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Monthly Archives: February 2011

Sold CSCO, Asset Allocation

As an update of CEF’s investment fund, we just sold CSCO on Friday at $21.99 for a return of 12.25%. The fund’s current return is 11.49% after two and a half months and now mainly consists of a long position in COPX. Currently, we are researching a possible long play on ticker ABT.

After the first two weeks of school, most of the topics we have covered are still reviewing things we have learned before. In Portfolio Management we learn about asset allocation and investments utilizing the Capital Market Line and using concepts from optimization to find the most efficient portfolios. We see how this technology can be applied no matter what kind of assets a fund focuses on. I wonder if day traders etc. who are more focused on technical analysis also utilize these theories or if allocation is more focused on gut instinct and diversification simply comes through picking many different stocks that may not give the most efficient portfolio but is hopefully still less “risky” for the target rate of return.

A Green Bay Game Plan

Congrats to the Packers. The Super Fun is over, and while Glee is owning the all the attention of my oldest child, I am writing out my weekly gameplan.

This week I plan on having a more two sided book.  That means I will add to my daily trading long names that look strong, short names that look weak.  I am willing to get into size on the daytrade long until that trade doesn’t work.  I will short, but will take profits more quickly, until this market shows me a real pullback or correction is underway.

If the market continues to rally at the end of every day, with the S&P’s making new highs from 3pm on, I will go long futures.  I will do all these things until the market shows me a different face.  Right now its showing me only one face.  People are buying beaten down stocks.  Weak stocks early get bought up before the close.  If a stock was strong early, barely exhibiting a pullback, buy it because it will continue to make new highs into the close.  This is whats been happening, and I trade what I see, not what I want to see.  If i see a reversal off these trends I will reassess.

I am down money this month on a trade error, and convinced myself that it was ok to be short those 25 stocks I accidentaly put into my account  because eventually we will have a pullback.  Unfortunately, thats not my style of trading.  I hate being the first to the party.  I missed all the fun of the relentless drive higher, which I usually take advantage of.  And all for the wrong reason.  Sometimes it takes a few days to recognize what it is that brings you, as a trader, out of your rythm.  I recognized it, and on Friday adjusted my position.  I added some pair names, so that I would have names reday on both side of the market ready to bring in the P&L.

A new week, and I’m excited about all the different ways to make money.  I am preapred to take whatever the market gives me.  And make sure its all done with appropriate risk controls including apropriate position sizing, not fighting the tape, and a balanced portfolio with hedge.

Now that the Super Bowl is over, its Game on to trading.  Bring on the Hedge fund LIVE chearleaders, ready the cameras, light the lights, and get ready for the closeups.   Who knows, Maybe the Black Eyed Peas will show up.

So Who Is Actually Bullish?

Ok, so we know why we should be bearish on the market, but what is the case for the bulls?  Here are a few reason why one could be bullish right now:

- Not much technical resistance ahead
- The VIX moved lower last week, even in the face of the turmoil in Egypt (dropped 20.5% following a 30% spike)
- Oversold indicators on the S&P have started moving lower
- Growth sectors Energy, Industrials, and Tech have pulled back in recent weeks, alleviating some selling pressure
- Little catalyst this week to get in the way of the rally as the economic calendar is light
- Reassurance from the Fed may induce further investor buying (note that Bernanke’s speech regarding the prospects of the economy was moderately more optimistic)

Halftime Musings

Is it possible Christina Aguilera really messed up the national anthem so badly?  I feel like we’re all being Punk’d.

How many times can Ben Roethlisberger pretend that he’s hurt, then run at (his) top speed showing no ill effects?   It reminds of the kid in high school who would pretend he didn’t study for the test and then get a 98%.   Its a weak hedge against a poor performance.

I had no idea Usher sings OMG with the guy from Black Eyed Peas.  I feel kind of stupid not knowing that.

Monday Market Expectations - Ignorance is not bliss, it is just ignorance

Greed is the disease

I have been looking for a pullback in the market to the 1288 level on the S&P; I have not changed my opinion. I have been a bull for a long time and am very aware at the significant improvements in our US economy. I correctly predicted in a recent blog that we would see the unemployment rate, for various reasons, gap down to 9%. But the market has not been acting normal of late. I have seen this strange pattern in the past. When you have done this as long as I have, your gut begins to have a mind of its own.  I will continue to play from the short side. I have been very specific about the names that we have taken to the long side. From the short side I am 2X the value of my longs. Short indexes as well as particular names such as QCOM, NFLX, HAL, and BAC. At 1287 I cover my short excess, below that I start to return to a long bias. I am bullish, but I am not ignorant. Ignorance is bliss? Many investors are enjoying the bliss. The blizzards distract us, the super bowl distracts us and The Bachelor distracts us. I look forward to American Idol and taking my kids out for hibachi. It is all bliss but it is also a distraction. Bliss is enlightenment, but then how is ignorance bliss? Market pullbacks or corrections begin with a shock to the ignorant. Shock to the ignorant is what is blissful because it ultimately brings enlightenment. Ignorance is not bliss. The ignorant are ill informed because they chose to be. They chose to ignore what is in front of them, that is the essence of ignorance. I was wrong in a previous blog where I said the market is behaving irrationally. I now actually believe that ignorance is perfectly rational, when it comes to greed. How could we all have been so ignorant to the credit crisis, to subprime unqualified homebuyers, and to Madoff? The answer is simple; GREED. The market is behaving like a rational ignorant crowd. Soon there will be bliss as enlightenment will come. Things do not go up day in and day out in the midst of geopolitical uncertainty. I actually fear that continued ignorance will lead to a much more intense pull back. Retail continues to chase this market. They will be the first group damaged by a pull back and they are the least likely to be able to absorb it. A minor pullback from here will not systemically damage the tenuous confidence the market has been able to re-instill in the retail

ignorance is the side effect

investor’s mind. A more systemic correction might setback the investor mentality to that of early 2010, when we began to believe that the European Union was going to crack. It didn’t. Ignorance works in both directions. Early last year the media and other pundits who look to ferment fear, ignored the reality of the Greece debt crisis and prognosticated another coming financial meltdown. They claimed the euro would reach parity with the American dollar. It did not. Enlightenment bought logic back to the market and we began a 200-point run in the S&P. When we ignore that which is around us, when we trade on ignorance, to the downside or the upside, we are just begging for a shock the system. I fear that it may be coming.

Halftime Update

Packers have truly gassed up the momo bus, turning big interceptions into points on the board.  Rodgers and co. have been able to punch holes in the veritable Steeler defense with their unrelenting ground and aerial assault.  A big touchdown before the half may put some wind back into the Steeler’s sails but the Packers should continue to maintain a tight defense and make the opposition work for every inch.

Superbowl commercials have been fairly mundane this year with no clear exceptions.  Perhaps the only moment that caught my eye was when I witnessed Vin Diesel and Paul Walker simultaneously; could it really be?  The Hollywood shit machine never fails to inspire shock and awe.  In this time of economic recovery and geopolitical unrest, a savior has finally emerged; The Fast and the Furious 5.  Getting ready for the halftime show.  I am sure the hackneyed performance of the Black Eyed Peas will surely suck.  One final note, I truly enjoyed when the commentators called out Ben Rapelsberger for his “sexual indiscretions.”  Go Packers.

Making sense of the Strength in DragonWave (DRWI)

On Friday we saw a strong action in shares of Clearwire (CLWR) and DragonWave (DRWI).  CLWR closed the day up 10.6% while DragonWave closed up 13.7%.  On the desk there  was a bit of confusion as to why DRWI was up as much as it was so below is commentary from Next Inning Research which clarify’s the situation.

The short story here is that Clearwire (CLWR) is short of cash, but has more RF spectrum than it needs, and T-Mobile is short of RF spectrum. The rumor is that T-Mobile’s parent, Deutsche Telecom (DTEGY.PK), is in talks with CLWR that would deliver it the cash it needs to move forward, and T-Mobile the spectrum it needs to compete more effectively with AT&T (T) and Verizon Communications (VZ). Shares of CLWR were halted Friday for a while as the news was digested, and after trading was resumed it ended the day up 10.6%.

