of this blog, you would have actually beat the markets big time! Currently the Closed List is standing tall with a gain of 32.7 % and the Open List is at a gain of 79.16 %. As always, the details are tracked and displayed at the bottom of each post.

Market Commentary

Okay so the markets got clobbered. Readers of this blog may not have been completely surprised as I predicted a negative outlook in my last post the week before. Going forward it may be slightly hard to predict short term direction of markets with 100 % confidence or close to that given the uncertaintly and risks. That said, I am more inclined to continue with my neutral to bearish stance on the markets.

Looking at the three indices, the charts paint a similar picture as if there is more short term downfall in the offing even if we see a relief rally on Monday or Tuesday. S&P has couple of supports in 1400-1450 range (currently at 1458.95). Nasdaq has no good support until 2450-2500 (currently at 2562.24). Dow Jones has no good support until 1275-1280 (currently at 13265.47).

All said and done, betting everything you have on the trend of the market would be akin to catching a falling knife or a rising geyser depending on whether you are bullish or bearish. The uncertainty comes from the conflicting messages of various data points such as - you name it - volatility swings (bearish), investor sentiment (bullish), technicals (bullish and bearish), earnings strength (neutral), economy (bullish), energy production issues (bearish), housing data (bearish), lending and leverage issues (bearish). In such cases, the prudent options are - (a) you become very picky and select extremely good stocks and keep tight stops, (b) you start buying on dips your favorite stocks that have been on your radar, be strong as the markets go down further with the hope that you are picking your stocks cheap and that they will eventually rise in the months to come, and (c) stay out of buying long with a protective hedge for your current long positions.

In the weeks to come the portfolio in this blog will attempt to do a mix of the above three options.

The Rathi Portfolio Holdings

Open List

BZH (Stock) - Sell Short - Opened on 2/14/07 at $41.54. Currently at $15.60 with 62.45% Gain
ISRG (Option) Jan08 130 Call - Buy Long-Opened on 3/8/07 at $9.60. Current at $79.20 with 725.00% Gain
GLD (Stock) - Buy Long - Opened on 7/10/07 at $65.61. Currently at $65.41 with 0.30% Loss
PLUG (Stock) - Buy Long - Opened on 7/16/07 at $3.25. Currently at $2.90 with 10.77% Loss

Closed List

CRDN (Stock) - Buy Long - Opened on 2/14/07 at $56.44. Closed on 07 at $79.37 with 40.63% Gain
TSO (Option) Jan 50 call - Buy Long-Opened on 7/10/07 at $14.40. Closed on 7/14/07 at $12.70 with 11.81% Loss
CTXS (Option) Jan 08 30 Call - Buy Long - Opened on 7/18/07 at $6.90. Closed on 7/23/07 at $9.20 with 33.33% Gain

Total Percentage Gain/Loss of Closed List Since Inception: 32.7% Gain

Update - ISRG, Close CTXS and General Commentary

2007-07-23T11:12:00.000-07:00

Close CTXS
I am closing my Citrix options position after pocketing a neat 34 % gain (sold the call options at $9.30). My observation in the last post that CTXS would see a gain in its stock price after the earnings release was accurate. How we love these quick profitable trades!

Portfolio Note
We have done extremely well given the mood swings of Mr Market. Our portfolio for closed positions is standing at a gain of 32%. As always detailed tracking is at the bottom of this post. Regular readers of this FREE blog must be smiling at least a tad bit. And that just goes on to prove one thing - there is such a thing as free lunch after all :)

ISRG - the Monster Trade with Monster Gains!
ISRG stood out in our portfolio like a knight in double shining armor! ISRG's earnings trounced the short bets and the stocks went up a whopping 35 % plus in the last three days. Since we were doing options trading, the position went up by more than 100 %! Of course it is all fluff until we get the money in the bank. Given the price momentum I continue to expect ISRG to benefit a bit more from its own trend. But if the overall markets go down, ISRG may unfortunately be a victim and get dragged down since there are no other catalysts. Remember ISRG is part of Nasdaq 100. Therefore market movements do have an impact on its share if there are no other catalysts. The only possible catalyst left in the near term is if the management decides to split the stock. I highly doubt this since I am guessing management would want to discourage excess speculative trading. So bottomline action item on ISRG - We will continue to closely monitor and look into taking half off the table in the next day or so. We will let the rest ride with a tight trailing spot. This will allow us to pocket profits and at the same time participate in any more upside surprises.

