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Monthly Archives: April 2010


Disney Pixar’s movie Wall-E is arguably one of the best animated films to date.  But just because it is produced by Disney, does not make this movie a complete “fairy tale” story that will never come close to being realized in real life.  By that I mean I believe that there will come a day when there will be a nearly complete human-robot integration in society.  Initially, we might view such integration is frightening or just plain bizarre, but I see more positives than negatives were such a day to come.

I came across an article recently that NASA and GM partnered up to develop Robonaut 2, a robot that may aid astronauts in activities such as preparing equipment before landing on the moon.  While space programs have previously utilized robots in the past, Robonaut is a humanoid robot, meaning it actually resembles a human in form.  This development marks a change in that these robots will be able to work with the same tools and materials that humans do.  Furthermore, sending robots to space in place of humans have major benefits and for this reason many space programs and companies are focusing on developing robotics programs.  For instance, if you lose one person in a mission, that incident can (and will) be enough to shut down your entire space program.  Hence, sending robots as substitutes will serve as an important advantage.  I also found out that Google currently has a competition that will award $30M to whomever comes up with the first robot to send high definition televised signals from the moon (called “Lunar X Prize”).

So a future with robots is not too far off IMO (see our glossary for what this abbreviation means).  I will continue to look for developments in this space as I believe there is a lot of room for growth here.

Provenge - walks like a vaccine, but doesn’t quack like one

The primary purpose of this blog post is to drive traffic to the presentation I delivered this morning on the FDA’s approval of Dendreon’s (NSDQ: DNDN) Provenge vaccine, the first immunotherapy for cancer approved in the U.S.  That presentation can be found here.  Yesterday was a good day for all those who know someone suffering or who has suffered from cancer, it is a giant step forward in medical efforts to train the body to fight cancer on its own.  Unfortunately, approval of a cancer vaccine is not quite as exciting as it sounds.  First, this is not a prophylactic like a flu vaccine; it is an intravenous treatment that works something like this…

The late-stage prostate cancer victim gets blood drawn.  The white blood cells in the blood are then separated via leukapheresis and sent to Dendreon’s manufacturing facility.  Dendreon technicians then introduce a recombinant human protein found on ~95% of prostate tumor cells to the patient’s antigen-presenting cells (APCs) and formulate a vaccine.  The vaccine is then sent back to the patient’s doctor who injects the vaccine into the patient.

This process is quite a to-do and, understandably, is quite expensive.  Each vaccine developed brings with it a price tag of $31,000 and the standard regimen is 3 vaccines for a grand total of $93,000 per treatment.  Furthermore, Provenge does not prolong life much longer than the existing course of chemotherapy used to treat prostate cancer.  In phase 3 trials, patients on Provenge eked out 1 more month of life.  Unfortunately this is not eye-popping data when making a case to health insurance companies for reimbursement for a new drug.

Don’t despair quite yet.  The scientific community is nothing if not encouraged by Provenge’s approval.  A particularly reassuring statement was made by Dr. Kantoff, one of the lead researchers in the phase 3 trial: “people will be jumping in and trying to improve on this in a lot of cancers…over the next 5 to 10 years I think we’re going to see a lot of movement in this area”.  Still, one cannot ignore Dr. Kantoff’s timeline.

When they are broke, don’t try to fix ‘em

Much of the color I have been giving lately is that we have been long some stocks that in my opinion have been “broken” on the charts. First let me define the word “broken”: A stock is broken when it has violated enough technical support that the trend is no longer in tact.

First understand that broken stocks can be masked in a solid bull market, therefore only a seasoned technician may be able to discern a broken stock in this environment. Second and perhaps most important is that a broken stock in a declining market will most likely perform worse than the market and third a broken stocks usually has a huge exhaustion selloff at some point hitting a support level, bouncing on huge volume triggering the end of the major downtrend.

Making money in a broken stock can be very gratifying for two reasons: 1) You can benefit from pairing a broken stock off against a long to reduce risk and 2) an outright short that will usually culminate in this huge selloff.

To all of my fundamental friends, sometimes it makes sense to print out charts, cover up the name and look at the price action without the emotion of over loving of a company. This one act can save a lot of pain in your portfolios and maybe even make you some coin.

Contract Day

Today is the day I find out if I stay or if I go. When I walked into the office this morning, Moskowitz asked me how I felt and if I learned a lot over the last two months. My response was that it went fast and long and I learned more than I ever imagined in such a short span of time. In mid January I embarked on a journey to become a certified yoga instructor to further my practice and and to teach as a side job. Little did I know that there was some karmic connection between the yoga studio and TFG and that I would get the opportunity of a lifetime to learn about the world of day trading from some of the most successful and experienced Wall Street traders, PMs and analysts.

I came into the position with zero expectations and zero risk. I had absoluetely nothing to lose, only a chance to gain knowledge and move along my path to discovering my professional journey. Being a part of a business at any point during the building process is exciting and rewarding. Not only have I learned a tremendous amount about the stock market, but I have seen firsthand what it takes to build a business from the ground up-witnessing web development, marketing, writing company materials, maintaining a blog, creating protocol, and general day to day management. Most importantly, I’ve learned about becoming a part of the collective intelligence and working as a team on a trading desk. Regardless of the long hours and the exigious pay, the experience has been priceless and it has affirmed my belief that I’d like to pursue a career in a business capacity-whether it is trading, financial analysis, marketing and business development is yet to be determined.

