30 November 2008

Suddenly, Tammy! for Sunday

Let's venture back to the mid-90's and enjoy some Suddenly, Tammy!

WDRE promoted "Plant Me" from their eponymous record. No luck finding a video or even a linkable mp3 for that tune.

I fondly recall seeing them perform at the Tin Angel with my friend, Dan. We each bought the band's sweetly corny school bus-logo t-shirts. And I believe they did a cover of the Maurice Sendak Pierre song. Or perhaps they covered "Linus and Lucy" from Peanuts.

Unfortunately, Suddenly, Tammy! suffered the fate of other 90's alt-rock acts like Juliana Hatfield and Riverside that submitted records that major labels refused to release. One more reason I'm thrilled to see the major labels' business models go to shite.

You can listen to some other tracks on Beth Sorrentino's MySpace page.

28 November 2008

Liam Finn - Second Chance

Liam Finn on Letterman performing Second Chance. You really must watch this clip. Just wait until he finishes setting up his guitar loops and walks back to the awaiting drum kit.

Fozzie Bear and Portfolio Changes

I dunno what Fozzie is doing in this picture, but in Britain, I'm pretty sure it's a quite rude statement unbecoming a Muppet.

I made some changes to the portfolio during today's truncated trading session.

Sold the remaining 5/6 of my position in UYG, the ultra-long financials ETF, at $6.30. Cost basis was $5.14 for a gain of 22.6%.

I was very comfortable booking this healthy profit, as UYG has climbed higher for five straight sessions and the RSI(2) closed at an overbought level of 94.

Instead of picking up shares in SKF, the ultra-short financials ETF, I put some of today's proceeds into FAZ, the financial bear 3X. I previously coined the not-so-catchy name for FAZ, calling them "uber-short financials" but I think the ticker says it all. I'll refer to 'em as shares of FAZ Bear, pronounced "fah-zee" or in Muppet-speak, Fozzie.

Bought 200 shares of Fozzie Bear at $55.98.

So how have shares of FAZ performed in comparison to SKF? Bespoke recently examined Direxion's entire line of 3X-leveraged ETFs. Here's an excerpt:

Although they've been trading for less than a month, the 3x ETFs have already become very popular trading vehicles. And with a market that is averaging a daily change of nearly 4%, these ETFs have already taken traders for a wild ride. Below we highlight price and volume charts of the 3x long and inverse Russell 1,000 and Financial ETFs. As shown, volume has picked up significantly in recent days for all of these 3x ETFs, reaching 10,000,000+ shares per day in some instances.

But the percentage change in these ETFs is what is really crazy. The inverse 3x Russell 1,000 ETF (BGZ) has already had a rally of 114% and a decline of 42% since trading began on November 5th! The Financial ETFs have been even crazier. The 3x long Financial ETF (FAS) declined 80% from its high on 11/10 to its low last Friday. Since then, it's already up 127%! The inverse one has been even crazier. From 11/6 to its high last Friday, FAZ went from $60 to $200 (235%). Since then, it has gone from $200 back down to $70 (-67%).

If you take a click on and take a quick look at the charts of FAZ and SKF below, you'll see that during the brief existence of FAZ, it has traded from ~$60 up to ~$200 and back down to ~$55. That's an upward move of ~233% followed by a drop of ~73%.

During that same 17-day timeframe, SKF traded from ~$120 up to ~$300 and back down to ~$135. That's an upward move of ~150% followed by a drop of ~55%.

FAZ is indeed offering quite a bit more trading juice than SKF, not that the 2X-leveraged SKF is a slouch when it comes to short-term volatility. And I'm now comfortable with FAZ's trading volume (~660K shares traded today, versus ~7.4M SKF shares traded).

I don't plan on keeping Fozzie Bear in the portfolio for long--I'll put him up for a few nights, let him clean up a bit, and then send him on his merry way into someone else's (presumably) short-term trading portfolio.