Market Commentary
As observed in the last few posts, the volatility remains high and the predictability scores low on market swings. Overall short term trend in my opinion is remaining neutral to bearish. Surprise positive earnings could always sway the markets higher. One good example is American Express, which reports after the Market close today. It could be a good short term trade because just like Citrix, I expect Amex shares to go higher. There are several reasons but the key is there may have been some amount of understimation on the usage of plastic on Internet. That said, speaking for overall market, given the seasonality and nothing much to move ahead with, traders may use this excuse to take some profits off the table, which is a wise strategy anyways.

TSO was a prescient call in my last update on this stock. After we sold off TSO for the reasons cited, those very conditions were responsible for its further slump. We will continue to monitor TSO and either enter back into it or look for a more integrated oil company to take advantage of energy prices.

Barrons had an interesting article this weekend. It observed that the individual investor aka "the little guy" hasn't yet stepped in and most of the trading is occurring at the institutional level. Barrons argued that when the little guy steps in we would have another upswing of the markets. While I agree with Barrons point of view, the chances of that happening are when the sentiment indicators change a bit more reflecting more of the individual investors' optimism. Also what I think could be added to the above observation is my comment from one of the past updates that we would most likely have another round of buying from foreign funds as well before the year is out.

We will continue to monitor the markets. Stay tuned.

The Rathi Portfolio Holdings Open List

Open List
GLD - (Equity trade) buy long (Opened at 65.61 on 7/10/07
PLUG - (Equity trade) buy long (Opened at 3.25 on 7/16/07)
BZH - (Equity trade) sell short (Opened at $41.54 on 2/14/07)
ISRG - (Option trade) buy Jan 2008 Calls $130 strike (Bought at 9.60 on 3/8/07) Closed List

Closed List
CRDN - closed at 79.37 - 40.63% Gain
TSO Jan 2008 50 Calls - closed at 12.7 - 11% Loss
CTXS Jan 08 30 Call Option - closed at 9.30 - 34 % Gain

Overall Gain/Loss of Closed Positions - 32% Gain

Mini Update - Buy CTXS before Earnings

2007-07-18T10:53:00.000-07:00

Market Commentary
Readers of this blog may not have been surprised by the market action today. Besides I have not been particularly enthusiastic about the earnings this week and had predicted more of a sell-the-news pattern. This turned out to be particularly true for Intel, Yahoo and most of financial stocks. Google is a toss up and most likely it will be a surprise to the upside. That said, market may swing back to the upside before the end of the week. So it is better to be on the sidelines on the overall stance of the market and see how things shake out before determining the next trend.

New Pick
Citrix Systems (CTXS): This is for those who are aggressive and capable of options trading. I was searching through any hidden gems that could actually benefit from earnings this week. After some research I believe Citrix systems is one of those stocks. Citrix is reporting end of day today. I have bought Jan 2008 options for a strike price of $30 at $6.60. I am expecting a 20 % move to the upside or more on this options price. Option symbol is XSQAF.

Update - TSO and Dow 14000

2007-07-14T13:28:00.000-07:00

An update on the TSO position. I am closing my position on TSO long. My fundamental views remain the same and I do believe this stock will rise over the course of one year. However, the recent speculation of impact of the higher refining capacity that I dissed in my last post has gained more credibility with the recent crack spread values. The oil futures have decreased. This has a direct impact on crack spreads and the biggest losers are the refiners. To add to this, Eric Bolling from CNBC's Fast Money, a long time bull on refiners, is pulling out. While I may not necessarily agree with all the views of Fast Money traders, I consider Eric an authority on energy trading. He is out there in the pits and he has a ground floor view of this whole thing. When Eric Bolling says sell, you don't ignore.

Given all the above developments, it doesn't make sense that I remain in TSO for the time being especially since I entered an options trade. As of this writing, I am closing my trade. The update portfolio list with overall gain/loss is listed below.

I would like to reiterate I continue to hold my long term view on TSO and other refiners. We will certainly look into reentering this trade in near future.

Market Commentary - Dow 14000

I am maintaining a neutral to bearish view on Markets especially starting the week of 7/23 based on some of the conditions and uncertainties I covered in my last post. That said, the market will most likely remain bullish this week and we should touch 14000 based on two factors (a) how the charts turned out at the end of Friday on major indices, (b) Options expiration. Unless the triple whammy of earnings/Ben's testimony/lack of institutional buying power overwhelm the market in a negative manner or in a sell-the-news mode sooner than expected, the above two factors may end up working in the favor of an upside for next week. And here is why - The charts display an upside week based on weekly candlesticks, slow stochastic and MACD signals. On the other hand, many traders would most likely try to cover their protective or speculative puts giving another reason for market to buoy up.

I will be closely watching my long stocks next week. It may be a good time to take further profits off the table. If things remain in the same shape as I have been speculating, it is quite likely I may plan to wait out the rest of the July after the next week. We will make a determination next week.

New Picks

PLUG - This is a play on rising energy costs and recent environmental awareness amongst the global masses. The Company is focused on proton exchange membrane (PEM), fuel cell and fuel processing technologies, from which multiple products are being offered or are under development. PLUG has some ways to go before it can come up with more commonly used commercial products at mass level. That said, it is taking the right steps to get out of its research-outfit mold and target for profitability. Through its acquisition of Cellex and General Hydrogen Corporation in April and May of this year, Plug Power is trying to engage both telecommunications and material handling as near-term markets and contributors to its revenue growth strategy. This looks clever. One interesting thing about this stock pick is this is not meant to be a short term trade. I believe this should be in every one's long term portfolio, 401K plans and similar baskets, and not just a short term trade. It seems the world is about to step its foot into an era of hydrogen and solar economy. Things may start firming up around the drivers of this new economy in the next one to two years and with oil potentially touching 100, it is quite likely that by 2009 companies like PLUG could become bell-weathers of hydrogen economy's domination on this planet. It is too early to tell anything firm but to me, the story has a good ring to it.

On Monday Morning, I placed an order for 3.25. This will potentially remain in our portfolio for a pretty long time. So there are no specific guidelines in terms of picking a good time for placing the trade. You can look into buying this stock any time over the course of next one to two months unless of course price doesn't shoot up too much due to some buy out rumor.

The Rathi Portfolio Holdings Open List

Open List

GLD - (Equity trade) buy long (Opened at 65.61 on 7/10/07
PLUG - (Equity trade) buy long (Opened at 3.25 on 7/16/07)
TSO - (Option trade) buy Jan 2008 Calls $50 strike (Bought at 14.40 on 7/10/07)
BZH - (Equity trade) sell short (Opened at $41.54 on 2/14/07)
ISRG - (Option trade) buy Jan 2008 Calls $130 strike (Bought at 9.60 on 3/8/07)

Closed List

CRDN - closed at 79.37 - 40.63% Gain
TSO Jan 2008 50 Calls - closed at 12.7 - 11% Loss

Overall Gain/Loss - 30 % Gain

Update

2007-07-13T14:37:00.000-07:00

Market Commentary

July 12th was interesting in so many ways! Besides it is funny that we should get the biggest rally in the last four years just a day before Friday the 13th, eh?

It would be an understatement to say that the week of July 9th ended in a triumph. As I mentioned in my last post the market continues to remain in an uptrend channel.

The big question is will we see a follow through next week? Does this rally have legs for intermediate and long term? The latter question has already been addressed in previous posts as I continue to believe we are still in a bull market for longer term. But lets look at the short term for a moment here.

The Tripple Whammy - Big Ben, Google and Buying Power

Next week not only has many of the tech titans reporting but also encapsulates Ben Bernanke's semi-annual testimony to Congress. Markets could have unpredictable swings if between the Big Ben and the Google, information comes in at different extremes. To me what makes the markets especially remarkable next week and the week after next is the impact of Volatility index VIX. It is very interesting and peculiar to note that the VIX didn't come down as much as you would expect given the rise of the indices. This to me is a bit concerning. Typically this would mean market is slightly more sensitive as compared to a thicker skinned solidly uptrending market. In other words, Ben's comments and Oil spikes have an enhanced power to sway the markets.

As for the earnings, it is largely expected that the tech titans like Google, eBay are going to report solid earnings. My gut is while that may be true, next week would give the traders a chance to sell on the news over a period of one to two weeks, unless the earnings are out-and-out blow-out and more importantly, the guidance is on an upside more than usual.

To add to the above mix, institutional participation during the rally wasn't that impressive. I am not an expert in terms of culling data in this area but I am lucky to have found quite a reliable source - Rainsford "Rennie" Yang on his website MarketTells , who has expounded upon this fairly articulately. He noted in his most recent post the absence of major buying power that seems to indicate that the buying has largely been speculative. If you combine this theory with the above points made, the bottomline advice would be - be careful in the near term but overall rejoice. As I mentioned before, the intermediate and long term channels remain bullish. Given the outlook, you will notice below I am not adding any new short term trades either long or short. You see on one hand there is no urgency to be highly optimistic and on the other, it may be stupid fighting the tape.

My analysis on the lack of impact of the rising yields on Private Equity so far has hit the mark as M&A continues unabated and unabashed illustrated by various events this week.

Status on Old Picks

Lets see how some of the old picks are doing.

GLD - we made a good call as gold has solidly risen since I recommended in the last post. Short term, gold will suffer some sell off but continue to hold. Intermediate term target of $70 remains in effect

BZH - This stock rose by 4 % which was not a good news since we are net short on this. Doesn't bother me so much because (a) we are already sitting on a gain of 40 % since this position was open so a new trailing stop will take care of the trade, and (b) the rise is temporary according to me. The stock is still in a downward channel and the overall housing market continues to languish. The combination of these two conditions is potent.

ISRG - Continue to hold. Its doing well

TSO - It dropped slightly since my recommendation. I had accurately predicted in my last post that it will languish a bit before the rise. But I went ahead and did the trade as I don't believe in timing my long term trades on very short term signals. The current slump in the stock value is because of speculation that we have enough supply in terms of refining (not the actual oil). This scenario has changed back and forth multiple times since the last few months and hence doesn't hold much credibility in my eyes from a longer term perspective. What is more important from a longer term perspective are the facts that crude oil remains on the rise and at a macro level refineries continue to remain in demand due to their rarity. Hold.

New Recommendations
No new recommendations. Hold on trading given the observations made above. It is quite likely we may miss some gains in the next two weeks given the temptation of some tech trades during the earnings season. But I would err on the side of safety. That said, I am continuing my study of STXS. It keeps looking attractive from a long term perspective and my belief that it is the next ISRG continues to reinforce. I am also looking at VIX options.

If you are very aggressive, you may want to go ahead and do a short term short on some of the tech names who are reporting earnings towards the end of next week. If my theory about selling the news for next week given the trifecta of lack of institutional participation, VIX sensitivity and the recent run up, is correct, you will pocket some nice gains.

We will pick up as some of the dust settles after next week's big events and technical trending. Have a nice weekend.

The Rathi Portfolio Holdings

Open List

GLD - (Equity trade) buy long (Opened at 65.61 on 7/10/07)
TSO - (Option trade) buy Jan 2008 Calls $50 strike (Bought at 14.40 on 7/10/07)
BZH - (Equity trade) sell short (Opened at $41.54 on 2/14/07)
ISRG - (Option trade) buy Jan 2008 Calls $130 strike (Bought at 9.60 on 3/8/07)

Closed List

CRDN - closed at 79.37 - 40.63% Gain

Update

2007-07-10T20:59:00.000-07:00

And you thought this was one of those blogs that would disappear into anonymity after a couple of odd posts? Well gotcha!!

General Reflections

I am loving my picks and I don't think I could have been luckier in my stock pickings. Each one of my recommendations has done solidly well since the day they were bought. As of this writing I am sitting on a portfolio gain of a whopping 86 %! Of course I am tempered by the fact that these are not realized gains, a timely sense I developed after losing the last shred of clothing I owned in the 2000 bust.

And a pragmatic sense of well being now tells me to take some profits off the table. So as of market close on today I have done just that as illustrated in my portfolio list at the bottom of this post.

Market Commentary

The volatile moves are not too surprising given the macro economic events and more importantly, the temptation to take some profits off the table. Back in March I reasoned the Bull run is still strong and will continue on. It did. Now I am wary of the short term. July and August look slightly unpredictable. Volatility is jumping up again. The slight sneak into the current earnings is not boding well either. But bearish undertones aside, the uptrend channels have not yet been broken and that still makes case for a long term bullish progress. Intermediate term I will be playing safe though as you will witness from my picks below.

A Quick Commentary On Private Equity And The Yield Rates

Every person on the street and his step brothers now knows what a Private Equity is and how it just keeps swallowing companies left and right. And every person is also wary from the media's coverage of the so-called negative impact of the current rising yields on Private Equity and consequently, the equity markets. While I am not qualified to predict the ultimate impact of the current yield rate on the equity markets, I think a lot more is being made of the yield rates in terms of impact on the Private Equity. My opinion is even if the yield were to go as high as 6 %, money is still cheap for PEs. Often we think of PEs as the subservient recipients beneficiaries of investments by Mega Pension funds and such. However, the global appetite for investment is paralleling the billion dollar funds of institutions like CALPERS, etc. Also we simply cannot ignore the fact that sovereign funds established by oil rich countries and likes of China and Singapore are chomping at their bits. In one word or maybe a few - PE state is healthy. In addition to this the wrong assumptions about PE actually works in their favor. And by wrong assumptions I mean worn out rhetoric such as how PE is bad for the poor companies who get loaded with debt. If that were indeed true, PEs are operating with an extremely high risk-reward framework. And that is just not their style. PEs do leverage, no doubt. But they often find targets they know will prosper eventually by operational tweaks or could get acquired by bigger fishes that will bring operational and human efficienceis that the target company, in its inertia, would have never achieved. The only downfall that exists is that when yield keeps getting higher, money will become much more expensive and that could dampen a PE's enthusiasm. That ain't gonna happen anytime soon. My guess is at least a year and a half. In the meantime, the fact that PEs are pumping money into the market will make you money if you are invested into equity markets. The reasons are quite obvious as many of you may have guessed - (a) Stock supply dwindles and this creates more demand for the existing shares, (b) Shorting becomes a risky proposition because you never know when a company you shorted might be a target. This also helps in reducing long term volatility, (c) New IPOs of the trimmed companies will induce psychological boost and consequently, new money into the markets.

Status on Old picks

Now let us quickly see how the old picks are doing and the positions that are getting closed in this post

BZH short - Still going gaga over this call. Housing continues to slump and with the SEC investigations on the management handling of some of the company affairs, BZH keeps going down. We are right now sitting at a profit of 46 %. I expect this stock to go further down as a result of warnings from D Horton and Home Depot. I am planning to close this position anytime as soon as the stock hits a technical support. Stay tuned

CRDN long - This puppy served me well and it is time to bid adieu. There may still be long term upside but I think it is now well into the overbought territory for my appetite for risk. So I am closing this position and pocketing a gain of 40 %.

ISRG long - ISRG has proven to be one resilient stock in spite of everything that is going on. ISRG has its earnings announcement coming up shortly. I am expecting the stock to continue to run up till the earnings day. It is quite likely the traders may sell on the news. I am watching it closely and will most likely close out my position on the earnings day depending on how far above the earnings were in terms of expectations. Right now we are sitting at a corner-to-corner-grinning gain of 172%! Keep holding it. A side note on this industry - I have been investigating a similar company that could be what ISRG was couple of years ago. I will post more on that after completing my research but if you are interested, it is called Stereotaxis (STXS)

New Positions

GLD long - For those who don't know you can now trade physical gold in form of a share on NYSE. This stock symbol represents just that. GLD has been going down quite a bit in the last couple of months. It has hit an important technical support area. Right now it is at 65.61 and my target is $70 in 2-4 months. Depending on the momentum when it crosses 70, it has a further upside to $80 in the intermediate term. But that is a discussion for later.

TSO long - Tesoro is one of the hottest refining stocks and I am going to shamelessly jump on the bandwagon of some very famous traders in the market who have placed their faith in this stock. My primary reasons are technical and macro-fundamental followed by company fundamentals. Technically the stock is poised to go higher from its current price of 60.8 to 65 and then onto 70. It is possible it may languish a bit for the next month or so given the chart patterns. At a macro-fundamental level, refineries have gained quite a bit of indispensable value simply because there are simply not enough of them to convert the crude oil and address the demand. Macro-shacro aside, I am in this one to make a quick buck and a relatively high percentage gain. Hence I am going for call options on this one and will close out as soon as the gains are realized.

The Rathi Portfolio Holdings

Open List

GLD - (Equity trade) buy long (Opened at 65.61 on 7/10/07)
TSO - (Option trade) buy Jan 2008 Calls $50 strike (Bought at 14.40 on 7/10/07)
BZH - (Equity trade) sell short (Opened at $41.54 on 2/14/07)
ISRG - (Option trade) buy Jan 2008 Calls $130 strike (Bought at 9.60 on 3/8/07)

Closed List

CRDN - closed at 79.37 - 40.63% Gain

Update

2007-03-08T15:28:00.000-08:00

The Market sold off and is trying to climb back up again. I am not an economist and I have this sinking feeling economists usually get it wrong. So I am glad I am not one. I cannot predict Market's next move as "good" as the economists do but I can certainly guess what my stocks are gonna do and therein lies the money baby! Ohhh Yeah! And if you force me real hard, I would just say one thing - the Market was like a bull (wink!). It ate something heavy on its way up and now it needs time to digest before resuming. Good for us because it allows us to pick some more diamonds in the rough.

Let us first see how our old picks are doing:

BZH short - I am so proud of this one. It was a prescient call as it has gone down from 41 to 36. It might make a move up in the next couple of days before a final leg down. That is when I am planning to cover it and will update here.

CRDN long - This one suffered initially as the Market plunged but I had faith in the longer term charts and surely enough the shorter term technicals have come around to support the long term trend. We are at a slight loss but I see green in the next few days as the stock makes it way back up above the moving averages.

New recommendations

ISRG - A groovy momentum stock with healthy fundamentals. To maximize gains, I have purchased call options.

Open List
CRDN - buy long (Bought at $56.44 on 2/14/07)
BZH - sell short (Sold at $41.54 on 2/14/07)
ISRG - buy Jan 2008 Calls $130 strike (Bought at 9.60 on 3/8/07)

Closed List
None 0 % Gain so far

The Fun Ride Starts

2007-02-14T19:53:00.000-08:00

Hi I am a big believer in having fun and doing what you love to do. The only catch is I love to do too many things! I was not going anywhere with this since I wanted to be PERRRRFECT...a chronic desease and highly annoying. So I have shed that off. I decided to pick one up and get going with it. The lucky one is stock picking. I love to pick stocks and I would like to think I am good at it. Markets fascinate me. My philosophy is quite simple. Use a pot pourri of methods to pick the best promising stocks and sometimes even Options. Sticking to just one strategy works only in one kind of market. So I like to be flexible to be able to embrace any kind of market - rising, falling, sideways. If my stock picking does well, I will think about a commercial subscription service. But that is a while from now. And if you are reading this, consider yourself lucky because you will get to make money without paying anything for it as long as the free posts last! :) And here come my first day picks:

CRDN Long: Reasons - Beautiful technical chart pattern. Lot of room to roar ahead. Stellar growth, weak competition from peers, favorable reports, undervalued compared to peers. (Added note: Bought at 2/14 close - $56.44)

BZH Short: Reasons - Technical patterns. (Added note: Bought at 2/14 close - $41.54)

February Open List
CRDN - buy
BZH - sell

February Closed List
None

0 % Gain so far