During its phase one deployment, CLWR used DRWI microwave radios exclusively in the mesh portion of its backhaul strategy. While CLWR also used Ceragon Networks (CRNT) microwave radios in some of its single link point-to-point applications, I believe if CLWR is successful in obtaining the funds necessary to complete its rollout, DRWI will again be the supplier of choice for the bulk of - if not all - the microwave links. While this would be a huge shot in the arm for DRWI, it is not the foundation of my bullish thesis.

The foundation of my thesis is simply that service providers around the world will have to begin upgrading cellular backhaul systems, which today are mostly slow and expensive copper T-1 (E-1 in Europe) or TDM microwave (slow microwave designed to support voice). While direct fiber optic connections will be used in many applications, both short and long-term cost advantages that favor microwave will likely lead to it being the backhaul technology of choice in other cases. As a result, demand for copper and TDM backhaul will fade going forward. However, until that broader trend builds traction, any ripple of good news for CLWR will create a wave of positive sentiment for DRWI.

After taking a glance at DRWI’s daily chart there looks to be room to run up till $9.  I liked the action on Friday and while I have a small long position I will be looking to aggressively buy the dips up on this recent news.  There is also chatter that CLWR could be taken out at some point this year for as much as $15 which should hold up the share price for the near term.

Barron’s Summary 2-5-2011

· MSFT – Barron’s notes that hedge fund T2 Partners is bullish on MSFT shrs; valuation is very cheap and they still have decent growth prospects.

· JOE – T2 Partners is neg. on the stock; says the stock is trading at 3-4x what it is really worth.

· Interview w/Stratfor’s George Friedman – he doesn’t see the events in Egypt as the start of a wave throughout the Arab world; the army in Egypt was pushing for Mubarak’s ouster for a while now and didn’t appreciate his efforts to install his son as his successor.  The Muslim Brotherhood isn’t a major force and probably wouldn’t assume control of the country.  Iran is long way from making a nuclear device that can actually be weaponized loaded onto a rocket.

· AAPL – positive comments; article discusses the recent Piper speculation that Apple spent billions securing screens for several devices, inc. a potential TV.  Barron’s says the stock remains very cheap.

· Pandora may soon come public.

· Commodities – cautious comments – says prices are looking toppy.  Somewhat positive comments on nat gas.

· The yield curve for the moment appears to have lost its predictive capabilities.

· GLW – positive comments; the stock remains cheap and fundamentals are strong.

· IDCC – positive comments; the stock could easily jump 15% from here; fundamentals are improving and the valuation is cheaper than QCOM.

· SBUX – positive comments; the stock could have 15% upside from here; growth is strong and the co has high int’l exposure.

weekly astro view-2/7-211

the week ahead is characterized by a dearth of cycles. there are the fewest number of astro cycles in months. we might have a shortage of energy. on 2/6 the lunation is mildly bearish . on 2/8 the 8 day(moons of jupiter) is a peak negative. i believe these 2 cycles will create a pause or a decline .
looking at the daily forecasts—-
mon(2/7) is bullish
tues (2/8) is bearish
weds(2/9) is bearish in the am bullish in pm
thurs (2/10) bearish all day(potential slide day)
fri(2/11/) bearish in am ,bullish in pm.


I was just looking over a students statistics and he is about breakeven over the last few months but in looking at his down days, they are just too big. My advice to him is “LOSE LESS MONEY”.

Sounds simple but this is very much the hard part in this business. Most traders down days are too big and this must be avoided at all cost. I am guilty of this as my only down day this week was over $5,000 and my average winning day was about $3,600. Still a profitable week but the power of stopping out for the day and being done at a certain number is such a help at the end of the week/month/year.

Instead of picking an arbitrary number that you use for a stop loss try this: take the average of your last 10 positive trading days, net of fees of course. Hopefully you don’t have to go too far back to get 10 positive days. Once you have the average, take 50% of that number and use that as your daily stop loss. Keep this number as a rolling number, so as you get more profitable your stop loss number goes up. In other words, if you are profitable tomorrow, take off your first day, and use Monday’s number.

Once you have set this number down on paper as your daily stop, YOU MUST STICK TO IT, like a gambler sticks to a longshot. If you violate this number get out of the business, you will not make it. Sorry to be harsh but that is the clear reality.

So lose less money and you will make it in trading.

Happy Trading!