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Monthly Archives: July 2010

HFL Portfolio Recap: 7/30/2010

The HFL Portfolio performed fairly well yesterday closing up15 basis points outperforming the S&P 500 which was up 1 basis point.  The top five winners in the book were the E-Mini Futures, LULU, V, RIMM calls, and DELL.  The Spooz were up about 18 basis points but were well traded and our biggest winner on the day.  LULU had a strong day closing up 2.04%.  V was trading flat early in the day but rallied throughout the day and closed up 1.90%.  RIMM continues to rally into the unveiling of BlackBerry OS 6 and BlackBerry Slider phone and closed the day up 3.29%.  Rounding out the top five is DELL closing up 61 basis points.

The largest losers on the day were GNW, INTC, and GET.  GNW closed the day down 14% after reporting Q2 earnings.  INTC closed the day down 2% and below the 20.80 support level we have been referencing the last few weeks.  Lastly, GET which closed the day down 1.76%.  We added small to the equities positions but covered a third of our hedge to take our net exposure up by bout $550,000 after yesterday’s action.

Is this a white iPhone or a unicorn?

Recent news out of Apple indicated that the white iPhone 4 is proving more challenging to manufacture than previously anticipated.  For this reason, AAPL will be delaying the white phone’s release until “later this year”.  Some websites are reporting that the problem is “light seepage”; the phone’s backlight is visible through the rear cover of the phone, while others believe it has something to do with the white paint on the front of the phone.  I am no more of an Apple-phile than the next guy, but I can understand that Apple wants to get it right, what I have trouble wrapping my head around is that true, die-hard Apple fans are actually upset over the delayed launch of this phone.  Kudos to Steve Jobs for training a generation of unsuspecting youth to believe that the color (or hue) of their phone is more important than the reception it gets.  Even more amazing to me is that what people are waiting for is a white phone – white.  Isn’t Apple the computer manufacturer that used to charge more for its non-white MacBooks?  When it comes to MacBooks white is uncool, but when it comes to phones, white is, all of the sudden, this season’s must-have color?  I honestly don’t get it, but I am most impressed that it works.  Perhaps Dilbert creator, Scott Adams wasn’t too far off when he postulated in a recent blog: “I’ve wondered for some time if Jobs studied hypnosis…”

Fed’s Bullard compares USA to Japan

The president of the Federal Reserve Bank of St. Louis released a paper Thursday warning that the Fed’s policy of keeping interest rates near zero during the economic crisis may lead to Japanese-like deflation in the coming years.

Japan has been stuck in a long economic slump with low growth and falling prices. The St. Louis Fed President James Bullard warned that without more aggressive moves to spark the slowing U.S. economy, the country could be in for similar harmful deflation. The Fed targets its benchmark interest rate at between zero and a quarter percentage point.

Gold prices have dropped this week supporting the markets feeling that deflation is the more likely scenario. Do we really want to become another Japan? On July 30, 1999 the Nikkei 225 index of Japanese stocks closed at 17,861.76. 11 years later the index closed at 9,537.30 nearly a 45% drop in prices. With unemployment still high, municiplaties yet to balance their budgets and huge Federal deficits it certainly feels the U.S. is following the Japanese playbook step by step.

At least with Bullard’s comments an individual the power and the platform to help get us out of this mess is recongizing that there is a problem and one that needs to be solved quickly. Much of my overall bearishness is centered around our leadership and their poor track record to date, if Bullard can get a following getting this message out there, maybe I will start to see the silver lining around that black cloud of sh** that Dean likes to talk about.

Tech/Telecom Portfolio Recap: Just another issue for GOOG in China.

Another disappointing day for the Tech/Telecom book closing the day down 1.03%, underperforming the S&P 500 down 42 basis points and the NASDAQ Composite down 57 basis points, respectively.  The winners in the book were GOOG, RIMM, TTWO, and MSFT while the loser were made up of DELL, V, AAPL, INTC, and CREE.

GOOG was the strongest performer in the book based on PNL and the second strongest perform from a percentage basis closing the day up 64 bps.  RIMM, a newly initiated short position which we will be building into as we move forward to the unveiling of BlackBerry OS 6 and the new BlackBerry which should be released on Tuesday.  We got into the trade about an hour before the close after the stock rallied on news that BlackBerry app world will be accepting credit cards.  TTWO and MSFT round out the winners closing the day up 87 bps and 31 bps, respectively.

The top losers on the day start off with DELL which came out of the gate strong and was leading the charge to the upside but couldn’t hold the gains and sold off with the market as the day progressed.  V ended the day second from the bottom as they sold it off following an earnings report.  V was originally a trade that is becoming an investment and where looking at 70.50 – 69.00 as a major support level.  AAPL, INTC, and CREE round out the final three closing the day down 1.09%, 1.41% and 1.61%, respectively.  INTC touched that major support level today where the 20, 50, and 200 SMA converge on the daily chart at 20.80 before rallying back to close the day at 21.03. (The low of the day on INTC was 20.76)

The major story after the bell was Google.  A headline hit the tape that GOOG search had been blocked in China and sent the stock down 2% while BIDU rallied 2%.  The story was strictly a headline so keep your eye on GOOG and BIDU as they should be active tomorrow.

HFL Portfolio Recap: 7/29/2010

The Fund slightly underperformed the market today closing down 49 basis points versus the S&P 500 which was down 42 basis points.  The winners on the day were IMAX, XIDE, GS, and LULU.  IMAX was up 7.94% on a strong reaction after earnings and XIDE was up 2.55% closing at $6.03, pay attention to this level as this is where Tontine likes to dump shares and drive the stock back down towards $5.00.  GS has a strong day closing up 3.65% and LULU ended the day up 1.30%.

The losers in the book were weighted towards Technology with DELL, V, and AAPL all making the top five losers list.  DELL was down 2.52% and AAPL was down 1.09% on no direct news.  V was down 4.26% after yesterday’s earnings release, the stock did find decent support at 72/71.50.  Other losers were BBY down 1.65% and CVE down 4.40% following earnings.

We trimmed our overall exposure by roughly 2% as we continue to pull in off the highs and trade back below the 200 SMA.

Consumer Confidence: What Will It Take To Raise It?

Yesterday was the first time I had a real conversation with my mom centered around the economy.  I was somewhat caught by surprise by the anecdotes she gave me- not necessarily her own, but those of her friends as well.  The state of consumer spending becomes more tangible and real when you hear personal stories that back up the picture.  Not that living conditions have become unsustainable, but cutbacks on spending are definitely happening on a wide scale.  Among some of the anecdotes I heard: delinquencies on payments for services from small businesses; someone who works for a company that supplies lumber to homebuilders is seeing noticeably reduced demand as homes are not being built.  Granted, Illinois (where my family is) is among the worst states in terms of debt level with a whopping $13B deficit, I imagine the rest of the nation is undergoing similar economic pressures. 

So what can consumers hang their hats on for this economy to improve?  One thing I was reminded of yesterday during my conversation is that the government certainly will not be the saving grace for consumers.  While discussing political campaigning for an Illinois congressional candidate, I asked my mom what his views were on certain issues.  I got the “sad but true” response of “does it matter”?  That is the mentality of the majority of Americans.  Our country’s issues are too big to tackle and one politician will never affect enough change to make a substantial difference.  So it is of no surprise that consumer confidence is weak right now and will need at least several more months (to stay on the generous side of the picture) to heal itself.

The Ongoing Debate: Long or Short Gaiam (Gaia)?

Being that we held onto Gaiam, Inc. (GAIA) for over six months and sufferred a hefty loss in the stock whose business revolves around the rather disputed and popular topic on the desk known as yoga, I thought it was about  time to offer some sympathy for the poor guy.  For a while, there was a saying on the desk that “Gaia is going Highah”. Not so. Even though we no longer have a position, we have scheduled a formal talk on the insecure beast tomorrow when the market is quiet.

Gaia is in the business of lifestyle media and offers many products in the LOHAS market. LOHAS stands for Lifestyles of Health and Sustainability and it targets the emerging Concsious Media market. Their biggest revenue generating item is Fitness and Wellness DVD sales, of which they control 42.5% of  US market share. Gaiam caters to yoga enthusiasts with products such as yoga mats, dvds, apparel and accessories. In terms of profitability, GAIA’s income increased five-fold from 2005 to 2007, then posted a loss in 2008 and has since picked up business in 2009. The growth of Gaiam’s business is very in line with the yoga industry as spending and participation increased 134% in yoga from the years 2001 to 2007 (there has yet to be statistics published from 2008 on). If the yoga industry continues on its trend post the economic recovery than GAIA may have a change to continue on a profitable path. As a business located right above a yoga studio, we tend to bring up the subject of yoga quite often (too often for a trading desk , if you ask me) and there is much debate as to wether yoga is the latest fitness fad or if it’s the real deal. Currently you can find doctors recommending it, insurance companies paying for it, fortune 500 companies offering lunch hour yoga and you can find CEOs of major companies hooked on it. I’ve compiled a factsheet on the yoga industry that includes spending trends, demographics and an industry outlook, which will be posted to the website.  Even if I wasn’t so into yoga and new of only the basics, I think yoga is here to stay. GAIA, on the hand, might not be around much longer if it sticks to its core business model of fitness DVD sales. For starters, if GAIA wants to compete, it’s got to buy out the company JADE YOGA  for probably a large sum of money and it also has to start competing with LULU apparel.

Paring Back in Industrials; Daily Chart Analysis on GE & FDX

Yesterday, the market closed flat and drew a dojo, or indecision candle on the daily chart. Today, the market closed down approximately 9 handles. From a psychological standpoint, this action indicates that there was a battle between buyers and sellers in which the sellers ultimately won the day. With this action in the market, several stocks that looked constructive two days ago have begun to take a turn for the worse on the daily charts. In response to this, we decided to trim the Industrials book by $95,000 or approximately 22%. The first name we decided to sell was General Electric.

GE Daily Chart:

While it appeared as though the stock had broken through the 200 moving average (red line) yesterday, in hindsight this move appears to be a head fake. Now the stock sits below this key level of resistance and seems poised to move even lower. This appears very similar to the FDX daily chart. Yesterday we bought 500 shares of FedEx to ride the post-earnings momentum, but decided to sell those same shares today as the stock closed beneath its resistance.

FDX Daily Chart:

Whether we are right or wrong in these trades, the risk to reward favors the bear case. If the market rallies and these stocks cross back above resistance levels, we will be quick to buy these shares back. On the other hand, if the market sells off we will be able to avert the pain of holding onto losing positions.

Tech/Telecom Portfolio Recap: RIMM a ripe short?

The Tech/Telecom book took it on the chin today closing the day down 1.51%, underperforming the S&P 500 down 69 basis points and the NASDAQ Composite down 1.04%.  There was only one winner in the Tech/Telecom book and that was CSCO.  CSCO stayed strong throughout the day to close up 39 basis points. 

Our biggest losers on the day were GOOG, MA, INTC, AAPL, and MTSN.  GOOG was down 1.68% and was weak throughout the day, possibly due to the fact they are going to try to compete with Facebook.  MA closed down 1.935 and INTC closed down 1.16%, but remains well above support at $21 and $20.50.  AAPL was strong off the open but couldn’t break above 266 and bleed lower throughout the day.  We were able to generate alpha by selling a piece of our AAPL right off the open at 265.58 and buying it back just before the close.  Rounding out the group of losers was MTSN, and what a loser it is.  MTSN broke down below the 3 dollar level today and we liquidated 55% of our position.  We also sold our long in TNDM going into earnings tomorrow morning.

Putting the laugher of a day in the Tech/Telecom book the story of the day belongs to RIMM.  Last night RIMM announced that they would be hosting an event with AT&T on Tuesday, August 3 in New York.  Speculation than hit the tape that this will be the event where RIMM will introduce their newest BlackBerry Smartphone, the 9800 Slider and the BlackBerry OS 6 operating system.  The stock was up over 4% today on an announcement that has been coming for some time.  There’s chatter that this might be RIMM’s last chance to say it can hang with the iPhone and Android but we are very skeptical.  The pop today was on an announcement everyone has known about and a product that has already been leaked.  We voiced our opinion on Stock Twits and urge you to check it out  http://beta.chart.ly/hk2yw2g                                                                                           

Sell High, Buy Low: Growing Up in a Seller’s Market

I, along with the other freshmen, have entered the market at an interesting time.  Most of the more seasoned traders out there were brought up in a bull market.  Basically, they only knew to buy stocks, and thus, have the buying mentality somewhat engraved in their heads.  We, on the other hand, are growing up in a seller’s market.  It feels like all I know how to do is sell.  Schwartz jokingly said the other day when I initiated a short intraday position something along the lines of, we have yet to see Betty buy a stock.  Fortunately, I have the flexibility to go from short to long, bear to bull, in the blink of an eye, or so I think.  I liked Mosk’s blog today because I am a proponent of following objective indicators and sticking to just the facts.  And right now, the hardest facts (the charts) are pointing to the beginning of another downtrend. 

Today, nearly all of the daily charts for individual stocks looked like a great shorting opportunity.  Several names formed a bearish engulfing candle on the daily charts yesterday and today as the S&Ps closed down 69 bps, another red candle was drawn in an act of confirmation of a reversal of the prior upward trend.  Today I really felt that there were no stocks to buy.  I guess only if you are an income investor for the (very) long haul, buying stocks now would not be so problematic.  But for the short term, growth investor, selling seems to be the safer bet right now.  Yes, the market can change in the blink of an eye.  But as I mentioned above, I can go from short to long in the blink of an eye, too.  So until I see hard facts of the start of a real rally, I will not be inclined to be a buyer in this market.  The rule of thumb in trading is to buy low, sell high; however, it seems more fitting in this market to stress the latter part of that saying first: sell high, buy low.