Monday, February 28, 2011

28 February 2011 My Magic Carpet Ride

BAGAKOAA 28 February 2011 My Magic Carpet Ride

We just reached what has to be the higher end of middle class today. We actually bought doggie diapers. That’s right, little doggie disposable diapers for our 18 year old poodle Lucy. Ya see she is blind, deaf, and leaks. She appears to be in no pain and gets around pretty good except for bumping into walls. She is afraid of the big pink flamingos in the front yard which is an indication she has some sight left. But the leaking got to be too much. Imagine my dismay when I discovered that Bissell, make of the Little Green Machine was not publically traded.

And I was informed how much it will cost to replace our pseudo Persian Carpets in our house. At these prices the things better be able to fly.

Anyway, our guesses for the day were a bit off. Personal income was way up instead of flat, we thought spending would be up and it was down, and the core price index was kinda flat but we thought we would it was going to jump driving the market down. So that means we were 0 and 3 for the day. We also thought the market would erase the gains from Friday. That did not happen either.

Warren Buffet got the market all tingly by announcing he has his elephant gun loaded and has an itchy trigger finger. He is loaded with about 40 billion of spare cash.

We are going to cut it short tonight as we were building the portfolios for the first annual Salve Lucrum Stock Charity Challenge. I have sent screen shots of everyone’s portfolio who sent me stocks. We had a few people say they were going to play but did not send any stocks. If you wanted to play and sent me stock picks you should have received a screen shot of your portfolio. If you did not, please drop me a note right away.

Pick Of The Day

You might be getting sick of me picking electronic associated picks, but quite honestly it is one of the few patches where we see strong growth, Wall Street Pays for growth. We would suggest you do your homework and confirm our findings. If you are gutsy and have a few bucks to play you can get in now in the 23.50 range or wait for a couple of more positive days in the market, sector, and stock. That would be a good idea for most players. WE ARE IN AT $23.67.

Semtech Corporation, together with its subsidiaries, engages in the design, development, manufacture, and marketing of analog and mixed-signal semiconductor products. Its product lines include power management products comprising switching voltage regulators, combination switching and linear regulators, smart regulators, and charge pumps; protection devices consisting of filter and termination devices that provide protection for electronic systems from voltage spikes; and wired communication, wireless communication, and sensing integrated circuits that perform timing and synchronization functions in high-speed networks, and sensing functions in industrial and consumer applications, as well as perform radio frequency functions in industrial, medical, and networking applications. The company also offers transport and datacom products, including Serializer/Deserializer products that comprise chips and transceivers for short reach, metro, and long haul applications; and high performance transceivers for datacenter applications. In addition, it provides transceivers for wireless communications infrastructure, which comprise 2G/3G/4G cellular repeaters, WiMAX CPE and base stations, and defense and aerospace products, such as satellite communication, ground to air beacons, and unmanned air vehicles, as well as offers discrete semiconductor products consisting of rectifiers, assemblies, and other products. Semtech Corporation sells its products directly, and through independent distributors and sales representative firms to its customers. Its customers include original equipment manufacturers and their subcontractors in the computing, communications, consumer and industrial, and military end-markets in North America, the Asia Pacific, and Europe. The company was founded in 1960 and is headquartered in Camarillo, California.

Fundamentally SMTC (That is the link to FinViz if you want to play along) has a reasonable P/E ratio. They have no debt and an almost 60% gross margin.(though its operating margin seems a bit soft at 14%). The target price of 27-28 gives us a little margin of safety. ROE could be a little better at 12.7%.

IBD like the stock quite a bit giving it a 95 rating. The down side on the IBD check was the accum/dist rating of a D+. As a reminder this is an indicator of how institutional monies may be flowing in and out of a stock. A and B means money is flowing into the stock supporting demand for it and helping the pricing. D and E means the monies tend to be leaving the equity putting downward pressure on the stock. That is why we said at the beginning you might want to wait until we can see the chart finish building a handle on what seems to be a cup that began in Mid December. Again we are in at 23.67 and have a stop at 21.75. We are looking for 30 by summer.

Salve Lucrum

Sunday, February 27, 2011

BAGAKOAA 27 February 2011 An Almost Normal Weekend

Friday was one of the first days in a long time that we did not look at the market at the opening, at the closing, or anytime in between. We actually enjoyed a day of golf with one of our neighbors, a lovely date night dinner at Hanna’s with Devin (In case you were wondering). The have this really good Wagyu Beef Meatball Pasta that was to die for.

We enjoyed it with a great glass of 2007 Cuvée du Vatican Châteauneuf-du-Pape Réserve Sixtine. It did not have an overpowering nose on it, but you could pick up some exotic florals and a touch of smoke. It had some jammy fruits working on the mouth and did a great job of grabbing the glass. As we continued to enjoy it I got some cherries and a fig fragrance. Really special.

Saturday morning early, we were awoken with a nasty rain and wind storm and as you can imagine, we are a little gun shy so we checked the neighborhood to find we would live to worry another day. The day, while looking stormy had a nice Celtic feel to it. I spent about 5 hours cleaning 184 bottles of wine. (No I did not open a single bottle.) We have to get the bottles clean and out as they rebuild our wine room next week. We finished the evening with yet another night at Hanna’s. This time I enjoyed a small filet and delicious grilled asparagus. We enjoyed the CdP from the night before that we brought another bottle of Vatican with us.

This morning I enjoyed breakfast with “the guys” as they waited for the fairway’s to defrost. It was a cool 34 degrees this morning, but a beautiful clear sunny day.

We bore you with all of this just to prove, I really do have a life. Yes I did read through this weeks Baron’s and we began a home study program on charting by IBD. It is a great course and have picked up a few charting nuances I find incredibly interesting. We will share more as we can actually profit from the techniques described.

Cronastics For The Week

None you clamored for the proprietary chart of market trending developed by yours truly. That is a good sign that like me, I am not sure what value the chart might have. But just for fun let’s take a look at what the chart might be telling us. This is a 10 day trend analysis. As a forward looking tool, we are seeing little or no value, however like almost all things in life, the market will typically seek a homeostasis or equilibrium of sorts. The run we had for the 7 trading sessions before the 18th of February was very strong and very hot and approaching two year highs. Egypt made everyone stop a second and possibly ask, too hot? The chart appears to say yes, but again little in the way of forward looking tells.

The Week Ahead

The strong finish on the week took our guess of the S & P 500 finishing at 1,312 off the table. We did predict the index to be down 1.9% on the week, but with the premature positive finish (Our guess is the market will open lower tomorrow, at least a point lower.) the index was only down 1.7%.and it finished at 1,319. Still a close guess. It was interesting to see the market ignore the 4 basis point move downward in the GDP figure released on Friday. The positive response might be interpreted as the Fed have good cause to finish the quantitative easing.

Tomorrow we have personal income, consumer spending, and the personal consumer expense price index. With wages and employment only slightly improving we would not expect much of a jump on personal income so let’s call that flat. We think we will see an unexpected jump in spending and core price measurements due to oil and the last number given for auto sales which were up. The pending home sales index will disappoint tomorrow as well. This news will do nothing to make the market feel better about what will probably be higher oil prices and more chaos in the Middle East. Look for the 1-1.5% gain on Friday to be erased and oil, gold and silver to go up. Watch the VIX as this number should creep up.

Tuesday we will see another strong and positive ISM Manufacturing index. Unfortunately more chaos in the middle east will keep the market in check. Look for a low volume flat day. Gold will probably break through the 1,425 resistance point with its eyes on a 1475-1500 price range next.

Construction spending figures will be released but everyone will be talking about the middle east and the spreading contagion. Also in some dark corner of the congress and senate deals will be secretly happening to extend the deficit limit so we don’t shut down the government. The Parliament of Whores will be wheeling and dealing this week but you won’t here much about it until its announced. Big monies will be trying to watch and what they discover will drive currency exchanges and commodities. If you see gold and silver start to escalate they are probably seeing an impasse. If you see a slight downward correction assume they know a deal has good chance of making to the white house. Remember almost 74% of republicans do not want a deficit extension and 61% of democrats do not want a deficit extension. That is a good indication there will be deficit extension. Look for another half a point down in the market in very light trading.

Wednesday is relatively quiet day. You have the release of the Fed’s Beige Book and the ADP employment report YAWN! Look for a slightly up day as all the scariness in the middle east will be digested and worked into the market. The commodities will be flat and trading will be light as everyone will be waiting to see if we the Government stops and takes a furlough.

Thursday initial jobless claims will be disappointing because of public job losses. Private hiring will give hope. Another flat day on light trading.

Friday’s Employment numbers will probably disappoint. They are expecting 180-190 new jobs, and we are thinking a disappointing 150,000. This, with more crisis in Oman and the international condemnation of Libya forcing them to befriend the uranium hunting Iran will make things jittery in the market. The S&P will be down 2.1% next week closing at 1,291.

Defensive plays will be important last week like GLD, SLV, VXX, DBA, JJG or most commodity based ETFs and ETNs. The IBD is describing the market as an uptrend under pressure. We think by Friday we will see a couple more distribution days and a downward market warning.


Based upon the above comments, we can not suggest buying anything except defensive or contrarian plays. So we will provide you with a pick worth putting on a watch list.

QPSA Quepasa Corporation, through its Web site,, operates as an online social community for young Hispanics. provides users with access to an expansive, multilingual menu of resources that promote social interaction, information sharing, and other topics of importance to Hispanic users. Its members focus on generating interactive community pages or communities to create customized pages to share news, pictures, upload videos, create blogs, and receive update emails from other Quepasa members. Quepasa Corporation sells its marketing services and solutions to advertising agencies and marketers in the United States, Mexico, and Latin America. The company was founded in 1997 and is headquartered in West Palm Beach, Florida.

You can think of this as the iTunes,, Facebook without all the cahs and the profit of those companies, for young latinos. While the cash situation here is weak and they have some debt, a little news piece this week caught our attention. Michael Nicklas was appointed the board and he has an amazing history of advising and making game players in this field. Earnings are weak but annual sales are hot.

The chart shows a nice cup and handle over the last two months of 2010. It has passed downward through its 50 day average (Not a good thing), but look for an 8 dollar entry point on two or three up days. Keep this on the watch list and check it every week or so. We feel this could be a sleeper.

Don’t Sweat The Small Stuff
OK A 14.2 Trillion Dollar Debt Is Not The Little Stuff

Salve Lucrum

Thursday, February 24, 2011

February 24, 2011 Can Buy Me Love Only 38 Billion

BAGAKOAA February 24, 2011 Can Buy Me Love Only 38 Billion

Interesting way to end this day in the market. We were running around today so except for some weekly call action at the opening, we heard about how bad the day was going and we did get a couple of calls from folk who wanted my opinion (or shoulder to cry on). Oil corrected for two major reasons today. One of the reasons was well publicized and unconfirmed the other was not well publicized but much more relevant.

Goofy Gadahfi was apparently shot will loading his 757 with gobs of gold. That would be the unconfirmed news feature but it still sparked a bit of a recovery into the indexes. A little less sexy and exciting is the fact that OPEC has committed to extending oil supplies by up to 20% to take the pressure off of crisis pricing. Now you might ask why would OPEC want to keep a lid on pricing of their precious commodity. We could do ten minutes on that but will spare you. The answers involve the world finding new places to buy oil and even other alternative energy sources.

Now the title of the post today is stolen from the Beatle’s Can’t Buy Me Love. The Saudi Royal Family is being very proactive and actually buying the people’s love with a 38 billion dollar stimulus plan including a 15% pay increase for all government employees, low mortgages, extended unemployment support and just about everything the other countries of social unrest have asked for.
38 Billion.  Hell I've Spent almost 3 trillion and that didn't buy me love.

Everything but political reform. My guess is this will keep the youth of SA happy, or keep their parent happy enough their will keep the kids in check.

At the end of the day we had the NASDAQ up and DOW and S&P Down. Did you see where the S&P closed today? 1,306, we called 1,312 this week looking for a two percent drop. We are going to be close. If Gadahfi is dead or gone, OPEC confirms its promise of stable supplies, no excitement in Kuwait or Saudi, no one reads the details of the durable goods order from today (Non-defense capital spending almost 7% down), no one reacts to the poor new home sales (we called that Monday night and by the way think that lower new home sales is a good things as there is 15 month inventories of homes out there already), and there are no huge surprises in the GDP figure tomorrow, we will see 1,312 on the S&P 500.

From the "Even I don’t know everything files":

We have been talking about distribution days as posted in the IBD everyday. While we follow the figures and have even spent some time trying to figure them out, tonight we actually went on line to the IBD website and found out what they actually mean by distribution days.

IBD keeps track of the volume and the direction of stock sales for more than 10,000 stocks. They track this criteria and apply an Accumulation/Distribution rating on each of these stocks. The ratings run from A+ to E- and it is an indicator of how much institutional monies are heading into the market or the individual stock.

All of that we got, but we could not easily determine, by looking at the daily charts, what a distribution or accumulation day actually was. We searched the IBD website and discovered they consider a day of “Distribution” as one where a market index (NASDAQ, DJIA, S&P 500) closes down more than .2% on increased volume from the previous day. They track these days and pay close attention to how many have occurred over the last 10 or so trading sessions. If there are 6 or more distribution days, be werry werry werry carefoe bunny wabbit. You can back test this theory and see if you sold your holdings everytime we had 6 distribution days, you would have avoided ALL of the carnage of the last three financial crisums. (Is that a word? I like it.)

Armed with that information, we went into the S & P Chart and found the 4 distribution day’s on the S & P 500 so you could actually see them. I really en getting geeky with this chart stuff. (Getting?)

There’s A Bad Sun On The Rise

If there was not enough to worry about already, with the Gadhafi Gold Rush, panic in the markets, and collective bargaining on the ropes, now we are hearing the solar cycle is about to scorch our way of life as we know it. In February there was a solar flare.

Think of it as a hurricane on the face of the sun, with ribbony shards of hydrogen tentacles lashing out in space. (Wow I wrote that. Pretty cool or in this case hot!) These tentacles come flying through space for hundreds of thousands of miles. When we get into a solar cycle (Think Los Ninios for Space) these disturbances can cause lost calls on cell phones (AT&T will have an excuse now), fry satellites, and if bad enough like the one in 1859, can actually conduct the disturbances through telegraph cables. In 1859 the solar flares were so bad that telegraph wires were fused together. (The aurora borealis was spectacular that year by the way.) But I Digress.

Anyway if you need something else to worry about, this could be a biggy. All of our GPS satellites would be rendered useless. That means one of readers will actually have to look around to find the nearest Starbucks versus using their iPhone App. Imagine not being able to use the internet? Your computers would be rendered useless. You would have 437 channel of snow on your cable TV. You will need a crow bar and a 9 millimeter to get money out of your ATM machine. But the worst part of this catastrophe would be, YOU WOULD NOT GET TO READ MY BLOG!

So when can you look forward to this? The estimates are anytime from mid March to the end of 2013.


We have lookie loos on who are actually quoting the blog. Hilarious. I was following up on one of POTD on our watch list and checked it on and found our own blog mentioned as bullish source. Absolutely hilarious. Hope they read the disclaimer. Anyway we have gotten a couple of nice comments about the POTD segment. Unfortunately we can’t pull one out of the air everyday. We could, but we really do want to give you ideas that have some merit.

However, we do have one today. Before we give it up, it is worth noting that IBD did a column on why ROVI may have run out of steam. (We suggested shorting or putting ROVI on Monday.)

ISRG Intuitive Surgical, Inc., together with its subsidiaries, engages in the design, manufacture, and marketing of da Vinci surgical systems for use in urologic, gynecologic, cardiothoracic, general, and head and neck surgeries. Its surgical systems consist of a surgeon's console, a patient-side cart, and a vision system.

Ok remember the trend is your friend so we would not suggest you run out and sell the farm to own this stock, BUT when we see what shakes out from all the turmoil in the middle east and lower Manhattan (Wall Street), this could be one to take a position on. The fundamentals are very nice. No bebt, impressive earnings and sales growth, gross margins and operating margins are very healthy, ROE is acceptable, and there is a little room between the current price and average target prices.

IBD is really liking this stock giving it a 94 rating and indicating its ACCUM/DIST rating at an A- meaning it has some of the big boys attentions. From the chart, that is a hard to see. It’s last break out came on Jan 21 and it has been patiently trading in a range for the last several sessions.

Here is our play on this POTD. Put it on a watch list and wait for the trend to become more our friend. Look for a nice high volume up day or two and then consider getting in. We think the sector and the stock has legs. WE DO NOT OWN. At $330ish a share, you might want to consider some slightly out of the money calls when the time is right. If we move on it we will let you know.

Last Call For Charity Stock Players.

It looks like we are at about a dozen players in the First Salve Lucrum Stock Charity Challenge. Please get your picks in to me by Sunday so I can get everyone in with Monday’s closing prices. We have three continents represented and we would love to have more. (Come on Peter, give us some Joburg flavor.) Now I know there are about 40 or so lookie loos out there reading this. If you want to play, just drop me a note at and we will get you squared away. All you have to do is send me at least 5 stock picks but no more than 10, give an on your honor 20 dollar (or equivalent donation to your favorite charity). At the end of the year Devin and I will match all participants donations to the winner's charity of choice.

Salve Lucrum

Wednesday, February 23, 2011

You Gotta To Know When to Hold Them

BAGAKOAA 23 Feb 2011 You Gotta To Know When to Hold Them

Kenneth Donald Rogers got single of the year in 1979 for the great song “The Gambler”. The tune is a “requiem” for traders who have not timed their trades well and let’s face it that would be all of us. Today we enjoyed the company of several of our comrades as we passed out management bonuses but still found the time in the early hours of the morning to take some profits from some apparently weakening positions. Here are some of the highlights of the main portfolio. Please pay attention as there are some recent stocks we have pimped here that we are now exiting.

We sold out of the TUFF (that small miner in AZ) penny stock we have been bragging about after a 12% loss. It moved quickly down about 20 cents a share. Don’t know why and don’t care. It went through my 8% rule so adios. RULES ARE GOOD.

We got out of HOC as it to dropped 7% after having it one week. HOC Holly Corporation, together with its subsidiaries, operates as a petroleum refiner in the United States. The company process sour crude oils into light petroleum products, including gasoline, diesel fuel, jet fuel, fuel oils, specialty lubricant products, gas oil/intermediates, carbon black oil, and liquid petroleum gas (LPG) and other products at its three refineries located in Artesia and Lovington, New Mexico; Woods Cross, Utah; and Tulsa, Oklahoma. This will remain on the watch list and we will look for a better entry point.

Are you sitting down? Here is a shocker. We have dumped all of our nat gas positions. We have waited about 7 months to break even on those positions and the time is now. We bought into this market about 3 years too early. While Nat Gas could creep up as oil breaks and stays above 100 a barrel, we feel there are better plays because of the high priced oil. (Think rail roads and shorting airlines.) Specifically we got rid of all of our PNG PAA Natural Gas Storage, L.P. operates as a master limited partnership formed by Plains All American Pipeline, L.P. (PAA) to own, operate, and grow the natural gas storage business that PAA owns.

We closed out our position on IBM after watching a 14% gain slide away to 7% gain. We watched the volume and direction on this one and it was time to pull the plug. Great stock, but we need better entry point. We will watch the chart closely.

Similarly we watched a 20% gain on FANUY, the Chinese robotic firm slip to an 11% gain and wanted to take some profit.

We were also informed of a 2 for 1 split for NATI National Instruments Corporation manufactures and supplies measurement and automation products. It provides application software and modular hardware that combine with industry-standard computers, networks, and third party devices to create measurement, automation, and embedded systems.

We took a few of the portfolios out of KO today as it too was drifting down on heavy volume. Depending up which portfolio, we were looking at 4-12% gains.

Then we added some more of the January 2012 $40.00 call options for the VXX.

BTW if you had listened to the blog and shorted ROVI Monday Night and Shorted GMCR, you would be up 14 % percent and 8 % respectively.

We expected existing home sales number to be down and we were wrong. They were up BUT (Behold the Underlying Truth) the prices were way down which also weighed on the market.

So what is next in the middle east?

That is anyone’s guess but here is what you should be watching for. Look for signs that Kuwait and Saudi are experiencing social unrest. That could easily push oil to 120-140 a barrel. Now as the disclaimer says, we are not a financial advisor so we can not recommend what you should do. Here is what we are doing. We are taking profits on any stocks that do not stand to gain form social unrest in various parts of the world. We are keeping any stocks or ETFs that will benefit from higher oil and commodity prices. (DBA JJG come to mind) Any monies in a balanced account (Bonds and equities) we are moving to bonds, cash and commodity funds. We are also looking at how to buy and hold Gold and Silver. GLD and SLV come to mind. A 401 k might deserve the same scrutiny until we can see if this is “the correction” and we see how big it is.

What’s up at Wally World?

Have you heard the news that same store sales at Walmart are down. That is right and it is a tell of the overall economy. The terminator of profit for TGT, BBY, CSCO is loosing a little market share as American’s are feeling a little better about the economy. Look for improving numbers from the likes of Target and Costco. Walmart will be hard pressed to drop prices enough to keep more confident consumers in their stores as their costs are increasing. If you see significant price slashing out of Walmart with same store sales eroding, you can expect earnings to diminish and institutional monies will start spending on other retailers.

Another day Another Newsletter

One of my buddies shared with me a back issue of The Chartist by Dan Sullivan.

This is an 8 page document that comes out about every 2-3 weeks and what is cool, unlike most news letters or blogs, this is real money. Dan Sullivan actually reports on his portfolio. Now Cramer does the same thing with his charity portfolio, but this is real bucks (about 1 million to be exact.) The news letter runs about 300 bucks a year and you not only get the news letter, but all of Sullivan changes to the portfolio as they happened that day. After reviewing this issue, a recent one here are my observations.

Sullivan calls his approach buy high sell higher versus the age old BLASH (Buy Low and Sell High). He seems to gravitate towards high earning equities that are being driven by decent volume (implying institutional buying) and if there are corrections, take profit quickly and narrow your losses quickly. His newsletter is also chart heavy and you can see his is a cup and handle type of guy and well as a double bottom kind a guy (Ok if you’re not into charting I know you just went to some place lewd, crude, and socially un- acceptable, but I swear those are charting terms.)

If any of that sounds familiar, it is because many of his observations could be pulled right out of O’Neil’s “Making Money In the Stock Market”. Despite all the similar banter when you compare his Chartist Cash Account to the IBD 50 there is only a 22% correlation. So we can’t say he is grabbing his picks from the list, but they have many of the same attributes.

I mention the newsletter as it is succinct and has all the elements we like for not only looking for a Pick Of The Day, but also it explains some of the rational behind the picks.

The Golden Rule Is Talking To You

The Trend Is Your Friend when you own stocks. The trend is your lover when you own or sell options. What is the trend saying after two down days. To quote IDB, we are in an “uptrend under pressure”. My suggestion would be to put any buying ideas on hold for a couple of days. (unless we are talking defensive plays like commodities the VIX etc.) You will be tempted to try and catch the falling knife as prices are adjusting down. You will think lowering your average cost is a good thing (and in certain situations that is true-this is not one of those times) as even we have mentioned doing here in the blog.

If we are right and the situation in the middle east was the catalyst needed to trigger the overdue correction, you will look like a genius sitting their with all your cash and taxes due to the tax man. If we are wrong, how wrong could we be? Will this rally last forever? Will there be an unlimited upside? What might you miss another 3-5% on the upside? Be happy with the almost double since March of 2009. Think about taking some profit and do some reading to prepare for the next rally. Take those profits and consider getting the IBD in print or on line or the sexy iPad APP for IBD. We liquidated about a third of our account today. The rest are either bonds, defensive stocks, some stocks we are keeping to work some options strategies, or just some really sickly call options that are worthless but may perk as their expiration comes up. We are happy to sit on cash until we can find some comfortable defensive plays.

Salve Lucrum

22 February 2011 Pardons and Profits


22 February 2011 Pardons and Profits

For the first time in more than 375 posts I feel bad about a comment I casually threw out last week. We were talking about the social unrest in Tunisia and Egypt as the first rumblings of discontent arose out of Libya. My comment about those that dared yell “Out with Gadahfi!” would have been whacked 15 years ago. To my embarrassment, more than 400 have been whacked and the situation has shaken the world market. Gold and Oil exploded today and the easy going market had a sizeable halt in its footsteps.

The larger than even we called it jump in consumer confidence could not override the instability in the middle east. As we suggested, we saw our oil stocks increase on supply and logistic fears. We pulled all of the GLD calls we bought last Thursday at profit levels exceeding 110%. Not bad for two day’s works. We also sold some Puts on AMGN (46% profit). As part of a subscription based Pirate Trade Strategy called MIT where you take long position and sell calls against it while insuring the backside with puts (Don’t try this at home kids.), we took some nice profits by buying back the calls this morning.(248% on AMZN and 591% on AAPL.)

We also continued to add to our TUFF position as it is headed in the right direction and seem to be picking up some institutional investors. Or there are a lot of us blind casino monkeys chasing this penny stock.

Salve Lucrum

Monday, February 21, 2011

The View From Fantasy Land

BAGAKOAA 21 February 2011 The View From Fantasy Land

It has been a great long weekend as long as your zip code does not put you in Egypt, Iran, Malta, Yemen, Madison Wisconsin, Libya, or Indonesia. (We saw a few eyebrows raise with Indonesia. Just wait and remember this post.)

Our zip code puts us in Orange County safely 21 miles from Fantasy Land, but living like we are well with in the bounds of the Magic Kingdom. While the world was experiencing the cost of freedom, democratic metamorphosis, and long over due regime change, we scrubbed mud off about 150 bottles of wine, played golf with the boys, enjoyed a movie (True Grit) and devoured Barron’s and the Week ending edition of IBD.

This week in Barron’s we again see them put very positive spins on a tenuous situation. Yes, the S & P has doubled since its March 2009 Low. (And can you believe there are people asking me if this is a good time to get in the market.) The Dow is up 11 of the last 12 weeks. There is money coming out of bonds and emerging market accounts and being put in US Equities at a rate that reminds us of 2006. The market is ignoring some underlying issues and it gives us confidence to know the correction is a distinct possibility and is probably going to be bigger than we’d like as long as this euphoric trend continues.

The uneasiness in the middle east (Keep an eye on Asia everyone.) is playing havoc with Oil and Gold Prices. Gold broke $1,400 an ounce today or I heard on CNN. Everyone seems to be ignoring the obvious but rationalized increase in commodity costs. There is change in the wind.

A Governor in Wisconsin is attempting to correct the evils of several decades of hedonism by trying to break collective bargaining agreements in order to address pension reform, competency standards, but most of expense control. Gee we thought they only did that in countries where they were going bankrupt, like Greece, Ireland, Portugal, Spain, but not in Wisconsin. Deciding whether the Governor is right or wrong in his tactics is for others to judge. But you got at least 14 other Governors watching this dance closely as well as one President who will find himself in a lose lose proposition at any moment. If he supports the break of collective bargaining, he and his party stand to lose more than $220 million in Union political contributions. If he supports the Unions efforts of protectionism, he will not gather the middle of the road democrats and independents who realize that since Ronald Regan, we have spent ourselves into a corner and need to do something NOW.

This week in Barron’s

Because I don’t always get times and dates correct this weekend I had an extended visit with Barron’s and IBD. Here are some of the highlights and then we will get to the seek ahead.

There was special supplement in this weeks Barron’s. The Top 1000 Advisors is an annual insert they do to tell you who the top FA (Financial Advisor’s) in your neighborhood might be. More importantly they share some of their picks and strategies. We will not spend a lot of time on this, but do recommend you grab a copy as it is good reading. Most see opportunities in emerging market and a year end upside to the stock market at 10-30%. (We prognosticated 10% back in January and we have already seen 5% of that gain so far.)

In the front page section was a small little paragraph about some positive numbers in the mall real estate market. This is good news to those who were worried about the commercial real estate bubble. There was a positive article about NetFlix. (Though they did glide over the fact they had a downgrade this week.) They also introduced up to another interesting stock AGU Agrium Inc., together with its subsidiaries, produces and markets agricultural nutrients, industrial products, and specialty products worldwide, as well as involves in the retail supply of agricultural products and services in North and South Americas.

Barron’s also pimped CVX Chevron (WE OWN) stating that there are some 110 dollar target prices out there and as oil continues to rise those estimates may have to be moved upward.

We will admit we had to read Alan Ableson’s column twice this week because we just did not get it. We went on little ride with him talking about the middle east, Bernanke, whipping a stock called Core Logic then pimping Intel before announcing the chip inventories are in an overstocked situation? What does that mean? If anyone read and understood the message, drop me a note please.

Santoli did a much better job of explaining the market is hot, perhaps too hot, but that the prices of stocks are actually starting reflect those things that stock prices should reflect, fundamentals, growth, and earnings. It is a good article.

The Week (What’s Left of it) Ahead

Tomorrow we have Consumer confidence reporting. The consensus of this index is 65, up from last month. We think we will be higher than last month and even higher than the consensus, but not much. 66 is our guess. This will not be enough to move the market. My guess is that tomorrow and most of the week will be focused on Libya and the rest of the middle east. Look for the VIX to head up. (A good thing as we own Gobs of January 2012 Calls of those things) and look for GLD to head way up. We are guessing we will take some great profits tomorrow on our weekly GLD options. We’ll let you know.

Wednesday is the biggy. Existing home sales. Last month we saw a strong and surprising jump of 12.3% to 5.28 million untis. The guess is we will see a slight drop off of that figure. We are thinking we will see a big drop off of that number. Look for 5.1 and a 1.5% hit to the market for the day, worse if things get goofier in the middle east.

Thursday will see new home sales, jobless claims and durable goods orders. Two out of three will disappoint. Any guesses? Durable goods will be OK the other two will drive the market down another point.

Friday GDP will report and probably beat expectations, but the mood will be set for a negative finish on the week. Look for the S & P to close down 2.1% next week to $1,312. Look for the VIX to creep up all week and gold break through $1,425 by the end of the week.

PICK of the Day.

This one was easy and it jumped off the pages of IBD right at me. Put a put on ROVI. Just kidding although it might be a good bet. Put a put on GMCR Green Mountain Coffee, Just kidding again, but worth watching.

ST Sensata Technologies Holding B.V., an industrial technology company, engages in the development, manufacture, and sale of sensors and controls worldwide. It produces a range of sensors and controls for mission critical applications, such as thermal circuit breakers in aircraft, pressure sensors in automotive systems, and bimetal current and temperature control devices in electric motors.
The company's primary products include pressure sensors, force sensors, position sensors, motor protectors, and thermal and magnetic-hydraulic circuit breakers and switches. It develops solutions for specific customer requirements or applications across the appliance, automotive, heating, ventilation, air-conditioning, industrial, aerospace, defense, data/telecom, and other end-markets. The company was founded in 1916 and is based in Almelo, the Netherlands.

I really can take little credit for this one. IBD did a spread article on their New America Page where they highlight companies that are doing well but poised for something special. The story is great and highly recommend you get the Tuesday’s Issue (Covering Friday’s action) and read about this company. In a nutshell they make sensors for darn near everything and they do it efficiently and profitably. It generates income form every corner of the globe, is buying undervalued sensor companies and has quite a bit of cash.

Earnings look good though they did miss one of their last 4 quarters which gives them a red eye in IBD ratings. Their chart is definetly sideway patter indicating a nice base forming at about 31 a share. We are putting this on the watch list and will look for a break out above 32 on large volume. DO YOUR HOMEWORK. We have not pulled the SEC filing yet so just keep it on the watch list and we’ll tell you if we get in.

Salve Lucrum

Saturday, February 19, 2011

BAGAKOAA 19 February 2011 You Can Too

We just checked the analytics on our blog postings. We have an average daily visit number of 54 people a day. We know we send the blog with link out to 46 people a day. (Well almost everyday.) We also know that we have about another 10 or so closet readers. These are people who have shown interest, been invited to read the disclaimer and acknowledge and send me a not saying they have read the disclaimer, but have chosen not to. However isn conversations with them, they mention things that could only been found here on the blog. (Yes I do have an original thought now and again.) In looking at our list of 46 people there are about 14 that really do not read the blog but are too polite to tell me to take them off distribution. (Come on people, let me take you off the list. I will be able to add people who might actually enjoy the post and you will have one less thing to delete everyday. Just let me know. I can take it. Remember we write this for me not for you. Of the 32 regular readers (Not the lookie loos from, IBD community, Motley Community, and WSJ Forum.) There are at least 6 investment professionals. I will leave that alone as we don’t want to scare them off. We sincerely respect them for we do this for fun and we could not even imagine ding this for a living as it would suck all the fun out of the activity. When we screw up with our money we get to joke about here in the blog. If we had to call someone and tell them we just lost 6% on a holding, it would stop being fun.

That leaves about 26 of you who probably read the blog when it is convenient and you do not have 74 e-mails in your in box. When you read the blog, more than half of it goes over your head. Don’t worry half of it goes over my head, I just don’t know which half. You are reading it because we use cute pictures, don’t mind it too much when I make fun of the sitting administration regardless of political affiliation, are intrigued about how to make money in the market, and know me well enough to say, “I know Brian, he is not that bright. If he can make a couple of bucks doing this I can too.”

For the most part, we have regular conversations with the 26 of you as well as the closet readers. We hear questions like when is the correction going to come? Will gold continue its climb? Is inflation going to explode? Why did XYZ stock drop 2% yesterday? Sometimes I have an answer or opinion. (BTW the difference is we can give evidence to and answer, we cannot to an opinion.)

We want you to know; anyone reading this can learn the basics about investing and trading and make more money than you loose. It is not that hard, but it does take a little bit of time.

What if I told you I could give you a stock tip that I guarantee will not ever loose more than 8% and has the potential of gaining 25% over the next 12 months. Are you interested? Now do you want to know what stock it is? I don’t know? But we have about 16 in our watch list that have to potential to be that stock. We will find about 4 more over the long weekend.

Now if you really want to know how to do it, just drop me a note at We can show you how to do it and all you have to do is commit one hour a week per stock that you want to trade or invest in. (We do not recommend trading in more than 10 stocks.) When you are ready, so are we.

Salve Lucrum

Friday, February 18, 2011

18 February 2011 He Walks, He Talks, He Crawls On His Belly Like A Reptile


18 February 2011 He Walks, He Talks, He Crawls On His Belly Like A Reptile

Leiber and Stoller of Presley fame wrote the 1961 Hit “Little Egypt” for the Coasters. Though I have the lyrics gender confused, Little Egypt was the stage name for several belly dancers popular in late 1800’s. We are using the carnie call to announce that we came might close to calling the S & P 500 two weeks in a row. Last week we nailed it. This we called for a .9% gain to 1,341. The index closed today (I found out later) at 1,343. Ok let me guess your wait and age.

In the market today. We were able to be at the controls at the opening today ready for action z z z z z . Ok there was no action. Then a quick run to the office, then a meeting with the city zoning and permit ad hoc committee. (Let me see were there any readers at the meeting-NO) It was interesting as you had major developers and landlords and city officials and employees deciding on ways to fix the zoning and permit process? Seems a little self serving to me. I think I was the only one there without a horse in the race. Then some errands and then we got to listen to close and that is when we heard that we had almost nailed the S & P.

The brake tapping news out of China held the market at bay most of the day. Today was options expiration day but the volume and volatility was not there. (WE did see a 37% gain in the GLD options we bought yesterday.) We thinkest there is a bit more room to run.

Tomorrow we will be gleaning Barron’s to see what next week will bring. Housing numbers and durable goods order a re due out (Its sad that I know that.) Home Depot and Walmart will be reporting next week and they could be market movers.


FCFS First Cash Financial Services, Inc. primarily operates pawn stores that lend money on the collateral of pledged personal property in the United States and Mexico. It also engages in the retail of previously owned merchandise acquired through pawn forfeitures and purchased from the general public. The company's pawn stores provide collateral consumer loans on pledged personal properties, such as jewelry, consumer electronics, tools, sporting goods, and musical instruments; consumer financial services, including credit services, check cashing, money orders, money transfers, and prepaid card products. It also owns and operates kiosks inside convenience stores that offer credit services and check cashing. As of December 31, 2009, First Cash Financial Services owned and operated 383 pawn stores and 163 short-term loan stores, as well as 39 financial services kiosks. The company was founded in 1988 and is based in Arlington, Texas.

WE DO NOT OWN THIS, but did place it on our watch list tonight. One of my fathers first Job’s was at Albany Loan, a pawn shop. They say it one of the best environments to learn about human nature. We are doing some more homework on this one but at face value it seems solid with some legs left.

