MAY MARKET THREAD

As per Gunners lingering in one month when another is upon us is bad juju.

I wish the Fed had stopped cutting rates altogether. I think to have done so would have burst, temporarily, the commodities bubble and reinvigorated the dollar.

 It would have hurt some of my holdings in oil, but I would gladly trade that for a respite in inflationary trends.

Anyway, market up currently as I type, as XOM gets pummeled despite gigantic earnings.

Dow	12,990.62	+170.49	(1.33%)
Nasdaq	2,469.80	+57.00	(2.36%)
S&P 500	1,405.00	+19.41	(1.40%)
10y bond	3.76%	+0.05	(1.35%)
USD-Euro	0.647	+0.0071	(1.106%)
USD-Yen	104.050	+0.3000	(0.289%)
USD-GBP	0.506	+0.0033	(0.653%)

 Dow   Nasdaq   S&P 500 

Markets looking strong, that nooner selloff of sorts has come back to near the highs again.

The combination of FED confidence and stronger dollar/lower commodities is fueling the move.

It goes to show that you neve know where the market will move, I expected the market would sell off after the FED yesterday because the unknown was center stage and when the market doesnt know what to think it usually goes down.

The valuations especially in TECH look disturbing, I wont be going long AAPL or GOOG or AMZN, and the reversal in stocks like MON and POT is quite impressive.

finally had good day with IMB, been a long wait. Still getting buried overall but at least looking better.  q1 loss 50-60% less than q4, I was hoping for more but at least it appears the market liked it....wrote 10billion in loans with 85-90% resellalbe to GSE's.  Raised 84 million in direct stock purchase plan and said it had an inpact on share price, I guess that means these were new shares issued?? 104 of the 152 retail branches were profitable in march.  Those are some of the highlights.  We will see how this works out, not sure if much else will impact the stock come earnings on 5/12 since most of info is out now.  We will see....

Grinder,

Yeah that is the reason why, like you noted they feel things are improving and I agree.

The stock is severely oversold, that doesnt mean it might retrace back but I am not selling until double digits..that might seem like a stretch but I think the stock is way undervalued.

whereismyhat,

This is the tough part..where to play a STOP on the stock, if you went all in.

So did you put the full balance on the trade? And if so at what price?  

WIMHat:

This may be perceived as dull advice, but, even with 5,000 you should stick with conservative, low P/E stocks that pay some consistent dividend, and leave speculation to only 2% or 5% of your portfolio.

With low commissions, you can do that, or send the bulk to conservatively run, low expense fund like Marty Whitman's Third Avenue funds...

 It is dull when first starting out,and I resisted doing so, to my regret later.But trite as it sounds, slow and steady usually works until you really get familiar with what you are studying.

 

Gunners,

I dunno about that..market showing some weak legs for sure.

Commodity stocks and momentum stocks are moving today, my DRYS got a nice coverage start and it is up almost 5 bucks.

sean - the recent drop in RIMM (jan/feb) is b/c of the delays in their 3G phones. how it competes with apple's 3G will tell the stock story also

CY is a nice play, they own 25% of SNPR so they have an intruiging solar angle as well

fyi - i love steel (AKS, X) and semiconductors (better to buy an index than a particular stock IMO)

STP right?

You could average in since you did it right, keep a 10% stop or so on the trade.

thanks for the info koaj

you could average down a little and still not violate a stop.

Buying in pieces like I mentioned works perfectly when a stock is consolidating..so if you were going to buy 100 shares in total you buy it in 2,3,4 pieces and then you create a total position after averaging down..then your total average buy is less than if you had bought all 50/100 shares that day.

Now if you were thinking that 25 is all you were doing, forget that and just keep an exit (stop) loss price in mind and if the stock goes there you have to pull the trigger.

An example of an average buy-in for me was DRYS..I started buying I think near 91 last year, but years of market experience has taught me that buying in pieces and building a position is a safer way to trade for a POSITION than buying all at once..so I bought down lower and lower and lower...my last buy was 62 I think, all posted here and so now instead of being flat on the trade, my average price for all shares combined is more like 70-72 and I am up nicely.

