29 May 2009

South Korea Trade - After the Initial Nuclear Threat from the North

I closed out the South Korea trade by selling my June $35 EWY calls for $1.90. That's a quick gain of 46% off of a cost basis of $1.30. Considering how craptastic my shorts have been over the last month, I am very pleased at this one-day result.

As I write this, the KOSPI is down about 0.25%, so it looks like I timed closing out this position better than when I opened it.

Even though the inspiration for this trade was buying in on overreaction to bad geopolitical news, the relative strength of the South Korean stock market and its strong upward trend may invite me back into buying more calls in the near-term. Here's the pictorial justification for such a trade:

28 May 2009

Jay Bennett, R.I.P.

Some fine fellow uploaded this Wilco performance on Austin City Limits from 1999. This concert features my favorite Wilco incarnation from the late 90's, featuring the unfortunately late Jay Bennett on keys, guitar, and the motherfuckin' 12-string on "Nothing'severgonnastandinmyway(again)" sporting some serious dreadlocks.

W.R. Grace - A Potential Trade

One short idea from Tim Knight's Slope of Hope caught my attention this evening, the corporate star of A Civil Action, W.R. Grace:

I'm more comfortable with Stockcharts.com's charts, so here's an annotated daily chart of GRA:

And here's a compelling weekly chart, replete with how I'm considering entering into a GRA trade:

27 May 2009

Calling Bullshit on North Korea By Buying EWY Calls

Totalitarian holdout North Korea attempted to scare its oppressed people into further submission by testing nukes. The South Korean stock market reacted accordingly:

May 27 (Bloomberg) -- South Korea’s won dropped 0.2 percent to 1,265.45 per dollar after North Korea threatened military action in response to the Seoul-based government joining a program to seize weapons shipments.

The benchmark Kospi stock index dropped 0.7 percent to 1,363.54.

Of course, this happened on a day when Japan climbed ~1+% and the Hang Seng rocketed up 4+%.

So I picked up some June EWY $35 calls a bit prematurely for $1.30. My annotated chart below projects a price target of at least $38 by June options expiration. This assumes that EWY will continue on its trendline prior to this nuclear threat hiccup.

Real Estate Follow-Up

Here's an updated annotated chart of IYR:

Towards the end of today's melt-up, I bought some June $22 SRS calls for $1.65. Let's hope Wednesday's market makes some sense and reflects rationality. I'm not holding my breath--and I'm glad I have 18 trading days until June options expiration.

On the substantive side, the Times reported on the glut of Manhattan commercial real estate by focusing on one of the players in my industry:

At 1095 Avenue of the Americas, Dechert, a law firm with a lease for the 25th through 31st floors, is seeking to sublet two floors, each 37,000 square feet.

Brokers say that many sublandlords will probably need to bend over backward to sublease their space, given the sharp rise in vacancies.

In Midtown Manhattan, for example, 13 percent of prime, modern, well-located offices — which brokers often refer to as Class A space — was available in April, up from 6.5 percent a year earlier, according to Colliers ABR, a commercial real estate services company. And sublets now account for some 40 percent of the space available in Midtown, compared with 30 percent of the much smaller total that was available a year ago, the company said.

In some cases, the ink was barely dry on the original lease before the space went back on the market for sublet.

For example, Dechert, a global corporate law firm, has completed one year of a 15-year lease for the 25th through 31st floors at 1095 Avenue of the Americas, a 41-story office tower between 41st and 42nd Street, overlooking Bryant Park.

When the firm moved in last year, it intentionally took an extra floor, which it planned to use for future expansion, and from the start it has had a subtenant on the whole 31st floor. But that sublease expires in July, and the subtenant does not plan to renew. Since last year, the law firm has also had several rounds of layoffs, and it needs less space.

Judith B. Tellefsen, the director of real estate and purchasing for Dechert, said the firm would like to sublet two floors, preferably lower floors, which are each 37,000 square feet. “We are only partially occupying the 25th and 26th floors, and we could easily consolidate those lawyers on other floors,” she said. Ms. Tellefsen said that the firm would be flexible, though, if a subtenant wanted the 31st floor instead.

26 May 2009

Trading the Woes of Commercial Real Estate

The real estate bubble is old news, priced into the market long ago. The focus has been on the housing side of things, but with the recent bankruptcy of General Growth Properties, the #2 mall operator, some media is starting to notice the shit's hit the fan in commercial real estate.

At the center of the worries is some $3.5 trillion in debt backed by everything from strip malls to offices and apartments across the nation -- the lion's share of which is badly underwater because this recession followed a five-year commercial property boom fueled by easy money and loose underwriting standards.

