Intel Showing the Way Up

It has been a few days since I have posted my market moves. Thought I would update you today, April 16.

The market opened strong this morning based on the decent Intel quarterly report after the close last night. Tech is a market lynchpin. There has been a school of thought that Tech can't do well if Financials are hurting, since the banking industry is a heavy consumer of computing, software and data storage. But the Intel quarter disproves that theory.

At the same time, the banks continue to do what is necessary to reposition themselves for a less ebullient economy. I think most market participants are coming to the conclusion that the worst is past, though it may take quite a while for bank growth to get back to where it was in 2006. But a more conservative banking industry is okay by most participants.

Also, more educated observers, including Jack Welch, ex-CEO of GE, this morning. are talking about the great benefits to profits of reversing the mark-to-market of the bank assets. It is likely they have mostly been over-discounted. Those assets will be a source of profits for years to come. Expect savvy bank execs to use those assets to "beat the estimate" for the next several years, which will drive P/Es up on banks.

Here are my moves today: bought more Daylight Energy (DAYYF) for my IRA account, added to FXI, the China index, added to DOW Chemical (DOW).

I am still sitting on my AEM (Agnico Eagle) gold mining shorts. Today it is at $75, so I am in the red on this. But I have more than the same number of AEM May Puts shorted at $65 which just about covers my losses on the stock shorts. I will continue paying for the stock shorts with the close month put shorts, basically averaging up my cost. I am using the AEM shorts to protect my several precious metal mutual fund positions, since this commodity bubble will likely correct significantly as soon as the market believes the bottom is in for the stock market, and that the Fed will start raising rates as the economy begins to improve.

When it does correct, history shows that commodities correct very quickly and aggressively since so much hot money is chasing such a little base of equity.

As for the price of oil: I am just glad I am loaded up on energy stocks, which eases the pain at the pump. The Canroys are finally starting to move. The can go a long way from here in playing catch up to their USA equals. If oil and gas prices hold, I think $40 on PWE is a good possibility in the next 2-3 months and $25 on PGH.

Hope you have a great day in the market.

Sell Commodities Now

Yesterday it became apparent that the short term play was to short commodities, the more volatile the stock the better. By the time I was home from the office and had formed a strategy to implement the idea, the Extended Market was closed. I have not yet become so sophisticated (neurotic / obsessive) as to open a 24 hour account where I can play the foreign markets late into the night. But looking at Bloomberg around 10pm my time, it was obvious the commodities were accelerating to the downside with gold off 8% in Asia. BHP, FCX, GLD, OIL were all off by a significant amount as well, so it was a general commodty selloff.

So, this morning, with strategy in hand, I got on the laptop and started trading as soon as the Extended Market opened on ETrade at 7am my time. I quickly put in short sale orders on AUY (Yamana Gold), AEM (Agnico Eagle Mining) and SKF (Proshares Ultrashort Financials). As mentioned a few days ago, the Extended Markets are very thin with just a few other nutty players like me. So, it is a bit like trading with your neighbor. I put in an order on AEM at $67.25 between the Bid and Ask price at that time, and then saw the Bid and Ask move down below my order price. I changed my order down to get between them again, and the Bid and Ask moved down once more. Obviously, there was an after hours trader on the other side who was luring me down. So, I changed direction, raised my offer to $66.90 and waited. About 15 minutes later, the transaction went through. I was short AEM.

The Yamana went more smoothly, though I had to offer $1 less than the close yesterday, which is about 7%, or most of the overnight correction in Asia. I sold 500 shares short for $15.80. It had been as high as $19 a week ago. But having followed this stock a couple years, and played its options, I know it is high beta and can easily go down to $12 from here. As soon as the order executed I put in an order to cover at $13.13 on AUY and $60.10 on AEM. No reason to get greedy. A 10% plus return on margin in less than a week will be fine.

I tried the same approach with SKF, which I just hit for a 15% return in one day on Tuesday. I put in an order at $121 which was close to the ASK price. The Bid – Ask quickly moved down to around $119 as the counterparty saw some live bait. But I didn’t bite. Instead, I raised my offer to $121.80. It never hit by the market open. (Update: SKF closed around $106 on Thursday, March 20, so if the short sale had executed at $121 in the morning, it would have meant a nice $1500 one day profit on the 100 shares I tried to sell).

Right now the market has been open for 25 minutes. I am ahead on AUY which is at $15.59 and AEM which is at $65.59. Both opened quite a bit lower on the pent up demand to sell. Once again, the Extended Market turned out to be a better way to play the short side on these fast moving stocks. I will let you know how the trades turn out.