Weekly Wrap

The S&P 500 traded on very thin volume the last two weeks. As expected, and blogged, it had come come up to the falling 50 day moving average and then got turned away by it. However it did manage to climb back above the 50 dma, albeit on pathetic volume and closed the week just barely above that magical red line shown in the chart below.

Looking at various charts, I am getting more and more convinced that the worse of this bear market is now behind us. The S&P500 looks to consolidate side ways for a while. While it will be a volatile trade, and may go back near the 1200 levels seen earlier, I do not believe it will be one of those markets that slide 30%+ from the peak. That also means to me that there is no easy trade in the broader S&P500. I am going to hold on to my SDS double short for a while longer as I expect us to drift down to the 1240 area, but I will probably close the trade at that level and look to deploy the cash elsewhere. The range between 1200'sh and 1300'sh should hold for a while. A bound range does not bode well for my trading style.

Oil is a more interesting trade for me. As shown in the chart below the USO is consolidating between the rising 200 dma and the falling 50 dma. One of those two will be reached soon. A tight range that is getting squeezed in this fashion will result in a big breakout. My money is on the 50 dma getting reached first, thus oil moving higher in the near future, and then the range breaking out to the down side as oil falls apart after that. I am long USO, waiting to book profits around the $100 levels. I then plan to go back in DTO, the double short Oil ETF, if oil indeed shows signs of breaking down after that. You may recall that when oil was hitting all time highs in June and everybody was calling for $200/barrel price I declared that we reached a top in oil and compared it to the top in the Chinese market.

 

Here is what the FXI, the ETF tracking 25 of the most liquid Chinese stocks, looked like back at end of 2007 and beginning of 2008. FXI is down another 30% or so from those levels. I expect the same destiny for oil.

The good ol' US Dollar seems to be the only bullish trade in town these days. I love this chart. It is a picture perfect bullish chart. While it does indeed look like the dollar is extended here, it can easily get a lot more extended. Markets can stay irrational for a lot longer than you can stay solvent. Do not make a mistake of trying to short the dollar here. In fact, this is a textbook chart that shows how to set stops and use position sizing to manage risk. Let us assume that you want to trade the dollar index, the $DXY. I do not know of a way to trade it directly myself, but let us assume that you can trade it without a Forex account. The $DXY set a low of $71.31 back on July 15th, the same day the rest of the market bottomed. It broke out on a wide range on August 8th, the low of that day was $74.50. The 50 dma and the 200 dma are converging at around $74.10. The $DXY closed at $77.31 on Friday.

Now, as a trader you can choose your stop based on your assessment of the chart. If you want to be aggressive you can use the $74.50 value or the $74.10 as your stop. If you want to give it more room to roam you can use the July 15th low of $71.31 as your stop.

Let us assume that you do not want to risk more than $500 on this trade. If you buy at yesterday's close of $77.31 and use $71.31 as your stop, then you are risking $6/share. If you buy at $77.31 and use $74.10 as your stop then you are risking $3.21 per share. If your total risk on the trade is $500 then you can either buy 83 shares in the first scenario or 155 shares in the second scenario. Your position size in the first case would $6416 and in the second case would be $11983. Depending on your account size and assessment of the chart you can choose how many shares to buy and what stop level to use all while risking $500 on that trade.

Non-speculators do not understand the concepts of risk management and position sizing. They assume, incorrectly, that you are risking $11983 (or $6416) on this trade and to them that may be a large sum of money to risk on a single trade.

Once you are in this trade you have to monitor it to decide on how to exit or how to trail it. In this particular case, the most probable scenario is that the $DXY will digest its gains, going sideways and/or pulling back a little for a while and then one day we are going to see another wide range breakout like the one we saw on August 8th. That would be your signal to move your stop to the low of the consolidation range. Thus reducing your risk on this trade. Let us say for example that the dollar consolidates for a while without breaking the lows set on August 21st of $76.02 and then breaks out higher. You can them move your stop to $76.02 and your total risk on that trade would be reduced to $107 if you purchased 83 shares or $200 if you had purchased 155 shares.

The home builders index, XHB, is working on building a nice base here. Little over a year ago, Maoxian was discussing buying XHB if it broke below $30 and stashing it in a retirement account for the next 20 years. I argued against him (on his blog, as my blog did not exist then) at the time pointing out that it is much better if you wait for a bottom and consolidation before you do that. Well, XHB proceeded to be cut by half since that conversation. It has marked a capitulation bottom in mid July and has been climbing up nicely since.

This may not be "THE" bottom in XHB. I am willing to bet it is, but even if it is not. Purchasing XHB at these levels for the next 20 years is a lot smarter than trying to catch a falling knife at $30. By the time XHB goes back to $30 you would have achieved a 50% gain from these levels. If you choose to own it as a speculation move you could apply the same principles discussed above to position sizing and stop levels. If you decide to buy and hold it then you can buy a partial position here and add to it in few months.

 

The Portfolio

 

The Portfolio continues slow recovery from the mid August draw downs. I did not add any new positions this week and closed a single position, MER. I also reduced the size of my ERES and XCO positions and continued defensive action by selling more covered calls against my XCO position.

For the coming week the most likely changes will be in my CHTT short which has not worked well and is almost 3 months old now. I have a stop order in place that may get triggered this week. My position in BRK.B is getting bothersome too. Initially I was saying that Berkshire holds a special place and that I will continue to hold it regardless of what my signals indicate. This is no longer the case. I have a stop order in place for BRK.B.

None of my current positions are eligible for accumulation at this time. The closest one would be FINL. My initial purchase in FINL is up close to 33% and my subsequent purchase is up over 7%.

New positions I am considering is natural gas, UNG, a position in retailers, a position in the US Dollar via UUP, and finally a position in home builders. I do not have any open orders to purchase any of those, but these are the ones I am most likely to purchase if I do add new positions to the portfolio in the coming week.