Fundamentally they look very strong. A good cash position a great Margin, respectable Return On Equity, and no debt. IBD likes the stock and gives it a 95 rating. The chart looks interesting with a base of 33.76 holding flat for about two weeks. We’d like to see a break out on heavy volume before we get in. If we get it, we would be in below 34 a share. WATCH this one and do your homework.

If not you may need a pawn shop.

Fun Aboard AF One.  Occasionally the monotony of working on the Presidents plane all day leads to the staff making crank calls from 40,000 feet.
"Ah yes D.C. Lanes.  Yes we were wondering if you have 14 pound balls?"

Salve Lucrum

Thursday, February 17, 2011

17 February 2011 Is It Eight Seconds Yet?

BAGAKOAA; 17 February 2011 Is It Eight Seconds Yet?

We keep riding this bull, but it just don’t feel right. What is annoying me now is that the market seems to be ignoring bad news. The jobless number was worse than expected. While we didn’t call the jobless number we did call the CPI bump and the strong Philly Index number. We would have expected an adjustment for the inflation concern and the initial jobless claims. NVDA, which we pimped here not too long ago had a great day and the Philly index lulled investors into another winning day.

It was busy day today at PADI Land but between early morning hours and an almost lunch break here is the pin action for the main account. With Gold breaking out of its resistance point of 1325, we are back in again using some weekly call options on the ETN GLD. We are going to play these weekly a few weeks and see if we can take some nice very short term gains. Specifically, we stocked (bought) up on some Feb 25 $135 calls for .98 cents each. These expire next Friday so obviously we are looking for quick pin action. If we can pull a net 2-10% in a week on these, we will be happy. DO THE MATH. 2-10% in one week is about 100-500% annually.

After reading some good news in IBD and WSJ about Corning GLW we decided to get in with some March 19th 23.00 Calls. We got in at 76 cents a contract. We are looking for a 20-30% upside over the next two week then we will take those off the table. We are also chasing our spec AZ stock TUFF on every upward point movement. We added some more today. And we closed out of Waste Management position 2% down. The stock is not doing what we hoped and there is a lot IM (Institutional Monies) leaving the building. We will put it on the watch list and look for a better entry point. (We are looking for 35.75-36.00)

Ooops caught by a regular reader

Bob, one of our regulars dropped me a note today about one of my picks fo the day (AND recent new position.) Here is his edited note,

Hi Brian,

I was thinking of picking up some WCRX in my personal account. The question I have is why did management approve a huge dividend in September that was mainly paid by borrowed money? I would think dividends should be paid out by a company on an even keel method. Not giving away a huge almost pansy scheme dividend away. I mean it seems like any share holder who bought stock after the huge dividend ok you pay for the debt. While the share holders who got the dividend, how do you like your one time huge gift the company gave you.

First off that was a great catch by Bob. Secondly PLEASE READ MY Disclaimer and LIKE BOB, do your homework. We went through recent SEC Filings and discovered:

In looking at the series of notes they floated, the funds were not used exclusively for the dividend payment. They also purchased Enablex and a Pharm division of Proctor and Gamble. It is a lot of debt, but they bought some nice franchises that should pay off for them. The PG purchase is already a heavy contributor to the bottom line and when you back out the one time transaction costs and deal specific interest expense, they should have some strong quarter ahead of them. From the looks of all the new institutional interest in the company and yesterday’s 2011 guidance, there is a lot of support for this stock.

We still like the stock and will keep adding to the position as long as the earnings and the charts say it is wise.

Pick of The day

Let’s take a minute and talk about the pick of the day. This should be as useful to you as any other idiots stock tips or suggestion. Remember tips are for waiters and race tracks. We enjoy doing this and when we get one right great, but all of you can do this too if you have or make the time. Taking this pick of the day and actually investing in it without the appropriate due diligence is STUPID. I could be making all of this stuff up. Of course you know I plagiarize it and do not make it up. That was a joke, really. Please do your own research and I promise you will find better opportunities than what is put here. With that said, here is the POTD.

Ebix, Inc., together with its subsidiaries, provides software and e-commerce solutions to the insurance industry primarily in North America, Australia, New Zealand, India, and Singapore. The company operates data exchanges, which provide connectivity between consumers, agents, carriers, and third party providers, as well as enables the participants to carry and process data in the areas of life insurance, annuities, employee health benefits, and property and casualty (P&C) insurance. It also involves in the sale, customization, development, implementation, and support of its P&C back-end insurance carrier system platforms. In addition, the company offers business process outsourcing services, which include certificate origination, certificate tracking, claims adjudication call center, and back office support. Further, it engages in designing and deploying broker systems comprising three back-end systems consisting of eGlobal for multinational P&C insurance brokers; WinBeat for P&C brokers in the Australian and New Zealand markets; and EbixASP for the P&C insurance brokers in the United States. The company was formerly known as Delphi Systems, Inc. and changed its name to Ebix, Inc. in December 2003. Ebix, Inc. was founded in 1976 and is headquartered in Atlanta, Georgia.

We like em because their earnings are strong; their financials are very nice, not perfect but real nice. Not too much debt, their gross margin is a wicked 76% and operating margin is about half that, their ROE is a very firm 33%, management owns about 10% of the company so you don’t feel all alone as a share holder.

IBD and VectorVest both like the stock.  IBD gives it a 99 rating. The chart is looking interesting as well. Ok, after a couple glasses of wine tonight at Hanna’s, we are looking for patterns on this chart. We are seeing what could be a long cup and handle from the end of November to January 24th. (Or it could look like Ringo Starr’s left boot off the Abbey Road album.), which begins our recent upward move on February 3rd. We have put this on the watch list and will look for two or three upward days with volume above the 50 day average. Once we get that and we can get in below 26.50 we might take this of the watch list and put in the portfolio.

One Week Left

Ok you only have one week left to get me you picks for the first annual Salve Lucrum stock charity challenge.  Just pick at least 5 but not more than 10 stocks that you think would do well between March 1 and the end of the year.  Make an "on your honor" 20 US dollar or equivalent donation to the charity of your choice.  The winner, based upon total percentage increase over the course of year get's bragging rights and Devin and I will Contribute $20.00 for each participant to your charity.  Right now it looks like we have about 11 players, so its not too late to get in.  We are capping entires at 25 participants.

From The First Days In The White House Gallery

"During the first week in the White House President Obama did not realize he had people who would move his furniture for him.  Fortunately key staff members were qualified."
 Salve Lucrum

Wednesday, February 16, 2011

16 February 2011 Shining Up The Apple


16 February 2011 Shining Up The Apple

Iran decided it was tired of everyone talking about Egypt and Bahrain and Libya (Can you imagine people actually protesting to remove Kaddafi. 15 years ago that would have got you whacked.), so our friends in Iran sent a couple of war ships to the gulf of Suez to get everyone’s attention, but that did not matter and the market took it in stride. Our friends at the Fed had some optimistic things to say about the state of the economy. They bumped their expectations for growth up to the near 4% range. Hey isn’t that what England just said inflation was? So if inflation is headed toward 4% and growth is head towards 3.75%, mmmmm. Who cares it was good day in the market.

We did note with some concern that the IBD confirmed we were in an uptrend but each of the indexes picked up a day of distribution. We will mention more about that later. VXX creep up a bit today indicating some uneasiness in the market.

PIN Action in the Salve Lucrum Portfolio

We did initiate a new position in HOC, our pick of the day (yes I know I need a new graphic for my pick of the day, Thanks Ben.). We got in at $59.69. We are backing that up with a Jun $46.00 put for 1.00 or less, well know when the market opens.

We continued to add to our WCRX position. And we were feeling giddy and bought more of the that crazy Az mining company TUFF.

Homework Assignment for Me

We have a homework assignment (we are learning some interesting option strategies) tonight utilizing the 50 or so stocks and ETFs that have weekly option contracts. The ability to trade weekly options are relatively new, but we are comfortable you will be hearing more and more about them as time goes on.

If you are knowledgeable in the field of options (and I know a few of you are) you can find the list of weekly options on the CBOE website by following this link.

We are looking for growing fairly volatile stocks in order to create the kind of pin action we need to make nice gains in the 5 trading days of a typical week. That’s right these contract last one week. So if you are going to play (AND THIS IS NOT FOR THE FAINT OF HEART) you got to keep your eye on the ball. We have scanned the list of the 50 stocks and ETFs for EPS rich volatile stocks and stocks whose options are broadly traded. In other words there is good volume across at least two or three exchanges.

Before we get started by looking at a few equities, we always check the market. In stocks, the market is your friend. In options the market is your lover. According to Vectorvest and IBD, we are in a very confirmed uptrend ALTHOUGH I did note that each of the indexes picked up another distribution day indicating intense institutional selling. (Not a good thing boys and girls. Definitely worth keeping an eye on.) So from an overall market stand point, the market looks healthy.

AAPL Apple Inc., together with subsidiaries, designs, manufactures, and markets personal computers, mobile communication and media devices, and portable digital music players, as well as sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide.

You all know that I am an Apple junky so it might surprise you that we are kicking the tires on the stock. While I follow the stock and have done very well with it, we have not givin it a true shake down since the May 6th Flash Crash where we were stopped out with a 29% gain creating all kinds of nice tax burdens. We did review the stock before rebuilding our current position. So let’s take a look.

Fundamentally, looking forward, the stock has a 14 P/E ration which by current market figures is not overly rich. EPS over the last 5 years is almost 60% which is great. There are some huge expectations for the stock so future EPS look incredibly normal, but they are looking to meet some big numbers. The stock is up 80% for the last 12 months and up about 13% since the first of the year. The average Analyst target price is $421 providing a nice 16% margin of safety. There is 30 dollars a share cash and they have no debt. Their Return on Equity (One of my favorites) is a whopping 36+%. The have some CEO that really know his stuff. (Rumor mill has him leaving a cancer treatment in Stanford today.)

Overall if we were looking for a long play on the stock we would get in at $360 or less, set a stop at $326 (the last time it glanced its 50 day moving average), and do some reviewing at $432 a share. Instead of a stop you could buy some protection by choosing a July 325 dollar put option for about $10.00 a contract. Again, that gives you the right but not the obligation to sell 100 shares of AAPL at 325.00 on July 17, 2011. If the price of AAPL were to decline between now and July 17th your put would become more valuable.

Everybody loves this stock and if IBD had a stockmate of the month, AAPL would be one of them. It has a composite rating of 95 out of 99, and green lights in almost all of the IBD categories that matter. The only cautionary note would be the accumulation/distribution rating is a bit down to a C- with A+ being the best. In looking at the chart, in the last 21 trading sessions 6 high volume days have been on the down side. It was up 3% today on 16 million shares compared to its 50 day average of 14 million. A few more positive days above the 14 million mark would make us feel better, but let’s just call it a blemish on a beautiful stock.

CAT Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines worldwide. Its Machinery business engages in the design, manufacture, marketing, and sale of construction, mining, and forestry machinery, such as track and wheel tractors, track and wheel loaders, pipelayers, motor graders, wheel tractor-scrapers, track and wheel excavators, backhoe loaders, log skidders, log loaders, off-highway trucks, articulated trucks, paving products, skid steer loaders, underground mining equipment, tunnel boring equipment, and related parts. This business also involves in the design, manufacture, remanufacture, maintenance, and service of rail-related products, as well as offers logistics services. The company's Engines business designs, manufactures, markets, and sells engines for electric power generation systems, locomotives, marine, petroleum, construction, industrial, agricultural, and other applications; and related parts. This business also provides remanufacturing services for other companies. Its Financial Products business provides various financing alternatives to customers and dealers for the company's machinery and engines, solar gas turbines, and other equipment and marine vessels, as well as offers loans to customers and dealers. This business also provides various forms of insurance to customers and dealers to support the purchase and lease of its equipment. Caterpillar markets its products through distribution centers. The company was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. Caterpillar was founded in 1925 and is headquartered in Peoria, Illinois.

Ok I know a few of you own CAT, but I do not think we have licked the tires on it in a long time. The 65 Billion dollar market cap makes this a goliath and as such might not lend itself to the kind of pin action we want with weekly options. However with bothe sides of the aisle in DC apparently agreeing in increased spending for infrastructure, DEERE and CAT might stand to benefit in the weeks and months to come.

CAT has a 13.17 forward looking P/E which is respectable. EPS this year is very nice and next quarter expectations look promising. The do carry a lot of debt, but that is the nature of the beast. Their product and plant capitalization is on the scale of a car manufacturer so carrying debt is normal. They have a 1.7% dividend that they are not straining to pay. Their ROE is a nice 27.6. All in all a well valued stock. They also announced the redemption of some 2016 notes today indicating they are cleaning up their long term debt. All good stuff.

IBD loves the stock giving it a 99 rating and the institutional buying is strong. It has a strong and positive trend of institutional buyers. The stock did well today probably being dragged up on DEERE good report. They don’t report again till April 26, 2011. Here is how we would play this. WE DO NOT OWN THIS but have put it on watch list. Based up the current chart, we don’t see a good entry point above $100.00 unless we can see three more days above 103.55 then one day of a soft correction.

Tellin a Friend

We took a nice profit today and wanted to explain to a few friends what the trade was and how it worked. We thought it might be of interest to you.

First we have a list of stocks on a watch list. Our watch list has about 34 stocks on it at the moment, some are stocks we just read about, other are stocks suggested from the various subscription services we belong to, some are stocks we stopped out of recently (See we don’t mind selling after an 8% loss because we know we can always buy them back usually at a better entry point.) We do a thorough analysis on these including fundamentals, news updates, SEC filing, and chart analysis.

Then we look at the general direction of the market. This is extremely important for option trading. If the market is in a confirmed uptrend as identified by IBD algorithms, then we like buying call options. If the market is trending down, we would be looking at buying put options. As a reminder buying a call option is the RIGHT not the Obligation to buy a stock at a future price (Strike Price) at a future date. Buying a put option is the RIGHT but not the OBLIGATION of selling at stock at future price (Strike Price) on a future date. The trend is your friend in stocks. The trend is your lover in options. If you do not want to study the many influences on the market place everyday, it would be wise to avoid options.

On February 9, 2011 we mentioned IDCC InterDigital, Inc. engages in the design and development of digital wireless technologies for use in cellular and wireless IEEE 802 related products. In the blog we suggested and got in on March 19, $55.00 calls for IDCC. (We won’t bore you how we determined this strike point and this option date-if you really want to know drop me a note.) You will see the transaction on your statement like this IDCC03/19/2011 55.00 C. That means you bought $55.00 call contracts and you paid $3.70 for each contract. Remember each contract controls 100 shares. So for $370 you are controlling $5,540.00 worth of Interdigital. (The stock closed on the 11th at $55.40.) Now you need to understand your break even point would be $55.00 + $3.70 or $58.70 As we expected, the stock is doing well (Current cost is $57.84.) People see this as a growing stock, so today they are willing to pay $5.30 for the same contract we bought for $3.70. That is a 43% gain in 3 trading days. We took the money.

