"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, September 11, 2008

Watch out for Ben

Global markets keep falling, hedge funds are unwinding their commodity positions. I'm currently 60% net short, betting on further decline in commodities (SHORT DRYS, STLD, FSLR, MOS), Financials (SHORT MER) and emerging markets (EEM). Nevertheless, I will trim my short positions soon because I wouldn't be surprised to see the FED coming out with an emergency rate cut. They might wait for tomorrows Core PPI number. Should that number be signifianct higher than expected, fasten your seat belts. Besides that, watch out for Ben!

Monday, September 8, 2008

After the Bailout: the first 60 Minutes...

... will tell us today if we'll get a rally this week or not. Market gaps up, but many folks still on the sidelines and are waiting for a pullback.

I opened some more small LONG trades in the finacial sector (BAC) and closed some SHORTS (HOV, QID). Depending on the market action I will add to the longs (UYG, URE) later today.

Fasten your seat belts...

Sunday, September 7, 2008

Game Plan Week of Sep 7: Intermezzo

I took some profits on my commoditiy short plays end of last week. The Emerging Markets short was my top position and I started to scale out as well. A bounce after four down days is expected.

Relative strength in Financials and Homebuilders was impressive so I decided to carefully go long here. Mondays market action as a result of todays Government bailout of Fan and Fred will reveal if the bear market is building another leg down or if the July lows will hold for now. Mortgage rates might come down by 100 base points but with 40% of loans in California being Interest-only or Option ARM loans, I can't see how a turnaround in housing is possible soon. The bailout might not turn the housing market around but at least keep the US economy from totally collapsing.

I think we'll see a little Intermezzo move next week, but I probably will add to my shorts soon after.

Another interesting stock will be Apple. Let's see what Steve Jobs presents on Tuesday. If we can surprise us with good health and a sensational new product, I might be in for a quick momentum trade. The market has been rather skeptical, though.

Wednesday, September 3, 2008

Review Current Trades & Themes

In general, I'm leaning towards a bearish stance w/r/t/ US market. I expected declining oil prices to have a bigger impact on stock prices, but market participants focus on US economics, which obviously doesn't look good. The key to sustained recovery would be a significant decline in US home inventories (Currently at 11 months, moving higher).

My portfolio took a remarkable hit of -2% in August due to the absent of any market direction. Nevertheless, major trends still exist and I keep on playing the following themes:

Slowing global economy
through short positions on infrastructure (FWLT, MOS, DRYS), commodity (STLD) and emerging market (EEV) plays. Today's price action confirmed this theme. Since the big funds will "clean out the house" in September (end of Q3; sell, what doesn't work), I expect commodities to fall further in comming weeks. Recent US economic data doesn't suggest quick recovery.

Relative strength in the biotech sector
Biotech had a nice run in July, but started to move sideways in August. I'm close to pull the trigger an sell the position, if I don't see momentum picking up soon.

Defense sector comming back
A lot of analysts are recommending selling the defense sector ahead of the US election. Nevertheless, a resurrected Russia (interesting article about Georgia in the NYT today, BTW) and the fact that the next US President simply can't just leave Iraq, might empower defense stocks. I'm playing this with a long position in LMT. Note that defense stocks have recently outperformed the market and do not suffer from recession fears.

I love to trade Apple in general, because it is probably one of the most "emotional" and manipulated stocks on the market. I'm currently long, but consider to close the position since the weak tech sector seems to overwrite Apple's outlook. Many positive catalysts on the horizon (new products, Mac sales) BUT: the market knows all that and should have already priced that in.

US Small Caps
Continues to outperform, but volatile. I hold a long position in UWM (leveraged Russel 2000). I probably have to get out on further weekness.