26 November 2008

Slate on the Return of Daytraders

Slate's The Big Money is writing about people like me (key stuff in bold; I included the other paragraphs for context):

TD Ameritrade, another brokerage popular with active traders, is seeing record levels of trading activity, according to representative Kim Hilyer. New assets for the first 20 days of October were approximately $2 billion, compared with $2.8 billion for the entire fourth quarter.

"Traders are taking advantage of the volatility in the markets-making more intraweek and intraday trades than we've seen before," Hilyer says. "Clients are not quitting their day jobs en masse to trade full time, but we are seeing casual traders becoming more active."

TradeStation, another firm that markets itself to high-volume investors, reported record net revenues of $41.8 million in the third quarter. The company's brokerage commissions and fees increased 22 percent year over year as a result of higher trading volume by the brokerage firm's client accounts, due mainly to increased market volatility and net account growth, according to SEC filings.

"High volatility means you have a lot of ups and downs in the market, and that allows you to trade," says CEO Solomon Sredni. "When the market is flat, there isn't as much opportunity."

Here's some more from the article:

Cathy Stockstill, a day trader who began playing the market during the first dot-com boom and, unlike many of her fellow investors, stayed with it, says the seesawing stock market has been "excellent for me."

She claims to have made $500,000 trading stocks, options, and exchange-traded funds in the last eight months. But she cautions: "This is work. This isn't easy."

Stockstill, who ran her own clothing and furniture businesses before deciding to invest full time, is constantly monitoring markets around the world, looking at futures, currencies, and other investments. She is an ongoing student of using various technical indicators to divine the direction of share prices. Bloomberg and CNBC are on in the background in her home office throughout the day. "There's a lot to know," she says. "If you don't understand charts, you can really get killed."

Portfolio Changes

It was quite a busy day-before-tucking-into-turkey. And I wasn't involved in any baking...yet.

Sold SSO, the ultra-long S&P 500 ETF, at $25.15. Cost basis was $18.98 for a gain of 32.5%.

Sold 1/6 of my position in UYG, the ultra-long financials ETF, at $5.80. Cost basis was $5.14 for a gain of 12.8%.

Bought FXP, the ultra-short China ETF, at $52.98 and at $49.40. New cost basis is $59.34.

Trading Agenda for the Holiday-Shortened Week

I'm planning on following Phil Davis' advice/outlook for the remainder of the trading week, which includes Wednesday and a half day on Friday:

In member chat yesterday we expected to see a 2.5% follow-through to the upside and we also said that not passing those levels (873 on the S&P, 8,650 on the Dow, 5,450 on the NYSE, 1,500 on the Nasdaq and 450 on the Russell) is a very good reason to cover for the weekend and be done with this crazy rally as we strap in for the next dip. That includes all of the fabulous calls we made yesterday and today, as all those crazy gains should be taken off the table or well protected ahead of the holidays. I still favor the DIA Jan $85 puts as overall protection to be bought around 8,600 as well as the DXDs again, now that they are back to $75, making the Jan $75s at $12 nice portfolio protection as that ETF was at $100 on Friday but hasn't been lower than $60 since June.

In place of DXD and DXD call options, I'll consider closing out my SSO position and switching over to shares of SDS.

Likewise, my UYG position is ripening, almost ready to be picked and sold at market:

And once I close out my UYG position, I'll swing on over and pick up SKF shares:

Finally, regarding FXP, the Gray Lady provided justification for playing the short side of China:

"Demand is definitely shrinking," Wang Wei, an investor relations manager, said as he toured one of the brand-new plants. "Everyone is cutting back capacity."

It is happening faster than most anyone predicted: China's economy, long the world's fastest-growing major economy, is slowing down. Economists are forecasting that after growing nearly 12 percent last year, China's economy could slow to 5.5 percent in the fourth quarter of this year — a stunning retreat for a country accustomed to boom times.
"It's the speed of the deceleration that scares people," says Liang Hong, a Goldman Sachs economist who said she recently surveyed companies in China.