Now the owners of the less-than-full malls, apartment complexes and office buildings are succumbing to the worst economic collapse since the Great Depression -- because they can't refinance the debt.

The commercial debt securitization market is dead.

"Because there is no securitization the system cannot process the wave of maturities coming due," said Scott Latham, commercial property broker at Cushman & Wakefield.

"This is arguably the most important fact we're going to be dealing with. If there's no mortgage market that can feed the machine you're just not going to have deals," he said. "It's going to be years before we recover and even when that happens we're going to discover that we're in a new paradigm," Latham added.

About $1.4 trillion in real estate debt is set to mature over the next four years, with some $204 billion coming due this year alone.

The fundamental story is clear. Let's look at the technical side of things with an annotated chart of IYR, the iShares Dow Jones U.S. Real Estate ETF:

The nice upward channel recently ended. Now we're looking at a triangle formation with decreasing volume. It looks to me like this real estate rally has petered out.

How will I play this? I'll take a look at the 2X-levered short ETF, SRS. As you can see below, all of the cool kids are checking out SRS:

This chart of SRS shows that lots of money has evaporated during this bear-market rally. Shares of SRS have fallen from ~$111 down to ~$20.

My plan for this week is to look at picking up some shares of SRS, or at the very least, some June $25 calls.

20 May 2009

Technical Analysts Think Oil Could Drop from $60 to the Mid-$40's

Oil may drop from $60 down to the mid-$40's, according to technical analysts at Citi.

That would certainly benefit my DUG calls. And that's why I'm going through the rigamarole of posting this story and creating the chart below.

Margot Habiby at Bloomberg filed the story. Here's an excerpt:

Crude oil prices may fall to the mid- $40s, after failing to sustain a move above $60 a barrel last week, according to Citi FX technical analysts.

Oil’s rally stalled at a six-month high of $60.08 a barrel on May 12, after rising 79 percent from a low of $33.55 three months earlier. It also failed to break $60 in a 4.8 percent rally yesterday.

“Crude faltered at the psychological $60 level, and momentum has turned down, suggesting the danger of a shorter- term correction,” said Tom Fitzpatrick, chief technical analyst at Citi FX, part of Citigroup Capital Markets in New York, in a report co-written with London-based analyst Shyam Devani.

Oil has “good support” at $54.50 to $55 a barrel, in line with the futures contract’s high of $54.66 a barrel on March 26. Further support lies at $50 to $50.50 a barrel, a range that encompasses crude’s highs in December and January.

The Bloomberg story did not provide an annotated chart, so I crafted one:

Granted, the price of oil does not correlate with the price of the Dow Jones U.S. Oil & Gas Index, the index underlying the DIG/DUG duo. However, the price of oil is a decent proxy for providing supporting evidence for my trade.

If oil falls to the $55-level, DUG should move up to $21-$22. If oil breaches that support level and falls to the $49-level, DUG should move up to $25-$26. If oil were to fall to the mid-$40's, DUG could shoot up to $28-or-more.

19 May 2009

Initiated the Oil Trade - Part One

I initiated my oil swing trade this morning, picking up some June $19 DUG calls at $1.50.

Here's an annotated chart of the underlying index for DUG, the Dow Jones U.S. Oil & Gas Index:

And here's a wishfully-annotated chart for DUG.

Phoenix - Lisztomania

18 May 2009

Oil Swing Trade

Here's the oil-based swing trade I have in the works.

First off, Tim Knight provided the first bit of inspiration with a post pointing out the breakout of ERY, the 3X-bear energy ETF:

Anyway, one interesting graph (which is my best dollar gainer today) is ERY, which I think has a pretty clear shot to $30.

Instead of trading ERX/ERY, or the 2X-levered energy ETFs DIG/DUG, or the XLE, I took a look at the options for each. The June 20 DUG calls seem to offer the best combination of liquidity, a tighter bid/ask than the ERY calls or XLE puts I considered, and, of course, the best bang for the buck if my call is correct.

Here's DUG's chart:

My price target for DUG is $23-$25. The sooner the better, but I'm looking out five-to-ten trading days. The bid/ask spread for the June 20 calls on Friday closed at $1.50/$1.70. Considering the down Asian markets and the down futures, let's see how valid these price points remain later this morning.

Mish offers up some analysis of the oil markets backing this position:

Gasoline Prices - Where To From Here?

Inquiring might be asking about gasoline prices in the short term. Let's consider some technical and fundamental factors starting with the following daily chart of crude prices.