As far as later today, I’m a little nervous, but also confident that the right decision will be made on behalf of the firm’s and my own best interest.


Sunday, Monday, Happy Days… Tuesday, Wednesday, Happy Days… Oh, you know the rest, but let me indulge a bit in my favorite sitcom as a child of the 70’s, for I had the distinct pleasure of hearing The Fonz, a.k.a. Henry Winkler, speak last night about his personal struggle with dyslexia and how he overcame the disability. His motivational drive to achieve one’s inner greatness despite what others may think of you certainly moved all of us in attendance, but I can assure you, I was not the only 35-45 year old male in the audience who wanted to ask if he really jumped over that shark via water skis when defeating the California Kid in one of the most famous episodes of the ABC series. I suppose my giddiness in meeting Mr. Winkler stemmed from my childhood self identification as the Fonz despite my reality of being more of a compilation of Ritchie, Potsie, and Ralph Mouth. Of course, the moment I became a dad I was all about Mr. C.

But I digress. Yesterday’s action in the market truly felt like “Happy Days,” so much so that we have effectively retraced the losses made since S&P’s downgrade of Portugal, the first of three EU members that the rating agency knocked lower. The obvious question remains whether the good times continue to roll to allow stocks to take out the 18 month highs made earlier in the week. Potentially, this morning’s release of Q1 Advanced GDP will have a lot to say about that, but the big news of the day comes late with the potential for large scale month end asset allocation to put pressure on stocks. As a reminder, managers often have a mandate requiring them to peg participation rates among the various classes of securities. For example, a PM may have explicit guidelines to position 65-70% of the portfolio in equities with the remaining 30-35% invested in fixed income by the end of each month or quarter. If, as we have experienced in April, stocks have outperformed bonds (one can use the SPX vs. the 10YR Note as a proxy), then the manager may have to buy credit instruments and fund those purchases through equity sales as the overall asset class allocation has moved out of balance. Typically, the selling will occur during the afternoon, sometimes commencing as early as 1:00 PM while on other occasions coming as late as 3:45 PM. Combined with other funds looking to book a solid month if any whiff of a late day selloff floats their way, I imagine we could experience some aggressive downward pressure such that I assign a high probability that the MOC’s resemble a fire sale. Regardless, from a risk-reward basis, it behooves one to at least get delta or beta neutral after lunch for not doing so is risking 1.5% to make perhaps only 20-30bps.

As for the rest of the day and beyond, we do have the Chicago PMI coming at 9:45 AM. Its loose correlation to the all important ISM due for release on Monday morning makes it one to watch, but please note that someone clearly leaked the data each of the past two months such that one can catch a free ride if he or she recognizes any violent strength or weakness a few minutes before the release. Speaking of Monday, we will turn the calendar to May which, with any first day of the month, should provide a pushback on any asset allocation selling we get stung with today. After that, it is back to the tug of war between stocks that remain fundamentally cheap against a market that is not only overbought but also skittish thanks to the potential for massive contagion stemming for the default of various EU states.

S&P 500 June E-Minis Key Technical Levels

Support: 1201.50/1200.00, 1195.75, 1192.00, 1190.00, 1184.25, 1180.00, 1177.50, 1171.00, 1166.25/65.25

Resistance: 1206.25, 1208.00, 1214.00, 1216.50, 1220.00/20.50, 1224.50/25.00, 1230.00, 1235.00, 1240.00

A New Play

It’s been a while since we brought on a new derivative play to the desk so I thought I’d give it a shot and pitch an idea or two. Going along with the 3D movie/theater thesis and the concept that moviegoers will be willing to spend more at the box office, I thought about how advertisers will be willing to spend more on ad space in movie previews. One company I came across that has rights to lease advertising time on screens in 27,164 movie theaters is a Chinese based company called Focus Media Holding Ltd (FMCN). There was talk about 6 months ago that this company was going to be bought out by Sina Corporation (SINA), another name we’ve talked about in the Chinese internet space, but it fell through. FMCN is a name I will keep an eye on and delve deeper into its market and competitors.

Everyday I get one or two emails from a blog I subscribe to by Seth Godin, a witty and insightful marketing guru. His blog today talked about the melt-down of higher education. His main argument is that the correlation from a typical college and success is suspect, especially now when there are so many programs such as gap years, research internships, and entrepreneurial ventures that in many ways offer more value to one’s career path than a binge drinking continuation of high school, what we refer to as college. Another reason private education might be at its peak is because it has gotten expensive far faster than wages. Taking a look at this graph below explicitly shows why so many people are left in debt after college and often struggle well into their adulthood to pay back loans. So, why am I bringing up the fact that the cost of private education is through the roof and that the cream of the crop high school students should begin to rethink how they spend their tuition money (or how their parents spend their savings)? There are great SHORT derivatives to be found. Shorts are the hardest investments to find in an upward trending market. Obviously there are not publicly traded universities, but there are a lot of companies and services that cater to the more expensive educational institutions-I will be searching companies in the next few days. Another play on this idea is to LONG companies that involve technical, trade or distances learning such as DeVry (DV), Universal Technical Institute (UTI), and Lincoln Educational Services (LINC). This path offers much a more affordable education and these days there are unlimited ways to apply what you learn and make money through the internet and increased networks for communication. While I still have much to research on these two ideas, I wanted to put it out there and get any feedback readers may have.

Portfolio Recap: 4-29-10

The LS book ended up 33bps today vs the market which ended the day up 1.38%.  Not bad considering we went into the day around 8% net long.  We did cover a significant portion of our SPY short throughout the day as it seemed that the Greek panic had subsided a bit and the market was going to resume it grind higher.  Once I received technical confirmation from Klein and Mosk, that it was, in fact, their view the market was going to grind higher I decided to go “commando” so to speak and covered nearly half of my SPYs.  We also successfully traded a few names during the day including JEF, LAZ and CIT.  We bought both JEF and LAZ as a result of takeover speculation in JEF.  We bought the CIT on one of its typical mid-day selloffs and traded it for 70 cents.  We put some of our hedge back on at the end of the day just to cover up things overnight because you never know these days.  After the close GNW missed, CQB missed and VCLK beat but was trading down.  We unloaded 60% of our GNW at $18 as the stock wasn’t reacting to the miss so we’ll see tomorrow if that was the right trade.

Our top winners were CVE, TPC and GNW.  CVE was up 4.6% on a good earnings report and strong crude price today.  TPC was up 3.2% on continued strength from a positive analyst report issued yesterday.  GNW was up 4% on optimism over earnings which in the end missed the street.

Our top three losers were the SPYs of course (I hate em again), MTSN and IMAX.  The SPYs cost us 45bps.  MTSN was weak all day as the chip stocks weren’t acting well.  IMAX was surprisingly weak on a great quarter.

We closed the book out at around 10% net long and an absolute value of $3.9mln.

There is no I in team, but there is MEE

This morning, our collective intelligence allowed the firm to make a very profitable trade in Massey Energy. Our portfolio manager, Dean Machado has been watching this name for weeks and developed a bullish fundamental thesis. Although the stock traded down 15% from our original purchase price, we have maintained the stance that this name will be profitable in the longer term. Today, Mark Moskowitz looked at the daily chart and determined that $40.50 was the stock’s final level of support; if the stock traded below this level and held it would be considered “broken.” We postulated that buying the stock close to this level provided a favorable risk to reward ratio with a well defined stop out. Given this information, I closely monitored the stock as it sold off into this support. When I posted that MEE was trading $40.50 Jeremy decided to triple his position in the name. Furthermore, Jeremy Klein’s bullish sentiment on today’s market provided further confidence in this trade. After a shakeout of 20 cents, the stock rallied a full dollar. Without Dean’s thesis, Mark’s levels, my post, Klein’s market insight, and Jeremy’s decision this trade would not have been possible.

When In Doubt…

you can 1) get out  or 2) make a calculated decision based on probability.

Or 3) take a stupid gamble.

I’ll ignore option 3. 

The market has been extremely volatile lately.  High unpredictability is dangerous, even for the professional trader.  So obviously for a beginner trader, I would not want to be trading around after an exogenous event has just sent the market into an erratic state.  I’ve immediately jumped out of my positions the last two days we have heard downgrade news-first on Portugal, then on Spain-and I am glad I did (fortunately, the market moved in my favor both times).  Even on a smaller scale, I’ve been hearing on the desk that when you start to question your trade, get out of it.  I think this first option is fully legitimate.  A healthy fear of the market is a good thing, in my opinion.  Don’t act like you know more than the market because uncertainty will always be a factor.

Just because the market has been volatile, doesn’t mean you can’t trade, which brings me to option 2) make a calculated decision based on probability.  I believe this option to be the better way to go.  It makes the most sense when you’re in an uncertain and unpredictable environment.  Case in point, taking a long position in PALM, which announced a merger with HPQ yesterday.  We took a long position in this name because on a probabilitiy level, the risk to reward ratio suggested that the upside was greater than the downside for a long position.  Probability won.  I know that probability does not always play out, but I believe that a strategy (which we always adhere to as traders) should always be based on probability and statistics.  Such strategy will minimize regret, which is always a good thing.

MARK-et thoughts 4/29/10

Lots of action over the last few days and I am hopeful that will continue for a while as I love the volatility which produces chances to make good profits. As of this writing the S&P futures are rallying up 6 handles after a nice rally that ensued after the market sold off on Spanish bond rating downgrades.

I think we fade this early on so I will look to get short off the open, but then get covered up on the first hammer candle finally getting long on the confirmation of that hammer, which could take us to the end of the day.

Today’s Trading Tip: Keep your list of names you want to short when the market goes down and long when the market goes up. Buy strength on rallies and short weakness on pullbacks.

Happy Trading!