The American recession is one big reason China's epic economic growth is imperiled: as Americans buy less, China sells less. And China's own efforts to keep its economy growing, through a stimulus package worth nearly $600 billion, may not replace a falloff in American demand as the United States' recession deepens.

25 November 2008

Facing the android's conundrum...

I feel like I could just fly.

Wait a sec.

Watch this wonderful acoustic version of the Shins' Australia, and note James Mercer's expression when he flubs the this line:

And here's the original song and video:

Time to put the ear goggles on!

23 November 2008

Sundays on Sunday

Since it's a Sunday, I thought these wonderful live videos of the Sundays were an apt choice. They remind me why I still listen to their records, eleven, sixteen, and eighteen years on.

There's much more here.

22 November 2008

Weakerthans - Tournament of Hearts

The Weakerthans - Tournament of Hearts

Yesterday, I posted a song about baseball. Today, a song aboot a more obscure sport, curling. The video is quite nice, with some good period touches, like the stubbies of beer.

21 November 2008

Music for the Weekend - Luna, Dream Syndicate, and the Baseball Project

Luna - Live cover of That's What You Always Say from 1992

Luna frontman, Dean Wareham, appeared in yesterday's musical post with his hawt wife Britta Phillips. He's also the author of the memoir Black Postcards, published earlier this year.

Dream Syndicate, with the original version.

Steve Wynn, the Dream Syndicate's frontman, is now a part of the Baseball Project. Here's a clip from their Letterman appearance:

Portfolio Changes

I started rebuilding my ultra-short China position during the rush of the last half-hour of trading today.

I picked up 100 shares of FXP at 3:36pm for the bargain price of $69.98. Bought another 100 shares at 3:53pm at a cheaper price of $65.98. Returned to the trough one last time at 3:57pm and grabbed another 100 shares at $63.49.

Cost basis of the new FXP position: $66.483

The bottom fell out of FXP today. On Thursday, FXP closed at $93 a share. This afternoon, FXP closed at $64.50, a drop of 30.65%:

20 November 2008

Dean & Britta - You Turn My Head Around

Market Update and Portfolio Changes

The Gray Lady provides succinct commentary for the day's market action:

In a day dominated by fear and uncertainty, financial markets plunged in late trading, carving new lows, after spending much of the day bobbing between positive and negative territory. The Dow Jones industrial average was 444.99 points or 5.5 percent lower Thursday afternoon at the close. The wider Standard & Poor’s 500-stock index was down 54.14 points or 6.7 percent, adding to its losses after tumbling 6 percent on Wednesday. The Nasdaq fell 5 percent.
Financial shares, which took the brunt of Wednesday’s losses, continued their bad streak on Thursday. Citigroup fell by double digits for a second day, to less than $5 a share, despite news that Prince al-Walid bin Talal of Saudi Arabia was increasing his stake in the troubled banking giant to 5 percent. Banks from Wells Fargo to Bank of America to JPMorgan Chase were all down in afternoon trading.

There's a helluva lot more reasons--all negative--contained in the Times' article. I couldn't bear to bear more bad news in this blog. And yes, that's a lot of bear.

On second thought, I couldn't resist disagreeing with the following passage:

“We think it’s going to continue to go lower,” said Ryan Detrick of Schaeffer’s Investment Research. “We don’t think people are scared enough. They’re just not showing enough fear. People are numb to this, they’re almost immune to it.”

C'mon, the VIX crossed 80 today. And the Big 3 CEO's have been sent back to Detroit with nothing but a homework assignment due December 2nd, ruining their Thanksgiving holidays.

I took advantage of another day of carnage and turned some more idling cash into shares:

Bought more UYG at $3.98 in the a.m. and at $3.64 in the p.m. (noticing a downward trend here?) for a new cost basis of that growing position of $5.14. UYG traded in a range of $3.62 to $4.73 today. I did harbor thoughts of unloading this morning's purchase at ~$4.80 for a quick intra-day 20% gain, but alas, UYG failed to scale those heights. Instead, I had an opportunity to buy shares near the close for even lower.

Bought shares of SSO, the ultra-long 2X S&P 500 ETF, in the last fifteen minutes at $18.98.

19 November 2008

Ted Leo - La Costa Brava

I have no excuse to be so damned late to hopping onto the Ted Leo bandwagon.

At the end of this musically interesting (if not visually), listen for the wonderful tagline from the show where this video originated (at 5m32s):

"The Sound of Young America is a public radio show and podcast about things that are awesome."

That too is pretty awesome.

Pogues - White City

The Pogues - White City

This lament about the disappearance of dog tracks from the scene first appeared to me late at night on MTV's 120 Minutes. It's nice to be able to watch this again.

In case you find Shane MacGowan's singing fairly indecipherable, here are the lyrics, cribbed from one of the many lyrics sites on the interweb:

Here a tower shining bright
Once stood gleaming in the night
Where now there's just the rubble
In the hole here the paddies and the frogs
Came to gamble on the dogs
Came to gamble on the dogs not long ago

Oh the torn up ticket stubs
From a hundred thousand mugs
Now washed away with dead dreams in the rain
And the car-parks going up
And they're pulling down the pubs
And its just another bloody rainy day

Oh sweet city of my dreams
Of speed and skill and schemes
Like atlantis you just disappeared from view
And the hare upon the wire
Has been burnt upon your pyre
Like the black dog that once raced
Out from trap two

Portfolio Changes

Dow closes just below 8K.

Good times, good times.

Hence, some changes to the portfolio, namely I sold out my short position, and added to my cash and long positions.

Sold 300 shares of FXP at $82.34 and 200 shares of FXP at $88.02, for an average sale price of $84.612. The cost basis my former FXP position: $69.89. That's a gain of 21.1%.

I started building the FXP position back on November 4, twelve trading days ago. If the market rallies off of these abysmal levels, I'll happily buy up shares at lower prices.

Bought UYG at $5.10 in the a.m. and at $4.75 in the p.m. for a new cost basis of $5.80.

16 November 2008

Portfolio Changes and an Explanation of My Current Trading Strategy

Another 450-point Dow rollercoaster on Friday offered up another opportunity to convert cash into shares.

Bought UYG at $6.70 near day's end. This purchase upped my cost basis in UYG to $6.45.

During this volatile bear market, my current strategy is to play the market swings by following technicals like overbought/oversold indicators like RSI(2) and Full Stochastics. Also, since I believe we are in a bear market, I will take on larger short positions and hold less cash when the market is up or overbought. Likewise, when the market is down or oversold, I will build long positions but maintain a larger cash position.

My toolkit for trading the market is pretty straightforward and simple. For my trading portfolio, I'm keeping to a small menu of ETFs and generally avoiding shares in individual companies.

For my long positions, I have been looking at the ultra-long 2X-leveraged ETFs in the S&P 500, NASDAQ-100, or Dow, tickers SSO, QLD, or DDM. As you know from reading this blog, I also like trading the ultra-long 2X-leveraged financials ETF as well, ticker UYG.

For my short positions, I use the inverse ultra-short 2X-leveraged ETFs in the S&P 500, NASDAQ-100, or Dow, tickers SDS, QID, or DXD. I also utilize the ultra-short 2X-leveraged financials ETF, ticker SKF, and the ultra-short 2X-leveraged China ETF, ticker FXP.

I like GLD for gold exposure, and may start looking at DIG/DUG for playing the burst bubble of the oil market.

Danse La Poutine

Omnikrom avec TTC - Danse la poutine

Yesterday, while judging Iron Chef Brooklyn-Battle Cheddar, fellow judge and friend Jeff mentioned the above video while we discussed our mutual love of Quebec's major contribution to the culinary world, poutine. Even though my French is pretty piss-poor, the chorus consists of a rundown on how to make poutine, including using "fromage squish squish," presumably referring to cheese curds.

14 November 2008

Up Up and Away

Up Up and Away by the Fifth Dimension

Even though this song dates back to the 60's, I recall hearing it over the p.a. at concerts at my elementary school, Haddonfield Friends, as a recessional while the audience dispersed.

Watching the video, I was reminded of a should-be-classic 80's film, and one of its characters, Don "No Soul" Simmons. Here's a clip:

Today's 900-point Dow range offered up some prime swing trading opportunities. I made some additions to the portfolio, turning cash into shares:

Bought UYG at $6.09 during the morning slump for a new cost basis of $6.4125.

Bought FXP at $64.46 and $60.35 during the last fifteen minutes of the market breakout for a new cost basis of $69.89.

12 November 2008

Portfolio Changes - Swing Trades

Made some portfolio changes today, as my positions in ultra-short financials and ultra-short S&P 500 were looking overbought, and pregnant with profits:

Sold SKF at $164.00 from a cost basis of $124.76 for a gain of 31.5%:

Sold SDS at $100.50 from a cost basis of $82.36 for a gain of 22.0%:

I initiated a swing trade, buying shares of the ultra-long financials ETF, UYG, at a cost basis of $6.735. However, I only committed around 20% of the proceeds from the sale of the ultra-short ETFs to the ultra-long position. I expect to add to the long side tomorrow, but since these are counter-trend long positions, I want to keep these positions smaller.

Swing trading reminded me of the jazzy synth-pop act Swing Out Sister and their 1986 single, Breakout:

So will the markets breakout to the upside soon? The technicals suggest the broader market is oversold.

Phil Davis' market outlook
from Wednesday morning thinks we'll see a turnaround, if not a breakout:
So, will the "R" word finally send us to that blow-off bottom the buyers seem to be waiting for (the real buyers, that is, not the manipulators who swing the market every which way each afternoon)? I still maintain that, fundamentally, a recession is already priced into most of the market and 8,200 remains our BUYBUYBUY target. But investing remains a game for the patient - there is no quick turnaround coming as it's the consumers who are hurting and consumer spending makes up 70% of our economy and there is nothing that Bush, Bernanke or Paulson have done so far that does a damn thing for those consumers so - CAVEAT EMPTOR!

11 November 2008

Next Retailer to Go Bust?

On the day after Circuit City's bankruptcy, why not examine which retailers are likely shuffle off this mortal coil during this recession.

Over the weekend roaming the Philly neighborhoods of Northern Liberties, Old City, and South Street with JVL, we broached the topic of which retailer is next to go bust. (We already assumed that Circuit City was fucked.) I nominated the following as retailers likely to see their demise:

JVL offered up:

You could say we based our picks on the current downtrodden real estate market, and the fact that the American consumer decided to stop spending money last month. Or you could say we pulled these places out of the ether.

Then yesterday, I had the pleasure of spending a quiet Sunday afternoon at the Mall at Short Hills. Nordstrom's seemed pretty mellow. As did Banana Republic. And both were having significant sales.

We dropped into Restoration Hardware, which seems to have veered away from furniture, and smaller bits like door knobs and switch plates, and over to tschotschkes. On offer were overpriced Pottery Barn-ripoff Xmas ornaments as well as electronic drumsticks and foldable pianos that looked destined for the Sharper Image before that chain went belly-up.

Are my doomed retailer picks actually looking to follow Circuit City into Chapter 11?

First up, Pier 1.

John Gabriel from Morningstar is negative on Pier 1's prospects (bold added):

As we have seen with other home furnishing retailers, store traffic continues to diminish at Pier 1, with September comparable-store sales (sales growth from those stores open for more than a year) declining 11.7%. Consumers are significantly paring back home-related purchases in light of a challenging economic climate. We do not foresee a reversal in store traffic in the immediate future, which increases the likelihood of markdown activity and makes near-term sales and profitability much more difficult to forecast.

More important, our concerns about Pier 1's financial position have increased. The company had $191 million in cash on hand and $117 million of availability under its revolving credit facility at the end of August, which should be sufficient to fund short-term operations. However, Pier 1 has generated negative free cash flow through the first half of the fiscal year, and it looks less likely the company will be free cash flow positive for the year. With exceptionally tight credit market conditions, a prolonged slowdown in the sale of home-related products could have a disastrous impact on the company. If conditions continue to worsen, we believe bankruptcy is a legitimate possibility. We believe our fair value estimate warrants a higher uncertainty rating until there is greater stability in overall market conditions.

In the same Pier 1 analyst report, the first "Bulls Say" sidebar argument in favor of Pier 1 is exactly what Restoration Hardware is attempting with its tschotschke focus:
Pier 1's new merchandise strategy of offering small "cash-and-carry" items has helped drive traffic back into its stores and bolstered top-line growth. The firm shrewdly eschewed carrying large, high-ticket furniture items, which tend to be slow moving and often require financing.

R.J. Hottovy at Morningstar covers Williams-Sonoma, owner of its namesake stores, as well as Pottery Barn and West Elm. Until very recently, Hottovy was optimistic on the Williams-Sonoma and West Elm concepts; less so on Pottery Barn. However, the American consumer's spending freeze quickly altered that outlook:

We are placing Williams-Sonoma WSM under review as we assess management's lowered outlook for 2008. Although it provided revised expectations on its second-quarter update in late August, management slashed it's revenue and earnings-per-share forecasts for the remainder of the year amid significant deterioration in consumer demand for home-furnishing products (comparable-store sales were negative 14% in August, negative 20.1% in September, and negative 26.6% in October so far). Full-year net revenue is now expected to be between $3.274 billion and $3.344 billion, reflecting year-over-year declines of 15%-17%. The sales forecast assumes comparable-store sales (sales from stores open for more than a year) will decline a whopping 17.7% to 19.3% for the year. The significantly lower consumer demand should lead to higher markdown cadence and operating expense deleverage as fixed costs are spread over a smaller sales base. As a result, Williams-Sonoma also cut it's earnings-per-share outlook (excluding one-time items) to $0.11-$0.33 from a range of $0.89-$1.01.

Morningstar cut its fair value estimate on Williams-Sonoma shares by almost one-third.

Design Within Reach is not covered by Morningstar. That speaks volumes. So does the following chart:

Restoration Hardware was bought out by two private equity firms for $4.50-a-share (~$175M) in 2008. They got taken.

Portfolio Changes

On Monday, I added shares of FXP at $69.99 for a new cost basis of $77.48.

Click on the annotated chart to view the recent volatility and volume in share of FXP:

Los Campesinos! - We Throw Parties, You Throw Knives

07 November 2008

The Party Rages On - Zumpano

- The Party Rages On

I first heard Zumpano posthumously, digging up their two records after hearing the New Pornographers' Mass Romantic and reading about Carl Newman's previous Sub Pop band. The video is circa 1994, and is shot in the style of Koreatown karaoke videos, with sing-along lyrics running in front of some generic sorta-romantic narrative.

Why did I pick a song like this, and not Tom Petty's Free Fallin', Toad's Fall Down, or R.E.M.'s Fall on Me?

I was well-prepared for this market pullback--my portfolio is packed with ultra-short ETFs, and a 10% drop over two days means the party is raging on for me.

Bespoke points out the two-day 10% temper tantrum has put the market in with some rarified company:

Worst Two Day Decline Since The '87 Crash

While the declines we saw in October seemed extreme, one landmark we failed to reach during that period was a two-day decline of 10% or more. Well, we can check that one off the list. With two 5% declines in a row, the S&P 500 is now down 10.02% since election day.

What if ultra-short (or ultra-long) 2X ETFs aren't juicing your returns enough in this volatile market environment?

How about triple-leveraged ETFs! 3X!

If I were to name 'em, I'd call them uber-long and uber-short.

Maybe it's a good thing I'm not in marketing.

If these funds ever take off, generate some trading volume, and become an attractive trading vehicle, I'll be sure to use the 'uber' modifier.

Eight uber-leveraged funds started trading already:

Direxion says that the eight 3x leveraged ETFs should launch on Wednesday. They're part of some 36 in the works.

"Do you have an opinion on the direction of the market? Maybe you are interested in overweighting or under-weighting a certain sector. Direxion Shares powerful 3x leverage (the highest in the ETF and mutual fund industry) seeks to amplify the performance (positively or negatively) of your investment capital by 300%," said the company in recent marketing material made available to investors.

For example, if the Russell 1000 Index gains 1% in a trading session, the Direxion Large Cap Bull 3x ETF is designed to gain 3%. On the other hand, the Direxion Large Cap Bear 3x ETF would move in just the opposite direction. If the same Russell index fell 1%, the ETF's goal would be to gain about 3%.

I linked the tickers to stockcharts.com's charts for these newly-hatched ETFs. And here they are:

3x Russell 1000 Index Long/Short - BGU/BGZ
3x Russell 2000 Index Long/Short - TNA/TZA
3x Russell 1000 Energy Long/Short - ERX/ERY
3x Russell 1000 Financials Long/Short - FAS/FAZ

05 November 2008

Melody Day

2008 Polaris Prize winner
Caribou (f.k.a. Manitoba) - Melody Day

Sweet psychedelic electronic music layered with guitars, soft tenor vocals, and booming percussion. Celebratory music for the the Wednesday after Election Day.

How did the market react to Obama's victory?

According to the AP, Wall Street had a temper tantrum:

NEW YORK (AP) -- A case of post-election nerves has sent stocks plunging as investors, again anxious about a recession, are wondering what impact a Barack Obama presidency will have on business and the overall economy. Volatility has returned on Wall Street, with the Dow Jones industrials falling 486 points to the 9,139 level, and all the major indexes tumbling more than 5 percent.

The market was expected to give back some gains after a six-day runup that lifted the Standard & Poor's 500 index more than 18 percent. But investors lost some of their confidence about the economy and began dumping stocks again; light volume helped exaggerate the price swings, and there was more late-day selling by hedge funds.

Analysts said the market is also growing anxious about whom Obama selects as the next Treasury Secretary, as well as whom he picks for other Cabinet positions.

The second paragraph is key--the S&P had been on a tear, climbing from 845 to 1007 over six days until Obama became President-elect, which apparently drove the S&P down to 952.

Really, did Obama cause this? Or was it that the technically overbought market, perhaps a bear-market sucker's rally, reverted to its long-term downward trend?

I vote for correlation without causation, i.e. reversion to the trend.

In the spirit of the market's overbought status, I picked up additional shares of FXP, the ultra-short China ETF, at $79.25, bringing up the cost basis of my position to $78.975.

FXP should climb considerably higher tomorrow, since as I'm writing this, the Hang Seng is down nearly 6.5%. In after hours trading, FXP was already trading for nearly $90-a-share.

My short-term price target for FXP is ~$120, although FXP has traded as high as $200-a-share over the last month. This price target is when I'll start contemplating unloading my position.

04 November 2008

Today's Moves

Two Hours Traffic - Stuck for the Summer

I picked Two Hours Traffic's power pop as I spent almost two hours this morning standing on line to vote.

I may have missed the opening gap-up in the market, but I didn't stay on the sidelines for long:

Bought 100 shares of FXP at $78.70. Couldn't get my late order filled for another 100 shares at $74.40--perhaps tomorrow.

Sold another 3/8 of my AIG position for $2.40, for a loss of 49.4%. AIG ran up for a gain of over 12.5% at the close. AIG is also quite overbought in the short-term, with an RSI(2) reading of 95 at the close.

If you found my purely technical justification for shorting China via FXP, Nouriel Roubini offered up some choice bearish fundamental arguments favoring shorting China, via Clusterstock:

That recent uplift in global stock prices? A "sucker's rally." The recent economic news in the US? "Worse than awful." Read on...

For the last few years the global economy has been running on two engines, the U.S. on the consumption side and China on the production side, both lifting the entire global economy. The U.S. has been the consumer of first and last resort spending more than its income and running large current account deficits while China (and other emerging market economies) has been the producer of first and last resort, spending less than its income and running ever larger current account surpluses.

For the last few months the first engine of global growth has effectively shut down as the latest batch of macro news from the U.S. are worse than awful: collapsing consumption and consumer confidence, plunging housing, collapsing auto sales, plunging durable goods spending (while also supply side indicators such as production, ISM and employment are also free falling). The U.S. is entering its worst consumer recession in decades both supply and demand data look worse than in the severe recessions of 1974-75 and 1980-82. And in due time this tsunami of awful macro news, together with ugly downside surprises to earnings will take another toll on equity valuations that are now temporarily lifted by another bear market sucker's rally.

More worrisome there are now increasing signs that the other main engine of the global economy – China - is also stalling.

Taking Another Good Hard Look at FXP for a Short-Term Trade

Stars - Elevator Love Letter

I remember picking up Stars' second record back in '03 at the FNAC in Barcelona after hearing this song presumably on CBC Radio 3. Enjoy.

And now let's shift from Montreal pop to Hong Kong stocks...

I previously examined the ultra-short FTSE/Xinhua 25 ETF (FXP) on WershovenistPig. Please read that post if you want to see that there are no new ideas, only old ideas regurgitated and hopefully reinvigorated with new data.

FXP is a tricky ETF in that it gives an American retail investor an easy and liquid way to short China.

What red-blooded, Commie-baiting American doesn't want to short China? Likewise, in the future according to Joss Whedon, what Browncoat wouldn't want to do what he could to undermine the Sino-American alliance?

However, FXP doesn't track the Hang Seng, or the CSI 300. FXP attempts to double the inverse returns of FXI, whose holdings are some of the largest companies that trade in Hong Kong. If you click on the next chart, you will see how the Hang Seng correlates with the FXI ETF. Note how the ratio remained between 480 and 530 through late-August, and since then, FXI has had significant difficulty tracking the Hang Seng index.

What the above-chart shows, and what I have experienced with previously owning FXP, is it's difficult to get a good grasp on where FXP will trade based on watching the Hang Seng.

A superior way to evaluate FXP is to forego fundamental analysis and go strictly technical. Over the past year simply using the RSI(2) indicator, and buying shares when the indicator is oversold (generally at or below 15), is a profitable endeavor with a high rate of success:

My over-annotated chart shows that the RSI(2) of FXP closed below 15 today.

A quick glance at the chart shows that FXP has dropped almost 100 points in the last six trading sessions. To say this is a volatile ETF is to say something glaringly obvious. FXP has dropped to the $80's, a level of support from which it has subsequently soared three times over the last two months.

I will be shopping for shares later today, perhaps buying from some poor schmuck who recently picked up shares at $180.

Short on the S&P 500

The S&P 500 index failed to break through the 985-level again today. Why is this relevant to my ultra-short S&P position (SDS)?

Trader Mike answers in this post:

I've still got my eyes on the resistance around the highs of October 17th, 20th and 21st (depending on which index you're looking at). Until the bulls can produce a high above those highs I have to consider this rally nothing but a retracement in a larger downtrend.

I annotated my own chart adding today's continued confirmation of the S&P 500's downward trend:

In addition to the stochastics showing the S&P overbought, the RSI(2) also indicates the S&P is overbought.

03 November 2008

Portfolio Changes

I made some portfolio changes on Friday so as to achieve a better mix of long, short, and cash positions. Click on the annotated charts for some explanations of the timing of my trades.

Bought ultra-short S&P 500 ETF (SDS) at $82.36.

Bought ultra-short financials ETF (SKF) at $124.76.

Sold 3/8 of my AIG position at $1.85 from a cost basis of 4.74375. That's a loss of 61%.

The Wedding Present - Ringway to Seatac

01 November 2008