$WTIC Light Crude Daily Chart

Tight Storage May Lead To Huge Oil Price Drop

Technically, crude prices are a bit extended, no doubt in conjunction with the belief the economy is recovery. A likely place for the rally to fail would be near the 200 Exponential Moving Average (EMA) in red. Moreover, there are a number of fundamental reasons for the rally in crude oil prices to falter soon.

Please consider Tight storage may lead to huge oil price drop.
The present contango in oil prices bears all the hallmarks of an oil market where supplies are well above present fundamental physical consumption.

The recent large inventory build of petroleum, under a steep contango which now is flattening, within the big oil consumers (like the OECD countries and China) have left some with the expectation that major economies soon will begin to grow again, and that the contango now signals increased oil demand and higher oil prices in the future.

My analysis indicates that in recent months, as much as 2 -3 Mb/d of global petroleum supply has been used to build inventories. This is about to come to an end, because available storage is getting closer and closer to full and contango has begun to flatten. When additions to storage cease, the resulting drop in demand can be expected to lead to substantial downward pressure on oil prices.
All things considered, oil prices are due for a pullback and gasoline prices at the pump are likely to follow. Moreover, with the possible exception of food, consumer prices in general will remain under pressure, if not indeed negative on a year over year comparison basis for quite some time as well as falling producer prices pass up the chain.

I did say that I had a swing trade in mind. I still have my eye on going long OIH but now I'm prefer to see my long DUG calls earn some profits that I can pour into OIH if OIH falls back toward the top of its previous trading range, around $87-a-share.

17 May 2009

The Return of the Doves

15 May 2009

St. Vincent

Annie Clark, better known as St. Vincent, finally caught my attention from this passage in the Times:

She dismisses the notion that shredding can’t be girly. “Growing up, I was never made aware of the idea that because I’m anatomically female, my fingers and brain don’t work as well,” she said. “I never did feel like I was constantly having to overcome, ‘I’m a girl but I can play.’ That’s just silly.” She proudly calls herself a pedal nerd, having invented a “stomp board” to simulate drums when she’s playing solo.
Now I have to see her play live. In the meantime, these videos must suffice:

10 May 2009

Buying OIH On The Dips, Or Should I Risk Swing Trading It?

Big bear Tim Knight is considering buying OIH on the dips after nine treacherous weeks of this bear market rally:

TWO- the most bullish thing this market could get would be a hefty retracement next week. Take a look at OIH, for example. Am I a buyer here? Absolutely not! Would I be a buyer at $90. Yes, yes, yes! Indeed, a chart resembling CROX on quite a few more important issues (like OIH, DBC, and the like) would be astonishingly attractive.

At this point, the market's retracement is on the side of a milk carton. It has gone missing, and no one knows if it'll ever be found again. We are in our ninth straight week of this insanity.
I'll say one other thing - - - the confidence regained by the bulls virtually ensures the retracement will be nothing more than just a retracement. In other words, a buying opportunity. I do not anticipate any Big Kahuna plunge to return for many months. We have to get to a level of conceit and confidence among the bulls equal to what we saw in October 2007. Until then, my plan is (a) cover shorts/sell puts upon the completion of any decent retracement (b) load up on the best-looking long opportunities I can find.

Take a look at the recent annotated OIH chart of the past three months, followed by a weekly OIH chart over the past three years, and concluding with a chart in between, covering the last seven months:

OIH closed on Friday at $103.15, May 105 puts closed at $3.60. June 105 puts, ~$7.50.
Also,note the 200DMA of OIH is $103.76. OIH pushed above it to $104.50 intraday, but resistance held.


The combination of high RSI(2) on the daily and weekly charts, plus the overhead 200DMA makes this an interesting put play. However, puts are the riskier purchase, as Tim is supporting the idea of buying the dips, i.e. buy calls when OIH hits $90.

Fair enough. Going short this market has been painful, even when the charts suggest it's a good play.

05 May 2009

Portfolio Changes

Sold out my TZA position on Friday and today, after the S&P crossed over the 875 resistance level with some gusto. Yes, I should be using the underlying Russell 2000 chart instead of the S&P, but the failure of the major resistance level on the S&P put me over the edge.

Sold for an average price of $28.89, from a cost basis of $41.83, for a loss of 30.9%.

However, I replaced some of the underlying TZA stock with some May $25 TZA calls at $3.70.

Bought some May $7.50 FAZ calls at $1.15.

Needless to say, the afternoon market surge knocked the value of these positions down a wee bit. But tomorrow's another trading day.

And related to absolutely nothing, it seems that 91% of the S&P 500 is now trading above its 50-day moving average, as shown in the increasingly ridiculous chart below: