Need to be very careful this week!

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****!

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

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

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

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

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

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

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

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

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