Monday, June 29, 2009

Now What?

I'm trying to look into my crystal ball for the nearest future.


Technicals are mostly pointing up. S&P and Nasdaq composite are well above 200-day moving average and above 50-day and 13-day averages. Dow still can't get over 200-day MA with conviction, but I don't know how relevant is Dow right now. Markets are overbought, they are overbought for more than 3 months already. There is a small reverse head and shoulders formation in Dow, and kinda the same in S&P, but it's not conclusive for me.


Sentiment is still bearish. Majority on TV is bearish, majority in the 'net is bearish, even Warren "be greedy when everybody is fearful" Buffet is bearish. I don't see buying panic, which is surprising after 3 months of bull market. Sentiment being contrarian indicator, this is very bullish.


Nothing to write home about. "Green shoots" mostly exist in the imagination of bulls. Sure, speed of the decline slowed, but economy is still going down. Deflation rules, despite all efforts of Fed. Companies beat expectations, but most of those are very low, and year-to-year comparisons are scary. Fundamentals are as bearish as they can be.

Other stuff

This is the end of the quarter. After the whole bull market quarter you'd expect huge windows dressing buying. Somehow it failed to materialize. Huge bull market in commodities is even more confusing: there is no growth in economy! There is no increase in demand of physical products. But we see that, in Jim Cramer's words, commodities, or to be more precise, commodity futures, became an asset class of its own and lots of fund managers are buying them left and right. They think that they are buying "hard stuff", not so long ago we heard the same about real estate. And, of course, commodities crashed last year, destroying a lot of capital, there is no reason why they won't crash again. Another problem with commodities boom: higher commodity prices are putting brakes on possible economic growth. My feeling that these points are bearish.


I don't feel this market. By 2 to 1 vote, we should be in bullish territory. But fundamentals are still bad, and they matter more than technicals and sentiment combined. I am going to do nothing so far and try to understand what market is telling me. Of course, I will make an occasional trade if I feel like that.

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Wednesday, June 24, 2009

Health of Steve Jobs Is Material Information

First of all: Steve, get well soon.

As for Apple (AAPL), it plays on the edge of the law. Maybe lawyers can prove that Steve's health is a private business. Maybe. But for the market it's material information, no doubts about it.

For me, Apple is not an investable company anymore. I still have a small position, as a speculation play. But long term investment is not for me. Accounting irregularities equal sell, what about informational irregularities?

Full disclosure: at the time of publication author had a long position in AAPL. Positions can change any time.

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Sunday, June 21, 2009

The Great Bing Scam

It's amazing how much trust people still have in Microsoft (MSFT). Company launched a new search engine lately and it was meat with some incredible claims. This article reports that on the first day Bing overtook Yahoo! (YHOO) and asks if Microsoft can challenge Google (GOOG) in search. Hailstorm of articles makes similar incredible claims.

I was almost ready to believe it myself, but one small thing caught my attention. I just started a new assignment, and at my new workplace Internet Explorer 6.0 is the only allowed browser. Of course, in the first several hours I mistyped some link in the browser address field, and, surprise, I see a Bing search page! It was a classic WTF moment. I checked browser search settings, Google was a default search engine. A little googling made things perfectly clear.

This article explained it all to me. Microsoft made a "mistake" and IE 6 in the whole world switched to Bing as a default search engine. Why on earth all MSFT "mistakes" are always to the company benefit?

Bing is not a Google competitor. All statistics showing Bing great start are caused by this "mistake", which, if you ask me, is just a scam. Thing is, IE 6 is still the most popular browser, because of policies of many companies and common people laziness. So, when default search for a browser was switched to Bing, it made a blimp on the statistics. Little wonder, more than 50% of internet users still use IE 6. I'm surprised that this blimp wasn't even higher. Of course, Microsoft had to correct this problem soon, otherwise company would have serious antitrust problems. But initial jump in statistics gave Bing publicity it wouldn't get otherwise. Shame on Microsoft. More shame on everybody who get caught on this cheap trick.

(Correction made on June 23, 2009: IE6 is not the most popular browser anymore, it's share is about 15%).

Full disclosure: at the time of publication author had a long position in GOOG and did not have any positions in MSFT or YHOO. Positions can change any time.

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Tuesday, June 16, 2009

Buying More VmWare

Bought more VmWare (VMW) on weakness today.

Full disclosure: at the time of publication author had a long position in VMW. Positions can change any time.

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Sunday, June 14, 2009

Liz Claiborne Turnaround?

Just a quick picture from last Saturday: Liz Claiborne (LIZ) outlet shop, almost empty for the last year and a half, was full of people. There was a line to the fitting rooms! I'm putting company on my watch list, there might be a turnaround in process.

Full disclosure: at the time of publication author did not have any positions in LIZ. Positions can change any time.

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Thursday, June 11, 2009

Still No End for This Rally

Majority is wrong. It's usually wrong on the market, this is how markets work. This rally is going on for three months already, and all we hear: "Bear market rally". Come on, guys, I understand, it's hard to sit on the sidelines (never mind being short) when market is going up. But if you don't recognize the obvious, you lose money.

I expected some bullishness, if not exuberance, by now. I sit on good gains since March, and my finger is itching to press "sell" button. But there is no point in selling when there are so many bears around. Sentiment remains neutral to slightly bearing on my unscientific screen. And I remain bullish, buying more lately. All my transactions are in the blog, welcome to see them.

The end of quarter remains the crucial point. There is some window dressing going on for sure. But most of it is on the oil market, which is so disconnected from physical product now that even price of natural gas doesn't want to follow it. No panic buying in tech and financials. Mostly sideways action with little upside. That's a "buy" signal, not a "sell", not even "take profit" signal. Sure, if you feel scared sitting on 40% profit, take it. But I'm going to buy more. I don't have any stocks I like very much, so I was buying a little bit of this and that, with exception of VmWare (VMW). This one is one of the Next Great Things, and I'm buying more on weakness. Reasons are outlined here.

Full disclosure: at the time of publication author had a long position in VMW. Positions can change any time.

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Wednesday, June 3, 2009

How to Play Oil Contango

There is a straight way to play oil contango: buy physical oil and oil futures for the equal amount of it several months ahead. Store oil in Cushing, OK or in supertanker somewhere offshore, paying about a dollar per barrel per month and deliver it when future contracts expire. This is for serious oil speculator, who has big capital.

Is there anything individual investor can do? And filling up your swimming pool with crude is not what I have in mind. Yes, there is a possibility to speculate on contango.

Let's take a look at U.S. OIL FUND ETF (USO). As everybody knows, oil price, which usually means next month future contracts for West Texas Intermediate oil (WTE), almost doubled since beginning of the year. USO, which represents next month WTE futures, is up whopping 9.5%. WTF? There is a small problem with USO design: this ETF buys next month future contracts, and in the end of month rolls them over to the following month. Of course, in case of contango, it buys less contracts for the following month, because they are more expensive. Repeated every month, this procedure kills USO in case of contango.

There is another trading tool for oil price: PowerShares DB Oil Fund (DBO). This fund also holds oil future contracts, but somehow loses much less money on contango effect.

Suppose, you shorted 1000 shares of USO at 33.10 and bought 1500 shares of DBO at 19.29. Net difference is $4165. If you sold/covered them today at the close, USO at 36.25 and DBO at 24.88, you'd get additional $1070. Net gain of $5235 minus commissions.

There is a risk involved. If contango is replaced by backwardation (longer future contracts less expensive than near term ones), USO will outperform DBO. DBO is not as widely traded as USO, and there isn't much information evailable about it, so there are some unknown risks as well.

Full disclosure: at the time of publication author had no positions in DBO or USO. Positions can change any time.

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Buying More

I was using today's pullback to buy more. Opened position in PowerShares Financial Preferred Portfolio (PGF), this is an ETF representing portfolio of financial preferred stocks, with yield about 10%. And added to my Spain Fund (SNF) position. This closed end fund trades at discount around 16% to its net account value (NAV), and pays yield of 10% of NAV. For the last half a year it's been priced as if Spain is going to disappear. I don't think so.

Full disclosure: at the time of publication author had long positions in PGF and SNF. Positions can change any time.

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Tuesday, June 2, 2009

Buying VmWare

I started VmWare (VMW) position today. Reasons are outlined in my yesterday's post.

Full disclosure: at the time of publication author had a long position in VMW. Positions can change any time.

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Monday, June 1, 2009

The Future in the Cloud

Last Thursday I visited VmWare (VMW) forum in Minneapolis. And I saw the future.

There is a lot of talk about cloud computing. The idea is simple: take a lot (hundreds, thousands) of inexpensive, Intel-based computers, put them into racks, connect to the network, and use them for different tasks which require a lot of computing power. There is a small problem here: computers without software are useless. And cloud computing requires specialized software. There is specialized software in huge data centers built by Yahoo! (YHOO), Google (GOOG), (AMZN) and by other companies. All this software is proprietary, you can't build your own data center with it.

Here comes VmWare. This company produces virtualization software. Initial idea was that you can build your specialized virtual machines inside of a real computer and then move them around if you need. But new product, vSphere 4, allows you to build a cloud. All cloud functions are here: you can rapidly build virtual machines, clone them, move data and whole virtual machines around.

If you asked me a month ago "what do I need to build a computer cloud?", my answer would be: hundreds of millions. You'd need huge resources to pay good programmers to develop your own cloud computing software, debug it, make it production ready and then support it. Not anymore. Now you can just install VmWare software. It will cost a bundle, but orders of magnitude less than cost of building your own.

I wanted to by VMW right after the forum. As usual in the last couple of months, waiting for a pullback just makes stock more expensive. I'm going to open position anyway in the next several days.

Full disclosure: at the time of publication author had a long position in GOOG and no positions in other companies mentioned. Positions can change any time.

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Taking Profit in Allos Therapeutics

Sold my position in Allos Therapeutics (ALTH) today. It was speculative position, the idea (that of Jim Cramer) was that ALTH can present good results of its anti-cancer drug on 45th annual meeting of The American Society of Clinical Oncology (ASCO). Well, results are ok, but not great, presentation is over, so is the speculation. One of the rules of trading: if you bought to trade on the event, sell right after the event.

Full disclosure: at the time of publication author did not have any positions in ALTH. Positions can change any time.

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