Slope Of Hope with Tim Knight

Big Cap Tech versus Internet Bubble 2.0 (by Dave Pinsen)

Big Cap Tech Versus Internet Bubble 2.0

Hey fellow Slopers,

Mike Paulenoff's post Wednesday afternoon ("Big-Cap Tech Stocks to Watch") and the release of Groupon's earnings later in the day, prompted me to take another look the hedging costs of some big cap tech stocks along with the cost hedging Groupon and a few other Internet companies that went public in 2011.

Groupon dropped 15.6% after hours Wednesday after it announced a Q4 loss, but at least one observer was bullish on it on Twitter. You might recognize his name from the late '90s:

 

Groupon now generating operating profit and strong free cash flow read.bi/ypRGEU Meanwhile, idiots still saying "Can't make money"

— Henry Blodget (@hblodget) February 8, 2012

 

Gold Stocks (NFTRH172 Excerpt)

Gold Stocks

This is a snippet from NFTRH172 focusing on the writer's methods of viewing markets from a visual and psychological perspective.  I just want readers to continually think about herds and about what it takes to be able to get contrary these herds at the appropriate times.  NFTRH172 then proceeds on to actual intensive analysis of the precious metals sector and the macro market backdrop.

Hedging a High Yield Long Idea

Hedging a High Yield Long Idea

Hey Fellow Slopers,

In a post Wednesday morning ("High-Yield Long Idea Idea Continues Strong"), Tim noted the strong performance of his long position in the SPDR Barclays High Yield Bond ETF JNK. Back in August, I looked at the cost of hedging JNK, but I thought it might be worth taking another look after seeing Tim's post. It turns out JNK is pretty inexpensive to hedge right now. The table below shows the cost, as of Wednesday's close, of hedging it against a greater-than-20% drop over the next several months.

A Comparison

For comparison purposes, I've added six of the most actively traded ETFs to the table. First, a reminder about what optimal puts are, and a note about decline thresholds; then, a screen capture showing the optimal puts to hedge JNK.

Following Up: Optimal Hedging Costs -- a Tell For Stocks?

Happy New Year, Fellow Slopers,

I hope 2012 is a good one for each of you, and for our host.

Lessons from last year

In his post Monday ("A Major Lesson from Last Year"), Tim wrote about two of the most famous hedge fund managers who are long BAC and SHLD, respectively. There's a third money manager (this one a mutual fund guy, rather than a hedgie), whose shareholders had the misfortune of him being long both BAC and SHLD last year: Bruce Berkowitz, Morningstar's "domestic stock fund manager of the decade" for the first decade of this new century:

Meet the domestic stock fund manager of the decade

A Slight Change in my Stops Strategy

Regular readers knoiw that a key component of my trading rules is to have stops in place at all times and to keep them up-to-date.

Over the course of this year, I have been shafted a few too many times by opening-bell nonsense that I've decided it's time for a change. My short position on SQM last Friday took the cake. Here's the minute-bar graph of Thursday and Friday. You can imagine where my short got stopped out:

Premature Emissions

If there's one thing that binds bulls and bears together, it's the mistake of closing out a position too soon in order to (a) take profits (b) avoid any chance of a smaller profit or, worse, a loss.

This is a beginner's mistake, and it's one that I make from time to time as well. Just yesterday I covered two profitable shorts - SPRD and GMCR - simply because they had nice profits and I thought the risk of them reversing was high (these are pretty volatile beasts). Well, here's what has happened today, and I've marked the approximate point-of-closure with an arrow.

So.....great picks, Tim, but sub-optimal closings, to say the least!

Don't do this.

That Perpetual State of Disappointment

This is one of those "got to get this off my chest" type posts.

I cannot help but feel very disappointed in today's action. It's not so much that the market isn't doing what I'd like it to do - - that's something none of us can ever control - - it's the fact that the way this market is behaving is rewarding rule-breaking and punishing rule-following.

One of the most basic rules is to let profits run. You don't close out positions the same day you open them just because you happen to have a small profit. You let them run, updating the stops along the way, and hope that they will blossom into big winners.

Well, that's what I try to do, and it's not working. What we're going through today is a perfect example of this. Yesterday the market fell nicely, and I had a handsomely-profitable day. Now that the Summit is done, it seemed that things were in line for a continuation of a soft market. Irrespective of one's views of what the market was going to do today, the fact is that there was no logical reason to scurry around just before the close and shut down all my positions just to take profits.

