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Monthly Archives: January 2011

Tuesday Market Expectations, How To Trade An Egyptian Million Man March


Odd that in my blog yesterday I compared what was going on in Egypt to the civil rights movement and the next day they announce a million man march. As I said yesterday, the place to be is the NASDQ.  I am expecting the S&P to drift a bit higher as things work themselves out in Egypt. Perhaps the 1292 + level. But any quick attempt at 1300 - 1307 should be met with selling. Without a week or two of consolidation I cannot have confidence in another leg up driven by fast money. The weekend was filled with talking heads predicting a 5 to 10% correction. Where did they all go? Why doesn’t CNBC call them back and ask them “What they have to say now?” I actually expected today to be a bit quieter. We did the down 5 handles thing pre-dawn and from there drifted up. But I did not expect the NASDQ to be as strong. I continue to look upon the movement in Egypt as a positive process. The military is clearly not taking authoritative action, and I see a reasonable probability that they take the side of the crowd and bring a quick end to the Mubarak regime. If the demonstrations continue to remain peaceful, the market will move higher. The vacuum of information will be replaced by something more powerful that can move markets. HOPE. Real hope that we are at a positive tipping point in middle east geo-political history will drive the S&P market through 1300. Here is a simple rule for how to play the day; The more things remain quiet, the more things feel stable…continue to add to you high beta long positions and short DIA – The Dow and perhaps some S&P futures as a hedge against exogenous shock. I am long YHOO , BBY , CREE , CTXS , AKAM ADBE , IMAX , STX , GME , LULU QCOM as well as Home Builders and the game makers TTWO , ATVI , ERTS. I am short DIA and S&P future. Tune into our broadcast tomorrow and I will let you know how it turns out for me. HEDGEFUNDLIVE.COM

May Shift My Target From Target to Walmart

I’m taking another look at Target (TGT).  I love TGT.  Or I loved it back at 51 bucks, and then again at 55 bucks after it had gapped down following December same store sales.  I was excited when they started rolling out their new grocery section, called PFresh, complete with fresh produce and all back in the summer of last year.  I was always thoroughly impressed by the quick transaction time at the registers.  Target to me represented cheap prices without too much stigma attached to it.

TGT has been struggling ever since the stock got killed after they reported comp sales.  It is having a hard time breaking above 56.44.  I think it calls for me to think again about this name.  TGT has a PE of 14.6, which measures up to that of one of its main comps, WMT, which has a PE of 14.3.  Its ROE is 18.9%, which is slightly behind WMT’s return of 22.7%, but still around the average mark for its industry.  TGT’s profit margin is 4.2%, ahead of that of its industry peers.  However, it has capital turns of 1.49x, below the peer average (e.g., WMT has capital turns of 2.23x), suggesting capital inefficiency.  TGT’s growth rate is 0.6%, which is weaker than that of its comps, so reading that in context of its relatively nice profit margin might suggest that the company is focusing on controlling costs while being selective about its growth opportunities.  Lastly, TGT currently has a ROC of 6.3% and in the last five FYs has had a ROC of 6.4%.  In other words, its ROC has remained roughly the same over this time period.  So all in all, it seems to me that TGT has a good control on operating expenses, but does not have too much of an edge over its competition.  In my mind at least, the hype around TGT has died down, not because their products/services are deteriorating in quality, but just because they’re getting old.  That idea in and of itself probably won’t hurt their business.  But another looming threat to me comes from its main comp, WMT.

I personally hated Walmart in the past.  Their stores are disgusting, unkempt, a mess, basically.  Or at least they were.  But Walmart has been renovating and I’m starting to see it first hand.  I used to never step into a Walmart- why would I go there when I could go to a cleaner, nicer, “trendier” if you will, Target?  But I’ve recently started making trips to Walmart in lieu of Target ever since I found a 24 hour one nearby.  Walmart has definitely been cleaning up its act, store front wise.  They’ve been investing in marketing as well.  In their latest fiscal quarter ending October 2010, WMT showed that operating expenses, as a percentage of segment net sales, increased 0.2 % and cited increased  marketing expenses and remodeling costs as two of three reasons for the increase (the third reason was credit card interchange fees).  Now if Walmart could just pick it up in the “creative” department (Target clearly has a leg up in this category), I think they are golden, especially since their prices beat Target’s.

I will give TGT until their next earnings report on Feb. 24.  If I don’t see signs of life in the stock, maybe it’s time for me to move out of TGT and into WMT.

Futures Are Up in the Pre, Friday Repeat Possible?

Morning Notes

- Egypt continues to dominate the headlines, and the country received a downgrade on its debt with a negative outlook from Moody’s, suggests another downgrade is quite possible
- Uncertainty and turmoil in Egypt is adding pressure in global markets, with most major global indices trading down
- One exception is the Shanghai Comp which closed up 1.4%, no particular catalyst, but utilities, industrials, and materials led the way
- Yen strengthened, adding further pressure to the Nikkei, which closed down 1.2%
- Gold and resource stocks trading higher, may be a flight to safety move
- Prelim eurozone CPI number came in higher than expected inflation, contributing to the weakness in European bourses today, though they have recovered off their lows
- Crude oil continues to show a bit of strength
- December Personal Income: +0.4% vs. +0.5%; prior revised up to +0.4% from +0.3%
- December Personal Spending: +0.7% vs. +0.6%; prior revised down to +0.3% from +0.4%
- We have Chicago PMI data out at 9:45a ET
- S&P futures are up 6 handles from FV, which is good to see after Friday’s ugly action
- Spooz are technically on the S3 buy pivot signal and currently trading between S3 and R3 pivot levels

Risky Money: The Aftermath

It’s That Time of Year- Tax Season, What is Your Willingness to Pay?

Economics courses have taught us the concept of willingness to pay (WTP), the max amount a consumer is willing to shell out for a product or service.  We all have our different criteria that determine our willingness to pay.  Should I pay a few more dollars for the parking garage on 45th street instead of the one on 50th street because it is more conveniently located to my destination?  Am I willing to spend a few hundred dollars more to get the real Chanel bag instead of the knock off that looks identical to it for the security that the label will give me?  This powerful concept of different consumers willing to pay different amounts for the same good or service is crucial to the business model by which many industries operate.  It is a science incorporating the utility function and one that often requires complex modeling in order to optimize revenue.  But I’m going to stop myself there before I start sounding like a complete nerd.

I was able to experience first hand this idea of willingness to pay this weekend as I started preparing for taxes.  Now I’ve been using Intuit (INTU)’s Turbo Tax for the past two years.  Since I’ve been satisfied with their service thus far, I went directly to their site.  Tax SeasonA few minutes into my tax preparation, I found to my dismay that Turbo Tax’s free edition does not support the form that I will be filing this year.  You need to upgrade to at least their Basic edition for $19.95.  20 bucks is not that much in the grand scheme of things, but if you know that you can accomplish the same exact task for free elsewhere, it does seem like a bit of a waste.  So I did a quick Google search for eFile services that support the form that I need.  I went to the first site that I found- freetaxusa.com.  Not a terrible site, but of course after I completed my federal tax portion, I discovered that they do not support part year resident state returns, which doesn’t work for me since I had lived and worked in Connecticut for a portion of last year.  At that point, I decided to just go back to Turbo Tax, which I knew supported part year resident returns.  The annoying thing about all these eFile sites is that they don’t make it very clear which forms they support.  For the convenience (not to mention ease of use) that $19.95 will give me I am willing to pay up for a service I could get for free out there.  (Having said that, if anyone knows of a site that supports part year resident returns as well as non 1040 returns, please let me know.)

If you haven’t used Turbo Tax before, it’s really ahead of its competitors in terms of ease of use and user interface.  Turbo TaxThey have a help icon for nearly all terms that might have loose definitions.  They have questions before most sections to see whether you will be required to complete that portion.  My experience of returning to Turbo Tax with a willingness to pay for what I could have done for free elsewhere is just one of the reasons why I remain long INTU and continue to be bullish on the stock.

Happy tax season.

Barron’s Summary - Jan 29 2011

·         Barron’s cover story identifies 13 smaller drug firms that could be M&A targets for major pharma – ACOR, AMAG, ALXN, BMRN, CADX, CEPH, CBST, DNDN, HGSI, JAZZ, ONXX, UTHR.

·         Barron’s round table – Meryl Witmer – positive on ROC, Tronox (TROXV), SIX, PSS, and CODE.

·         Barron’s round table – Mario Gabelli – positive on GOC, NFG, FO, SLE, MSG, ENR, TNB, CR, MICC, USM, BCO.

·         Barron’s round table – Oscar Schafer – positive on ST, HTZ, QTM, and MAKO.

·         Barron’s round table – Marc Faber – positive on CVX, XOM, OXY, CHK, SouthGobi Resources, Zurich Financial, Swiss Life, Swiss Re, NEM, ABX.  In Asia, likes Chiang Mai Ram Medical, AEON Thana Sinsap, MCOT, Ascott Residence Trust.  In Japan, bullish on Nomura, NTT DoCoMo, Mizuho, Mitsubishi UFJ Financial.  Also likes Market Vectors Gulf States Index and Oslo Bors.

·         QCOM – positive comments; the stock could have 20% upside at least from here and is a major beneficiary of exploding wireless growth.

