"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

Monday, February 23, 2009

Some LONG Opportunities

We obviously reached oversold conditions last week, so I was / I am looking into opening some positions on the LONG side. Despite all the negativity in the market, there some sectors/niches, which are doing quite well:

Mastercard:
after shorting this one for the last two weeks, I decided to reverse and go long on this on. Despite the fact that we didn't exit the trading range between 120 and 170, MA didn't really participate in the
recent stock market sell off. In addition, we had some upgrades, which should move the stock higher
once the indicees pick up. I therefore expect MA to break the resistance at 170 soon. Target: 200.


Blackrock:
This is a range trade: strong support at 100 (notice the high volume at that level). Quarter disapointed in January, but BLK IS profitable. Target: 140.

Watson Wyatt:

WW is offering human ressource services, Nice uptrend since December, but resistance @ 50. Struggles with 200 MA. I would wait for breakout or pullback, though. Target: 60.

Google:
Nice pullback in the last two weeks. Target: 400.

Amazon:
Momentum play: great business model is killing EBAY. Pullback after touching the 200 MA. AMZN actually almost doubled since December! Could pullback more at this point. Start with a small postion.

Baidu:

If there is some truth in the China recovery thesis, this one might be a winner.Reported last week and missed sales growth target. BIDU hasn't really sold off, though. Could break resistance at 140 soon. Otherwise, wait for a pullback to 120 to get in. Target: 200. BTW: this one came down from 400!

Tuesday, February 10, 2009

Trade of the Week: SHORT MasterCard (MA)

Mastercard had a nice run the last two weeks, up 30%. Since October, MA is in a nice range with some heavy resistance at 170. Since the stock is extremly overbought at this point, Mastercard is offering a nice shorting opportunity. The stock recently had a downgrade to sell from Citigroup, yet most analysts remain bullish on the stock with 16 buy and two sell recommendations. Short interest remains pretty high at 12% of float, which also could put up some red flags for potential short squeeze. Since we are at the top of the trading range, the risk/reward ratio seems quite compelling, though.

Another look at the 30 min chart shows that price is consolidating sideways since two days.

So here is how to structure the trade:
  • Key today is Geithers talk around noon. Many market participants expect the market to sell off, which could be a contrarian argument by itself. Let's see how the market reacts.
  • Open 50% of the SHORT postion in the morning
  • If MA breaks 157 to the downside, load up the other 50%.
  • Should MA move above 170, get out of the trade
  • Should MA move below 140 the next days, start to scale out and take profits on 50% of the position. Close the rest if we go below 130 or if MA should show some decent strength.
Good luck

Friday, February 6, 2009

Some Recent Projections...

Some recent forecasts of major banks for the S&P until end of the year. Quite a bullish projection, which could be taken as a contrarian argument by itself (after some quantitive study of course):


BTW: Goldman Sachs, weren't these the guys who projected Oil@200 last year and recently adviced their customers to buy put options to hedge their portfolios? Anyways...


Thursday, February 5, 2009

Current Decoupling

A couple of trading theses:

China Recovery
One of the most interesting charts I'm following these days is the price development of the Baltic Dry Index (BDI). The important, forward-looking economic indicator is improving since mid of December. So someone is obviously booking shipping vessels. The popular thesis is that China is behind that recovery.
To participate: go LONG China (FXI), Shipping (DSD) & Mining (FCX)

US Tech
US Tech is doing quite well recently. Quarters were pretty good for some of them. Tech could keept the leadership in a US recovery.
To participate go LONG RIMM (after a pull back), IBM, GOOG, CRM (great business model, BTW)

Weak US Market
Nevertheless, the Dow is struggeling with the 8000 level. Should that level break down, I plan to hedge my LONGS with a double inverse ETF (DXD)

Financials
Financials are not consistantly weak: BAC/C are trading like they go bankcrupt, GS just started a nice uptrend (go LONG if breaks 90). The market is hoping for the "bad bank" bailout to materialize. Unfortunately, Obama seems to be more busy with limiting compensations and hiring people who are not able to fill out their tax forms. If a significant stimulus package doesn't come soon, we'll see the famous November lows in the next two weeks.

Balanced Portfolio
Overall, my portfolio is biased towards the LONG side (currently 25% SHORT positions), which I don't like. I got the following potential SHORTS on my watchlist: DHI (homebuilder, bankcruptcy candidate) HOG (I don't care that Buffet is invested), GM (looks like we will see car sales will drop to 9 Mio this year. GM's prediction in front of Congress ("worst case scenario") was 10.5 Mio), MOT, FWLT.