Same goes for the stock IDMI..I started buying like at 4 and nibbled all the way down, then it ran and I ended up making money on the trade.

Sometimes buying down doesnt work if the stock goes up up up, but I have decided it is smarter to average into the trade and miss than buy all at once and have the trade go against me.

I hope that made sense.

   

If you are buying down you are getting the stock at a cheaper price...right?  So if the stock goes up up up, then it is a good thing, why are you saying it doesn't work in this case?

 

The scenario it doesnt work would be the following-

Say you wanted to have a 100 share position in STP and the first buy price was 44.75, but you only bought 25 shares thinking you could get a better price, so you just buy 25.

Then the stock goes from 45 to 50 to 55..good for the 25 shares, but you MISSED the full position getting 100 shares, so you only realize a gain on the 25 shares since it didnt fall and you didnt buy more.

The scenario it stinks is when the stock doesnt drop and you only get a part of the position purchased.

When I get into a trade I look at the number of shares I want to purchase overall..so if that is 50 shares or 5000 shares, I know what I want in total, then I try to buy on weakness and see if I can build a position. Then I decide how I want to buy the shares, in 1/3 position or 1/2 or 1/4th or the WHOLE thing at once (rare that I do so) and I start buying.

Now with STP this is how I would have approached it-

CHART

STP has been a SELL based on technical indicators since Jan, but ESPECIALLY since Feb when it was hanging around the black line (black line is the 200 day moving average) and it hit the red line (the 20 day average) and it broke down through that 200 day moving average which would be considered technical support..look at the blue line (which is the stock trading price) and how it bumped against the black line for a full year..then in late Feb it crashed through the black line the 200 day support and failed..went lower..that is a technical failure and it was time to be OUT of the stock from a trading perspective.

Now notice that the 200 day moving average (the black line) is where the stock bounces to and fails to go through it..that is called resistance..and until it breaks that 200 day moving average and we start seeing the green and the red (the 50 and 20 day averages) start to slope UP, the stock is still in a down trend.

This is an important time for the stock technically, the moving averages are conflicting..one moving up, the other has been trending down, but if you get that green line to trend up and intersect with the red line and the stock moves through it and the 200 day, you could be in a very good trade.

Now if you were long the stock I would keep an eye on those technical indicators and my next buy would be if the stock hit that green indicator, the 50 day and bounced up off it..which means the 40-41 area..that would be my next buy point.

Look at how explosive it can be when a stock breaks above the moving averages-

DRYS

Its been good for 20 pts after that breakout..and I have been quite happy.

Ask questions, most of us are good at understanding this and are more than happy to help.

 A summary I generally agree with...

“At some point the market will begin to anticipate an earnings recovery in this cycle as well. Reference to a static PE ratio for the market will not help us identify a turning point. A method of correcting for cyclical peaks and troughs in earnings is to look at a ten-year average of PE ratios. The accompanying chart plots this average from 1900 to the present. It reveals the high level of equity valuations, which have prevailed over the past twenty years. Through 1987 the market PE averaged 13.3. Over the twenty years since, the market PE has averaged 22.0. To some extent, the higher recent multiples have been justified by the sustained disinflation experienced over the period. History shows that periods of falling inflation (and falling bond yields) have been associated with rising PE multiples.

“However, it is not clear that the environment going forward will be benign. Global inflation rates seem to be ticking higher. US ten-year bond yields at 3.50% are currently quite low and not discounting the risk of potential higher inflation. Over the next few years, should higher inflationary pressures lead to rising bond yields, this would probably usher in a period of contracting PE multiples. Such a scenario may not come to pass, or may take some time to unfold. But the prospect of this risk in conjunction with the relatively high levels of valuation going into this recession means that the market may disappoint those investors looking for a resumption of outsized equity market returns following this economic slowdown.”

I agree with that.

The artificial way that the FED has stopped the recession is obviously having inflationary pressures and will only get worse as they take the foot off the pedal and have to reverse course.

The swoon in the market and drop in earnings will only last longer the more and more the FED keeps pumping liquidity and not being concerned about the inflation this is creating.