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Sunnier Days Ahead?
Posted by Betty L. - Freshman Equities Trader on Jun 26th, 2010 12:27am

I remember right around this time last year my friend told me that he dreads earnings season because he would have to be up at odd hours of the day in order to obtain the results the second they are announced.  Work load would get even heavier, which would then spill over into his personal life , meaning messing up his work out schedule and having less time to have a social life.  I suppose that's what it takes to gain an edge in this business.  I'm excited to go through another earnings season because when I first experienced it back in April, I had blogged about being curious to know how a stock trades pre and post earnings releases.  Over time, I believe I will better understand how to prepare, what to expect, and how to trade around earnings season.

So with a round of summer earnings just around the corner, the markets will hopefully gain more clarity and move in a more surefire direction.  Here is a list of earnings dates this summer for names in our current portfolio.  Our CEO believes that we will see a summer rally as a precursor to a rally that will be stronger than any rally we have previously seen out of a recession.  Another of his precursors was realized today, namely that a good financial reform will allow for a rally in the banks.  The overhaul of the financial regulatory system that was reached on Friday rallied bank names during the day's trading session.  The financials closed up 1.5% on a day where the Spooz were up 0.29%.  I hope we really are climbing our way up out of the hole that was only dug deeper by general fear based on rather intangible ideas.

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Setting Intention
Posted by Annie F. - Freshman Equities Trader on Jun 25th, 2010 6:27pm

Like every Friday, I took away few good nuggets of advice from the lumberjack hour. This week was a long, busy week and I let me frustrations get the better of myself as a trader. I let myself become distracted by the World Cup and by other assignments like building earnings models when I should've been focused on my number one job at the desk. My foremost job at the desk is to know the portfolio inside and out. I haven't given it my fullest attention and the only one to blame is myself. Though it was exciting to be executing on a portfolio with stocks from varying industries and sectors, the firm is finally consolidating the portfolios and assigning each of the freshman their own industry sector to watch and trade. I was assigned the financials. I'm not sure if this is a good or bad assignment. However, I do know I will learn a ton. I'm weary because financials were more complicated stocks as their fundmentals are more difficult to understand and exogenous market events often have a greater impact on them.

So from the Lumberjack, I learned that I must be more aggressive. I just finished writing up a trading strategy that could potentially make the firm a lot of money but instead of letting our CEO become aware of this, I tucked it on his desk. Instead, I must formally present it to him. The only way to success in this business to be aggressive even if it means flaunting your work. Second, I must take a different approach to my newly assigned list of stocks. I must consult with our head PM, speak with analysts who cover my sector, learn the fundamentals and all the levels. Lastly, I must not be fearful to lose on trades. I had a winning week last week and the lumberjack detected that my failure to make more than four trades this week was a result of fear. I think it's part fear and part frustration. The frustration comes from not know my stocks as well as I could--memorizing the levels and important news items on EVERY single name. I have a lot to work on for next week and I look forward to getting to know the financials like the back of my hand.

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Are you Experienced?
Posted by Zachary G. - Freshman Equities Trader on Jun 25th, 2010 8:45am

Yesterday, Mark Moskowitz was able to predict the reaction to the Jobless Claims number just before the number was released. This prognostication was not based on any sort of lengthy macroeconomic analysis or knowledge of employment picture yet it turned out to be remarkable accurate. His prediction was no parlor trick, nor was it a lucky guess. Mark recognized a pattern in the market action leading up to the number and his gut immediately alerted his brain that the reaction would be positive. This ability is a product of one of Mark’s most valuable assets, experience.

I view every day I sit on this desk as a learning experience. The more hours I spend in front of the screen, the more adept I will become at recognizing patterns and identifying trends. In order to maximize my time on the desk, I try to constantly ask questions of the principals to take full advantage of their years of experience. Furthermore, taking notes allows me to retain the lessons I have learned and reap their full benefit. It is very rewarding to come into work every day knowing that I will leave at night with a new piece of knowledge.

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RIMM's Reaction
Posted by Jeff T. - Freshman Equities Trader on Jun 25th, 2010 12:02am

RIMM reported today after the close. The bottom line number came in as a slight beat, 1.38 vs. consensus of 1.34. RIMM reported top line growth of 23.7% year/year to 4.24 bln but missed the consensus estimate of 4.35 bln. During the release RIMM also issued a share repurchase program for approximately 31 mln shares.

When the release hit the tape, the first number we heard was the EPS which was a beat and then the share repurchase program. When this was announced Dean's immediate response was something has to be wrong and immediately wanted to know the units sold number. The units sold number came in weak along with revenues but the good news was out first and the knee-jerk reaction drove the stock higher.

The stock traded from the close 58.58 up to 60.63 immediately as short term traders reacted to the headline number. The stock continued to move higher and if you had all of the scenario's played out you had plenty of time to put on a short at an advantageous price.

In hindsight, reacting to earnings, just like everything else seems simple but in the moment its really hard. The key is to pay close attention to a select few names and have all the scenario's played out, this will give you the ability to make a smart and rational trade off of the initial reaction. This is the second earnings number I have noticed a big initial knee jerk reaction which has been a great opportunity to get on the right side of the trade at an advantageous price.

It's going to be interesting to see how RIMM opens up tomorrow morning with it trading down around 6% after hours. The last three times RIMM has reported the stock has opened down twice on a miss, gapping down 12% and 15% respectively and up 12% the one time they beat.

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Stick To What You're Good At
Posted by Betty L. - Freshman Equities Trader on Jun 24th, 2010 5:37pm

I'll admit that sometimes when I sit down to blog, I'll try to force myself to write about something as stock market-related and technical as possible.  I don't want to start sounding like one of those artsy, creative types (talk about the ego of an Engineer).  But like Klein mentioned last week, stick to what you're good at.  Some of my best blogs are the ones that are less directly related to the stock market (but still relevant to this industry, of course).  I had previously blogged about the Well-Roundedness Syndrome in America and although I will promote exploring other areas in which you are less skilled, I believe the risk you run by doing so is a loss of passion.  When your mind gets so caught up in forcing yourself to perform certain tasks, you might end up forgetting about the passion you had in the areas in which you enjoyed greater success.  It's like that junior high crush you had when you tried to change who you were and your interests to fit his or her personality- don't pretend you've never had one of those.  So yes, stick to what you're good at.   If that's analyzing stock charts, don't stray and get lost in the world of fundamentals.  If that's trading stocks in a certain sector, don't let your PnL get killed by trafficking in other names if you don't know how they trade.  If that's making longer term calls, don't let short term blips or a cyclical market shake you out. 

And if you have no idea what you're good at, then you either a) are too young to be reading this blog or b) need to get a move on it because drifters who dabble in things here and there are wasting valuable time.

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Apple, Meet Google
Posted by Betty L. - Freshman Equities Trader on Jun 24th, 2010 2:14am

I got back a few hours ago from getting my laptop fixed because it caught a nasty virus yesterday.  Thank goodness for that go-to tech friend everyone has because my laptop and internet are now back up and running.  Had it not been for my friend, I would not have been able to finish watching the latest episode of the Bachelorette online just now.  (I've already made my reality show junkie status clear so I'll shamelessly admit that I watch that show.)

For me, the most valuable feedback on all things technology is the one from your typical "tech guy"- loves taking devices apart in order to figure out how to put it back together, playing with the newest gadgets that hit the market, has the merit to own a t-shirt that reads, "No, I will not fix your computer."  So for starters, one thing is clear among almost all techies- Apple rocks.  Even our own firm's tech and network specialist marvels at the ingenuity of the iPad.  The friend who fixed my computer for me recently got a MacBook.  And I continue to give him crap for daring to switch to a Mac as a fellow Engineer, still an act of betrayal in my eyes.  But as I mentioned in a previous blog, I'm not going to turn a blind eye to the greatness of Apple.  Fine, they have earned their spot at the top if they can win over even the tech geeks.

However, don't let Apple get all of the spotlight.  Google has been getting a bit of trash talk around the street and even around our desk lately.  I fell in love with Google sometime around early 2002 when I e-mailed their generic Contact Us address with a simple compliment about a feature on their site and I received a customized response no more than half an hour later (there is absolutely no way the reply could have been automated).  In my mind, they must've been doing something right.  Anyway, my friend also recently got and became obsessed with the Droid and runs Google Chrome on his Mac.  He had also been spending a lot of time organizing his albums on Picasa (acquired by Google), which by the way has some sick face recognition technology.  So all of these observations led me to ask myself, Can't Google and Apple be in friendly coexistence?  I understand that they are direct competitors, but does it really have to be one over the other?  I don't like the Apple duking it out with Google outlook.  Instead, let consumers have the best of both worlds.  And so I say, Apple, meet Google; Google, meet Apple.

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Competing
Posted by Jeff T. - Freshman Equities Trader on Jun 23rd, 2010 11:31pm

Earlier this year when I first started at the firm and before the news hit we use to talk a lot about Tiger Woods. We spoke about how consistent his routine was and how dedicated he was to his profession. Unfortunately for us and the rest of the world we were slightly off as the news leaked and Tiger's extracurricular's hit the front page of every newspaper. But lets put that aside for a minute as I discuss something I noticed when watching the US Open this past weekend.

Before the start of the final round on Sunday afternoon they showed Tiger warming up on the range and his reaction to a shot caught my eye. Tiger was hitting short wedge shots, which most would just be hitting to loosen up and paying little attention to the result, but not Tiger, he was incredibly focused and competitive. His reaction to a meaningless warm up shot was of utter disgust. Say what you want about Tiger, his mind is out of it, he's not the same guy, he's never going to catch Jack, etc. the guy is a competitor and he's out there to win every week and expects more out of himself than anyone else.

If any other player on tour and maybe any other athlete in the world went through what Tiger did they wouldn't be playing in majors and they defiantly would not be finishing in the top 5. I thought it was important to notice how focused Tiger was and how competitive he is, because, when you trade the markets its no different than playing in a tour event. To put it simple the Tiger Woods of our world is a guy called "The Russian" and if your trading the e-mini's your trading against him everyday. He has more fire power than anyone, he's extremely talented, and as competitive as Tiger.

I thought it was interesting to bring this up after the US Open, because anyone with a 1.4 handicap or better and 200 bucks can try to qualify and if you qualify you can play against the best. In the financial markets, anyone with a few thousand dollars and a futures account can trade against The Russian.

Let me get my point, if your a trader no matter what your status (handicap) may be, every time you put on a trade your competing against the best and brightest minds in the business. These guys are extremely smart, focused and as competitive as any pro athlete so you have to be on your game everyday or its going tough to stick around.

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The Insecure Homebuilders
Posted by Annie F. - Freshman Equities Trader on Jun 23rd, 2010 8:28pm

As I regularly watch the Hombuilder sector, which make up about one sixth of the portfolio I execute, I thought it was apt to give a review of the housing market. Over the last month the homebuilders have lost nearly 25% in value; the homebuilder ETF XHB went from trading near 19. Housing numbers revealed yesterday and today were terrible; existing home sales in May were down 2.2% compared with April even though April sales were revised to show an 8% monthly gain. Although May's numbers weakended they're still 19% above the level in May 2009, as you can see in the graph below the house sector has recovered the plunge quite nicely. Investors, however are questioning "is it too fast?" There's a lot of chatter that the underperformance of the hombuilders this past month is due to the expiration of the First-Time  Hombuyers Tax credit, which essentially qualified anyone signing a contract $8,000 of free money. Now that this incentive is over, demand and prices are falling.


