"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
Sun Tzu

Thursday, July 31, 2008

Quick Market Comment: Litmus Test Today

Since my time is very limited these days, I just want to throw in my quick two cents:

- GDP growth not as good as expected today: will confirm BULLISH stance if traders buy on this dip. So this is a nice litmus test.

- Oil: higher yesterday, but stocks positive: more BULLISH signs.

- Biotech: M&A activity this summer is playing out (ImClone buyout today, Genentech deal). Still BULLISH on that sector. ETF: PBE

- Financials: yes, I'm long MER. It's the "glad-they'll-survive-trade". Fundamentals still bad, though.

- Railroad: still a very strong sector. My favorite for a LONG trade: BNI.

- Commodities: still SHORT DBA: I see big money shifting back to US stocks from commos.

Be careful, though: the housing market has yet to bottom out. This is still a "hope-that-things-get-better" rally.

Wednesday, July 16, 2008

Position Review

First of all, since my wife and I are busy moving back to Germany, I have to cut back a little bit on my trading. So the next weeks, I'm focusing more on ETFs to capture the major market trends and to trade less. So here is a review of my recent positions:

Ultra SHORT Financials (SKF)
I was scaling out the last weeks. Risk/reward became too negative for me. Today's market action (heavy short covering) confirmed my thesis. A lot of negativity build in. Might be interesting again after peak of financials earnings season.

Biotech (PBE, CELG)
If you read this blog, you know I love Biotech since a couple of weeks. CELG had a nice run, so I'm looking to take profits. I want to keep the PBE (ETF) a little longer.

Apple (AAPL)
I hoped for a little more upside as a result from the iPhone hype. I will probably sell before they report earnings next week (I hate trading over earnings).

SHORT Commodities (DBA)
If the economy cools down, commodities should cool as well. Chart might develop a "double top". Slight chance of a "commodity crash" if everyone will try to get out at the same time.

SHORT Priceline (PCLN)
Nice profit so far. Started to scale out. My last equity short position so far. One of the most heavily shorted stocks. What do these guys know? Shorting makes sense IMO: International travel is cooling off.

Try to benefit from huge SHORT covering rally and possible decline of Oil price. Maybe I should just short Oil, but I don't feel that cocky these days.

Thursday, July 3, 2008

Finally Reaching a Climax

A lot has been written the recent days about the "lack of panic" in the market despite declining stock prices. The argument was the low levels of the VIX (Volatility Index, "Panic Index", "Pukemeter").
Well, looks like the VIX is finally making up ground, so the bottom is probably not far, at least time wise:

Interesting that today even stable sectors, such as Materials or Energy sold off sharply. Looks like some sector rotation is going on to position funds for the second half of the year. My favorite sector for LONG plays - Biotech (minimum exposure to a global economic slowdown) is still doing pretty well. I'm contemplating to get into that sector as a longer term play. The PBE Biotech ETF looks like a great candidate. I don't think that whatever worked in the first half of 2008 (Steel, Energy, Commodities, Basic Materials) will work in the second half.

Tuesday, July 1, 2008

Back from Vacation...

I was out on vacation last week and just start to get in sync with the markets again.

I did what I probably shouldn't have done: go on a trip with open trading positions. Two weeks ago, I figured the market could maybe experience some significant downturn, which he in fact did. I hedged my long positions with some shorts of the financials, Ford and the S&P. In addition, I put in automatic stops (which I usually don't like to do, I use mental stops). for my longs. On the bottom line, I was stopped out of my MA, JEC, & MON trades.

So now I'm here, 50% cash, 40% short, 10% long.

My favorite SHORT play, which I entered today is Priceline, (PCLN). I never understood, how these guys can go up amid fewer travels, higher fuel prices and a cooling global economy. Well, guess I was not the only one having these thoughts in mind: PCLN short interest is an amazing 25% of float! Finally, today some analyst reduced the pricetarget due to "difficulties in the European division of Priceline". Oh, really! Research reports from three months ago were talking about PCLN's positive trend in Europe to offset problems on the US market. Bottom line: it looks like we finally got some downside momentum going:

The long term chart doesn't look any better: