The Roller Coaster Has Just Started

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

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

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

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

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

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