But that is precisely what I wish I would have done, simply because the market is rocketing higher today. It seems that we're on an endless cycle of up/down/up/down/up/down/up, and it's enough to break one's spirit. After all, if we can't manage to hold on to gains for more than a day, what's the point of any of this?

I took some profits on some of my riskier positions earlier today, and I've bought a big block of DIA (and shorted a medium-sized TLT) to help balance things out. But this market is exhausting, I've got to tell you, and as much as I'd love to pretend to wallow around in the joy of trading every single day, I'm frankly getting awfully tired of this. I imagine some of you are, too, and I wanted you to know you're not alone.

The Wisdom of the Unwieldy Portfolio

Given all the insanity of this day, I was reminded of this post that I wrote a year and a half ago about why I have so many positions. The quantity of my positions have been the butt of a lot of jokes by my detractors (most regularly by erstwhile vistor The Hun), but I have my reasons for holding on to such a wide variety of positions.

A day like today, in which I've definitely caused myself a bit of self-harm by chasing a rally, was largely saved by the fact that the vast majority of my shorts were left in place because, frankly, it was too much time and trouble to close them out in the first place. Here's how I explained my style in the aforementioned post:

Let Justice Be Done

I have been writing this blog for seven long years. During that time, this blog has stood for what matters to me as a person: truth, logic, justice, and reason.

The America I grew up with has already been destroyed, and we are witnessing a world whose leaders are slapping coat after coat of whitewash on a situation that will absolutely lead to global ruination and, thereafter, recalibration. The world's population, 99% of which stews in a cauldron of ignorance or apathy, allows more wood to be thrown onto the fire beneath with the misplaced hope that everything will, in the end, turn out fine, just like on their favorite SitCom.

This isn't a SitCom. It's a tragicomedy. And, month by month, week by week, day by day, and tick by tick, we are watching it unfold.

I say what I have said a thousand times - - if everything had simply been allowed to do what it naturally needed to do back in 2008, the entire world would already been healing, and I'd probably be as obnoxiously bullish as I am currently bearish.

Instead, wholly artificial means have been force-fed to the world, meaning that (a) the necessary pain has been delayed, not denied; (b) the eventual pain will be an order of magnitude higher than it needed to be in the first place.

I write this now, merely because the past couple of hours encapsulates what I'm talking about. On the one hand is the 727^th bailout of this year being announced, forcing equities and the Euro to explode skyward. This is the hand of artifice.

On the other hand is the mere rumor of a change by S&P in its disposition toward the large European countries - - not even a downgrade, but just a move to "credit watch" - - swiftly laid waste to much of these gains. This is the hand of truth, and, in this instance, it's a tiny, tiny hand.

I believe with every fiber of my being that, in the end, justice will prevail and the world's economies will be forced to endure the horrible pain they must endure in order to become normal, natural, and real again. Free enterprise is what I embrace, and what we are living through now sickens me.

I want the change to come now, but we are powerless to make things happen any faster. We can only watch as the Merkels of the world - - - and the Yellens of the United States - - - continue with their insufferable meddling, allowing the pernicious disease to spread and get stronger.

And so we watch, and we wait. And we try to survive, if not prosper, while we do so. Watch yourselves. The market is getting more dangerous with each passing day.

Eighteen Hundred Points

Well, the Dow has rallied about 1800 points in the past couple of months, since the October 4th low. Nothing's really changed since then - - the U.S. is still, by any realistic measure, bankrupt, and the systemic issues of the Euro crisis are probably worse than ever.The "super-committee" to address U.S. debt did a joke of a job, even to a cynic like me, since they gave up pretty much instantly. Sentiment, however, has changed mightily, and we have another big rally on our hands today.

I still focus on cash as my only acceptable "long" position, in spite of potential opportunity costs. My disposition remains to move my short-position-percentage up or down, depending on the circumstances. I remain in "risk off" mode, at about 30% short, 70% cash.

One item I've pointed out, tongue-in-cheek, as an interesting reversal indicator is ERY, but today puts a bullet through that fellow's forehead. It was cute while it lasted, but this - like DUG - is getting trampled to lifetime lows.