Wednesday, October 26, 2005

Review



I wasn't too satisfied with my assessment of the markets today. First, I bought the QQQQ, which is very uncharacteristic of me. The reason why I don't like buying indexes is because I believe I am buying a lot of bad stocks when I buy the index. 50% of the stock movement comes from the overall market, and 50% comes from the stock itself.

I believe one can maximize the probability that a stock will go up if they choose the "strongest" stock. Although "strong" is a very subjective term, it could mean a fundamental advantage within the company, relative strength, or an interesting technical pattern the stock may be forming. Picking "strong" stocks increases the probabiliy that a stock will go up even when the market goes down.

This morning, I saw a perfect opportunity in GOOG when it was trading between 349 and 350. For some reason, I didn't take it and bought the QQQQ instead. Perhaps a reason is because I am too tired to think properly at 6:30 am when the market opens.

To address this issue, I am going to prepare more the night before. Right now, I am still eyeing XLE (although its an idex, all energy stocks move the same, so there isn't much advantage to picking an individual energy stock....plus, the implied volatility is lower for options). I sold my XLE position today for a small gain, and I think it will drop below 47.5. Since it previously bounced off a major bottom trendline, I believe it will uptrend for a while, so I will be looking to buy XLE again pretty soon.

Anticipating a rally

I just filled the rest of my QQQQ order today (bought 15 more nov 37 calls @ 1.45), and I also bought some XLE calls yesterday. After this short consolidation, I think a broad based rally is in order.

Monday, October 24, 2005

Markets in rally mode



It was nice to see the markets rally today amid so much negativity. I guess people are realizing that the economy is not as bad as everyone thinks it is after all the good earning reports.

Today, I made a daytrade on Electronic Arts (thanks to dttong for the heads up). The reason why I didn't hold it is because I think the Nasdaq is overbought and because there is a lot of resistance overhead. The markets may continue rising in the short term, but I am satisfied with today's gain.

For this reason, I also sold my Cameco position today, although I regret it. Energy stocks have sold off a lot recently, and this is the time one should be buying, not selling. The reason why I sold was because I wasn't paying much attention to the markets during the day, so I played it safe.

Going into the close, I placed an order to buy 20 contracts of the QQQQ Nov. 38 call @ 1.30. To my dismay, 3 contracts got filled at that price. Although the QQQQ call option is now at 1.5, I would rather not have this filled, because it is such a small position. It's a good thing I used my Tradefreedom account to buy this position (instead of Etrade Canada), or else the commission would kill me.

After analyzing the markets after the market close, I want in on Energy again. I am now tracking the XLE.

Thursday, October 20, 2005

SHLD Trade

I sold my SHLD nov call option near 125 this morning, because it has moved too much in the short term, and because I want to liquidate all positions going into options expiry. I will probably sell my Cameco position also, but waiting for the opportunity.

Wednesday, October 19, 2005

Fording Coal

I bought the Canadian version of Fording Coal (FDG.UN) @ 45.00 today. I plan to hold this long term because I like the demand for steel (coal is used to make steel) and because it pays a 16% dividend. The only downside is that Canada might change their tax laws against income trusts.

I also picked up a nov call option on Cameco while it was trading near 56 CDN. I plan to hold it as a short term trade (less than a week). Reason why I like trading this stock is because I like the long term prospects of this company and because it is the only big uranium company around. Therefore, there is a constant demand for its shares, meaning it has a high probability of bouncing whenever it sells off.

Tuesday, October 18, 2005

SHLD

I bought a Nov. call option on Sears Holding when it was trading slightly below 120 this morning. Reason why I did was because of their second buyback. Ever since they announced their first buyback, an insider bought huge amounts at prices between 119-120 and they almost filled their first buyback at a price of 118. If the insiders like the stock so much at these prices, then there is a very high probability that the stock will stay above these prices.

Monday, October 17, 2005

Update

I sold my CCO (Cameco) and PD (Phelps Dodge) positions today at nice gains. Reason was because I was only playing a short term bounce, and they reached my targets.

The markets are looking more healthy, and I would expect a broad based rally. However, I will probably observe the earnings that are coming in this week and wait until option expiry is over before adding any more positions. The reason is because I am not good at predicting earnings, and I am not good at predicting how the MM's will manipulate the markets leading up to options expiry.

Thursday, October 13, 2005

Market Bottom?

In today's firesale, I managed to pick up a CCO (Cameco) and PD (Phelps Dodge) november calls. Although I did not buy them at the lows, I am still somewhat satisfied. I hope this is a panic bottom, and the markets will go up from now on. Now, let the Christmas rally begin!

Thursday, October 06, 2005

October 1987

In October of 1987, during the noctorious black monday, everything crashed. After the crash, technology stocks along with the general markets slowly crept back up before setting record highs after record highs in a 2 decade long bull market. Meanwhile, resource, gold stocks could not recover from that crash and resumed a 2 decade long bear market.

Now, its octo'ber of 2005, and everything has crashed (although not to the same extent). Will things be reversed this time? Will technology stocks along with the general stocks resume a 2 decade long bear market, while resource and gold stocks will quickly recover before setting record highs?

Note: October of 1987 is exactly 5 years after the bull market in the nasdaq/ bear market in gold started. October of 2005 is exactly 5 years after the bear market in the nasdaq / bull market in gold/resources started.

I'm not saying this will happen. In fact, I will be very surpised if this happens. It's just a thought I wanted to throw out.

Crisis = danger + opportunity

These past few days are reminding me of october 1987 (although I wasn't into stocks then) when the markets went down 4 straight days, cutting off 20%+ of the market value. People are really panicking right now. Whether its justified is beyond me. One side of me thinks the markets will go down because of rising interest rates, heavy personal debt/national debts, high gas prices, etc. The other side of me thinks the markets will go up because stocks are reasonably valued and because the sentiment is far too negative.

Either way, when there is a crisis, if you take control of yourself emotionally and think rationally, you will take the danger part out of it and be left with an opportunity. Is there an opportunity now? I really don't know. But by analyzing the indexes using my method, I think we are at a critical juncture right now. Either the markets will explode to the upside, or go way lower.

But anyways, I think the fall in the energy sector is way overdone. I took a position in Cameco today (in it again after trading it many times) during the morning. I'm also holding on to GOOG which I bought yesterday when it was at 311. I can't believe how well GOOG is holding up (its up today, and neutral yesterday despite the slaughter).

Monday, October 03, 2005

RIMM trade

I sold SHLD today because it hit the top trendline, and because I don't like retail stocks. I sold it at a pretty bad time; I was hesitant to sell when it was trading near its high, although it was facing massive resistance on its daily graph.

I was contemplating between buying GOOG, PD or RIMM. GOOG seems to go up despite what the market does, PD follows commodoties, and RIMM acts independently of the markets. I bought RIMM because people are starting to become far too bearish on a cheap growth company.

The nasdaq hit top resistance today, so I wouldn't be surprised if the market rests a little over the next few days (ie. go down). Also, I do expect a bounce to the end of the year, because people in general are becoming far too negative (they are focusing on energy, inflation, rising interest rates, impact of hurricane). If everyone focuses on a common thing, then they are usually wrong.

Saturday, October 01, 2005

CanWest MediaWorks Income Fund IPO

CanWest is spinning off their newspaper unit into an IPO. The new fund is valued at roughly 2.4 Billion, with yearly revenues of about 1.1 Billion, making it the largest IPO in 5 years in Canada. They plan to sell 70 M units for 10 dollars each, raising 700 M. They will use the proceeds to pay down debt. The units will pay a dividend between 8 to 8.5 %

I did some research into this, and for the quarter ending July, their newspaper unit had an operating income of about 74 M. I don't know how much debt will be transfered from the parent company, but after amortization, interest payments and taxes, their net income should be about 50 M per quarter. (The parent company currently has 3.3 B in debt)

However, the biggest concern with this IPO is the fact that Canada has recently stated they will change the tax structure for income trust. This could adversely affect all trusts, because if they pay more taxes, their net income decrease. Therefore, I am not sure what type of demand there will be for the CanWest IPO. If the demand is low, there might not be a huge jump on opening day.

I am still going to subscribe to this IPO, because they are reasonably valued, and the 8 - 8.5% dividend doesn't hurt, although I do not expect much growth. If there is low demand, CanWest might shrink the market capatalization of the company to increase the yield.