On an even more negative note, today's release of the New Home Sales number was terrible, missing by nearly 125K and decreasing from 446K to 300K. Immediately after the news, the homebuiders started to sell off after being up slightly at the open. As an executioner, I was given order to put a TWAP to sell half our position in HOV then minutes later the collective decided to keep their bullish stance on the hombuilders in our portfolio and so I took off the twap. As it turns out, the homebuilders were the JEREMYF book's biggest winners, up about 5% on the day. This was a great team call, displaying the conviction to keep a bullish position on these names. Dean noticed that TOL has been holding up nicely relative to the others  in the space and after looking at a long term chart he gave the order to buy about 500 shares. Despite the poor sentiment in this sector, we believe this too shall pass the test of the bears.



World Cup Trivia: Which World Cup team has historically allowed a high rate of goals (32%) scored in the first ten minutes of games in this and the previous three World Cups?


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The Last Days of Lehman
Posted by Zachary G. - Freshman Equities Trader on Jun 23rd, 2010 12:55pm

Sitting on the dirt-stained porch of 427 Fillmore, we casually smoked the afternoon’s first cigarette, waiting for our friend to return from class. A familiar figure sauntered around the corner, newspaper in hand. His pace seemed unusually frenzied and his eyes were lit with intrigue. “Dude, it actually happened, Lehman’s gone…f*@king Lehman!” The words seemed to hang in the air. The failure of a stalwart institution like Lehman Brothers or Bear Stearns seemed impossible. As we watched the markets plunge in the weeks that followed we could only ask ourselves “What type of world were we graduating into?” While we knew that the shrapnel was flying on Wall St., most of us were unsure as to exactly why the big bank ultimately failed.

Last week, CNBC ran a special entitled The Last Days of Lehman that depicted the major players and events surrounding the bankruptcy proceedings. While the acting left much to be desired and the messages were thinly veiled, the film succeeded in allowing the viewer to understand why the bank went belly-up. First, the film provided multiple perspectives by depicting scenes within the company, at the Federal Reserve, and on the street. By doing so, the viewer formed a broad picture of the multiple forces that were in play. Next, the film stuck to the facts but portrayed them in a way that allowed the viewer to understand how certain decisions were reached. For example, film shows a meeting between John Thain of Merrill Lynch and Ken Lewis of Bank of America in which Lewis coaxes Thain to sell his business. While the public was fully aware of the acquisition, few were privy to the backroom dealing that took place to reach an agreement. This unique glimpse into high powered finance was intriguing and enlightening. Finally, the film focused heavily on the character flaws of Dick Fuld that helped contribute to Lehman’s demise. Fuld’s personality was riddled with hubris; he believed that his company’s reputation precluded them from failure. His unwavering faith in the merits of Lehman blinded him to the company’s massive shortcomings. Rather than bury his pride and sell the company, he chose to press his luck and soldier forward. He failed to realize that there were forces at play greater than himself and ignored the facts at hand. On this desk, we have always said that acting on emotion always leads to the wrong decision. As history has shown us, hubris is the most treacherous of all emotions.

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Defining Risk with the ADR
Posted by Jeff T. - Freshman Equities Trader on Jun 22nd, 2010 10:14pm

I just read an interesting article in Stocks and Commodities Magazine that I feel is relevant to what we are currently trying to accomplish at the firm. One of our goals in the coming weeks is to generate alpha intra-day and this article focuses on a day trading strategy.

The article talks about defining your downside intra-day risk by using the average daily range. The average daily range is the daily high – daily low averaged over a select period. The article uses the seven day average for their strategy.

Anyway the strategy is fairly simple, use the average daily range over the seven day period to define risk and reward. Every trade you enter your stop should be 10% of the seven day ADR and your profit target should be 15% of the seven day ADR. For example if the ADR for MON is $1.00 your stop is 10 cents and your profit target is 15 cents on every trade you enter.

This is a broad strategy but if you could couple this with pivot points and moving averages it will take another grey area out of our trades and give us defined stop’s. This will be especially helpful when making low risk buys and sells at S4 and R4. The next few days I’m going to start tracking how a few of our bigger positions, BA, MA, AAPL, GOOG, and IMAX respond to the seven day ADR strategy.

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