Now we could have waited for the stock to go up and caught more of the call upside. And we could have just held the call and on March 19, you would have the right, not the obligation to buy 100 shares of IDCC for $55.00 a share regardless of what it was selling for. So let’s imagine the stock explodes while you were holding the call contracts and went to 70 a share by March 18. Your calls would be worth about $15.00. You could sell them for the 15.00 making a nice 11.30 a contract or 305% gain. Or you could exercise your right and own 100 shares of IDCC at 70 dollar a share. Your outlay would be 5,500 plus your original buy in of $370 for a total of $5,870. You could sell the stock at 70 and generate a gain of $1,130 which is a 19% gain.

We still like the stock and will be looking at the March 19, 2011 60 dollar calls for a similar play with hopefully a similar outcome.

The Budget Debacle

"So let me get this right, out of the five of you, no one has ever drafted a budget before?"

Salve Lucrum

Tuesday, February 15, 2011

15 February 2011 No Money To Be Made

BAGAKOAA; 15 February 2011 No Money To Be Made

We got caught up with some preconstruction backyard chores early this morning and only got a quick glance on the opening today. By closing we were head on into a 4 and half hour Board meeting. The meeting went well and tonight we discovered there was little pin action in the market. Another slow day with some pleasant constriction. Don’t get me wrong I do not like down days, but when their not chaotic and a bit expected, there is nothing wrong with some tightening of the portfolios. It’s kinda like the waves crashing on the beach then the gentle roll of the water back to sea.

We called the retail sales all wrong. As expected they were down even lower than the adjusted expectations. Apparently that out a damper on the market early on. Energy stocks that had surged on Monday because of the big Chinese export report cooled and collected today putting even more burden on the market. Eventually the numbers got low enough for some big fund monies to get in the party and pick up the market of their low points of the day. We expected the Empire State Report to do miss expectations and it beat by an intsy teenie weenie bit. Business inventories did come in better than expected as we suggested.

The S & P is waffling at the 1332 level. We think it might be a psychological number as it is times two the March 2009 Low. (Thanks Guys at Schwab for that observation.)

Since we were busy today, we had not trades. We did injoy a few dividend payments hitting the account and we made the following plays tonight. We are adding to our BWC position as they have been bumped a bit by IBD and they are seeing some more institutional buying. We have closed out our MSFT position with a 7.1% gain and we will be waiting for a better buy point. WE are adding to ur NATI position as this looks like one that is dressed up and sittin on ready. In the category “TIPS are for the race track, I am playing some fun money on a very speculative mining company in AZ called Tuffnel LTD. It is a 90 cent stock and if half of the hype is true it could be a 3-4 dollar stock. It could also be a 30 cent stock. I DO NOT SUGGEST THIS STOCK unless your trip to Vegas fell through and you have the urge to loose some dough. WE added to our WCRX position as we continue to like what we see. (So does IBD and VectorVest.)

Averaging Lower Is A Great Plan

In the 1980s and even in the mid 1990s I always though it was a good idea to buy more stock when the price adjusts downward. My thinking as most people think that I would hang on to it and eventually it will go back up. Well that happens once in a while, but as the IBD and a all of O’Neils books tells us, historical pricing disproves that theory about 8 times out of ten. Cramer even suggest it is not a good strategy. Don’t confuse averaging down with buying on dips. If you have done your homework and you see a slight stall in the pricing momentum and it happens to be a down day for the stock, yes pick up a few more shares. However if you buy into a 50 dollar stock and it goes to 48 right away, it is not wise to buy more. Watch the price and watch the volume. If there is downward pressure and medium to high volume, don’t buy any more and when the stock hits 46 (8% down from 50), get out of there. You will have a strong tendancy to buy more at the 46 because you picked the stock you can’t be wrong. Forget that 8% rule that is for the common man not the master of the market you know you are. Buy more when it gets to 40 because when it get to 60 a share baby, you will have much lower average cost. Think how low your average cost is going to be when it gets to 34 dollars a share you are really gonna make money when that dog come back. You get the point.

Remember there is no shame in taking a small loss. People who invest loose money. It happens. Get over it and move on. If the stock is tugging on your heart strings, put it on a watch list and pick a better entry point.

PICK of The Day

You have all been patient with us and our pick of the days. Many have been chip companies or internet companies or cloud computing companies. Today we wanted to bring you something a little more earthy. HOC Holly Corporation, together with its subsidiaries, operates as a petroleum refiner in the United States. The company process sour crude oils into light petroleum products, including gasoline, diesel fuel, jet fuel, fuel oils, specialty lubricant products, gas oil/intermediates, carbon black oil, and liquid petroleum gas (LPG) and other products at its three refineries located in Artesia and Lovington, New Mexico; Woods Cross, Utah; and Tulsa, Oklahoma. It also manufactures and markets specialty and modified asphalt products from various terminals in Arizona, New Mexico, and Texas. In addition, the company owns interests in a 12-inch refined products pipeline project from Salt Lake City, Utah to Las Vegas, Nevada, together with terminal facilities in the Cedar City, Utah, and North Las Vegas areas. Further, it holds 34% interests in Holly Energy Partners, L.P., which owns and operates approximately 2,500 miles of petroleum product and crude oil pipelines located principally in west Texas and New Mexico; ten refined product terminals; a jet fuel terminal; four refinery loading rack facilities; a refined products tank farm facility; and on-site crude oil tanks at its refineries, an on-site refined product tankage at Tulsa refinery, and a 25% interest in a 95-mile crude oil pipeline joint venture. Holly Corporation markets its gasoline to other refiners, convenience store chains, independent marketers, and retailers; diesel fuel to other refiners, truck stop chains, wholesalers and railroads; jet fuel to military and commercial airlines; specialty lubricant products to commercial and specialty markets; asphalt to governmental entities or contractors; and LPG's to LPG wholesalers and LPG retailers, as well as carbon black oil for further processing or blended into fuel oil. The company offers its products primarily in the Southwestern, Rocky Mountain, and Mid-Continent regions of the United States. Holly Corporation was founded in 1947 and is based in Dallas, Texas.

This caught our attention because it reports next week and from all expectations it should be a good report. Fundamentals could be a little better, but the EPS growth is pretty nice and It is getting a lot of attention. Look at the chart.

You can see the narrow trading range from April til Mid October. It broke out of that range the week of October 15. See the three little dots which were consecutive highs. Those highs were on very heavy volume days.  From there you see a nice upward trend on heavy volume until it takes a little rest, then you see a little cup with a handle, then up we go again.  Now look at the volume (Circled on the bottom.) If you go into the SEC filings you’ll see and Edward C. Johnson the 3rd bought 7 million shares worth of the stock which was a 13% stake in the company. Shortly their after Navajo Holding bought a gob of the stock. EC Johnson III was the founder of Fidelity funds. His worth is estimated at 8 billion. He knows how to pick em. Here is how we will play this. WAIT for the oil inventory report tomorrow. Look for an entry point at 58 or below. (The ask is at 52.92 so that confuses us so wait for the oil inventory report. If you can get well below that 58, We put in a limit order of 53 to see what will happen. Once you get in, watch the volume as well as the direction. This has 65 written all over it. There is a wiggler that could cause a spike in oil prices tomorrow. There are some pipeline problems on the Trans-Alaska Pipeline and the Department of Transportation and Department of Interior might shut the pipeline down until repairs can be made. Keep an eye on this story and we will tell you where we got into HOC.

From the Busted At The White House Gallery

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