·         MSFT – positive comments – the stock could have upside into the mid-$30s; Windows was weak in the latest Q but it is still very viable in the PC market while other divisions (like Entertainment and MBD) showed strong results.

·         Roche – positive comments.

·         Investors are quietly accumulating downside put protection despite the bullish optimism of most market commentators. Hey, so have we!

·         HUGH – cautious comments in Barron’s – recommends taking profits following steep rally; while there could be a bidding war, any deal would prob. be done close to the current quote.

·         Charles Clough, founder of Clough Capital Partners – bullish on MSFT (one of his favorite stocks at the moment); also likes Samsung, AVT, CAM, HES, BP, APC, PT Bumi Resources, CCK, Man Wah; he is negative on for-profit education companies and heavily indebted health care rollups.

·         Nintendo: Mentioned positively by Barron’s; the article cites the launched of the 3DS and says the stock & ADR (NTDOY) could appreciate 25%.

·         TYC: Meniotned positively in Barrron’s; the article says the stock could rise to at least $60 in the next 18 months.

Monday Market Expectations, How to trade an Egyptian crisis and the M.A.S.S. Minimizing of America’s Superpower Status

Egyptian Stock Market - "The looters took our flat screens!!!!!!"

As we move closer to the end of the weekend, my expectations of tomorrows’ trading activity begins to form. As always, it is more of an intellectual exercise that helps keeps my Socratic Trading Mind sharp. In addition it helps me prepare to contribute to the collective thought process on the HedgeFundLive.com trading desk, we have over 20 million dollars of open positions. But I believe we are well structured for the day ahead. Egypt is still a mess. I am optimistic that we are seeing the end of a totalitarian regime, and the beginning of real Middle East democracy, but this will take some time to sort out and puts the market at risk to exogenous shocks. Example would be a significantly more lethal response by a sill Mubarak controlled Military on its people; call it Egypt’s Tiananmen Square. Example would be Hammas thinking this is a good time to attack Israel; they are always so impeccable with their timing, or perhaps our Foreign Affairs novice President continues to remain basically silent on what is one of the most seminal events of democratic evolution. The same democracy we are spending billions on in Iraq and Afghanistan. his continuing silence is an affirmation of what I call the ongoing

Egyptian Trading - The Stock Market Before

M.A.S.S. Minimizing of America’s Superpower Status. None of this would breed confidence in a market that has only recently gained its footing from the realization that much of Europe is theoretically bankrupt. There will be much grief in the coming weeks, as innocent people will suffer for macro change. As Mohandas Gandhi said “What difference does it make to the dead, the orphans, and the homeless, whether the mad destruction is wrought under the name of totalitarianism or the holy name of liberty or democracy?”

Barring an immediate positive change in Egypt, we should sell off a little more into month end and then remain range bound for a while. The Market loathes a vacuum of information. Even peaceful resolutions in Egypt, will still not satisfy the market. It is my opinion that this event is just the beginning. Similar to the Civil Right Movement, where Martin Luther King began a revolution that is still being fought every day in this country. Democracy will spread in the Middle East. Syria and Jordan are truly at risk. Saudi Arabia seems to be the chosen destination for retiring kings. In many ways Iran is probably the next most logical Hot Spot. If this is not such a seminal moment, why are the Chinese censoring searches on Egypt on their Internet? I think the range bound trading will keep us under 1300 on the S&P cash until we get another set of positive economic indicators from our own government. This should happen in approximately 3 – 5 weeks, a reasonable time frame to expect some progress in the Middle East.

Egyptian Trading - The Stock Market - AFTER

I will look for a strong dash through the 1300 level on the S&P Resistance will become support for what should be a strong year in the markets. Until then “Trade the Day you are given”. As Patanjali teaches us, “Stay present”. That said I am quite optimistic on the NASDQ and particular the Technology spaces as well as Home Builders and Biotech. I will continue to focus on those names to the upside. I will look for Take Over speculation names. I will be spending a great deal of time analyzing options strategies, as volatility will definitely be seeping into the market. Finally I will be looking to buy names that I ultimately believe will benefit the most from a changing landscape in Egypt. I will be shorting the DIA as a hedge, more than the S&P. Buying S&P puts is becoming a favorite hedge for me. I am not particularly optimistic on the Banks at this point and see them as perhaps dead money, though there are a number of regional banks I like. Mostly I will look to short high Flyer non-tech names such as RCL, in fact I might look to short the whole cruise line space. I really don’t like cruises. Commodities may be interesting to trade intraday volatility, but I will be staying away from overnighting them. We are living through monumental times. DON’T FORGET THAT!!  And trade like you understand it.


Slow and steady wins the race

My last blog referred to consistency as the key to success in this business. I think a good follow up is to understand that if you are a new trader think like the turtle and think slow and steady. Rome was not built in a day and reaching the lofty goals that I am sure are the reasons you became a trader take time.

Use the power of compounding and leverage to your advantage. If you have an account with $100,000 and you can intraday leverage that to $400,000 and make 30 basis points on $400,000 each day that is $1,200 a day but as your account grows the numbers can get bigger. This truly is a numbers game and as you build your account, your confidence builds and slowly you can get bigger until you are making more money in this business than you ever dreamed possible.

I have taught many students and there is no mold as to how long it will take until you are driving a Bentley, that depends on working capital plus savings and your risk personality. We at daytradewell.com strive to get our students to understand the numbers and how they can put them to their benefit. This all has to be part of your working business plan. Please feel free to reach out to me at [email protected] if you wish to setup a consultation.

Happy Trading!

Oy Vey Zmir!

Dammit, I’m mad! Ask me why I’m mad! Go on!…

Ok,so… I’m enjoying a lovely Shabbos dinner with my children, when I get a nasty email from my tyrannical boss,Jeremy Frommer, “commanding” me to blog!! On Shabbos?! Gut en himmel, is he fucking insane?! I hate blogging and more importantly, I hate breaking Shabbos!

I mean I literally work around the clock for the guy. The least he can do is let me finish my chulent.

Please, please, please Mr. Frommer, I work very hard…have some rachmones on me??!!

Top Acquisition/Take Over Target for 2011 - Hedge Fund Live CEO Picks

Last week I spent some time blogging about Morningstar’s top ten take out picks for 2011 and while I’m sure the community enjoyed my disseminating of Morningstar’s hard work I figured I should start blogging about Hedge Fund LIVE’s top take out picks for 2011.  For this blog I sat down with Hedge Fund LIVE’s CEO Jeremy Frommer to ask him who he thought were the top take out targets in 2011.

Jeremy is always on top of the chatter on the Street, so he started off by mentioning some of the run of the mill rumor names.
JF first started talking about how Massey Energy (MEE) is likely to be taken out in the net week or so and he could see consolidation in throughout the materials sector throughout the year.  JF felt IPI, CF, MOS, and POT could all be targets.
JF also said he could see larger tech names taking out new up and coming cloud names before their market caps become inflated.  (VZ issued a bi for TMRK Thursday afternoon and the majority of the cloud names had a bid to them in a brutal tape Friday)  JF’s favorite take out targets in the cloud/virtualization space are Citrix Systems (CTXS), Akamai (AKAM), and Rackspace (RAX).

After Jeremy went through the motions of telling me about the rumors everyone on the street is looking at he started to get a bit bold.
Jeremy Frommer’s top take out target’s for 2011
Morgan Stanely (MS): I’ve been covering M&A rumors since I’ve been at HedgeFundLIVE and the only time I have heard MS mentioned is from our CEO Jeremy Frommer.  JF thinks we will see a foreign bank take out MS in the coming year.  I know one name that came up on the desk was Nomura (NMR).  For those of you unfamiliar with Nomura it is a financial services company based in Japan.  While Nomura is a wild card to take out MS with a $21 billion market cap versus Morgan Stanely’s $40 billion market cap anything is possible.
Some other picks from JF to take out MS: CS, DB, UBS, and RBS.
Research in Motion (RIMM):  JF is a RIMM bull and believes they will be taken out by Microsoft (MSFT) in the next year.  Microsoft continues to struggle finding any success in the smart phone industry and RIMM continues to lose value with the new competition.

Google’s Android and Apple’s iPhone has been taking market share from RIMM quarter after quarter as RIMM struggles to come out with anything fresh.  As a result RIMM’s market cap has been cut in more half since the highs in ’08 and JF believes it is only a matter of time till MSFT sees value.  The MSFT for RIMM rumor only hit the tape once in 2010, JF expects to see a halt in 2011 and while some on the ddesk expect that halt to be a result of RIMM lowering their guidance JF expects that halt to come with a MSFT/RIMM Press Release.
For the bearish view on RIMM please take a look at Dean Machado’s highly controversial blog, RIMM and the Boy Genius.
After two bold picks the CEO he got back to the basics.  JF expects that the LBO chatter that has been ever-present in the supermarket industry over the last few years will finally materialize.  JF thinks it will Supervalu (SVU) that gets picked up first.  After discussing his long postion in SVU JF went on to talk about consolidation, this time in the homebuilders.
Overall, JF likes the best of bread names like RYL and LEN but advises buying a basket of homebuilders including: BZH, DHI, HOV, KBH, and PHM.

Now you know why he thought the Kin would be a winner.