Land of the Free

Denver Police moved in riot gear to keep protesters from blocking downtown Denver streets on August 24, 2008. (RJ Sangosti | The Denver Post)

http://news.politicswest.com/portlet/article/html/imageDisplay.jsp?contentItemRelationshipId=2073664

More defensive posturing

I've been talking about my large position in XCO and the pain it inflected on the portfolio as the stock got shattered at the speed of light. Oddly, natural gas has been gapping up on a daily basis this week and behaving very irrationally. As a result XCO has been rebounding sharply. I have been reducing my exposure to XCO via outright sales and covered calls. I had sold covered calls against 400 shares about a week ago and then sold 200 shares few days later.

I had an open limit order to sell covered calls against another 300 shares this morning for the Sept. $30 strike. The order got filled while I was in meetings at the stock opened strong and then it ran up another 10% or so, giving me a very poor entry price for my covered call as it literally doubled in price in the next 15 minutes after I sold the calls.

I then sold the remaining odd lot that had no calls sold against it.

As a result, I am down to 700 shares all of which have covered calls sold against them for the Sept. expiration, 400 of those are at the $25 strike and 300 are at the $30 strike. I am not going to do much with this position for the next four weeks awaiting expiration. If the strong keeps powering away, my profits are limited by my strike price and I am fine with that. If the stock pulls back, then at least I would've reduced my cost basis by the calls premium and would consider the next move at the time.

For the next week or two I expect the stock to go sideways trapped between the 200 day moving average which it bounced off last week and the 50 day moving average which it kissed and then turned away from this morning.

Managing List Tables Dynamically in MySQL.

 

MySQL is a great gem. I love it. The more I use Microsoft SQL Server and Oracle the more I love MySQL. My Ph.D. and decades of programming experience are not enough for me manage Oracle... just too complex and weird for me. Microsoft SQL Server is a good product, till you start using it in complex systems and then you have to spend half of your time working with Microsoft engineers trying to figure out dead lock issues, performance issues, TempDB settings, splitting log files across RAID drivers, Clustered index, and soooo many un-intuitive things that just break... All while Microsoft dudes blame the design and code for: "well, this is not what SQL Server was designed to do.".

MySQL on the other hand just works... sure it has its short comings, few quirks here and there. The tools need to mature a bit more. But on balance it just works... pure and simple.

In addition, MySQL has few little known gems that make life easier on balance. I do not know if these are unique to MySQL, but I sure have not seen them advertised or documented in other databases.

In one of the projects I work on we have lookup tables, we call them list tables, that hold mostly static lookup values. As different people worked on those tables it turns out that they were not consistent. Some tables just had an identity and name field, others have fields like description and sequence and few have foreign keys into parent tables.

One of the things that I did manage to enforce early on was the naming convention of the fields. There are various opinions on the subject. For example, if you have a table listing colors, you would call the table list_color but then how do you name the fields? Most people, and text books, would use something like: colorID for the identify field and colorName for the caption. Others would do: color_id and color_name. Many would do: pColor_ID, color_NAME and the list goes on.

Each of them has convincing arguments for their choices. I go with a choice that few appreciate till they actually start working on complex dynamic systems.

In my tables the Identity key is always called: id. The caption field is always: name.

Why does this matter? Well, in this particular case, the client wanted an interface to edit those list tables and wanted it done and released immediately. The poor dude that had to write the interface did not know what to do with all those odd tables that had the extra columns. So he just wrote an interface that prompts for a name and a sequence and then goes through ton of .NET code to generate dynamic sql to insert those values into the tables.

All worked well... till the code got released and the client ended up managing tables that had non-nullable fields or fields with no default values and all of the sudden everything started crashing.

I did not have time to redo the whole interface to dynamically build a form based on the selected table's structure, but at least I had few minutes to change the way the code was saving so that it does not crash regardless of what the non-basic fields looked like.

I put the code in a MySQL stored procedure, instead of lengthy .NET code, increasing performance immensely, reducing complexity and more importantly, avoiding errors.

Here is the partial code,  followed by some comments:

 

CREATE  PROCEDURE `ap_InsertListValues`( _tableName varchar(255), _name varchar(255), _sequence int)
BEGIN
        declare _fields varchar(2000);
       declare _values varchar(2000);

        select group_concat(
                column_name
                order by ordinal_position)
        into _fields
        from information_schema.columns where
        table_schema=database() and table_name=_tableName and column_name<>'id' and data_type<>'timestamp';

        select group_concat(
                case column_name
                when 'name' then concat('''',column_name,'''')
                when 'sequence' then _sequence
                else if (is_nullable='YES','NULL',
                                if(column_default is null,
                                    case data_type
                                            when 'int' then '0'
                                            when 'tinyint' then '0'
                                            when 'bit' then '0'
                                            when 'varchar' then ''''''
                                            when 'datetime' then concat('''',now(),'''')
                                            else '''0'''   
                                    end                   
                                , 'DEFAULT')
                            )
                end order by ordinal_position)
        into _values
        from information_schema.columns where
        table_schema=database() and table_name=_tableName and column_name<>'id' and data_type<>'timestamp';

        set @s:=concat('insert into ', _tableName, ' (', _fields, ') values (', _values, '); ');
    
        prepare stmt from @s;
        execute stmt;
        deallocate prepare stmt;

END $$

I made use of MySQL's meta-data to lookup information about the columns. Then I made use of an AWESOME built in MySQL function called group_concat to dynamically build a list of field names and their values. The first group_concat simply builds the list of fields to insert into. The second one is more complex and builds the list of the values. Using constructs like case and IF() I could build complex selections in a single clause.

Finally, MySQL has a great little feature called DEFAULT. It allows you to use the default value assigned at design time to any field you are inserting or updating if you did not have a value handy.

The fields and values are then combined into a dynamic statement that is executed to insert values into arbitrary list values without choking on missing values, null values, or what have you.

The initial choice to use a consistent name for the identify field, of id, paid off dividends in this case.  While it is true that I could've added a lot more logic to try to figure out which is the identity field, it is just extra headache that is required only because some buffoon in a text book described some convention that nobody challenged.

The choice becomes more important when we start writing more advanced code to edit those tables dynamically and build dynamic forms to display/edit the data. Last but not least, when I write dynamic ad-hoc reporting engine my life is always made much easier by choices like this. People are always appreciative when they realize that lots of the code I develop takes about 20% of the code and performs much faster, than "other code" performing the same functionality on the project. However, they never make the logical conclusion to agree on coding convictions and practices, instead preferring to stick with the "textbook" stuff... Not that I am complaining. Keeps me in business and always busy re-writing other people's code :)

Tracking Pounds.

The venture to build up stamina and get back in shape is progressing slowly but surely. Oddly my weight has not budged even though I am running twice a week and playing very competitive racquetball once a week. I am only recording the Sunday runs in the spreadsheet above. I figured the first several weeks will just be to get my body back into the mind set of running. I was not really counting on losing weight at this stage but the fact that there was not much change is a little weird considering that when I was a bit younger my weight fluctuated within 5 pounds in any give week.

Couple of weeks ago the Jury duty, and working late nights to make up the hours wasted on Jury duty, took its toll on me. When I went to run that Friday I felt my muscles tighten up and my calves were as hard as rock. I barely ran a mile when I had to quit. I came back that Sunday and tried again, same result. I ran a slow mile and was completely dragging.

As any good athlete would do, I blamed the equipment and went out and bought new running shoes. I do not know if that mattered, but I ended up running better the following week, making it to 4 miles on each run.

I ran slightly faster this week and I am starting to feel better on the treadmill and I actually have enough energy left over to stretch after my runs. My short term goal is to average 8 to 10 miles a week (combination of two runs) during September and that should get me in a better shape and also kick off the weight loss.

My oldest turns six this week. We had a small birthday party for her at the Morton Arboretum ( http://mortonarb.org/ ) on Saturday. It is a pretty nifty place. The kids get to play in a safe environments and adults get to enjoy and learn about nature. I love that place. If you live in the Chicago area you owe it to yourself to pay them a visit.

 

p.s. The hand over from Beijing to London is pretty cool. Those Brits know how to perform. I will miss the Olympics.

p.p.s. Windows Vista still sucks.

p.p.p.s Go Jets!!!

Weekly Wrap

The Portfolio

The portfolio got a reprieve from hitting another all time low this week recovering slightly and erasing the losses of the previous week. I continued to trade the system in individual stocks and using ETFs to capture themes in commodities and the broad market. My position in coal stocks, via ICO, continues to stabilize with slight bias to the upside even as the price of natural gas continues to plummet while oil continues its very volatile trade. The volume this weak was anemic and will probably be the same for the next week or two, that would lead to volatility without major impact on the long term trend. XCO have stabilized a little bit but continues to be a broken stock. I reduced my position size this week and had sold covered calls against part of the position earlier, so I continue to be cautious on this stock with little patience for more downside from here.

I do not anticipate much change in the rest of my positions. DOM, an energy trust is going ex-dividend this week and running up in anticipation of the dividend. I have a limit order to sell if the run-up continues. The stock yields around 12% and I do not intend to let it go completely. However, these stocks have been dropping after the dividend, in addition to the natural drop due to the dividend distribution. So the current plan is to either sell it on strength and buy back in few days, or just hold on to it if it does not hit my limit order.

The Market

The S&P 500 was down for the week though it finished strong on anemic volume. I would've rather it closed below the 50 day moving average or above the high from August 11th so that we can establish a clear direction. I am still of the opinion that we head lower from here but that the July lows hold. As such I continue to hold my short ETF, SDS, with an eye to close it in the next few weeks. I hold the same opinion about the commercial real estates and thus I am holding SRS for a short term trade.

Small caps and tech continue to behave well, building a base here indicating that they will lead the next leg up in the market.

Oil is going through crazy volatile trade. Back in the first week of June when we had crazy volatility I said that this is an indicative of a top very similar to the top in the Chinese market. Oil did not disappoint me as indeed that was a top similar to the Chinese market's topping process from back in the Fall of 2007. The volatility here indicates a strong directional move to come. My personal opinion is that we run up a little bit more before we drop another 20-30% in oil. However, a weak close below last week's lows would indicate that we are going straight down. It looks like some hedge funds are duking it out trying to drive each other out of business. Best to keep position size small here and monitor the situation till it resolves itself in one direction or another.

Auto Pilot

While I was busy with other stuff, including travel and meetings, couple of open orders executed while I was gone.

NLY is a REIT that I have been accumulating and tracking dividends and covered calls against the position to calculate effective cost basis and effective yield.

I sold 13 Sept. $16 contracts against the position for $0.15 each.

My cost basis on the position is still below the current price and my effective yield is above 15%. Selling those calls means that my upside is capped at $16 if the stock closes above $16 by expiration. I have managed to trade the covered calls several times as you can see in the spreadsheet without being called away. We shall see what happens here.

 

XCO is a position that I have been struggling with as of late with my dilemma's documented on this blog. I had sold covered calls against 400 shares of the position earlier this week. I also mentioned that my earliest lot was over 15 weeks old and that I was looking to unload it on strength.  While I was traveling a limit order to sell at $25.80 got executed near the open today. That was near the high of the day and the stock closed considerably lower.

On the flip side my limit order to buy USO did not fill as oil gapped up and ran for the day. I am not sure what happened here, I have not had a chance to read any news today, not that oil needs any news to make weird moves. The action though proved me smart in hindsight as my sale of DUG yesterday proved timely.

I mentioned that I would like to exit DEE and either stay on the sidelines or re-position with a narrower ETF. I did not get a chance to do that as DEE got hammered while I am away.

 

Tired Pilot

Yesterday's travel was another episode for the ages. I got to the airport to find that my flight is delayed with no information on why or for how long. An earlier flight to the same destination was also delayed so I tried to get on that flight. They gladly put me on the Stand-By list but refused to let me know how booked the other flight was nor how big the Stand-By list is nor my number on the list.

I do not know what it is with those darn airlines. Some of my capitalist-at-any-cost friends keep repeating the argument that if the government does anything they will screw it up and that a private company will always do a better job in anything that would a government organization... Well, the big airline carriers in the USA prove my friends wrong every day.

After waiting for ever and then some, the earlier flight finally takes off without me as I did not make it off the Stand-by list. Turns out that the flight was booked solid and they managed to get five people on the flight. I was not one of them. I had asked earlier if I could leave to grab a bite and come back in time for my original flight, which was still very delayed, and they said that if I leave I had to let them know so that they would take my name off the Stand-by list. So, I had to let them know my where about, but they refused to tell me anything about the status of the Stand-By list even if that meant wasting 4-5 hours of my time.

The plane for my original flight finally landed. They hurried up and cleaned it and start loading us passengers when a uniformed man that looked very tired came out of the plane. He asked the staff if the coffee shop down the hallway was open and they told him it already closed at 9 p.m. He said he needed coffee bad so they advised him to seek another store at the other end of the terminal. I asked who that was, it is the PILOT they informed me... great news... so the pilot is in need of coffee and he does not like the coffee served on his airplane.

When the pilot came back, he told us that he is sorry for the delays... it is not weather related he said, just one of those things with Air Traffic Controls!!!

Things? What things? what things with ATC that delay us several hours for no good reason? I wondered to myself as I kept my mouth shut.

After we pushed away from the gate, we sat on the Tarmac for what seemed like ever... Finally, we take off, fly safely and land on the East coast little before 2 in the morning. Oddly, the plane's door does not open. Turns out that we were so late, the ground crew went home. The pilot had to call for somebody to come and connect the equipment and open the gate... that was a pleasant 15 minutes.

As I thought that was the end of my eventful day, I go out to the taxi dispatch area, inform them of my destination, wait my turn in line and get into a cab. Instead of driving off, the cab driver comes out of the car and starts fighting with the dispatcher... "Why did you skip me twice for the long trips and give me this short haul? What's your name? I am not going to let this slide"... and on, and on he went... while I was falling asleep in his cab.

Choke Job

These Olympics have been nothing short of spectacular. 13 year old Gymnasts and lip-sync fiascos not withstanding.

While many of the athletes have been beyond phenomenal, I would be remiss if I did not mention few that just blew it.

The US Women Softball team that has an ego the size of Venus has creamed every competitor ever since Women Softball became a medal sport. In fact, there was an article the other day describing how the IOC wants to cancel Women Softball because the US women are soooooooo much better than everybody else and will continue to outscore everybody by a million to zip margin...

The US Women Softball team lost in the championship game to Japan. So much for the superior gals.

Both the US men and women 4X100 relay teams got disqualified in their respective running events. They got DQ'd because they could not hand over the baton. Really? could not handle the hand-over? In the Olympics none the less... and the women chocked right after they watched the men do it... Wow!!!

Pressing On

 

Today's late action not withstanding it is clear to me now that the S&P 500 was rebuffed by the 50 day moving average and is heading lower as I anticipated weeks ago. At the same time, oil (USO), which I shorted via DTO till recently, is moving back up to its 50 day moving average.

As such, I have closed my defensive position in DUG and bought SRS, the commercial real estate double inverse ETF, to supplement my SDS holding. SDS being the double short S&P500 ETF. These are not long term positions, I will probably close both SDS and SRS as we near the July lows. As technicians know there is no such thing as a Triple Bottom... Most likely we will not hit the lows so I am planning to close my positions as we approach the lows. However, if we breach the lows then look out below, I will get back aggressively on the short side in that case.

 

I tried to double my position in USO but did not get a fill at my limit price. I am on the road tomorrow and will not have time to check out the market thus I will leave an open limit order to buy USO while I am gone.

I am not turning bullish on oil, in fact, I think we are heading back to the $80 levels, however, the trade for the next couple of weeks is clearly higher and I am going with it.

 

One other position I am keeping an eye on is DEE, the double short commodity ETN. I bought it as a defensive position to offset my heavy concentration in oil and natural gas. I have been doing some research and have found narrower ETNs. Also, it seems that wheat and some other crops have found long term support at these levels and are not going down much from here. So I am planning on exiting DEE soon and either staying out of the area for now, or going back in with a more narrowly focused ETN than the broad DEE.

King George

In absolute Monarchies a constitution would have a weird stipulation. It stipulates that the King has all the powers but none of the liabilities.

Funny thing happens in those Monarchies. When there is a natural disaster for example, or distress, the King orders the government to send out aid to the poor and affected people. The media then spends days and weeks thanking the monarch for his/her generosity.  If the effect of the distress or the disaster that prices go up or that people suffer extra hardship then it becomes the government's fault. The king sacks the government and the media thanks the King's foresight for sacking the government.

This is how things were under King George of the British Empire at the time the people of the new Free World in America wanted more.

America demanded independence, fought for it. People lives and their fortunes were sacrificed to achieve the independence that  made America the greatest modern country on earth.

 

Then came King George Bush. When he started his rule he decreed that we need lower tax rates and weaker US Dollar, in conjunction with large government, endless spending, unbalanced budgets and corporate well fare.

The results of low taxes were good for the economy. Increased overall tax revenue, less burden on corporations and shallow (though jobless) recession. For the most part it was a job well done and the likes on Kudlow, Forbes, Investors Business Daily and the Wall St. Journal heaped well-deserved endless praise on King GWB.

 

The result of the weak dollar and infinite budget deficits and debt were not as spectacular. A huge bubble in dollar-denominated commodities, food riots, weakened financial institutions, emboldened Russian and Iranian dictators, chaos in our equity markets... all kinds of trouble.

 

Astute observers, like Kudlow, Forbes, IBD and the Journal all recognized the disaster for what it is. All complained loudly about the weak dollar policy and its disastrous effect on the health of our economy and the prestige of our nation.

 

Here is the kicker though. Through all of their complaints, these Shills directed their ire at the Treasury and secretary Paulson. Not a single person had the spine nor the intellect to point out that it was King GWB's explicit intentions to weaken the dollar. Nobody even mentions GWB in the same story when discussing the horrible weak dollar policy. All of the sudden we realize that King GWB is responsible for all the good of the tax cuts but none of the ills of the weak dollar.

 

The Founding Fathers erupted against King George nearly 250 years ago. This nation has continued the struggle and the fight to maintain accountability all throughout.

 

King GWB came along and erased all of that in seven short years. All hail to the King.

 

p.s I am canceling my Forbes and IBD subscriptions and have stopped watching Kudlow.

 

Trade Alert

Staying on defense, I am setting more hard stops at tighter levels. Today, part of my ERES position hit its stop and was sold at $12.45 this morning.

PDA not immune

PDA hit its stop today. I closed my position, including the portion that I had bought in 2007 prior to the inception of this portfolio, at $49 this morning.

Update: as price of XCO firmed up a bit i continued my defensive actions and sold 4 call contracts (against 400 shares of stock) of the Sept. $25 options for $0.75 each. If the stock closes above $25 by expiration then it will be called away at $25 and I keep the $0.75.

AG Short

While i am still convinced that the Ag. related stocks are the next to break down, my choice of short, AG, has been holding up pretty well recently.
Today it got stopped out near the high of the day before pulling back.

I expect to be back on the short side of the Agriculture trade, though I may use a different stock.

Weekly Wrap

The Portfolio

The Portfolio continues to get smacked around as the commodities sell off continues and accelerates in some cases.

 

On a weekly closing basis this marks the first week that the portfolio trails the S&P500, reflecting the swiftness of the commodities sell off and my tepid response to the sell off. The portfolio is also at an all time low.

I continue to make small adjustments to the portfolio. I closed half of my USU position which I have been talking about closing for several weeks now. I added a new double short ETN, DEE which is an inverse of a basket of commodities. Currently SMN (inverse basic materials), DUG (inverse oil companies), and DEE constitute my defensive positions in the commodity space.

I owned DTO (double inverse oil) for several weeks and that worked very well, dampening the damage to the portfolio. I closed the position this week and went long oil. This is a short term trade as USO (the oil ETF) seems to have found some support near the rising 200 day moving average. I expect strength in oil for the very short term followed by continuing sell off. I intend to be out of USO soon, either profitably if it runs up a little more, or cut my losses if it continues weakness. I anticipate being back in DTO within few short weeks.

I decided to divorce DRYS. For now I sold a near the money covered call against my position. The option expires in 5 weeks we shall see what happens there.

CHTT is a short that is budding up against its stop level and maybe closed this week if it continues strong showing.

XCO is horrendous. It lost 50% within few short weeks and have been a massive drag on the portfolio. My initial XCO position will mark its 15th week today and since it is currently in the red it will be a strong sell candidate. XCO has hovered around the current levels for few days and seems to have caught some bids here, right above the still rising 200 day moving average. I am inclined to close part of my position and then sell covered calls against another part to reduce my exposure to XCO. Any any rate, by this time next week I should report some news regarding XCO.

 

The Market

The S&P 500 is hovering around the 50 day moving average as I anticipated few weeks ago. While it did close above the moving average it has not been an impressive showing. My guess is that the 1313 high we marked on August 11th will mark the high of this move and we will head lower from here to the 1220-1250 area. I put my money where my mouth is and bought the double inverse ETF, SDS. My stop level on this purchase is the aforementioned 1313 area. My profit target is around 1335. I may close the position if we hit 1335 on the S&P 500 or may start trailing aggressively with a hard stop.

Commodities are still being sold hard though there is some interesting action in the various commodities. Oil seems to have stabilized here. My outlook is for the next move in oil to be up. I closed my DTO position and purchased USO based on that.

However, the bottom just fell out from underneath Gold and it has taken the elevator down. I think gold looks especially weak with another 20% down move in the cards, that move could happen very swiftly.

Agriculture related stocks seem next on the verge of cracking. Various grains and crops, such as wheat and corn, have been dropping in value rapidly. The related stocks, such as MOS, POT, MON and AGU have gone down a bit but look like they could completely collapse at any moment now.

My guess is that the sell off in the energy commodities is nearing its end while the sell off in the Ag. related stocks is just about to begin.

Happy Birthday to ME!!!

38 years ago my wonderful mom give birth to me. Thanks mom and dad, I love you guys. Today my wife and kids got me beautiful cake and roses. Thank you my beautiful family, life without you is not worth living. My siblings sent me beautiful wishes, so did my clients. Thank you.

Continuing my defensive strategy, I bought some DEE today, the ETN dedicated to shorting the commodities. Also I sold the DRYS $80 Sept. Call for $5.20. In conjunction with the call I sold in August this reduces my cost basis on DRYS by about $8 and caps my upside at $80 as things stand today. I am not going to shed too many tears if DRYS gets called away at $80. Though considering the volatility I doubt this will be the end of it.

USU

I have been waiting to reduce my exposure to USU as I have mentioned several times in weekly recaps.
Today, as USU had a nice run over the last couple of weeks and met its 50 day moving average I closed half of my position.
It looks like USU has bottomed here, but who knows. If it keeps climbing up to the 200 day moving average then I will close the rest of the position.
I may scale back into the stock if it consolidates above the 200 day moving average and starts a new trend. For now, I will sit back and watch.

Flip Flop

I pulled a McCain today and flip flopped on my positions. I closed the DTO Trade (double short oil) in the morning as oil ran up on strength, then I entered a long position in oil (USO) reversing my stance on oil.

I still think oil has ways down to go and I am prepared to pull another McCain and flip flop again. For now, I am looking for USO to climb back up about $100 at which time I intend to close my position and possibly go back short via DTO. I am keeping the trade on a short leash though and will close it if we show real weakness and especially if we close convincingly below $87.

The S&P 500 is acting according to plan as I outlined several times in my weekly recaps. It peaked its head above the falling 50 day moving average, got turned away by it and today failed to close above it despite an effort to push it up there. On the surface it looks like a good day for the Bulls who have managed to come back from way down and closed the day in the upper half of today's range.

However, closing below the falling 50 day moving average is very bearish. I entered a short position via the SDS double short ETF. I am not looking to keep this position on for long. If we close convincingly above the 50 day moving average I will close the trade. Otherwise, my profit target is around 1220-1230 on the S&P. If it goes down there I will either close the SDS trade or trail it aggressively.

 

For my final trade of the day I entered a position for the UnHedged Portfolio. As I described yesterday I closed the inaugural position GMCR position for a small profit. I entered another long position today, VNUS, 300 shares at $23.10 as it broke out to all time highs.

ICLR

ICLR split 2 to 1 this morning.
I adjusted the Tracker to reflect the split price and number of shares.

UnHedged

Back in 2007 I invested $20k in a "successful" hedge fund company. It seems I brought bad luck to the crew as my money promptly shrunk about 80% within few months.

Earlier this year I took the money out and started a separate blog/tracker for it called UnHedged

In the Unhedged Portfolio I only enter one position at a time, short or long depending on my research. I trade it mechanically for the most part. The system is slow to move, on purpose. It had entered a single position on May 1st and held it through today. The position was closed today for a small profit of $100.
I will be looking to enter a replacement position this week. The account trades at Zecco and thus has no commission implications. The first position was entered slightly on margin, but since I have other monies in the account there were no margin charges.

no more FEED

I mentioned over the weekend that I am looking to close out my FEED position as farmers shifting their crop mix will affect the margins of the fertilizer companies.

Well, lo and behold, FEED reports earnings, smashes them and gaps up. I took this opportunity to exit the position. I initially had a limit order to sell the whole position at $14.50. About half of it got sold at that price when market makers reached up to mess up day traders. But FEED started to fade without filling the rest of the order. So I exited the other half at $13.85

I also mentioned that RACK got killed last week after reporting disappointing earnings. I had exited my equity position and had a limit order to sell my Sept. calls for 10 cents a piece. That order got filled this morning.

The Amazing Race!!!

A lot has been written about the Olympics. People that are unhappy with China, with the Opening Ceremony, with the NBC Coverage, with this and that.

I have strong opinions on those matters but I do not think these views are worthy of my time.

I will say one thing however. The Americans just ran the perfect 4x100 Free Style race. With the Captain swimming the fastest split in history to catch the French and win gold.

If after watching that race you still have complaints about the Olympics then I have a two step procedure for you:

1) Stand Up.

2) Tick that stick out of your Ass.

 

These athletes are amazing. Beautiful performances. For all of its short comings this is what makes America the greatest country on earth. So Much Heart. So Much HEART!!!

 

Go JETS!!!

Weekly Wrap

The Portfolio

The portfolio continues to suffer from the weakness in energy and now matches the year to date loss of the S&P 500. I have been adjusting the portfolio by using the inverse energy ETFs to capitalize on the weakness in energy. That has saved the portfolio from much more dramatic losses, however the adjustments are a little too little too late. The big problem here is that I am not sure if the trend in coal and natural gas is just broken or if it has reversed. It is clear now that the trend broke. Initially there may have been a chance that this a pull back due to some large hedge funds imploding and that the trend will continue intact. I have heard mumblings on CNBC that some hedge funds indeed did blow up. However over the last two weeks it become clear that the trends broke down. The question now is whether the trend is broken and will now go sideways for a while till it decides on the next directional move, or whether the trend reversed and now it is time for a long term short in this space.

For now I am assuming that the trend has broke but not reversed and will continue to hold on to the positions but keep them on a tight leash.

On the flip side I am now in DTO, which has saved the portfolio from totally collapsing, DUG and SMN. Respectively these are double reverse in Oil, oil companies and basic materials.

Outside of the energy space, RACK reported and disappointed and got killed after hours, gapping hugely down the next morning. RACK was a large position and that plunge took a toll on the portfolio as well. I ripped the band-aid and closed the position. I still hold the RACK Sept. calls but these are nearly worthless and I am going to close them if I can cover the commission price otherwise I will let them expire in 6 weeks.

I am starting to wade into Financials, bought MER recently. I am also looking to add a home builder at these levels. The home builders have bottomed and some of them are starting to show life. This is an indication that housing prices may start to bottom in the next 12-18 months as the stocks usually lead the home prices. That's good news for the tapped out consumers. As such we can see that select retailers have bottomed and now are starting to break out into new up trends. I am in FINL, a retailer exhibiting that behavior.

I am not anticipating closing out many long positions this week as I am still trying to digest the markets and the portfolio. This is subject to change if something like RACK happens to another stock. On the short side of things CHTT has move up close to its stop level and may be closed this week.

The recent collapse in commodities has affected crop prices as well such as wheat and corn. Farmers are starting to shift from these crops to other crops. Interestingly, this change means a shift from crops that need a lot of fertilizer to crops that need less. This will put pressure on companies like FEED (which I own), POT, MOS and MON. These stocks have had huge runs powered by ever increasing margins and profits. As farmers have less need for fertilizer and as crop prices come down their margins will shrink pretty quickly. The pricing power equation is shifting from the fertilizer companies, where it was for the last few years, to the farmers. I am looking to close out of FEED and possibly enter a short into one of the high fliers and/or use an ETF like DEE which is an inverse soft commodities ETF.

 

 

 

The Markets

The markets are behaving exactly like I anticipated. But as my wife often reminds me, what's the use of calling the market right if you still cannot make money. The S&P 500 has moved up to kiss the falling 50 day moving average. This completes the move from the bottom, which I had called to within 4 pennies, of 1200.04 to the falling 50 day moving average. If you are playing the broad market now is the time to step aside and let the next move develop. If my assertion is correct, that we have hit the bottom of the this bear market and are now doing a shallow retrace to the 50 day moving average then we will go down from here, back to the 1200 area and then move in volatile side way moves while the 200 day moving average flattens out.

That gives us about a 100 points on the S&P 500 to play on the short side. We will have to see how things shake out early in the week to see if indeed the market will be turned away by the falling 50 day average.

If on the other hand we power up through the 50 day moving average and close convincingly above it then the path of least resistance would lead us to the falling 200 day moving average, currently at 1374. It will be closer to 1350 by the time the price catches up to it. If that does happen we are definitely not going to simply power through the 200 day moving average. In fact that would be very bearish for equities and would present a great shorting opportunity almost identical to what happened back on May 19th when we moved up to the 200 day moving average, peeked above it and then closed below it on the day and continued to crumble all the way down to 1200 from there. That scenario would probably coincide with a bottom in commodities followed by a move up as the broad market falls.

For the next few days though the correct play is to be on the sidelines and give a chance for either of these two scenarios to develop.

 

Oil continues to crash. When we had that huge up day on June 6th, I commented that this marked a top in oil that is eerily similar to the top in the Chinese stock market as represented by FXI. Crude oil obliged and moved exactly as telegraphed, in a volatile side way fashion for couple of weeks before falling apart. I had attempted to short USO at the top but got shaken out in the volatile moves that followed. I then entered again using the double short oil ETN, the DTO and that has been working great for me. USO is only $5 away from the rising 200 day moving average which is now acting as a magnet. As it nears closer to the 200 day average I will probably close my DTO position and monitor what happens with oil. If we cannot hold the 200 day average and we continue to crash, I will re-enter DTO. If however we bounce off the average then I will go long oil via USO.

 

I declared few months ago that the "short the dollar" trade is over and that the dollar has bottomed at those levels. The dollar did not disappoint either, as it acted as planned. I expect some consolidation here before we continue an upward, slow and deliberate move in the dollar. There is no easy mechanism to go long the dollar, plus most of my net worth is in dollar denominated assets. I am not inclined to short the currency ETFs such as the Euro or the Pound because they pay a hefty yield that will come out of my pocket when I short them.

 

Shills

There are Shills and then there is Larry Kudlow. Kudlow is always quick to proclaim on any down day in the market that the market is pricing in an Obama presidency and selling off.

Here is an idea: The markets are indeed pricing in an Obama Presidency. That's why the Commodities are falling, Oil is falling, Gas at the Pump is falling, Wheat, Corn and Rice are falling in price. That's why the $US Dollar is finally stabilizing and starting to move up against other currencies.

The markets realize that Bush's war on the US dollar, the US economy, the US Budget and the US middle class is about to end. The markets realize that the special tax treatments afforded to oil companies, how come Microsoft does not get the tax kick backs that Exxon does?, and that the endless money wasted on wars of choice are about to end.

Bush spent our money like there is no tomorrow. He spent it on ventures that offer no returns, so it was all waste, in vein. Obama is not going to spend any less. But I'd rather a million times that the money is spent in Kansas than in Baghdad. With all their corruptions and under the table dealings the Democrats will still have the money circulating inside the USA instead of sending it overseas to Bush's friends in dictatorship regimes.

So Mr. Kudlow, next time you look at the market and spew some garbage about how the stock market went down in anticipation of an Obama presidency, just keep your eye on oil, gold, gas, and the US Dollar and explain to me why they are behaving favorably.

China Rising!!!

 

China Has Arrived. Welcome to the 21st Century, The Chinese Century. Jim Rogers was right all along.

What a spectacular opening ceremony.

Wow!!!

p.s. As much as I hate the Shrub in Chief, I could not help but be overcome with heartwarming feelings as he stood to cheer on the US Team as they entered the Olympic Stadium.

 

Go JETS!!!

Tip Toeing into Financials.

Time to start wading back into Financials. I bought a starting position in MER today at $26.

Packer No More

Favre is traded to the Jets. Sad day in Green Bay.

Go Jets. Down with the Packers, I hope they go 0-16 and both McCarthy and Thompson lose their jobs because they do not deserve them.

Jury Duty

So I am on Jury Duty. It started yesterday. I showed up promptly at the court house at 9 in the morning.  Reported to a room with about 100 other people. Sat around, waiting, doing nothing for about an hour. A police officer comes in for few minutes, tells us about the security measures around the courthouse, what we cannot bring in and where we can go out for a smoke. We then wait some more. A hour later a judge shows up, talks about the process and how we shouldn't feel that our time is wasted by sitting around doing nothing, then he leaves.

Another hour passes by, then a lady rattles off a list of names, including mine, about a third of the people in the room are on the list, she says we are to report to Judge X's trial.

We then wait.

Another 30 minutes passes by and then they tell us that we can leave for lunch and we need to come back in an hour.

I leave and come back an hour later... we sit and wait.

An hour passes by and finally we are taken to a court room where we are read some instructions and then the jury selection process starts. Jury selection takes over 2 hours. The judge and the attorney ask questions. Some questions are useful, many are silly. I live in a white bred county. The guy on trail is an immigrant from India or Pakistan. Does not look like anybody in the Jury, so much for a trail in front of a jury of your peers. Finally, the 12 jurors are selected and it is time to select an alternate.

My name is called. They put me in the box and start asking me questions about my social and employment situation. Right off the bat I tell them that I am self employed and the sole bread winner in our house, that I bill by the hour and every hour I spend sitting around there doing nothing costs me $$$.

They dismiss me with no further questions. I am relieved. I have a ton of deadlines and been very stressed lately trying to finish up couple of projects. I had to work straight through the weekend to make up for the time I am going to be gone on Jury duty. I am happy to be dismissed.

I am leaving, to pick up my stuff and go home when the Commissioner tells me that I have to come back next morning.

What? why? I just got dismissed because being here causes me hardship.

No, she says, you only got dismissed from that single trial. You still have to be back here tomorrow!!! But that trial is expected to only last a day, if I knew that I need to come back I would've just stayed on that jury and got done with all of this.

True, she says, but I cannot tell you that before hand. Please come back in the morning.

I go back home and work till wee hours of the morning to catch up with lost time.

This morning I get in the car and head back to the Jury duty. I arrive there promptly and sit and wait. I wait for about three hours and then the lady says that we can leave for lunch and come back in an hour.

I leave for lunch, go home, get some work done, no time for food, go back hungry within the hour.

I then wait.

Another hour passes by and then another half an hour or so.

Finally, the lady comes out and says that we can go home but have to come back tomorrow morning.

I am pissed. The guy sitting next to me, another self-employed person who has a ton of work to do is livid.

Few other people that were "dismissed" yesterday due to job related reasons but were told they have to come back today never showed up today and are now in contempt of court.

I chatted with the commissioner about this. She said our presence there puts pressure on the attorney's to settle. I do not buy that. I read the constitution back and forth. Nothing there that says I am entitled to a Jury Trial Unless the Attorney's are pressured to settle. Plus, most of those settlements are not in the best interest of society. They maybe better for the defendants and the lawyers but not the overall good of the people.

At any rate. Even if the settlements are good, there can be many better ways to get the system to work without wasting so many people's time.

To start with, do not have a glass door and allow the attorney's to peek through and count us all day long. Keep them in the dark as to how many potential jurors are there. If knowing that we are there puts pressure on them, then not knowing anything about us will also put pressure on them.

Second of all, you can setup the system so that the jurors are summoned after all settlement negotiations are done. They have a phone number that we need to call to know if we are supposed to come the following day or not. But we did not get to use it because they keep telling us to just come back. Have the trials start the day following the settlements. By 5:00 p.m. you know what settled and what's going to trials. Those potential jurors can then call the phone number and know whether they need to show up for a trial next day or not.

 

I can think of many other improvements to the system. Nobody seems to care. I asked whom can I talk or write to so that I can propose changes and express my displeasure.

The commissioner said I need to write to my Congressman. Really? My Congressman? in D.C? what does my congressman have to do with jury duty at the county level? "I don't know" she answered.

Rack gets racked.

RACK reported earnings, beat estimates, not good enough, got killed in after hours yesterday and gapped lower today.
I closed my position in the stock, my call options are pretty worthless at this stage.
moving on.

closed cover call

One quick trade, auto executed while i was on Jury Duty.
I sold a covered call against DRYS the other day. I bought it back today as DRYS plunged and the covered call's price sank. Quick, tiny profit, does not make a dent in an otherwise sea of red in the portfolio.

This and That.

Couple more sessions on the treadmill this past week. I am feeling a lot better running, still slow as a turtle but none of that "i am about to die" feeling and all the huffing and puffing. This morning I ran a little longer and a little faster than the previous sessions and broke 12 minute mile for the first time since I started my "training" couple of weeks ago.

My weight has not budged, but I am not too worried about that, the weight will drop as I start racking up the miles on the treadmill.

 

So the Packers have finally blinked. Brett is back on the active roaster. Last year Brett had another MVP year, preempted only by New England's perfect season. He set or matched most of his individual records. More importantly, the Packers matched or beat several Franchise records. We are talking about one of the founding teams of the NFL, a town known as Title Town USA, the team that won the inaugural two Super Bowls.  It is not easy to set new franchise records in that town. Yet, Brett led the Packers to new records last year.

At the end of the year, instead of the management kissing his Ass to keep him on the team and make a strong team stronger, they pressure him to make a decision, a quick decision. In effect, Ted Thompson gave him an ultimatum. Who is this Ted Thompson you say? He is the same Ted Thompson that worked for the Chicago Bears, overseeing the worst series of Quarterback debacles in the history of man kind. While Chicago fumbled around with 26 quarterbacks, Brett led the Packers in every single game since 1992.

They say he did this before? Really? The guy's father died, his wife came down with Cancer, his brother in law died in a freak accident. All throughout he did not miss a single game, he carried the team on his shoulders. He showed his emotions with all this stuff happening to him and proved to be a human being. You hold that against him and claim that he waffled on coming back? Why are you putting him in a position to make a statement about coming back any how? I did not hear anybody in Green Bay demanding back in March that Aaron Rodgers make it clear that he is coming back. Brett was under contract, he showed up to work every season. In the off season he showed a human side. So you come out now and try to force him out? Oh, and did I mentioned that they also fired Sherman and started with a rookie coach as well?

I am sure Brett will end up starting this season and will do just great. I however am done with the Packers. They shame me. I am going to watch the games just to see Brett play but I will not be rooting for the Packers. When Brett finally decides to move on and quit this team I will have no more ties to them. No more trips to Lambeau Field, no more tail gating in Green Bay, no more a wardrobe full of Packers outfits. I am done with them.

Weekly Wrap

The Market

The S&P 500 had a volatile week but ended up near where it started. As Soros says, volatility increases at turning points. It still looks like the index is heading to meet the quickly falling 50 day moving average, now near 1308. What's interesting here is that the US Dollar continues to hold its ground while commodities continue to show increasing weakness. Energy being such a big part of the S&P 500 index will cause a drag on the index. Both oil and natural gas look like they are trying to hold these levels and not break down further from here.

I think gas will manage to strengthen from here but oil will continue its descend. However the market is forecasting further weakness and energy stocks are falling even on days when the commodities themselves show strength. XOM broke yet another all time profitability record but still the stock was down.

As a trend follower it is extremely hard to speculate in this environment as no sectors on my radar screen are showing any strong trends, either long or short. Commodities up trends have been broken and down trends in financials, real estate trusts and home builders have stabilized. Till we get clarity on which sectors will emerge as the new leaders it pays to be vigilant and conservative. Capital preservation is key.

 

The Portfolio

The portfolio nudged up a little from last week's values, helped with a dividend payment from NLY that went ex-dividend back in June. Not much happened in the portfolio except disposing of one position, DGLY, and adding to another, DTO.

After the collapse of natural gas over a very short period of time my natural gas and coal stocks have collapsed in a hurry. I am still debating what to do about ICO and XCO. They were my largest positions and my largest winners before collapsing in a heart beat. My trading system has signaled an exit from these positions and even signaled going short. I am having problems convincing myself to exit the position when stocks in the sectors are hitting record earnings quarter after quarter. These are not financial stocks with funny balance sheets nor home builders with mounting losses. They are solid companies with growing earnings. None the less, I do not speculate on Fundamental analysis. A stock is only worth what others are willing to pay for it. If the big boys are selling the stocks it does not matter what the earnings are. I have limit orders to reduce the size of my positions in XCO and ICO.

 

On the long side of things I am starting to eye some of the home builders, such as MHO, and some of the financial names such as Merrill Lynch (MER) which are starting to look interesting at these levels.