Commodities are back incase you haven't noticed already

Oil, gas, gold. Everything that has actual value as opposed to currencies.

The devaluing of the US dollar and massive injections of credit of the Obama administration to curb the downturn means the commodities trade is back on with a vengence.

Further, China is stockpiling oil and coal and other raw materials at current depressed prices.

With these two tail winds, I am long on oil and natural gas. I am playing oil with AET.un and USO. Gas, I am playing with UNG and KWK. 

Two stocks on China

The two stocks I want to focus on today is FXI and OCNF

FXI, a play on H-shares Chinese stocks listed in Hong Kong. The Hang Seng index has broken out past 16000 two days ago in a beautiful cup and handle chart formation. The 20dma is above the 50dma. All this on the back of strong economic data coming out of China. I am adding to my FXI holdings on pullbacks.

OCNF is a dry shipping company with a fleet of ships. This is a play on the China recovery story. Yesterday saw heavy volume over 20M shares traded on average volume under 2M. This is a $1.85 stock at the moment and extremely risky. 

Messrs. Buffett and Munger on Math and Theories

Excerpt from the Wallstreet Journal:

Messrs. Buffett and Munger made clear their complete disdain for the use of higher-order mathematics in finance.

"There is so much that's false and nutty in modern investing practice and modern investment banking, that if you just reduced the nonsense, that's a goal you should reasonably hope for," Mr. Buffett said. Regarding complex calculations used to value purchases, he said: "If you need to use a computer or a calculator to make the calculation, you shouldn't buy it."

Said Mr. Munger: "Some of the worst business decisions I've ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you, but it doesn't. They teach that in business schools because, well, they've got to do something."

Mr. Buffett said: "If you stand up in front of a business class and say a bird in the hand is worth two in the bush, you won't get tenure....Higher mathematics my be dangerous and lead you down pathways that are better left untrod."

Trading is like Farming

An analogy I just thought about is farming. Being a trader and investor is very much like a farmer.

We only have so many seeds to sow (capital). We need to constantly decide where to sow our seeds.

Trader - Invest in short term or long term securities (short swing trade or longterm investment)

Farmer - Plant crops that grow quickly or slowly

Trader - Buy and sell at what price based on information and speculation

Farmer - Buy and sell seeds at what price, will the seed prices rise or fall? Sell your crops now because you think prices will fall, or sell later because you think prices will rise?

Trader - Take a percentage of annual gains away from trading account into savings account. For spending and for a rainy day

Farmer - Take a percentage of crops and keep it stored. Wheat, rice can be eaten should you expect a draught to feed the family.

Trader - Mr Market forces are strong. Many things you cannot control and can get wrong. The markets can be brutal and trades can always go against you

Farmer - Always at the mercy of Mother nature. The climate, floods, droughts, pests. All can destroy your hard work and leave you devastated.

Adding to shorts

I have added a number of short yesterday. I am now net short. My biggest short positions is skf (long the bear financial) and tna (short the bull 3x etf). TNA is my favorite because it has been in a one month upward channel where it has been bouncing off a beautiful ascending channel. Further, it also hit a resistance of about $28 set 2.5months ago. The bottom of this channel is at $23.5.

Two Hedge fund managers I have the greatest respect for Doug Kass and Eric Bolling have also been selling into this strength in the markets and adding to shorts. This in addition to what I see in chart formations of what looks to be a temporary top on the markets (SPX 890) gives me additional confidence with my decision to go short.

The next leg down to 860 on the SPX is the near term target. Ideally, I would like to see the SPX start to form a downtrend. I don't expect the fall to be quick but also don't expect 760 to be breached.

For currencies, the EURUSD would be a great short should it fall below 1.3212 the 20dma line.

Getting a little short

I haven't been making major trades and also have been staying low in trading.

The markets have been meandering back and forth. A terrible environment to trade except for scalping small hourly gains. Without any real trending in the broad markets, this environment has been very unfriendly for gains.

I am however getting a little short putting on small positions in skf and sds. The SPX rallied past resistance at 876 today after the FED announcement but the rally quickly faded. The risk/reward is now pointing slightly more to the down side.

I would caution however that the markets are churning back and forth. Put tight stops on positions and don't be worried about small losses if they are triggered.

Big money is made on the big moves and they will more than cover the small losses.

Stress test results are coming up on May 4. And I expect a sell off on the banks before the news from fear that some of them will required more funding.

Backing and filling

I am not trading this market.

I am holding my core positions in oil and ag. aet.un and VT.

I also hold a trading position in gold. In kgc and au. Gold has taken a bit of a beating the last 3 days but I believe it is oversold and any meaningful pullback in the markets will see a big rebound in gold.

Otherwise trading in this market has been difficult. I have been trying to play the short side with SKF but the market has refused to go down so far. Last hour of trading has also seen much program trading pull the markets up. I've been taking small losses on SKF daily as I don't want to hold it overnight, but I am ready to pull the trigger and long SKF whenever there is indication that the market is ready for a fall.

Bulls power over the bears

The markets gapped up in the morning and continued moving up until the afternoon until what looked like there might be a sell off. The markets tried to push through 845 on the S&P and when failed seesawed in to the close. A mild sell off in to the close about 15 minutes before close.

A rather tough day for me. I held small positions on two ultra shorts overnight and they both gapped down after the announcement that Mark to market accounting was going to be eased. SKF and SRS. I managed to half my losses in SKF by doubling down on dips. With SRS however I was not as lucky as it kept falling losing 9% when I had to cut my losses. SKF had resistance as financial firms tried to sell off.

On a day when financials are the reasons the market is up. The financials themselves sold off which everything else powered up.

On a brighter note. I sold my GOLD in KGC and AU just before market close the day before. I noticed weak volume in the GDX as it reached the top of the recent trading channel. This morning, GDX sold off hard to the bottom on that very channel where I picked up my shares in KGC and AU again. 

After market, RIMM announced earnings and it was better than expected. The shares powered to $60 after market. I think this is way over done and suspect RIMM may have 'stuffed the channel' with products. They have also been aggressively pushing products such as the CURVE for free with contract. I am going to start a short on RIMM when markets re open.

S&P holds 780

The S&P held 780 an hour before market closed. But the bounce off that level was weak. There has been some heavy put buying on WFC (Wells Fargo) and the weakness in financials prevented the S&P from making a stronger showing.

If 780 doesn't hold tomorrow, look for 750 to be the next strong support.

My holdings are minimal at the moment. 

Core holdings of AET.un, VT, KGC and AU.

Trading position in spwrb and UWM.

Sold SKF today for 14pt gain from Friday.

I want to see the S&P test and hold 780 again tomorrow before building my positions again.

A real fight today beneath the surface

The market may have looked calm or even too quiet today if you only looked at the one day chart of the S&P. But there was a real battle going on beneath the calm surface between the bulls and the bears.

All day, the S&P fought to break the strong resistance at 827. It broke it finally around midday only to fall back to 820. Financials started to fall and it looked from aspects that the S&P might retest 790 (which is the number I was hoping to see). 

However, 820 has become staunch resistance and in the last hour of trading, the markets gained steam and finished the day firmly above 827 at 832. This is a fantastic showing for the bulls. The S&P is good for another 50-60pts to about 880 is my expectation at this point.

Solar stocks rocked up today with my single digit solar stocks gaining upwards of 40%. There was a report out on Bloomberg about China providing subsidies to people who wish to install solar systems. As I have written in the past, I have been holding SPWRB. I sold off some near the one day peak at $26.44 and a bit more as people took profits. I have now added back my position seeing how well the S&P has ended. I am anticipating a multiday rally should this rumor turn out to be true. I may however bail should this rumor turn out to be ...well, only a rumor.

I am holding tight to my gold (KGC and AU) at this point. My holding of FXI is also showing nice gains. These are core holdings.

I have no holdings outside the core holdings. I want to have better entry points before loading up on the financials again. They have been great winners for me this year and I must refrain from getting overly greedy. Never a good thing.

Current trade

The markets powered higher on Monday followed by a light sell off yesterday.

I sold 2/3 of my SKF on Friday for about a 15% gain. The remaining 1/3 got stopped out on Monday in the 500pt DOW runup. I also covered a short on Baidu after it showed unwillingness to go down. This was a great exit as Baidu rocked to over $195.

I also sold a number of longs into the strength including UVM Ultra Long Russell 2000 ETF. It went up over 10% in a day and when making money becomes seemingly too easy and quick in the markets, its a sign that you need to slow down. 

My plan is to ease back into the markets on pullbacks such as the one yesterday. 

I am still about 40% long. Long in gold, oil, agriculture and China. 

I am trading the FXI in and out. Holding a core position but buying on weakness and selling on strength. 

I have no holdings in financials at the moment, but looking to get back into Wells Fargo WFC and Financial ETFs. Morgan Stanley showed great strength yesterday.

I caution not to chase this rally though. Earnings season is coming up around the corner starting about 2 weeks away. This period is usually very volatile and stocks that have fun up prior is likely to sell off.

I am sitting on 20% gains this year. So I am going to sit tight and and be more selective in my entry points for equities at this point.

The reinstatement of the Uptick rule may be around the corner. If it passes through, we could see the markets melt up 20%+. 

Signs of financial exhaustion

Financials have begun to sell off timidly today. A healthy sign after the massive runnup over the last 7 trading days.

Taking profits on my financial longs was a great decision in hindsight. Although I missed 5 points on my POT as it gapped up today! (can't win them all)

I am now shorting the financials by being long the SKF. Looking for 30% profit target on this that should happen within the next 2-3 trading days. Plan to get back in Long with WFC and IYF near support levels.

Also long gold with Kinross gold. Canadian company KPC. Another 7%+ gain today. It has ramped so fast I am feeling a bit shaky on this wanting to take profits. I'll see how it goes tomorrow but the FED's decision to massively print money has ignited a bull run on GOLD like I've never seen before. I'll probably sit tight on my holdings and look to continue to add positions on weakness. Added some AU today on weakness to my gold holdings.

Solar also up nicely today with my holdings of SPWRB, up almost 10% today. This one is very volatile so buyer beware.

Markets melted up after FED announcement today

Big up day today after comments from the FED.

This was take action day and as the S&P hit 800, I took profits on over 2/3 of my longs.

I took profits off the financials which have seen massive gains the last few days. I think short term, they have run their course. Pigs get slaughtered in the markets and I have sold all my IYF and Wells Fargo for over 25% gains in less than a week. Even after the melt up, C and MS did not ramp and could not break the highs. This was a sign for me to sell the financials for now and get back in later.

Gold is up big and I continue to hold gold with my KGC (Kinross gold) holdings up over 10% in one day. The FED's announcement to buy treasuries is going to push gold to new highs. Watch Gold carefully and buy on dips.

Some technology shares also did not follow the rally. GOOG, RIMM, BIDU were mostly flat for the day. This was also a red flag for me to take profits.

I am still long on KFC, SPWRB, FXI, VT

SKF is also nearing $100 from a high of $267 just 5 days ago. Wish I held my short on this until now, sold out too fast. But financials have come up too fast too soon and I am looking at going long SKF below $103 (to short the financials at 2X leverage)

Exhaused from the rapid action and trading today, going to get some much needed rest....

DOW loses 200pts in afternoon trading

The DOW sold off 200pts in afternoon trading yesterday. This sell-off is healthy and is necessary for any sustained rally. 

I have added some long positions this morning on the dip. 

Most hedge funds are still very poorly positioned for this rally. And if the bears are unable to push the markets down any more in a significant way (additional 200pt+ down days for the DOW). Look for more short covering and rapid change of sentiment from the investment community.

Asian markets also closed strong today. Japan was up nicely and my 7&i holdings made some nice gains.

Hong Kong also did very well with no major sell-off. Basically a flat day to take a breather after the recent run up.

Possible resistance S&P 793

I'm watching the S&P at 793 to hit some resistance at its 50 day moving average. 

Markets are having much resiliance so far but the bears won't let go this easy. Cramer had a piece out this weekend that most Hedge funds are very underinvested at this time and would certainly gun for a correction to load up on equities. 

I am still firm on expecting a 200pt drop in the DOW very soon. 

So I'm watching the 793 level on the S&P to take profits.

In the meantime, financials are strong but many have hit some hard resistance such as WFC at $15.

Friday close

We are ending Friday slightly in the green.

A positive sign for the days ahead.

But I can't help but feel this might be a bull trap. If you look at the charts today, we were very range bound and traded almost perfectly to trend lines. No real big buyers in the market today, just traders yanking the markets back and forth.

Careful of a big pull back next week. Don't chase stocks. But the next big sell off will be the time to back up the truck and go long.

Have a great weekend.

Yawner

Friday, today is the last trading day of the week. What a yawner today. Volume is very low and the markets are just treading along with no direction around the unchanged line.

My prediction of a 150pt+ drop doesn't look like is going to happen. But that is not to say it might not happen early next week. Bernanke is on 60minutes this Sunday and what he says (or not say) will likely caues some ripples in the market.

The bulls and bears are pretty much standing still today. Neither willing to commit cash before the weekend. 

I am slightly long with holdings in POT, WFC, FXI, AET.UN and VT. I've also hedged slightly with a small holding of SDS (ultra short S&P). 

I feel the urge to jump into the markets as this rally has legs. But I don't want to commit more cash unless the markets dip. Hopefully will happen early next week.

I'm looking at DOW below 7000 to aggresively add to my position. In the time being, the job of a good trader is to sit tight and not over trade.

Stewart doesn't know what he is talking about

One of the hottest topics in the investing world is the 'Daily Show' aired yesterday with Jon Stewart interviewing Jim Cramer. Here's the link:

http://www.thedailyshow.com/full-episodes/index.jhtml?episodeId=220533

It is clear that Stewart is just trying to blow off some steam and unfair with Jim.

Jim provides a service to individual investors. He gives the inside scoop on Wall street and the workings that most of us just won't know otherwise. Does he have any idea how much valuable information Jim has given us through the years?

The whole financial mess is a combination of greedy bankers and frankly greedy politicians as well. Not the fault of CNBC and even less so Jim.

There are traders and investors. Some prefer to trade often, tracking the markets. Some don't want to look at it for years. CNBC provides information to all. Interviews and shows aimed for traders are not for the casual investors. Stewart doesn't even seem to understand that point.

Jim was way too nice on the show and unnecessarily apologized for false attacks from Stewart. 

A fair day after yesterday's massive runnup

The tape is playing perfectly to what I wrote yesterday. In the first 30 minutes of trade, the market was up rapidly and tested 7000 on the DOW. It has since drifted lower all day after.

I sold off my longs in the first 30 minutes and have since added some longs back during this retreat. 

From my perch, the drift today is not bad at all. Volume is low and no major sell off after yesterday's massive gains.

The last hour will be crucial. If the indexes can finish solidly in the green it would be a great sign. If not, it might just drift around the unchanged line.

Either way, I think there will be a good chance there will be a 150-200pt down day on the DOW within the next two trading days. This would be a good time to reload on the long positions especially the financials.

The re-instatement of the uptick rule I believe is for real and the effect not to be underestimated.

Great quote from Tobin Smith's newsletter regarding investing in today's fearful markets

As Ambrose Hollingworth Redmoon (deceased manager of the legendary rock bank, Quicksilver Messenger Service) aptly wrote: 

"Courage is not the absence of fear, but rather the judgment that something else is more important than one's fear. The timid presume it is lack of fear that allows the brave to act when the timid do not. But to take action when one is not afraid is easy. To refrain when afraid is also easy. To take action regardless of fear is brave." 

Nice close above 6900 on the DOW

We were able to close above 6900, this is a great sign. I am now looking for a nice strong follow through day. Up day on strong volume. 

But as I've stated in my previous post. I took profits just before the close as we rose above 6900 on the DOW. I sold off my SPY longs. And took half my shorts on the SKF. There is still a very high chance we will continue to rise tomorrow, but I will play cautious for now and take some profits. 

If the markets rise again strong tomorrow morning, I plan to cover all my SKF shorts and sell a third of my FXI. This because I anticipate the DOW hitting resistance at 7000 and sell off. I will then rebuild my longs.

One very interesting piece of information I just heard on Bloomberg is that there is some strong talk about reinstating the uptick rule on shorts before the end of the month. This means one can no longer short a stock unless there has been an uptick. This will prevent the relentless pounding on stocks that has been so apparent with the bank stocks. This piece of information is crucial as it will carry the bank stocks up very rapidly. There will be a massive short covering should that happen.

I am looking to rebuild my SKF short near the $200 level. Hopefully if it gets there. I may also build a small TBT position as I believe money will flow out of treasuries to add to equity positions.

Games plan:

- Take profits on longs if we have a strong open within the first 30 minutes tomorrow

- DOW @ 6780 is where I will rebuild long positions.

- If we don't get a strong open, I will just build small long positions slowly as the markets retreat to each support level

Best of luck to all.

Take some profits

I am looking at the 6900 level on the DOW today to unload some shares and lock in some profit. I have been long the S&P and short the SKF with solid profits in only two days. If the markets finish strong today, I am expecting a mild sell off tomorrow and then resume on a less violent bear market rally until the DOW and S&P reaches the downtrend lines. 

My AET.un, VT and FXI are longer term holds so I may lighten a bit on them if the price continues to appreciate quickly. And then pick up some shares back when it falls back to support levels again.

Don't forget that this is a bear market rally we are going into now. Stay nimble, keep long positions small and manageable. And if you do go long, stick with solid themes such as Oil, Gas, China and agriculture.

Rebound or head fake?

Markets up today after days of sell off. I am not chasing this rally though. It feels like a lot of short covering to me. But I am holding on to most of my longs but sold off some of my SSO into the strength. The markets may rally tomorrow but there are too many headwinds. Further, the financials and GE did not rally today. The Chinese stimulus is good news but probably not enough the sustain the markets to rally for a few more days. The unemployment numbers coming out of the US was horrible today and the market wants to rally so bad it kept blinders to the numbers.

What I am thinking in the back of my head is that a few notable perma bear hedge fund managers are coming out and calling for a market bottom. 

Ultimately though, I stand firm in the belief that the market will bottom when the S&P 500 falls below 550. But this does not mean we head straight there. We could see a multi-day rally that takes us over 900 on the S&P first which no trader should miss out on.

I am holding tight to my FXI, agriculture and oils for now. Selling off a portion of my S&P longs (SSO).

Time to unload

I am selling into today's strength. With the garbage stimulus plan and employment falling off a cliff. We are not at bottom yet. There is not much the Obama stimulus plan can do to turn the tide at the moment. Further, states are having budget problems, Eastern Europe is having credit problems (which will drag Western Europe down). Everyone needs money all of a sudden and only a few will be able to borrow. Some entities will be forced to raise bond rates to attract buyers (Spain) and this will further push and damage the already suffering economy.

I am selling into the strength BIDU, GOOG, RIMM, TBT. But keeping my FXI, VT and AET.un

Time to cover some shorts

I am covering a bunch of shorts today after this Tim Geithner speech. As bad as I think he is as the new Treasury secretary, the markets are showing signs of a temporary bottom. As a trader, we can never fight the market despite longer term beliefs. Large instirutions are starting to pick at stocks so its time to ride this wave for a bit. I covered most GBP and EUR shorts and long FXI, BIDU, CTRP, TBT, VT, AET.UN. I also feel oil is bottoming so this is time to start loading up on Canadian oil trusts that have great management and already reduced their dividends substantially such at Arc Energy.

We enjoyed the boom cycle, now deal with the bust cycle

Why are some things so simple, repeated again and again on TV. It is actually beginning to annoy me. Two of the most talked about topics on Bloomberg:

1) Banks are not lending even though they took in the TARP money from the government. And instead of lending, they are using the capital to shore up their balance sheets or make mergers and acquisitions.

The simple truth:
Of course they are! Banks are businesses out to make money, not provide social security. They lend you an umbrella when it is sunny. Not when it is raining. And certainly not when they need the umbrella themselves!

Business is bad and this economic tsunami is big. The bankers certainly know it. They are not going to lend if they know businesses are going to go 'out of' business 6 months from now. They know things are not going to get better no matter what the politicians say. TARP money or no TARP money. Get used to it. And all these portfolio managers and talking heads need to shut up about things getting better in the second half of 2009. This financial trouble we are in right now is so big that it is going to take at least 5 to 10 years to get through. They of course have an agenda to say it will get better soon because they want you to invest money into the markets not withdraw from it! 

As for the banks using the TARP money to shore up balance sheets and make acquisitions. Of course they are going to do it. They are here to make money. Lending it to soon-to-be-bankrupt small businesses will lose them money. But scooping up distressed competitors will make them money.

2) Bailouts, stimulus package and more bailouts!

The simple truth:
Out economies are contracting from a level that was simply an inflated bubble. We were living in a world fueled by debt. Money borrowed from the future. Make no mistake about it. Whatever comforts, increasing standards of living and entitlement one may feel especially was created from debt. This is especially true for most Western and developed economies. There has been little real value created with the ever expanding service industry.

Now is the time to pay the price as this bubble has popped and will continue to deflate. All this rubbish talk from politicians around the world talking about 'fixing' the problem with more debt is ludicrous. First of all, excessive debt is what got us here in the first place. Second of all, this bust cycle we are in now is so big, that nothing these politicians do now can stop the tide in the short term. The only way is to suffer the pain in this bust cycle the same way we all enjoyed the boom cycle. Let companies fail. Deal with the layoffs, high jobless rates and home foreclosures. Values will decrease and then money will come back into the markets naturally when the prices have reached the right level. Things have been overpriced, too high and for too long. Now prices must come down for our economies to truly be healthy again and resume on an upward trajectory. Home prices, wages, standards of living have all been inflated and overshot to the upside. Now they must come down as part of a natural cycle.

Unfortunately politicians need votes in the short term. So they want short term solutions and push the real solution away which is short term pain for long term gain.

And as people, we have become accustomed to expect only good times. We feel entitled to a good life and ever increasing standards of living.

And this is the world that we live. And this will continue to prevent us from accepting the reality of the situation required to take on real solutions. So let’s just continue to talk about it on Bloomberg and maybe a miracle will happen. We'll wake up and this was all just a bad dream.

Obama did not bounce

Obama bounce not happening. Indexes look like they are going to retest the lows and very possibly pierce them. Everyone needs to be exposed to the short side. Whether as a hedge to long term holds or to profit from the downside.

Obama rally coming?

15th of January today. Obama's inauguration is only 5 days away. The markets are anticipating an Obama bounce. Much like the one when he won the election. Will this happen? I think it is very likely. For one thing, he's a great talker and has a way of instilling confidence in people. Seconly, the markets have sold off fairly hard the last 6 trading days so that sets up a perfect back drop for a few days of rally. If the markets don't pickup by Friday. It certaily will by Monday. Further, Citi is releasing their earnings early tomorrow and I believe the markets will rally because it has already priced in the worst in the short term. So I would cover any financial shorts. After Obama's inauguration, it is very hard to say. Will the markets continue to rally for a few more days or sell off on the news? I wish I knew the answer!

Currency Trends

So far in 2009, currency trends feel like they are on 'reset'. The trends that have worked in the second half of 2008 are no longer working. Then, currency strengths were JPY>USD>EUR>GBP. So far this year, the cross rates have been in flux and difficult to grasp. So far for the first few trading days of the year, the strengths are AUD>CAD>EUR>USD>GBP>JPY.

Happy trading